FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 2000
Commission file number 0-14237
First United Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1380770
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification no.)
19 South Second Street, Oakland, Maryland 21550-0009
(address of principal executive offices) (zip code)
(301) 334-4715
Registrant's telephone number, including area code
Not applicable
Former name, address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock, $.01 Par value--6,080,568 shares outstanding as of
June 30, 2000 Preferred stock, No par value--No shares
outstanding as of June 30, 2000.
-01-
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2000
(unaudited) and December 31, 1999.
Consolidated Statements of Income (unaudited) - For the three and six
Months ended June 30, 2000 and 1999.
Consolidated Statements of Cash Flows (unaudited) - For the six
months ended June 30, 2000 and 1999.
Notes to Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
-02-
FIRST UNITED CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, December 31
Assets 2000 1999
--------------------------
(unaudited)
Cash and due from banks $22,254 $20,879
Federal funds sold - 615
Interest-bearing deposits in banks 512 20,750
Investment securities:
U.S. Treasury Securities 596 896
Obligations of other U.S.
Government Agencies 43,888 48,584
Obligations of State and
Local Government 23,031 29,323
Other investments 73,209 71,762
------------------------
Total investment securities 140,724 150,565
Federal Home Loan Bank stock, at cost 6,325 5,200
Loans and Leases 615,540 569,182
Reserve for possible credit losses (5,068) (4,409)
------------------------
Net loans 610,472 564,773
Bank premises and equipment 9,959 9,760
Accrued interest receivable and other assets 22,163 20,738
------------------------
Total Assets $812,409 $793,280
============================
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FIRST UNITED CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
June 30, December 31,
2000 1999
Liabilities and Shareholders' Equity -----------------------
(unaudited)
Liabilities
Non-interest bearing deposits $ 59,512 $54,012
Interest bearing deposits 532,753 544,560
-----------------------
Total deposits 592,265 598,572
Reserve for taxes, accrued interest, and
other liabilities 8,955 8,643
Federal Home Loan Bank borrowings
and other borrowed funds 149,945 127,000
Dividends payable 967 969
-----------------------
Total Liabilities 752,132 735,184
Shareholders' Equity
Preferred stock -no par value
Authorized and unissued; 2,000 Shares
Capital Stock -par value $.01 per share:
Authorized 25,000 shares; issued and
outstanding 6,081 shares at June 30,
2000, and 6,085 outstanding at December
31, 1999, 61 61
Surplus 20,199 20,269
Retained earnings 43,407 40,729
Accumulated comprehensive income (3,390) (2,963)
----------------------
Total Shareholders' Equity 60,277 58,096
----------------------
Total Liabilities and
Shareholders' Equity $812,409 $793,280
======================
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FIRST UNITED CORPORATION
Consolidated Statements Of Income
(in thousands, except per share data) Six Months
Ended June 30,
2000 1999
-------------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 25,456 $ 22,462
Interest on investment securities:
Taxable 4,631 2,436
Exempt from federal income tax 663 523
------------------
5,294 2,959
Interest on federal funds sold 92 105
------------------
Total interest income 30,842 25,526
Interest expense
Interest on deposits:
Savings 327 250
Interest-bearing transaction accounts 2,441 1,744
Time, $100,000 or more 3,138 2,450
Other time 6,711 5,811
Interest on Federal Home Loan Bank
borrowings and other borrowed
funds 3,956 1,664
------------------
Total interest expense 16,573 11,919
------------------
Net interest income 14,269 13,607
Provision for possible credit losses 1,513 836
------------------
Net interest income after provision
for possible credit losses 12,756 12,771
Other operating income
Trust department income 1,000 837
Service charges on deposit accounts 1,025 993
Insurance premium income 460 168
Securities losses (124) -
Other income 1,304 1076
--------------------
Total other operating income 3,665 3,074
-05-
Other operating expenses
Salaries and employees benefits 5,579 5,006
Occupancy expense of premises 539 480
Equipment expense 904 811
Data processing expense 545 415
Deposit assessments and related fees 88 54
Other expense 3,186 3,356
--------------------
Total other operating expenses 10,841 10,122
--------------------
Income before income taxes 5,580 5,723
Applicable income taxes 1,773 1,960
--------------------
Net income $3,807 $3,763
====================
Earnings per share $0.63 $0.61
====================
Dividends per share $0.32 $0.31
====================
-06-
FIRST UNITED CORPORATION
Consolidated Statements Of Income
(in thousands, except per share data) Three Months
Ended June 30,
2000 1999
-------------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 13,128 $ 11,449
Interest on investment securities:
Taxable 2,187 1,238
Exempt from federal income tax 301 258
--------------------
2,488 1,496
Interest on federal funds sold 15 62
--------------------
Total interest income 15,631 13,007
Interest expense
Interest on deposits:
Savings 164 77
Interest-bearing transaction accounts 1,274 885
Time, $100,000 or more 1,523 1,367
Other time 3,383 2,877
Interest on Federal Home Loan Bank
borrowings and other borrowed
funds 2,114 821
--------------------
Total interest expense 8,458 6,027
-------------------
Net interest income 7,173 6,980
Provision for possible credit losses 950 411
--------------------
Net interest income after provision
for possible credit losses 6,223 6,569
Other operating income
Trust department income 500 418
Service charges on deposit accounts 516 454
Insurance premium income 280 105
Securities (losses) (80) -
Other income 637 606
--------------------
Total other operating income 1,853 1,583
-07-
Other operating expenses
Salaries and employees benefits 2,830 2,607
Occupancy expense of premises 265 219
Equipment expense 467 407
Data processing expense 262 217
Deposit assessments and related fees 53 30
Other expense 1,596 1,698
--------------------
Total other operating expenses 5,473 5,178
--------------------
Income before income taxes 2,603 2,974
Applicable income taxes 797 1,026
--------------------
Net income $1,800 $1,948
====================
Earnings per share $0.30 $0.31
====================
Dividends per share $0.16 $0.155
====================
-08-
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months
Ended June 30,
2000 1999
--------------------
(unaudited)
Operating activities
Net Income $ 3,807 $ 3,763
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 1,513 836
Provision for depreciation 787 803
Net accretion and amortization of investment
security discounts and premiums (14) 138
Realized loss on sale of investment securities 124 10
Increase in accrued interest and other assets (1,425) (2,858)
Increase in reserve for taxes accrued interest
and other liabilities 312 205
--------------------
Net cash provided by operating activities 5,104 2,897
Investing activities
Proceeds from maturities of available-for-
sale securities 150,513 37,160
Purchases of available-for-sale securities (122,229) (38,251)
Net increase in loans (46,262) (42,421)
Purchases of premises and equipment (986) (951)
-------------------
Net cash used in investing activities (18,964) (44,463)
Financing activities
Increase in Federal Home Loan Bank borrowings
and other borrowed money 22,945 22,225
Net increase in demand deposits,
NOW accounts and savings accounts 4,974 5,248
Net (decrease) increase in certificates of deposits (11,281) 22,413
Cash dividends paid or declared (1,948) (2,421)
Acquisition and retirement of Common Stock (70) (987)
-------------------
Net cash provided by financing activities 14,620 46,478
Cash and cash equivalents at beginning of the year 21,494 13,633
Increase in cash and cash equivalents 760 4,912
--------------------
Cash and cash equivalents at end of period $22,254 $18,545
====================
-09-
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
June 30, 2000
Note A -- Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments
considered necessary for a fair presentation, consisting of
normal recurring items have been included. Operating results for
the three and six month period ended June 30, 2000, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 2000. The enclosed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December
31, 1999.
Earnings per share are based on the weighted average number of
shares outstanding of 6,081 and 6,127 for the six months ended
June 30, 2000 and 1999, respectively and 6,081 and 6,140 for the three
months ended June 30, 2000 and 1999, respectively.
Note B - Accumulated Comprehensive Income
Accumulated comprehensive income represents the unrealized gains
and losses on the company's available-for-sale securities, net of income taxes.
During the first six months of 2000 and 1999, total comprehensive
income, net income plus the change in unrealized gains (losses) on
available-for-sale securities, amounted to $3,380 million and $2,090
million, net of income taxes, respectively.
-10-
Part I. Financial Information
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated net income for the six months ended June 30, 2000 totaled
$3.81 million, which is $.04 million more than was recorded for the
six months ended June 30, 1999. This translates into $.63 per share for
the current period six month period. For the same period of 1999, each share
earned $.61. Annualized Return on Average Equity (ROAE)decreased from 12.98%
for the six months ended June 30, 1999, to 12.34% for the six months ended
June 30, 2000.
The "efficiency ratio" is a key measuring tool for profitability
and operating efficiency. The calculation of the efficiency ratio is
noninterest expense divided by net operating revenue,(net interest income plus other operating income) excluding nonrecurring items and securities gains and losses. A lower ratio equals higher profitability and operating efficiencies. The Corporation's efficiency ratio was 59.13% for the period ended June 30, 2000. This represents a decline in efficiency from year-end 1999 when the ratio was 58.06%.
Fee income from our Business Manager, PrimeVest, and Trust Services
has increased 20.34% or $.24 million for the six months ended June 30, 2000
compared to the same period in 1999. Driven by these three income sources, other
operating income increased 19.23% to $3.67 million in comparison to June 30,
1999. Other operating expense for the first six months of 2000 was $10.84 million compared to $10.12 million for the same period in 1999. This 7.11% increase is a direct result of salaries and employee benefits increasing from $5.01 million in 1999 to $5.58 million in 2000. The increase of 11.45% in salaries and employee benefits is primarily due to the purchase of Gonder Insurance Agency in the second quarter of 1999 and the Corporation's continued
policy of rewarding its employees for exceeding their goals.
In the first six months of 2000, net loans grew $45.70 million to a total of $610.47 million. The growth for the same period of 1999 was $41.58 million, bringing the total to $547.25 million. The $45.70 million in net loan growth has been well diversified. Installment loans continue to increase, increasing $14.41 million. Mortgage loans increased $20.94 million with $8.78 million of that growth being in the commercial arena. Business lines of credit and leases have also contributed to the growth, increasing $5.17 million and $5.27 million respectively.
As a result of our loan growth, interest income for the six months ended
June 30, 2000, was $30.84 million compared to $25.53 million for the same
period in 1999. This total represents an increase of $5.32 million or 20.83%.
Total investment securities, interest bearing deposits and Federal
Home Loan Bank stock has decreased a total $28.95 million or 16.41% since December 31, 1999. Proceeds from a fourth quarter 1999 mortgage loan sale were used to purchase short term investment securities which upon maturity were used to fund new loans.
-11-
The corporation's interest expense year to date was $4.65 million
higher than was incurred for the same period in 1999. The increase in expense can be attributed to deposit growth of $53.10 million from June 30, 1999 to June 30, 2000 as well as growth of $63.15 million in Federal Home Loan Bank borrowings and other borrowed funds in the same time frame. The deposits of the Corporation have decreased $6.31 million since December 31, 1999, due in part to the maturity of a $12.00 million brokered certificate of deposit which matured and was not renewed. Excluding this deposit, core deposits grew $5.69 million or 0.96%. Federal Home Loan Bank borrowings and other borrowed funds increased $22.95 million since December 31, 1999. These additional borrowings were also
used to fund most of the second quarter loan growth. As always, it is of utmost importance that we constantly evaluate the funding sources available to the Corporation to choose the one that not only provides the greatest cost benefit but also allows us the flexibility to be competitive in today's marketplace.
Net interest income for the first six months of 2000 increased
4.87% from the same period in 1999, to a total of $14.27 million. The
result was a Corporate net interest margin of 3.91% in comparison to the net interest margin of 4.23% for the year ending 1999. The decline can be attributed to the intense competition for traditional deposits which has driven our cost of funds upward and the addition of the $23.00 million in Trust Preferred securities during the third quarter of 1999. These securities bear interest at 9.375%. Although the margin is within the expectations of the Corporation, varying market conditions and rising deposit costs constantly cause us to
reevaluate our acceptable margin on loans and deposits. Annualized Return on
Average Assets (ROAA) has decreased 15.05% to .96% for the six months ended June
30, 2000 compared to 1.13% for the six months ended June 30,1999.
The provision for possible credit losses was $1.51 million for the
first six months of 2000 compared to $.84 million for the same period
in 1999. Net charge-offs for the first six months were $0.855 million,
which on an annualized basis equates to 0.30% of average net loans of $586.05 million. For the same period of 1999, net charge-offs were $.39 million or on an annualized basis, .15% of the June 30, 1999 average net loans of $522.88 million. In addition to covering net charge offs, the increase in the provision for possible credit losses was made to maintain an adequate reserve in light of the strong loan growth experienced year to date. Our loan quality continues to be strong as demonstrated by the over 30-day delinquency ratio of 1.18% of gross loans, a number which compares very favorably with our peers. Non-performing loans were .36% of total loans as of June 30, 2000, and our loan loss reserve was 0.83% of total loans representing 232.91% of non-performing loans.
-12-
Summary of Loan Loss Experience
ANALYSIS OF THE RESERVE FOR POSSIBLE CREDIT LOSSES
June 30, 2000
----------------
Balance at the Beginning of the period $4,409
Charge-offs:
Domestic:
Commercial, financial and agricultural 9
Real estate - mortgage 37
Installment loans to individuals 969
----------------
1,015
----------------
Recoveries:
Domestics:
Commercial, financial and agricultural 7
Real estate - mortgage 4
Installment loans to individuals 149
---------------
160
---------------
Net Charge-offs 855
---------------
Additions charged to operations 1,514
---------------
Balance at end of period $5,068
===============
Annualized ratio of net charge-offs during the
period to average loans outstanding during
the period .28%
===============
Risk Elements of Loan Portfolio
The following table provides a comparison of the Risk Elements
of the Loan Portfolio in the format prescribed by Item III-C of Industry Guide 3. The Bank has no foreign loans or loans defined as troubled debt restructurings. Further, the Bank has no potential problem loans other than those in the table below. As of June 30, 2000, First United's non-accrual loans decreased $.23 million from the year end total of $.38 million.
June 30 December 31
2000 1999
----------------------
Non-accrual loans $148 $379
Accruing loans past due 90 days or more 2,028 763
-13-
Information with respect to non-accrual loans at June 30, 2000 and
December 31,1999 are as follows:
Non-accrual Loans $148 $379
Interest income that would have been recorded
under original terms 2 7
Interest income recorded during the period 6 3
A strength of First United has always been its capital position.
Shareholders' equity remained strong at $60.28 million, a 3.76%
increase from December 31, 1999, which was $58.10 million. Risk based capital, which is an expression of the Corporation's stability and security was 15.02%, which is slightly less than the 15.03% reported at December 31, 1999. Both are in excess of the regulatory minimum of 8.00%.
The Corporation through First United Capital Trust, a Delaware
Business Trust, issued $23 million of aggregate liquidation amount of 9.375% Preferred Securities on August 25, 1999. The payment terms require the Trust to distribute 9.375% per $10 liquidation amount of Capital Securities on March 31, June 30, September 30, and December 31 of each year, beginning September 30, 1999.
The proceeds from the issuance of the Preferred Securities were used
by the Trust to purchase $23 million aggregate principal amount of junior subordinated debentures issued by the Company to the Trust. These debentures, which are included in the Corporation's risk based capital calculations, were issued to enhance the capital position of First United Bank & Trust and to allow the Bank to continue its growth. The debentures are scheduled to mature on September 30, 2029. The Trust may redeem the Preferred Securities, in whole or in part, if the Trust repays the junior subordinated debentures on or after September 30, 2004.
On July 31, 1996, the Board of Directors ratified a stock buy back
program. The Corporation's management has authority to repurchase up to
5 percent of the outstanding shares of First United Corporation at a
price management deems appropriate. On April 29, 1998 the Board of Directors ratified an amendment to the Plan which would enable the Corporation's management to repurchase an additional 5 percent or 309,048 shares. As of June
30, 2000, the Corporation has repurchased 421,189 shares at a price of $7.37 million. This represents 6.47% of the approved 10 percent. No shares were repurchased during the first six months 2000 for the period ending June 30, 2000.
The Corporation paid a cash dividend of $.16 on May 1,
2000. On June 21, 2000, the Corporation declared another dividend of an
equal amount, to be paid August 1, 2000, to shareholders of record at
July 20, 2000.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
-14-
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
First United Corporation's annual meeting of
Shareholders' was held on April 25, 2000. The only
item ratified by 2000 proxy vote was the election of
six directors.
Item 5. Other Information.
-15-
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 8/10/00 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 8/10/00 /s/ Robert W. Kurtz
---------- ----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
-16-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 8/10/00
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 8/10/00
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
-17-
<PAGE>
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