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 March 31, 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--6,080,273 shares outstanding as of
March 31, 2000 Preferred stock, No par value--No shares
outstanding as of March 31, 2000.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000
(Unaudited) and December 31, 1999.
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 2000 and 1999.
Consolidated Statement of Cash Flows (Unaudited) - Three
months ended March 31, 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
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
March 31, December 31,
Assets 2000 1999
(unaudited)
-----------------------------
(in thousands)
Cash and due from banks $17,212 $20,879
Federal funds sold - 615
Interest-bearing deposits in banks 86 20,750
Investment securities:
U.S. Treasury Securities 595 896
Obligations of other US
Government Agencies 43,899 48,584
Obligations of State and
Local Government 30,055 29,323
Other investments 71,222 71,762
-------------------------
Total investment securities 145,771 150,565
Federal Home Loan Bank stock, at cost 5,388 5,200
Loans and Leases 592,963 569,182
Reserve for possible credit losses (4,567) (4,409)
---------------------------
Net loans 588,396 564,773
Bank premises and equipment 9,691 9,760
Accrued interest receivable and other assets 20,152 20,738
---------------------------
Total Assets $786,696 $793,280
============================
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
March 31, December 31,
2000 1999
Liabilities and Shareholders' Equity (unaudited)
---------------------------
Liabilities (in thousands)
Non-interest bearing deposits $ 54,254 $ 54,012
Interest bearing deposits 536,474 544,560
---------------------------
Total deposits 590,728 598,572
Reserve for taxes, accrued interest, and
other liabilities 8,820 8,643
Federal Home Loan Bank borrowings
and other borrowed funds 127,380 127,000
Dividends payable 968 969
---------------------------
Total Liabilities 727,896 735,184
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 6,080 shares at March 31,
2000, 6,085 outstanding at December
31, 1999, and 6,130 outstanding at
March 31, 1999 61 61
Surplus 20,195 20,269
Retained earnings 41,769 40,729
Accumulated comprehensive income (3,225) (2,963)
---------------------------
Total Shareholders' Equity 58,800 58,096
---------------------------
Total Liabilities and
Shareholders' Equity $786,696 $793,280
============================
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FIRST UNITED CORPORATION
Consolidated Statement Of Income
(in thousands, except per share data) Three Months
Ended March 31,
2000 1999
-------------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 12,328 $ 11,013
Interest on investment securities:
Taxable 2,444 1,198
Exempt from federal income tax 362 265
--------------------
2,806 1,463
Interest on federal funds sold 77 43
--------------------
Total interest income 15,211 12,519
Interest expense
Interest on deposits:
Savings 163 87
Interest-bearing transaction accounts 1,167 859
Time, $100,000 or more 1,615 1,083
Other time 3,328 3,020
Interest on Federal Home Loan Bank
borrowings and other borrowed
funds 1,842 843
--------------------
Total interest expense 8,115 5,892
--------------------
Net interest income 7,096 6,627
Provision for possible credit losses 563 425
--------------------
Net interest income after provision
for possible credit losses 6,533 6,202
Other operating income
Trust department income 500 419
Service charges on deposit accounts 509 539
Insurance premium income 180 63
Security (losses)gains (44) 2
Other income 667 468
--------------------
Total other operating income 1,812 1,491
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Other operating expenses
Salaries and employees benefits 2,749 2,399
Occupancy expense of premises 274 261
Equipment expense 437 404
Data processing expense 283 198
Deposit assessments and related fees 35 24
Other expense 1,590 1,658
--------------------
Total other operating expenses 5,368 4,944
--------------------
Income before income taxes 2,977 2,749
Applicable income taxes 976 934
--------------------
Net income $2,001 $1,815
====================
Earnings per share $0.33 $0.30
====================
Dividends per share $0.16 $0.155
====================
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months
Ended March 31,
2000 1999
--------------------
(Unaudited)
Operating activities
Net Income $ 2,001 $ 1,815
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 563 425
Provision for depreciation 711 407
Net accretion and amortization of investment
security discounts and premiums (8) (63)
Realized loss (gain) on sale
of investment securities 44 (2)
(Decrease) increase in accrued interest
and other assets 586 (260)
Increase in reserve for taxes accrued interest
and other liabilities 176 1,353
--------------------
Net cash provided by operating activities 4,073 3,675
Investing activities
Proceeds from maturities of available-for-
sale securities 104,574 26,892
Purchases of available-for-sale securities (79,602) (29,303)
Net increase in loans (24,186) (16,541)
Purchases of premises and equipment (642) (597)
-------------------
Net cash used in investing activities 144 (19,549)
Financing activities
Increase in Federal Home Loan Bank borrowings
and other borrowed money 380 1,425
Net increase in demand deposits,
NOW accounts and savings accounts 4,087 6,771
Net (decrease) increase in certificates of deposits (11,931) 19,052
Cash dividends paid or declared (961) (917)
Acquisition and retirement of Common Stock (74) (407)
Net cash (used in)provided by -------------------
financing activities (8,499) 25,924
Cash and cash equivalents at beginning of the year 21,494 13,633
(Decrease) increase in cash and cash equivalents (4,282) 10,050
--------------------
Cash and cash equivalents at end of period $17,212 $23,683
====================
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 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 month period ended March 31, 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 6,153 for the three months ended
March 31, 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 three months of 2000 and 1999, total comprehensive income, net income plus
the change in unrealized gains (losses) on available-for-sale securities,
amounted to $1,739 million and $1,468 million, net of income taxes,
respectively.
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Part I. Financial Information
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated net income for the quarter ended March 31, 2000 totaled $2.00
million, which is $.18 million more than was recorded for the first quarter of
1999. This translates into $.33 per share for the current period. For the
same quarter of 1999, each share earned $.30. Return on Average Equity (ROAE)
decreased from 13.56%, at December 31, 1999, to 13.10% as of March 31, 2000.
Return on Average Equity was 12.60% as of March 31, 1999.
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 58.71% for the period ended March 31, 2000.
This represents a slight decline in efficiency from year end 1999 when the ratio
was 58.06%.
Fee income from our Business Manager, PrimeVest, and Trust Sevices has
increased 16.50% or $.94 million compared to the same period in 1999. Driven
by these three income sources, other operating income increased 10.55% in
comparison to March 31, 1999. Other operating income for the first quarter
of 2000 was $1.81 million compared to $1.50 million for the same period in
1999. Other operating expense for the first quarter of 2000 was $5.37 million
compared to $4.94 million for the same period in 1999. This 8.70% increase
is a direct result of salaries and employee benefits increasing from $ 2.40
million in 1999 to $ 2.75 million in 2000. This represents an increase of
14.58%, primarily due to the purchase of Gonder Insurance Agency in the second
quarter of 1999 and the Corporation's continued policy of rewarding employees
for exceeding their goals.
Loan growth in the first quarter continued to be strong. In the first
quarter, net loans grew $23.63 million to a total of $588.40 million. The
growth for the same quarter of 1999 was $16.12 million, bringing the total to
$521.78 million. The $23.63 million in net loan growth has been well
diversifed. Installment loans continue to increase, increasing $8.96 million.
Mortgage loans increased $6.10 miilion with $2.80 million of that growth
being in the commercial arena. Business lines of credit and leases have also
contributed to the growth, increasing $4.23 miilion and $3.24 million
respectively.
As a result of our loan growth, interest income at March 31, 2000 was $15.21
million compared to $12.52 million at March 31, 1999. This toatl represents
an increase of $2.69 million or 21.49%.
Total investment securities, interest bearing deposits and Federal Home
Loan Bank stock have decreased in total $25.27 million or 16.71% 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.
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The corporation's interest expense year to date was $2.23 million higher
than was recorded for the same period in 1999. The increase in expense can be
attributed to deposit growth of $53.41 million from March 31, 1999 to March 31,
2000 as well as growth of $61.38 million in Federal Home Loan Bank Borrowings
and other borrowed funds in the same time frame. The deposits of the
Corporation have decreased $7.84 million since December 31, 1999. The decrease
was caused by the maturity of a $12.00 million brokered certificate of deposit
which matured and was not renewed. Excluding this deposit, core deposits grew
$4.16 million or 0.71%. Although Federal Home Loan Bank borrowings and other
borrowed funds only increased $0.38 million since December 31, 1999, the year
end totals included additional funding that was on hand for potential year 2000
needs. This additional liquidity was used to fund most of the first quarter
loan growth. As always, it is of the 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
flexiblity to be competitive in today's market place.
Net interest income for the first three months of 2000 increased 7.09% from
the same period in 1999, to a total of $7.10 million. The result was a Corporate
net interest margin of 3.92% in comparison to the net interest margin of 4.23%
for the ending 1999. The decline can be attributed to the intense competition
for tradtional 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. Return on Average Assets (ROAA) has decreased 18.55%
to 1.01% at March 31, 2000 compared to 1.12% at December 31, 1999.
The provision for possible credit losses was $0.56 million for the first
three months of 2000 compared to $0.43 million for the same period in 1999.
Net charge-offs for the first three months were $0.41 million, which equates
to 0.03% of our net loan total of $592.96 million. For the same period of 1999,
net charge-offs were $0.04 million or 0.01% of the March 31, 1999 net loan
total of $521.78 million. The increase in provision for possible credit losses
was made to maintain an adequate reserve in light of the strong loan growth
experienced year to date and to provide for the increase in net charge-offs.
Our loan quality continues to be strong as demonstrated by the over 30 day
delinquency ratio of 1.16% of gross loans, a number which compares very
favorably with our peers. Nonperforming loans were 0.63% of total loans as of
March 31, 2000, and our loan loss reserve was 0.77% of total representing
120.95% of nonperforming loans.
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Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
March 31, 2000
----------------
Balance at the Beginning of the period $4,409
Charge-offs:
Domestic:
Commercial, financial and agricultural 9
Real estate - mortgage 36
Installment loans to individuals 437
----------------
482
----------------
Recoveries:
Domestics:
Commercial, financial and agricultural 6
Real estate - mortgage 1
Installment loans to individuals 70
---------------
77
---------------
Net Charge-offs 405
---------------
Additions charged to operations 563
---------------
Balance at end of period $4,567
===============
Ratio of net charge-offs during the period to average
Loans outstanding during the period .03%
===============
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. First United's non-accrual loans decreased $.22 million in the first
quarter of 2000 from the year end total of $.38 million.
March 31 December 31
2000 1999
----------------------
Non-accrual loans $158 $379
Accruing loans past due 90 days or more 858 763
Information with respect to non-accrual loans at March 31, 2000 and
December 31,1999 are as follows:
Non-accrual Loans $158 $379
Interest income that would have been recorded
under original terms 3 7
Interest income recorded during the period 1 3
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A strength of First United has always been its capital position.
Shareholders' equity remained strong at $58.80 million, a 1.20% 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 15.22%, which is
greater 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 March 31, 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
quarter of 2000.
The Corporation paid a cash dividend of $.16 on February 1, 2000. On March
15, 2000, the Corporation declared another dividend of an equal amount, to be
paid May 1, 2000, to shareholders of record at April 20, 2000.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
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Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 5/10/00 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 5/10/00 /s/ Robert W. Kurtz
---------- ----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
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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 5/10/00
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 5/10/00
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
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