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, 2001
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
March 31, 2001 Preferred stock, No par value--No shares
outstanding as of March 31, 2001.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001
(Unaudited) and December 31, 2000.
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 2001 and 2000.
Consolidated Statements of Cash Flows (Unaudited) - Three
months ended March 31, 2001 and 2000.
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 Sheets
March 31, December 31,
Assets 2001 2000
(unaudited)
-----------------------------
(in thousands)
Cash and due from banks $13,574 $15,521
Federal funds sold 7,194 11,400
Interest-bearing deposits in banks 1,236 20,534
Investment securities:
U.S. Treasury Securities 605 602
Obligations of other US
Government Agencies 42,621 73,930
Obligations of State and
Local Government 21,746 19,674
Other investments 77,943 58,652
-------------------------
Total investment securities 142,915 152,858
Federal Home Loan Bank stock, at cost 5,950 5,950
Loans and Leases 614,058 614,647
Reserve for possible credit losses (4,995) (5,094)
---------------------------
Net loans 609,063 609,553
Bank premises and equipment 10,894 10,831
Accrued interest receivable and other assets 27,398 20,942
---------------------------
Total Assets $818,224 $847,589
============================
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
March 31, December 31,
2001 2000
Liabilities and Shareholders' Equity (unaudited)
---------------------------
Liabilities (in thousands)
Non-interest bearing deposits $ 51,626 $ 51,339
Interest bearing deposits 558,055 598,638
---------------------------
Total deposits 609,681 649,977
Reserve for taxes, accrued interest, and
other liabilities 8,343 9,105
Federal Home Loan Bank borrowings
and other borrowed funds 132,000 122,000
Dividends payable 1,005 996
---------------------------
Total Liabilities 751,029 782,078
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,
2001, 6,080 outstanding at December
31, 2000
61 61
Surplus 20,199 20,199
Retained earnings 46,176 45,132
Accumulated comprehensive income 759 119
---------------------------
Total Shareholders' Equity 67,195 65,511
---------------------------
Total Liabilities and
Shareholders' Equity $818,224 $847,589
============================
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FIRST UNITED CORPORATION
Consolidated Statement of Income
(in thousands, except per share data) Three Months
Ended March 31,
2001 2000
-------------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 13,552 $ 12,328
Interest on investment securities:
Taxable 2,334 2,444
Exempt from federal income tax 229 362
--------------------
2,563 2,806
Interest on federal funds sold 189 77
--------------------
Total interest income 16,304 15,211
Interest expense
Interest on deposits:
Savings 115 163
Interest-bearing transaction accounts 1,298 1,167
Time, $100,000 or more 2,161 1,615
Other time 3,737 3,328
Interest on Federal Home Loan Bank
borrowings and other borrowed
funds 2,052 1,842
--------------------
Total interest expense 9,363 8,115
--------------------
Net interest income 6,941 7,096
Provision for possible credit losses 535 563
--------------------
Net interest income after provision
for possible credit losses 6,406 6,533
Other operating income
Trust department income 706 500
Service charges on deposit accounts 567 509
Insurance premium income 229 180
Security (losses)gains 53 (44)
Other income 726 667
--------------------
Total other operating income 2,281 1,812
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Other operating expenses
Salaries and employees benefits 3,082 2,749
Occupancy expense of premises 335 274
Equipment expense 446 437
Data processing expense 241 283
Deposit assessments and related fees 41 35
Other expense 1,593 1,590
--------------------
Total other operating expenses 5,738 5,368
--------------------
Income before income taxes 2,949 2,977
Applicable income taxes 932 976
--------------------
Net income $2,017 $2,001
====================
Earnings per share $0.33 $0.33
====================
Dividends per share $0.165 $0.16
====================
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months
Ended March 31,
2001 2000
--------------------
(Unaudited)
Operating activities
Net Income $ 2,017 $ 2,001
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 535 563
Provision for depreciation 377 711
Net accretion and amortization of investment
security discounts and premiums 69 (8)
Realized (gain) loss on sale
of investment securities (52) 44
(Increase) decrease in accrued interest
and other assets (6,476) 586
(Decrease) increase in reserve for taxes, accrued
interest and other liabilities (762) 176
--------------------
Net cash (used in)provided by operating activities (4,292) 4,073
Investing activities
Proceeds from maturities of available-for-
sale securities 96,325 104,574
Purchases of available-for-sale securities (66,403) (79,602)
Net increase in loans (45) (24,186)
Purchases of premises and equipment (440) (642)
-------------------
Net cash used in investing activities 29,437 144
Financing activities
Increase in Federal Home Loan Bank borrowings
and other borrowed money 10,000 380
Net (decrease) increase in demand deposits,
NOW accounts and savings accounts (22,486) 4,087
Net (decrease) increase in certificates of deposits (17,807) (11,931)
Cash dividends paid or declared (1,005) (961)
Acquisition and retirement of Common Stock - (74)
Net cash (used in) provided by -------------------
financing activities (31,298) (8,499)
Cash and cash equivalents at beginning of the year 26,921 21,494
(Decrease) in cash and cash equivalents (6,153) (4,282)
--------------------
Cash and cash equivalents at end of period $20,768 $17,212
====================
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 2001
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, 2001, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. 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, 2000.
Earnings per share are based on the weighted average number of shares
outstanding of 6,081 for the three months ended March 31, 2001 and
2000.
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 2001 and 2000, total comprehensive income, net income
plus the change in unrealized gains (losses) on available-for-sale securities,
amounted to $2,657 million and $1,739 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, 2001 totaled $2.02
million, which is $.02 million more than was recorded for the first quarter of
2000. This translates into $.33 per share for the first quarter of 2000 and
2001. Return on Average Equity (ROAE)decreased from 13.40%, at December 31,
2000, to 12.25% as of March 31, 2000. Return on Average Equity was 13.10% as
of March 31, 2000.
The "efficiency ratio" is a key measuring tool for profitability and oper-
ating efficiency. The calculation of the efficiency ratio is noninterest
expense divided by net operating revenue,(net interest income plus other oper-
ating income) excluding nonrecurring items and securities gains and losses. A
lower ratio equals higher profitability and operating efficiencies. The Cor-
poration's efficiency ratio was 61.19% for the period ended March 31, 2001.
This represents a slight decline in efficiency from year-end 2000 when the
ratio was 59.36%.
Fee income from our Trust Services and Business Manager product has in-
creased 51.98% or $.29 million compared to the same period in 2000. Driven by
these two income sources, other operating income increased 25.94% in comparison
to March 31, 2000. Other operating income for the first quarter of 2001 was
$2.28 million compared to $1.81 million for the same period in 2000. Other
operating expense for the first quarter of 2001 was $5.74 million compared to
$5.37 million for the same period in 2000. This 6.89% increase is a direct
result of salaries and employee benefits increasing from $ 2.75 million in 2000
to $3.08 million in 2001. This represents an increase of 12.11%, primarily due
to the rising cost of health insurance.
In the first quarter, net loans decreased $.49 million to a total of $609.06
million. The growth for the same quarter of 2000 was $23.63 million, bringing
the total to $588.40 million. Commercial loans increased $8.75 million,
including an increase of $5.98 million in commercial mortgages and $3.76
million in commercial installment loans. In contrast, the indirect auto
installment loan portfolio decreased $9.46 million as a direct result of
Management's decision in the year 2000 to slow loan growth by increasing the
credit quality standards of the portfolio as well as maintaining higher rates
on installment loans in order to maximize yield. Other installment loans
decreased $.73 million. Mortgage loans, excluding commercial mortgages,
increased $3.02 million. Home equity loans and leases have decreased $.42
million and $.40 million, respectively.
As a result of the loan growth experienced in 2000, interest income in-
creased from $15.21 million at March 31, 2000 to $16.30 million at March 31,
2001. This total represents an increase of $1.09 million or 7.19%.
Total investment securities, interest-bearing deposits in banks, and
Federal Home Loan Bank stock have decreased in total $29.24 million or 16.30%
since December 31, 2000. At December 31, 2000, the Corporation had $20.53
million in excess funds invested at the Federal Home Loan Bank of Atlanta. In
December 2000, the Corporation purchased $20.10 million of 90-day brokered
deposits as part of a plan for the Trust Department to invest
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approximately $28.12 million of its liquid assets in investments outside of the
Bank. Funding for the remaining $8.02 million of the plan was completed with
a new $10.00 million convertible advance from the Federal Home Loan Bank of
Atlanta in January 2001. The outflow of deposits occurred in January 2001 as
discussed in the following paragraph. Declining interest rates resulted in
$18.10 million of agency securities being called during the first quarter.
To properly collateralize our municipal deposits, $8.81 million of the calls
were replaced. Late in the fourth quarter of 2000, the Corporation sold
$14.88 million of mortgage-backed securities and $1.94 million of municipal
securities to obtain funding for a Bank Owned Life Insurance (BOLI) policy.
These funds were held in short-term investments as the Corporation awaited
the purchase of the policy. In the first quarter of 2001, the Corporation
purchased $10.00 million of a BOLI policy. The cash surrender value policy
is reported as an other asset on the accompanying consolidated balance sheets.
The remaining $8.00 million policy is expected to be purchased in the second
quarter.
The corporation's interest expense year to date was $1.25 million higher
than was recorded for the same period in 2000. The increase in expense can be
attributed to deposit growth of $18.95 million from March 31, 2000 to March 31,
2001. The deposits of the Corporation have decreased $40.30 million since
December 31, 2000. When the $20.10 million of brokered deposits matured in
March 2001, the Corporation elected to not renew. Also, the Trust Depart-
ment's deposits held at the Bank have decreased $31.92 million since December
2000. Most of the decrease relates to the $28.12 million transaction discussed
the preceding paragraph. Excluding these transactions, core deposits grew
$13.58 million or 2.38%.
Net interest income for the first three months of 2001 decreased 2.18% from
the same period in 2000, to a total of $6.94 million. The result was a Cor-
porate net interest margin of 3.70% at March 31, 2001, in comparison to the
net interest margin of 3.79% for the year ending 2000. During the first
quarter, the Corporation had more assets available to reprice than liabilities.
Therefore, when the Federal Reserve decreased rates 150 basis points in the
first quarter of 2001, the loans and investments in the portfolio repriced more
quickly than deposits, causing the margin to decrease. Return on Average
Assets (ROAA) has decreased 3.88% to 0.99% at March 31, 2001 compared to 1.03%
at December 31, 2000.
The provision for possible credit losses was $0.54 million for the first
three months of 2001 compared to $.56 million for the same period in 2000. The
provision decreased as a result of the loan balances decreasing. Net charge-
offs for the first three months were $0.60 million, which equates to 0.10% of
our net loan total of $609.06 million. For the same period of 2000, net
charge-offs were $.41 million or 0.07% of the March 31, 2000 net loans of
$592.96 million. The over 30-day delinquency ratio is 1.17% of gross loans,
a number that compares very favorably with our peers. Nonperforming loans
were .40% of total gross loans as of March 31, 2001, and our loan loss
reserve was 0.82% of total gross loans representing 177.19% of nonperforming
loans.
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Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
March 31, 2001
----------------
Balance at the Beginning of the period $5,094
Charge-offs:
Domestic:
Commercial, financial and agricultural -
Real estate - mortgage 16
Installment loans to individuals 721
----------------
737
----------------
Recoveries:
Domestics:
Commercial, financial and agricultural 1
Real estate - mortgage 2
Installment loans to individuals 100
---------------
103
---------------
Net Charge-offs 632
---------------
Additions charged to operations 535
---------------
Balance at end of period $4,995
===============
Ratio of net charge-offs during the period to average
Loans outstanding during the period .10%
===============
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 increased $.63 million in the first
quarter of 2001 from the year end total of $1.07 million.
March 31 December 31
2001 2000
----------------------
Non-accrual loans $1,691 $1,066
Accruing loans past due 90 days or more 1,128 1,448
Information with respect to non-accrual loans at March 31, 2000 and
December 31,1999 is as follows:
Non-accrual Loans $1,691 $1,066
Interest income that would have been recorded
under original terms 3 19
Interest income recorded during the period 1 9
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Shareholders' equity was $67.20 million at March 31, 2001, a 2.57% increase
from December 31, 2000, which was $65.51 million. Risk based capital, which
is an expression of the Corporation's stability and security was 15.49%, which
is greater than the 14.55% reported at December 31, 2000. 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 dis-
tribute 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 ad-
ditional 5 percent or 309,048 shares. As of March 31, 2001 the Corporation had
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 2001 or 2000.
The Corporation paid a cash dividend of $.165 on February 1, 2001. On March
21, 2001, the Corporation declared another dividend of an equal amount, to be
paid May 1, 2001, to shareholders of record at April 20, 2001.
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.
None.
Item 6. Exhibits and Reports on Form 8-K.
The Corporation filed Form 8-K on April 24, 2001, to record
statements made by management at the annual shareholders'
meeting.
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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 5/10/01 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 5/10/01 /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 5/10/01
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 5/10/01
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
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