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, 2002
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.
* 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 31,2002.
Preferred stock, No par value--No shares outstanding as of March 31, 2002.
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2002 (Unaudited) and December 31,
2001.
Consolidated Statements of Income (Unaudited) - Three months ended March
31, 2002 and 2001.
Consolidated Statements of Cash Flows (Unaudited) - Three months ended
March 31, 2002 and 2001.
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
FIRST UNITED CORPORATION
Consolidated Balance Sheets
March 31, December 31,
2002 2001
(unaudited)
___________________________
Assets (in thousands)
Cash and due from banks $17,201 $22,827
Federal funds sold 9,790 9,875
Interest-bearing deposits in banks 4,808 1,167
Investment securities:
U.S. Treasury Securities - 301
Obligations of other US
Government Agencies 33,227 30,358
Obligations of State and
Local Government 27,410 25,915
Other investments 72,322 74,118
____________________________
Total investment securities 132,959 130,692
Federal Home Loan Bank
stock, at cost 5,950 5,950
Loans and Leases 595,988 607,136
Reserve for probable credit losses (5,845) (5,752)
____________________________
Net loans 590,143 601,384
Bank premises and equipment 11,643 11,527
Accrued interest receivable
and other assets 31,944 34,691
____________________________
Total Assets $804,438 $818,113
============================
Liabilities and Shareholders' Equity
Liabilities
Non-interest bearing deposits $ 58,684 $ 64,366
Interest bearing deposits 543,451 552,403
____________________________
Total deposits 602,135 616,769
Reserve for taxes, accrued
interest, and other liabilities 8,565 9,132
Federal Home Loan Bank borrowings
and other borrowed funds 120,504 120,104
Dividends payable 1,032 1,032
____________________________
Total Liabilities 732,236 724,038
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 March 31, 2002,
6,081 outstanding at
December 31, 2001 61 61
Surplus 20,199 20,199
Retained earnings 51,546 50,254
Accumulated comprehensive income 396 563
_____________________________
Total Shareholders' Equity 72,202 71,076
Total Liabilities and Shareholders'
Equity $804,438 $818,113
=============================
FIRST UNITED CORPORATION
Consolidated Statement of Income
(in thousands, except per share data)
Three Months Ended March 31,
2002 2001
(unaudited)
____________________________
Interest income
Interest and fees on loans
and leases $ 12,102 $ 13,552
Interest on investment securities:
Taxable 1,649 2,334
Exempt from federal income tax 313 229
____________________________
1,962 2,563
Interest on federal funds sold 25 189
____________________________
Total interest income 14,089 16,304
Interest expense
Interest on deposits:
Savings 64 115
Interest-bearing transaction
accounts 312 1,298
Time, $100,000 or more 1,104 2,161
Other time 3,022 3,737
Interest on Federal Home Loan
Bank borrowings and other
borrowed funds 1,890 2,052
____________________________
Total interest expense 6,392 9,363
Net interest income 7,697 6,941
Provision for probable credit
losses 656 535
Net interest income after provision
for probable credit losses 7,041 6,406
Other operating income
Trust department income 682 706
Service charges on deposit accounts 585 567
Insurance premium income 260 229
Security (losses)gains - 53
Other income 925 726
____________________________
Total other operating income 2,452 2,281
Other operating expenses
Salaries and employees benefits 3,450 3,082
Occupancy expense of premises 311 335
Equipment expense 494 446
Data processing expense 299 241
Deposit assessments and related fees 44 41
Other expense 1,745 1,593
____________________________
Total other operating expenses 6,343 5,738
____________________________
Income before income taxes 3,150 2,949
Applicable income taxes 822 932
____________________________
Net income $2,328 $2,017
Earnings per share $0.38 $0.33
Dividends per share $0.17 $0.16
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
2002 2001
____________________________
(Unaudited)
Operating activities
Net Income $ 2,328 $ 2,017
Adjustments to reconcile net
income to netcash provided
by operating activities:
Provision for possible credit losses 656 535
Provision for depreciation 436 377
Net accretion and amortization of
investment security discounts
and premiums (82) 69
Realized gain on sale of
investment securities - (52)
Decrease in accrued
interest and other assets 2,747 6,476
Decrease in reserve
for taxes, accrued interest
and other liabilities (567) (762)
_____________________________
Net cash provided by (used in)
operating activities 5,518 (4,292)
Investing activities
Proceeds from maturities of
available-for-sale securities 13,046 96,325
Purchases of available-for-sale
securities (15,395) (66,403)
Net increase in loans 10,585 (45)
Purchases of premises and equipment (552) (440)
_____________________________
Net cash provided by investing
activities 7,684 29,437
Financing activities
Increase in Federal Home Loan
Bank borrowings and other
borrowed money 400 10,000
Net increase (decrease) in demand
deposits, NOW accounts and
savings accounts 625 (22,486)
Net decrease in
certificates of deposits (15,259) (17,807)
Cash dividends paid or declared (1,040) (1,005)
_____________________________
Net cash used in financing
activities (15,273) (31,298)
Cash and cash equivalents at
beginning of the year 33,869 26,921
Decrease in cash and cash equivalents (2,070) (6,153)
Cash and cash equivalents at end of
period $31,799 $20,768
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 2002
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,
2002, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002. The enclosed consolidated financial state-
ments 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, 2001.
Earnings per share are based on the weighted average number of shares
outstanding of 6,081 for the three months ended March 31, 2002 and 2001.
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 2002 and 2001, total comprehensive income,
net income plus the change in unrealized gains (losses) on available-for-sale
securities, amounted to $2.16 million and $2.66 million, net of income taxes,
respectively.
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, 2002 totaled $2.33
million, which is $.31 million more than was recorded for the first quarter of
2001. This translates into $.38 per share for the first quarter of 2002
compared to $.33 per share for the first quarter of 2001. Return on Average
Equity (ROAE) decreased from 13.26%, at December 31, 2001, to 13.06% as of
March 31, 2002. Return on Average Equity was 12.25% as of March 31, 2001.
The "efficiency ratio" is a key measuring tool for profitability and
operating efficiency. A lower ratio equals higher profitability and operating
efficiencies. The Corporation's efficiency ratio was 61.31% for the period
ended March 31, 2002. This represents a slight decline in efficiency from
year-end 2001 when the ratio was 58.58%. This decrease can be attributed to
an increase in salaries and benefits as noted below.
Because the Corporation purchased an additional policy late in 2001, income
received from the Bank Owned Life Insurance ("BOLI") policies increased $.18
million in the first quarter of 2002 compared to the first quarter of 2001.
This increase resulted in other operating income increasing 7.46% in comparison
to March 31, 2001. Other operating income for the first quarter of 2002 was
$2.45 million compared to $2.28 million for the same period in 2001. Other
operating expense for the first quarter of 2002 was $6.34 million compared to
$5.74 million for the same period in 2001. This 10.45% increase is a direct
result of salaries and employee benefits increasing from $ 3.08 million in
2001 to $3.45 million in 2002. This represents an increase of 12.01%,
primarily due to salary increases.
In the first quarter of 2002, net loans decreased $11.24 million to a total
of $590.14 million. The decrease for the same quarter of 2001 was $.49 million,
bringing the total to $609.06 million at March 31, 2001. During the first
quarter of 2002, Commercial lending experienced a net decrease of $2.51
million. Commercial mortgages increased $2.05 million. However, commercial
installment loans declined $1.19 million, and commercial lines of credit de-
creased $3.36 million. Residential mortgages experienced high payback from
increased refinancings due to decreasing market rates, decreasing $10.32
million. Installment loans, excluding commercial installments, decreased
$1.08 million. Home equity loans increased $1.27 million.
The declining loan balances combined with decreasing market rates
experienced in 2001 and 2002 resulted in a decrease in interest income from
$16.30 million at March 31, 2001 to $14.09 million at March 31, 2002. This
total represents a decrease of $2.21 million or 13.56%.
The Corporation's interest expense year to date was $2.97 million lower
than was recorded for the same period in 2001. The decrease in expense can be
attributed to declining interest rates in 2001 and the first quarter of 2002.
The deposits of the Corporation have decreased $14.63 million since December
31, 2001 from $616.77 million to $602.14 million. The Corporation elected
not to renew $4.50 million of $14.50 million of brokered deposits that matured
in February 2002. The remainder of the certificate of deposit portfolio de-
creased $10.26 million as Management maintained the lower rates that began in
2001. Savings balances increased $2.95 million as customers displayed a pref-
erence for liquid investments over certificates of deposit. Demand deposits
decreased $3.38 million.
Net interest income for the first three months of 2002 increased 9.91% from
the same period in 2001, to a total of $7.04 million. The result was a Corp-
orate net interest margin of 3.97% at March 31, 2002, in comparison to the net
interest margin of 3.87% for the year ending 2001. During the first quarter of
2002, Management continued managing the interest rate risk of the loan and
deposit portfolios by maintaining lower deposit rates achieved in 2001 while
not lowering loan rates. Return on Average Assets (ROAA) has increased 5.40% t
o 1.17% at March 31, 2002 compared to 1.11% at December 31, 2001.
The provision for probable credit losses was $0.66 million for the first
three months of 2002 compared to $.54 million for the same period in 2001.
Net charge-offs for the first three months were $0.56 million, which, on an
annualized basis, equates to 0.37% of our average net loan balance of $595.51
million. For the same period of 2001, net charge-offs were $.63 million or
0.41% on an annualized basis of the March 31, 2001 average net loan balance of
$611.46 million. The 30-day or more delinquency ratio was 0.98% of gross loans
as of March 31, 2002. As of March 31, 2001, this ratio was 1.17% of gross
loans. Nonperforming loans were 0.43% of total gross loans as of March 31,
2002,and 0.40% of total gross loans as of March 31, 2001. As of March 31,
2002, the Corporation's loan loss reserve was 0.99% of total gross loans
representing 229.31% of nonperforming loans. As of March 31, 2001, the loan
loss reserve was 0.82% of total gross loans and 177.19% of nonperforming loans.
Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
March 31, 2002
Balance at the Beginning of the period $5,752
Charge-offs:
Domestic:
Commercial, financial and agricultural 158
Real estate - mortgage 22
Installment loans to individuals 503
______
683
Recoveries:
Domestics:
Commercial, financial and agricultural 6
Real estate - mortgage 3
Installment loans to individuals 111
______
120
______
Net Charge-offs 563
Additions charged to operations 656
______
Balance at end of period $5,845
Ratio of net charge-offs during the
period to average loans outstanding
during the period, annualized .37%
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
Corporation has no foreign loans or loans defined as troubled debt re-
structurings. Further, the Corporation has no potential problem loans other
than those in the table below. First United's non-accrual loans decreased
$1.47 million in the first quarter of 2002 from the year end total of $3.20
million.
March 31 December 31
2002 2001
Non-accrual loans $1,725 $3,196
Accruing loans past due 90 days or more 824 1,230
Information with respect to non-accrual loans at March 31, 2002 and
December 31, 2001 is as follows:
Non-accrual Loans $1,725 $3,196
Interest income that would have been recorded
under original terms 25 48
Interest income recorded during the period 1 6
Shareholders' equity was $72.20 million at March 31, 2002, a 1.58% increase
from December 31, 2001, which was $71.07 million. Risk based capital, which is
an expression of the Corporation's stability and security was 16.11%, which is
greater than the 15.54% reported at December 31, 2001. Both are in excess of
the regulatory minimum of 8.00%.
The Corporation paid a cash dividend of $.17 on February 1, 2002. On March
20, 2002, the Corporation declared another dividend of an equal amount, to be
paid May 1, 2002, to shareholders of record at April 19, 2002.
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
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 23, 2002, to record
statements made by management at the annual shareholders' meeting.
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