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, 1994 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 (address of principal executive offices) (zip code) (301) 334-9471 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--6,191,910 shares outstanding as of March 31, 1994 Preferred stock, No par value--No shares outstanding as of March 31, 1994 -1- INDEX FIRST UNITED CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1994 (Unaudited), December 31, 1993 and March 31, 1993 (Unaudited). Consolidated Statements of Income (Unaudited) - Three months ended March 31, 1994 and 1993. Consolidated Statement of Cash Flows (Unaudited) - Three months ended March 31, 1994 and 1993. 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 -2- Part I. Financial Information Item II. Management's Discussion and Analysis First United Corporation's consolidated net earnings for the first quarter of 1994 totaled $1.60 million which represents an increase of $.05 million over the net income earned for the same period in 1993. Translated into per share amounts, net income for the first three months of 1994 totaled $.26 per share versus $.25 per share during the first quarter of 1993. Return on average assets (ROAA), one key measure of profitability, was 1.53 percent for the first quarter. This represents a significant increase from the year end 1993 return on average assets of 1.42 percent. The 13.12% return on average equity (ROAE) also compares favorably to the December 31, 1993, return on average equity of 12.86 percent. Interest income, which amounted to $7.84 million during the first quarter, decreased 5.08 percent over the first quarter in 1993. At the same time, interest expense totalled $2.48 million, representing a decrease of 16.34 percent over the same quarter in 1993. The increase in net interest income was responsible for the Corporation's net interest margin of 5.42 percent, which represents an increase over the 5.37 percent at the end of 1993. Despite an increase in interest rates during the first quarter, First United was able to maintain a positive net interest margin by utilizing the Company's asset/liability management committee. The Committee monitors interest rates on assets and liabilities continually to assure an adequate spread is maintained at all times. The provision for possible credit losses amounted to $.08 million during the first quarter of 1994. This compares favorably to the $.17 million provision during the same time period in 1993. Net charge offs for the quarter were $.06 million versus $.17 million during the first quarter in 1993. By maintaining prudent lending practices and a stringent loan review process, the Corporation has been able to maintain a quality loan portfolio. As the market continues to place pressure on interest margins, it is important for the Corporation to continually enhance non-interest income. During the quarter First United realized an increase of 22.1 percent in non-interest income over the first quarter of 1993. The increase was attributed to increased earnings in the Trust Department, which now manages assets in excess of $111 million, and increased brokerage commissions generated by PRIMEVEST Financial Services. The Appraisal Department also continues to have positive effects on the Corporation's earnings stream. As the Corporation looks for new ways to enhance non-interest income, an ongoing emphasis of controlling non-interest expense continues. During the first quarter non-interest expenses totalled $3.87 million versus $3.55 million in the first quarter of 1993, representing an increase of 9.01 percent. The increase in expense -8- can be attributed to increased personnel costs from the Corporation's expansion into the new market areas of Romney, Moorefield, and Hagerstown during 1993. The increase in non-interest expense can also be attributed to higher Federal Deposit Insurance Premiums and Regulatory Supervision Assessments Fees. During the quarter the Corporation began the process of consolidating the backroom functions of it's newest subsidiary, Myersville Bank. As the consolidation effort moves forward, economies of scale will be realized helping to reduce the costs associated with providing quality customer service. Net loans have increased $2.22 million in the first quarter. The increase occurred despite the sale of loans during the first quarter by our West Virginia subsidiary. The loan sale will allow the Corporation to meet anticipated loan growth in the upcoming months. Deposits for the quarter remained little changed from December 31, 1993. The competition for deposits remained fierce during the quarter. The Corporation continues to face competition not only from companies in the local market area, but also from non-bank competitors who offer mutual funds and other investment products. Shareholder's equity increased to $49.92 million, a 3.2 percent increase year to date. Risk-based capital as of March 31, 1994 was a healthy 19.47 percent which is well above required regulatory minimum of 8%. On February 1, 1994, the Corporation paid a cash dividend of $.1067 per share, adjusted for the 50% stock dividend effected in the form of a 3 for 2 stock split paid February 8, 1994. In addition, a cash dividend of $.10 per share was declared on April 13, 1994. The dividend is payable May 1, 1994, to shareholders of record as of April 21, 1994. -9- Part I. Financial Information Item II. Financial Statements FIRST UNITED CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands) March 31 Dec. 31 March 31 1994 1993 1993 ASSETS (Unaud.) (*) (Unaud.) Cash and due from banks............ $ 13,451 $ 12,832 $ 9,510 Investments: Available for Sale: U.S. Treasury securities........... 22,480 Obligations of other U.S.Government agencies 30,922 Other Investments.................. 17,519 -------- -------- -------- Total Available for Sale 70,921 Held to Maturity: U.S. Treasury securities.......... 23,467 21,442 Obligations of other U.S.Government agencies 33,315 35,718 Other Investments................. 16,211 15,898 Obligations of state and political subdivisions.............. 8,687 8,538 9,601 -------- -------- -------- Total Held to Maturity 8,687 81,531 82,659 -------- -------- -------- Total investment securities.... 79,608 81,531 82,659 Federal funds sold.................. 2 1,903 15,215 Loans............................... 319,018 316,781 299,060 Reserve for possible credit losses.. (2,320) (2,305) (2,806) -------- -------- -------- Net loans........................... 316,698 314,476 296,254 Bank premises and equipment......... 8,165 8,026 7,420 Accrued interest receivable and other assets........................ 4,541 4,612 6,240 -------- -------- -------- TOTAL ASSETS $422,465 $423,380 $417,298 ======== ======== ======= * The balance sheet at December 31, 1993 has been derived from the audited financial statements at that date. See Notes to unaudited consolidated financial statements. () Indicates Deduction -3- FIRST UNITED CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS) March 31 Dec. 31 March 31 1994 1993 1993 (Unaud.) (*) (Unaud.) LIABILITIES Deposits: Non-interest bearing deposits.......... $ 38,535 $ 41,456 $ 33,758 Interest bearing deposits.............. 327,957 327,071 329,664 --------- -------- -------- TOTAL DEPOSITS $366,492 $368,527 $363,422 Dividends payable....................... 660 1,017 Reserve for taxes, interest, and other liabilities........................ 6,146 5,821 7,446 --------- -------- -------- TOTAL LIABILITIES $372,638 $375,008 $371,885 SHAREHOLDERS' EQUITY Preferred Stock - no par value Authorized and unissued; 2,000 shares... Capital stock-par value $.01 per share: Authorized 12,000 shares; issued and outstanding 6,192 at March 31, 1994, 6,186 shares outstanding at December 31, 1993, 6,167 and March 31, 1993 .......... 62 62 62 Surplus................................... 23,141 23,005 22,638 Retained earnings......................... 26,899 25,305 22,713 Unrealized (losses) on available for......... sale securities, net of tax................. (182) -------- -------- ------- TOTAL SHAREHOLDERS' EQUITY 49,920 48,372 45,413 -------- -------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $422,465 $423,380 $417,298 ======== ======== ======== * The balance sheet at December 31, 1993 has been derived from the audited financial statements at that date. See Notes to unaudited consolidated financial statements. () Indicates Deduction -4- FIRST UNITED CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In Thousands, except per share data) Three Months Ended March 31, 1994 1993 (Unaudited) INTEREST INCOME Interest and fees on loans.................. $ 6,878 $ 6,892 Interest on investment securities: Available for Sale - Taxable............ 789 1,090 Held to Maturity - Exempt for Taxes...... 152 182 ------- ------- 941 1,272 Interest on federal funds sold.............. 22 97 ------- ------- Total Interest Income................. 7,841 8,261 INTEREST EXPENSE Interest on deposits: Savings.................................. 447 519 Interest-bearing transaction accounts.... 428 607 Time, $100,000 or more................... 102 81 Other time............................... 1,506 1,761 ------- ------- Total Interest Expense................ 2,483 2,968 Net Interest Income................... 5,358 5,293 Provision for possible credit losses........ 80 173 ------- ------- Net Interest Income After Provision For Possible Credit Losses....... 5,278 5,120 OTHER OPERATING INCOME Trust department income.................... 210 164 Service charges on deposit accounts........ 369 349 Security Gains............................. 3 28 Other income............................... 309 189 ------- ------- 891 730 OTHER OPERATING EXPENSES Salaries and employee benefits............. 2,070 1,814 Occupancy expense of premises.............. 268 242 Equipment expense.......................... 263 216 Data processing expense.................... 104 93 Deposit assessments and related fees....... 247 224 Other expense.............................. 915 956 ------- ------- 3,867 3,545 ------- ------- Income Before Income Taxes............ 2,302 2,305 Applicable income taxes.................... 702 757 ------- ------- -5- Net Income............................ $ 1,600 $ 1,548 ========= ======= EARNINGS PER SHARE.......................... $ .26 $ .25 ========= ======= AVERAGE COMMON SHARES OUTSTANDING 6,191 6,167 ========= ======== See Notes A and C to unaudited consolidated financial statements. -5A- FIRST UNITED CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) Three Months Ended March 31, 1994 OPERATING ACTIVITIES 1994 1993 (Unaudited) Net Income..................................... $ 1,600 $ 1,479 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible credit losses........ 80 206 Provision for depreciation.................. 209 157 Net accretion & amortization of investment security discounts & premiums .......... 258 165 Increase in accrued interest & other........ receivables............................. 71 (113) Decrease in accrued interest & other payables........................ (428) (509) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES.......$ 1,790 $ 1,385 INVESTING ACTIVITIES Proceeds from maturities of available for sale securities.....................................$19,696 $11,832 Purchases of available for sale securities..... (17,893) (17,498) Proceeds from maturities of held to maturity securities...................................... 552 0 Purchases of held to maturity securities......... (690) 0 Net decrease in short-term loans................ (4,665) 326 Net increase in longer-term loans................ 2,363 (740) Purchases of premises & equipment................ ( 348) (477) -------- --------- NET CASH USED IN INVESTING ACTIVITIES $ (985) $ (6,557) FINANCING ACTIVITIES Unrealized gains(losses) on available for sale securities, net of tax ........................ (182) 0 Net increase in demand deposits, NOW accounts and savings accounts................ $ (2,864) $ 4,989 Net decrease in certificates of deposit......................................... 829 (3,151) Cash dividends declared.......................... 0 (510) Proceeds from issuance of capital stock.......... 130 0 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES...........................$(2,087) $ 1,328 -------- -------- -6- Decrease in cash and cash equivalents $ (1,282) $( 3,844) Cash & cash equivalents at beginning of quart. $ 14,735 $28,113 --------- -------- Cash & cash equivalents at end of quarter..... $ 13,453 $24,269 ========= ========= See Note A to unaudited consolidated financial statements. -6A- FIRST UNITED CORPORATION Note to Unaudited Consolidated Financial Statements March 31, 1994 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, 1994 are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. 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, 1993. Per share financial information has been restated for the 100% stock dividend effective in the form of a 2:1 stock split paid June 15, 1993 and for the 50% stock dividend effective in the form of a 3:2 stock split paid February 8, 1994. Note B -- Accounting Change In May 1993 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company adopted the provisions of the new standard for investments held as of or acquired after January 1, 1994. In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect as of March 31, 1994 of adopting Statement 115 decreased shareholder's equity by $182,000 (net of $93,000 in deferred income taxes) to reflect the net unrealized holding losses on securities classified as available-for-sale. Previously, these securities were carried at amortized cost or lower-of-cost-or-market. Note C -- The consolidated financial statements of the Corporation give retroactive effect to the merger with Myersville Bank, which has been accounted for as a pooling of interests. -7- Part II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. None. Item 3. Defaults upon Senior Securities. None. Item 4. Other Information. None. Item 5. Exhibits and Reports on Form 8-K. The Company did not file any reports on Form 8-K for the period ending March 31, 1994. -10- 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 5/10/94 /s/ RICHARD G. STANTON ------------ ------------------------------- Richard G. Stanton, Chairman of the Board, President and Chief Executive Officer Date 5/10/94 /s/ ROBERT W. KURTZ ------------- ------------------------------- Robert W. Kurtz, Executive Vice President and Treasurer -11- SIGNATURES Pursuant to the requirements of the Securities Exhange 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 5/10/94 --------- --------------------------- Richard G. Stanton, Chairman of the Board, President and Chief Executive Officer Date 5/10/94 --------- --------------------------- Robert W. Kurtz, Executive Vice President and Treasurer -12-