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, 1997
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--6,346,514 shares outstanding as of
June 30, 1997 Preferred stock, No par value--No shares
outstanding as of June 30, 1997.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997
(Unaudited), December 31, 1996, and June 30, 1996(Unaudited).
Consolidated Statements of Income (Unaudited) - Six months
ended June 30, 1997 and 1996 and three months ended June 30, 1997
and 1996.
Consolidated Statement of Cash Flows (Unaudited) - Six
months ended June 30, 1997 and 1996.
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
(In Thousands)
June 30, Dec. 31, June 30,
Assets 1997 1996 1996
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $19,114 $15,307 $15,767
Investment securities:
Available-for-sale:
U.S. Treasury Securities 17,082 20,576 17,651
Obl. of other U S Gov. Agen. 28,643 36,182 35,057
Obl. of St. and Loc. Govt 6,365 6,956 5,824
Other investments 18,182 19,997 22,436
-------------------------
Total available-for-sale 70,272 83,711 80,968
Held-to-maturity:
Obl. of other U S Govt Agen 1,511 1,518 1,497
Obl. of St. and Loc. Govt 10,025 8,362 5,458
Other investments 15,162 16,477 14,186
---------------------------
Total held-to-maturity 26,698 26,357 21,141
---------------------------
Total investment securities 96,970 110,068 102,109
Federal funds sold 1,900 900 2,020
Loans 414,863 382,780 359,420
Reserve for poss. credit losses (2,188) (2,186) (2,172)
---------------------------
Net loans 412,675 380,594 357,248
Bank premises and equipment 9,272 9,331 9,195
Acc. int. Rec. and other assets 7,566 7,421 6,056
----------------------------
Total Assets $547,497 $523,621 $492,395
============================
* The balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date.
See notes to unaudited consolidated financial statements.
() Indicates Deduction
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
June 30, Dec. 31, June 30,
1997 1996 1996
(Unaudited) (*) (Unaudited)
Liabilities ------------------------------
Deposits
Non-int. bearing deposits $ 57,718 $ 52,530 $ 48,058
Interest bearing deposits 414,663 400,009 383,396
---------------------------
Total deposits 472,381 452,539 431,454
Reserve for taxes, int., &
Other liabilities 4,849 5,365 4,003
Fed funds purchased & other
borrowed money 13,000 8,000 585
Dividends payable 0 902 0
----------------------------
Total Liabilities 490,230 466,806 436,042
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 6,346 shares at June 30,
1997, 6,442 outstanding at December
31, 1996, and 6,506 outstanding at
June 30, 1996 63 64 65
Surplus 25,035 26,661 27,314
Retained earnings 32,013 29,877 29,527
Unrealized gain (loss) on
available-for-sale securities
net of taxes 156 213 (553)
---------------------------
Total Shareholders' Equity 57,267 56,815 56,353
---------------------------
Total Liabilities and
Shareholders' Equity $547,497 $523,621 $492,395
============================
* The balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date.
See Notes to unaudited consolidated financial statements.
() Indicates Deduction
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FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data) Six Months
Ended June 30,
1997 1996
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 17,836 $ 16,149
Interest on investment securities:
Taxable 2,733 2,756
Exempt from federal income tax 362 252
--------------------
3,095 3,008
Interest on federal funds sold 53 80
--------------------
Total interest income 20,984 19,237
Interest expense
Interest on deposits:
Savings 586 917
Interest-bearing transaction acct. 1,345 1,355
Time, $100,000 or more 1,119 901
Other time 5,770 4,670
Interest on fed funds purchased
& other borrowed money 125 57
--------------------
Total interest expense 8,945 7,900
--------------------
Net interest income 12,039 11,337
Provision for possible credit losses 247 198
--------------------
Net interest income after provision
for possible credit losses 11,792 11,139
Other operating income
Trust department income 690 600
Service charges on deposit accts. 904 838
Insurance premium income 146 143
Other income 1,217 698
--------------------
Total other operating income 2,957 2,279
Other operating expenses
Salaries and employees benefits 4,771 4,456
Occupancy expense of premises 492 637
Equipment expense 830 688
Data processing expense 295 269
Deposit assess. and related fees 90 47
Other expense 4,281 2,464
--------------------
Total other operating expenses 10,205 8,561
--------------------
Income before income taxes 4,544 4,857
Applicable income taxes (1,471) (1,640)
--------------------
Net income $3,073 $3,217
====================
Earnings per share $0.48 $0.49
====================
See Notes to Unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data) Three Months
Ended June 30,
1997 1996
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 9,075 $ 8,056
Interest on investment securities:
Taxable 1,320 1,446
Exempt from federal income tax 182 133
-------------------
1,502 1,579
Interest on federal funds sold 26 17
-------------------
Total interest income 10,603 9,652
Interest expense
Interest on deposits:
Savings 297 455
Interest-bearing transaction acct. 699 661
Time, $100,000 or more 584 432
Other time 2,936 2,348
Interest on fed funds purchased
& other borrowed money 32 32
-------------------
Total interest expense 4,548 3,928
-------------------
Net interest income 6,055 5,724
Provision for possible credit losses 123 99
-------------------
Net interest income after provision
for possible credit losses 5,932 5,625
Other operating income
Trust department income 345 300
Service charges on deposit accts. 470 443
Insurance premium income 73 67
Other income 869 389
------------------
Total other operating income 1,757 1,199
Other operating expenses
Salaries and employees benefits 2,366 2,238
Occupancy expense of premises 253 360
Equipment expense 389 352
Data processing expense 150 130
Deposit assess. and related fees 43 28
Other expense 2,001 1,277
---------------------
Total other operating expenses 5,202 4,385
---------------------
Income before income taxes 2,487 2,439
Applicable income taxes (790) (821)
---------------------
Net income $1,697 $1,618
=====================
Earnings per share $0.27 $0.25
=====================
See Notes to Unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months
Ended June 30,
1997 1996
--------------------
(Unaudited)
Operating activities
Net Income $ 3,073 $ 3,217
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 247 198
Provision for depreciation 711 642
Net accretion & amortization of investment
security discounts & premiums (126) 221
Realized gain on sale
of investment securities - 12
(Increase) decrease in acc. interest
& other receivables. (145) 882
(Decrease)in accrued interest
& other payables (1,418) (368)
--------------------
Net cash provided by operating activities 2,342 4,804
Investing activities
Proceeds from maturities of available-for-
sale securities 46,260 26,874
Purchases of available-for-sale securities (33,700) (32,019)
Proceeds form maturities of held-to-maturity
securities 3,951 2,588
Purchases of held-to-maturity securities (3,345) (4,380)
Net (increase) decrease in loans (32,328) 1,018
Purchases of premises & equipment (652) (232)
-------------------
Net cash used in investing activities ($19,814) (6,151)
Financing activities
Increase(decrease)in Fed Fund Purchased
and Other Borrowed Money $5,000 ($2,415)
Net increase in demand deposits,
NOW accounts and savings accounts 5,047 1,101
Net increase in certificates of deposits 14,793 6,059
Cash dividends paid or declared (935) (1,651)
Proceeds from issuance of capital stock 105 29
Acquisition and retirement of Common Stock (1,731) 0
Net cash provided by -------------------
financing activities 22,279 3,123
Cash and cash equivalents at beg. of year 16,207 16,011
Increase in cash & cash equiv. 4,807 1,776
--------------------
Cash & cash equivalents at end of period $ 21,014 $ 17,787
====================
See Notes to unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
June 30, 1997
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 six month period ended June 30, 1997, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
Earnings per share are based on the weighted average number of
shares outstanding of 6,392 and 6,506 for the six months ended
June 30, 1997 and 1996.
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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 June 30, 1997 totaled $1.697
million, which is $.079 million more than was recorded for the second quarter of
1996. This translates into $.28 per share for the current period. For the same
quarter of 1996, each share earned $.25. Consolidated net income for the six
month period ended June 30, 1997 totaled $3.073 million, which is $.14 million
less than was recorded for the same period of 1996. This translates into $.48
per share for the year. For the same period of 1996, each share earned $.49.
Return on Average Equity (ROAE) decreased from 11.48 percent, at December 31,
1996, to 10.82 percent as of June 30, 1997.
The decrease in net income, Return on Average Equity and other key ratios,
are the direct result of the Corporation's process improvement program. The
Company engaged the services of Alex Sheshunoff Management Services, Inc., a
highly respected financial consulting group, to facilitate this process. Based
on the recommendations of the Alex Shesunoff Management group, Inc. and the
vision of executive management, several positions in the organization were
changed, new positions were created, and a few positions were eliminated. All
employees were offered a severance package during the restructuring process, and
63 employees chose to accept this package. Throughout this process First United
National Bank & Trust maintained its tradition of no lay-offs affecting its
employees. For those employees accepting the voluntary severance package, the
Board of Directors authorized a total of $554,000 to be charged against earnings
during the first six months of 1997.
The "efficiency ratio" is a key measuring tool for profitability and
operating efficiency. The calculation for 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 -66.70 percent for the period ended June 30,
1997. This represents a decline from year end 1996 when the ratio was -61.48%.
The decline in our efficiency ratio was again primarily attributed to the
process improvement project discussed above. Adjusting for the $.554 million
severance package and the $.250 million paid to Alex Shesunoff in the first half
of 1997, the efficiency ratio would have been -61.45%.
Income from fiduciary services increased by $90,000 to $690,000 for the six
months ended June 30, 1997 compared to the same time period in 1996. The
increase in salaries and employee benefits expense from $ 4.456 million in June,
1996 to $ 4.771 million in June, 1997 was the result of the severance program
offered to employees as part of the process improvement. These expense items
should decline in 1998 because of management's actions in 1997. Other Operating
Income and Other Operating Expense in 1996.
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The growth exhibited by the loan portfolio in the second quarter is among
the best the Corporation has ever recorded. In the second quarter, net loans
grew $19.831 million to a total of $412.675 million. The growth for the same
quarter of 1996 was $2.995 million, bringing the total to $357.248 million.
Year to date, loans have grown $32.081 million. As a result of our remarkable
loan growth, interest income at June 30, 1997 was $20.984 million compared to
$19.237 June 30, 1996. This total represents an increase of $1.747 million or
9.08%.
The corporation's interest expense as of June 30, 1997 was $1.045 higher
than was recorded for the same period in 1996. Interest expense increased $.620
million from the same quarter last year. During the first six months of 1997,
the Corporation was successful in increasing its deposit base through various
deposit campaigns and competitive pricing strategies. Consequently, deposits
have exhibited growth beyond management projections. Since December 31, 1996,
total deposits have increased $19.842 million to $472.381 million. As always,
it is of utmost importance that we take advantage of increasing our deposit
base, which is a less expensive source of funding to support loan growth versus
other sources.
Net interest income for the first six months of 1997 increased 6.19 percent
from the same period in 1996, to $12.039 million. The result was a Corporate net
interest margin of 4.94 percent in comparison to the net interest margin of 4.97
percent at the end of year 1996. The 4.94 percent net interest margin is
comparable with the results achieved at year end 1996. 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. Because interest expense has increased, coupled with the expenses
associated with the process improvement program, our Return on Average Assets
(ROAA) dropped to 1.16% at June 30, 1997 compared to 1.32% at June 30, 1996.
The provision for possible credit losses was $0.247 million for the first
six months of 1997 compared to $.198 million for the same period in 1996. Net
charge-offs for the first six months were $0.245 million, which equates to 0.06
percent of our net loan total of $412.675 million. First United Corporation
continues to place strong emphasis on maintaining a quality loan portfolio,
achieved through stringent underwriting standards and a consistent loan review
process.
Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
June 30, 1997
---------------
Balance at the Beginning of the period $2,186
Charge-offs:
Domestic:
Commercial, financial and agricultural 54
Real estate - mortgage 122
Installment loans to individuals 127
----------------
303
----------------
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Recoveries:
Domestics:
Commercial, financial and agricultural 10
Real estate - mortgage 8
Installment loans to individuals 40
---------------
58
---------------
Net Charge-offs 245
---------------
Additions charged to operations 247
---------------
Balance at end of period $2,188
===============
Ratio of net charge-offs during the period to average
Loans outstanding during the period .06%
===============
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. FUNB&T's non-accrual loans decreased $.393 million in the first half of
1997 from the year end total of $.976 million. This decrease was primarily due
to a single residential mortgage loan that was moved from non-accrual status to
accrual status as a result of the debtor paying all arrearages and demonstrating
the capacity to make scheduled payments when due.
June 30 Dec. 31
1997 1996
-----------------------
Non-accrual loans $583 $976
Accruing loans past due 90 days or more 1,008 659
Restructured Loans 0 0
Information with respect to non-accrual loans at June 30, 1997 is as follows:
Non-accrual Loans $583 $976
Interest income that would have been recorded
under original terms 27 70
Interest income recorded during the period 2 33
First United opened its newest supermarket community office on January 29,
1997. This office is located in the Martin's Food Store on Foxcroft Avenue in
Martinsburg, WV. This is the fourth supermarket office opened by the First
United family of community banks.
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A strength of First United is its capital position. Shareholders' equity
increased to $57.267 million, a 1.62 percent increase from the second quarter
of 1996, which was $56.353 million. Risk based capital, which is an expression
of the Corporation's stability and security was 16.14 percent, which is excess
of the regulatory minimum of 8.00 percent.
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% of the
outstanding shares of First United Corporation at a price management deems
appropriate. As of June 30, 1997, the Corporation has repurchased 160,017 shares
at a price of $2.584 million. This represents 2.459% of the approved 5%.
The Corporation paid cash dividends of $.14 on February 1, 1997 and May 1,
1997. On July 2,1997, the Corporation declared another dividend of equal
amount, to be paid August 1, 1997, to shareholders on record at July 18, 1997.
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Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
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 Company did not file any reports on Form
8-K for the period ending June 30, 1997.
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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 07/29/97 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 07/29/97 /s/ Robert W. Kurtz
---------- ----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
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