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, 1998
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--6,243,311 shares outstanding as of
March 31, 1998 Preferred stock, No par value--No shares
outstanding as of March 31, 1998.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998
(Unaudited), December 31, 1997, and March 31, 1997(Unaudited).
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 1998 and 1997.
Consolidated Statement of Cash Flows (Unaudited) - Three months ended
March 31, 1998 and 1997.
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)
March 31, Dec. 31, March 31,
Assets 1998 1997 1997
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $18,070 $17,586 $21,307
Investment securities:
Available-for-sale:
U.S. Treasury Securities 12,748 10,225 18,023
Obl. of other U S Gov. Agen. 31,848 31,468 33,599
Obl. of St. and Loc. Govt 6,255 6,360 6,820
Other investments 18,466 17,000 19,025
-------------------------
Total available-for-sale 69,317 65,053 77,467
Held-to-maturity:
Obl. of other U S Govt Agen 0 0 1,515
Obl. of St. and Loc. Govt 10,201 9,203 8,620
Other investments 13,002 20,339 16,078
---------------------------
Total held-to-maturity 23,203 29,542 26,213
---------------------------
Total investment securities 92,520 94,595 103,680
Federal funds sold 5,300 0 0
Loans 450,379 441,392 395,025
Reserve for poss. credit losses (2,820) (2,654) (2,181)
---------------------------
Net loans 447,559 438,738 392,844
Bank premises and equipment 9,395 9,250 9,399
Acc. int. Rec. and other assets 9,303 8,861 6,947
----------------------------
Total Assets $582,147 $569,030 $534,177
============================
* The balance sheet at December 31, 1997 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
March 31, Dec. 31, March 31,
1998 1997 1997
(Unaudited) (*) (Unaudited)
Liabilities ------------------------------
Deposits
Non-int. bearing deposits $ 53,828 $ 51,309 $ 54,113
Interest bearing deposits 449,711 448,751 411,430
---------------------------
Total deposits 503,539 500,060 465,543
Reserve for taxes, int., &
Other liabilities 4,887 5,094 4,470
Fed funds purchased & other
borrowed money 15,650 6,225 6,500
Dividends payable 950 937 900
----------------------------
Total Liabilities 525,026 512,316 477,413
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 6,243 shares at March 31,
1998, 6,260 outstanding at December
31, 1997, and 6,392 outstanding at
March 31, 1997 62 63 64
Surplus 23,162 23,461 25,994
Retained earnings 33,594 32,913 30,753
Accumulated other
comprehensive income 303 277 (47)
---------------------------
Total Shareholders' Equity 57,121 56,714 56,764
---------------------------
Total Liabilities and
Shareholders' Equity $582,147 $569,030 $534,177
============================
* The balance sheet at December 31, 1997 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) Three Months
Ended March 31,
1998 1997
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 9,779 $ 8,761
Interest on investment securities:
Taxable 1,239 1,413
Exempt from federal income tax 168 180
--------------------
1,407 1,593
Interest on federal funds sold 40 27
--------------------
Total interest income 11,226 10,381
Interest expense
Interest on deposits:
Savings 252 289
Interest-bearing transaction acct. 828 646
Time, $100,000 or more 856 535
Other time 3,103 2,834
Interest on fed funds purchased
& other borrowed money 177 93
--------------------
Total interest expense 5,216 4,397
--------------------
Net interest income 6,010 5,984
Provision for possible credit losses 250 124
--------------------
Net interest income after provision
for possible credit losses 5,760 5,860
Other operating income
Trust department income 350 345
Service charges on deposit accts. 604 434
Insurance premium income 67 73
Other income 538 348
--------------------
Total other operating income 1,559 1,200
Other operating expenses
Salaries and employee benefits 2,356 2,404
Occupancy expense of premises 269 239
Equipment expense 420 441
Data processing expense 148 145
Deposit assess. and related fees 40 47
Restucturing charge 0 350
Other expense 1,514 1,377
--------------------
Total other operating expenses 4,747 5,003
--------------------
Income before income taxes 2,572 2,057
Applicable income taxes (894) (681)
--------------------
Net income $1,678 $1,376
====================
Earnings per share $ 0.27 $0.21
====================
See Notes to Unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months
Ended March 31,
1998 1997
--------------------
(Unaudited)
Operating activities
Net Income $ 1,678 $ 1,376
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 250 124
Provision for depreciation 369 343
Net accretion & amortization of investment
security discounts & premiums 21 60
(Increase) decrease in accrued interest
& other receivables. (442) 474
(Decrease) in accrued interest
& other payables (194) (897)
--------------------
Net cash provided by operating activities 1,682 1,480
Investing activities
Proceeds from maturities of available-for-
sale securities 15,107 23,284
Purchases of available-for-sale securities (15,035) (18,328)
Proceeds form maturities of held-to-maturity
securities 4,030 2,641
Purchases of held-to-maturity securities (2,019) (1,529)
Net increase in loans (9,073) (12,374)
Purchases of premises & equipment (513) (411)
-------------------
Net cash used in investing activities ($ 7,503) (6,717)
Financing activities
Increase (decrease) in Fed Fund Purchased
and Other Borrowed Money $9,425 ($1,500)
Net increase in demand deposits,
NOW accounts and savings accounts 940 1,370
Net increase in certificates of deposits 2,539 11,634
Cash dividends paid or declared (1,000) (500)
Proceeds from issuance of capital stock 0 172
Acquisition and retirement of capital stock (299) (839)
Net cash provided by -------------------
financing activities 11,605 10,337
Cash and cash equivalents at beg. of year 17,586 16,207
Increase in cash & cash equiv. 5,784 5,100
--------------------
Cash & cash equivalents at end of period $ 23,370 $ 21,307
====================
See Notes to unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 1998
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, 1998, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
Earnings per share ("basic")are based on the weighted average number of shares
outstanding of 6,251 and 6,411 for the three months ended March 31, 1998 and
1997.
Note B Comprehensive Income
As of January 1, 1998 The Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholder's
equity. Accumulated other comprehensive income represents the unrealized gains
or losses on the Company's available-for-sale securities, net of income taxes.
During the first quarter of 1998 and 1997, total comprehensive income, net
income plus the change in unrealized gains on available-for-sale securities,
amounted to $1,704 and $1,210, net of income taxes.
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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, 1998 totaled $1.678
million, which is $.302 million more than was recorded for the quarter ended
March 31, 1997. This translates into $.27 per share for the current period. For
the same quarter of 1997, each share earned $.21. Return on Average Equity
(ROAE) increased from 11.70 percent, at December 31, 1997, to 11.80 percent as
of March 31, 1998.
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 plus the tax benefit of non-taxable securities and loans)
excluding nonrecurring items and securities gains and losses. A lower ratio
equals higher profitability and operating efficiencies. The Corporation's
efficiency ratio was 61.49 percent for the period ended March 31, 1998. This
represents an improvement from year end 1997 when the ratio was 62.98%.
Other Operating Income increased $.359 million from 1.200 million at March
31, 1997 to $1.559 million at March 31, 1998. Revamping our deposit base fee
structure, as well as improvement from our brokerage and business manager
products account for most of the 29.92% increase. Salaries and employee benefits
decreased from $2.754 million in March, 1997 to $2.356 million in March, 1998.
After adjusting for the $.350 million of severance payments made in the first
quarter of 1997, the Corporation experienced an improvement of 1.78%. Other
Operating Income and Other Operating Expense as of March 31, 1998 were $1.559
million and $4.747 million compared to $1.200 million and $5.003 million in
1997. These figures represent a 29.92% increase in Other Operating Income and a
10.57% decrease in Other Operating Expense.
The growth exhibited by the loan portfolio in the first quarter continued to
be strong. In the first quarter, net loans grew $8.821 million to a total of
$447.559 as of March 31, 1998.The growth for the first quarter of 1997 was
$12.250 million, bringing the total to $392.844 million at March 31, 1997.
Although the growthe is behind the record pace of 1997, the totals are in line
with budget projections for the first quarter.
As a result of our solid loan growth, interest income at March 31, 1998 was
$11.226 million compared to $10.381 million as of March 31, 1997. this total
represents an increase of $.845 million or 8.14%.
The Corporation's interest expense as of March 31, 1998 was $.819 million
higher than was recorded for the same period in 1997. During the first three
months of 1998, the Corporation was successful in increasing its deposit base
through various deposit camp[aigns and competitive pricing strategies. Since
December 31, 1997, total deposits have increased $3.479 million to $503.539
million at March 31, 1998. During the first three months of 1997, deposits grew
from $452.539 million to $465.543 million or $13.004 million. As the demands on
our interest margin continue to
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increase we will continue to look for the least expensive source of funds to
meet our liquidity needs.
Net interest income for the first three months of 1998 increased 0.43%
percent from the same period in 1997, to $6.010 million as of March 31, 1998.
Although net interst margin increased our Corporate net interest margin dropped
from 4.83% at December 31, 1997 to 4.53% at March 31, 1998. Even though the net
interest margin has dropped 6.21%, it is still within the expectations of the
Corporation. Varying market conditions and rising deposit costs constantly cause
a reevaluation of acceptable margins on loans and deposits. Return on Average
Assets (ROAA) continued to be strong registering in at 1.17% at March 31, 1998
compared to 1.05 percent at March 31, 1997.
The provision for possible credit losses was $0.250 million for the first
three months of 1998 compared to $.124 million for the same period in 1997. Net
charge-offs for the three months were $0.084 million, which equates to 0.07
percent of our net loan total of $447.559 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
March 31, 1998
----------------
Balance at the Beginning of the period $2,654
Charge-offs:
Commercial, financial and agricultural 54
Real estate - mortgage 29
Installment loans to individuals 38
----------------
121
----------------
Recoveries:
Commercial,financial and agricultural 11
Real estate - mortgage 29
Installment loans to individuals 26
----------------
37
----------------
Net Charge-offs 84
----------------
Additions charged to operations 250
----------------
Balance at the end of period $2,820
================
Ratio of net charge-offs during the period to average
Loans outstanding during the period .07%
================
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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 increased $.216 million in the first quarter of 1998
from the year end total of $.562 million. This increase was primarily due to
two large loans, one a residential mortgage and onr a commercial loan, totaling
$.245 million being moved to non-accrual status.
March 31 Dec. 31
1998 1997
-----------------------
Non-accrual loans $778 $562
Accruing loans past due 90 days or more 401 563
Restructured Loans 0 0
Information with respect to non-accrual loans at March 31, 1998 and 1997 is as
follows:
Non-accrual Loans $778 $562
Interest income that would have been recorded
under original terms 18 40
Interest income recorded during the period 3 20
One strength of First United is its capital position. Shareholders' equity as of
March 31, 1998 was equal to $57.121 million, comparable to the first quarter
total of 1997, which was $56.764 million. Risk based capital, which is an
expression of the Corporation's stability and security was 14.71 percent, which
is in 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. On a cumulative basis, the Corporation has repurchased 262,920
shares at a price of $4.473 million as of March 31, 1998. This represents 4.041%
of the approved 5%.
The Corporation paid a cash dividend of $.15 on February 1, 1998. On March
25,1998, the Corporation declared another dividend of equal amount, to be paid
May 1, 1998, to shareholders on record at April 20, 1998.
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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 March 31, 1998.
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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 4/30/98 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 4/30/98 /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 4/30/98
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 4/30/98
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
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