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, 1999
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-- 6,130,107 shares outstanding as of
March 31, 1999 Preferred stock, No par value--No shares
outstanding as of March 31, 1999.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1999
(Unaudited), December 31, 1998, and March 31, 1998(Unaudited).
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 1999 and 1998.
Consolidated Statement of Cash Flows (Unaudited) - Three months ended
March 31, 1999 and 1998.
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 1999 1998 1998
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $13,683 $13,633 $18,070
Investment securities:
Available-for-sale:
U.S. Treasury Securities 1,912 1,921 12,748
Obl. of other U S Gov. Agen. 40,813 45,082 31,848
Obl. of St. and Loc. Govt 22,946 22,327 6,255
Other investments 37,154 31,365 18,466
-------------------------
Total available-for-sale 102,825 100,695 69,317
Held-to-maturity:
Obl. of St. and Loc. Govt 0 0 10,201
Other investments 0 0 13,002
---------------------------
Total held-to-maturity 0 0 22,203
---------------------------
Total investment securities 102,825 100,695 92,520
Federal funds sold 10,000 0 5,300
Loans 525,475 508,972 450,379
Reserve for poss. credit losses (3,690) (3,304) (2,820)
---------------------------
Net loans 521,784 505,668 447,559
Bank premises and equipment 9,326 9,136 9,395
Acc. int. Rec. and other assets 12,242 11,982 9,303
----------------------------
Total Assets $669,861 $641,114 $582,147
============================
* The balance sheet at December 31, 1998 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,
1999 1998 1998
(Unaudited) (*) (Unaudited)
Liabilities ------------------------------
Deposits
Non-int. bearing deposits $ 54,994 $ 54,554 $ 53,828
Interest bearing deposits 482,328 456,946 449,711
---------------------------
Total deposits 537,323 511,500 503,539
Reserve for taxes, int., &
Other liabilities 6,945 5,594 4,887
Fed funds purchased & other
borrowed money 66,000 64,575 15,650
Dividends payable 973 971 950
----------------------------
Total Liabilities 611,241 582,640 525,026
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 6,130 shares at March 31,
1999, 6,155 outstanding at December
31, 1998, and 6,243 outstanding at
March 31, 1998 61 62 62
Surplus 20,977 21,384 23,162
Retained earnings 37,460 36,559 33,594
Accumulated other
comprehensive income 122 469 303
---------------------------
Total Shareholders' Equity 58,620 58,474 57,121
---------------------------
Total Liabilities and
Shareholders' Equity $669,861 $641,114 $582,147
============================
* The balance sheet at December 31, 1998 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,
1999 1998
-------------------
(Unaudited)
Interest income
Interest and fees on loans $11,013 $ 9,779
Interest on investment securities:
Taxable 1,198 1,239
Exempt from federal income tax 265 168
--------------------
1,463 1,407
Interest on federal funds sold 43 40
--------------------
Total interest income 12,519 11,226
Interest expense
Interest on deposits:
Savings 87 252
Interest-bearing transaction acct. 859 828
Time, $100,000 or more 1,083 856
Other time 3,020 3,103
Interest on fed funds purchased
& other borrowed money 843 177
--------------------
Total interest expense 5,892 5,216
--------------------
Net interest income 6,627 6,010
Provision for possible credit losses 425 250
--------------------
Net interest income after provision
for possible credit losses 6,202 5,760
Other operating income
Trust department income 419 350
Service charges on deposit accts. 539 604
Insurance premium income 63 67
Other income 470 538
--------------------
Total other operating income 1,491 1,559
Other operating expenses
Salaries and employee benefits 2,399 2,356
Occupancy expense of premises 261 269
Equipment expense 404 420
Data processing expense 198 148
Deposit assess. and related fees 24 40
Other expense 1,658 1,514
--------------------
Total other operating expenses 4,944 4,747
--------------------
Income before income taxes 2,749 2,572
Applicable income taxes (934) (894)
--------------------
Net income $1,815 $1,678
====================
Earnings per share $ 0.30 $0.27
====================
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,
1999 1998
--------------------
(Unaudited)
Operating activities
Net Income $ 1,815 $ 1,678
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 425 250
Provision for depreciation 407 369
Net accretion & amortization of investment
security discounts & premiums (63) 21
Realized (gain) on sale of
Investment securities (2) 0
(Increase) in accrued interest
& other receivables. (260) (442)
Increase (decrease) in accrued interest
& other liabilities 1,353 (194)
--------------------
Net cash provided by operating activities 3,675 1,682
Investing activities
Proceeds from maturities of available-for-
sale securities 26,892 15,107
Purchases of available-for-sale securities (29,303) (15,035)
Proceeds form maturities of held-to-maturity
securities 0 4,030
Purchases of held-to-maturity securities 0 (2,019)
Net increase in loans (16,541) (9,073)
Purchases of premises & equipment (597) (513)
-------------------
Net cash used in investing activities (19,549) (7,503)
Financing activities
Increase in Fed Fund Purchased
and Other Borrowed Money 1,425 9,425
Net increase in demand deposits,
NOW accounts and savings accounts 6,771 940
Net increase in certificates of deposits 19,052 2,539
Cash dividends paid or declared (917) (1,000)
Acquisition and retirement of capital stock (407) (299)
Net cash provided by -------------------
financing activities 25,924 11,605
Cash and cash equivalents at beg. of year 13,633 17,586
Increase in cash & cash equiv. 10,050 5,784
--------------------
Cash & cash equivalents at end of period $ 23,683 $ 23,370
====================
See Notes to unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 1999
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, 1999, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
Earnings per share ("basic")are based on the weighted average number of shares
outstanding of 6,153 and 6,251 for the three months ended March 31, 1999 and
1998.
Note B - Comprehensive Income
As of January 1, 1998 The Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 established 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 1999 and 1998, total comprehensive income, net
income plus the change in unrealized gains on available-for-sale securities,
amounted to $ 1,468 and $1,704, net of income taxes.
Note C - New Accounting Pronouncements
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosure about Pensions and Other Postretirement Benefits"
(Statement No. 132), was issued. This statement, effective for financial
statements issued for fiscal years beginning after December 15, 1997, revises
employers' disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. The adoption of
Statement No. 132 will not have an impact on the Corporation's consolidated
financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement No.
133), was issued. Statement 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and hedging activities. This statement is effective for
June 15, 1999. With the exception of the reclassification listed below, the
adoption of Statement 133 will not have a material impact on the Corporation's
consolidated financial statements as the company does not enter into derivative
contracts. The Corporation early adopted the provisions of this statement on
July 1, 1998. In connection with the adoption of this statement, $25,265,806
of the investment securities previously classified as held-to-maturity were
reclassified to available-for-sale. This change had a one-time increase to
comprehensive income in the amount of $250,378.
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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, 1999 totaled $1.815
million, which is $.137 million more than was recorded for the quarter ended
March 31, 1998. This translates into $.30 per share for the current period. For
the same quarter of 1998, each share earned $.27. Return on Average Equity
(ROAE) decreased slightly from 12.92 percent, at December 31, 1998, to 12.60
percent as of March 31, 1999.
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 59.54 percent for the period ended March 31, 1999. This
is consistent with the year end 1998 ratio which was 58.98 percent.
Salaries and employee benefits increased from $ 2.356 million in March 1998
to $ 2.399 million in March 1999. Other Operating Income and Other Operating
Expense as of March 31, 1999 were $1.491 million and $ 4.944 million compared
to $ 1.559 million and $ 4.747 million in 1998. These figures represent a 4.36
percent decrease in Other Operating Income and a 4.15 percent increase 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 $ 16.116 million to a total of
$521.784 as of March 31, 1999. The growth for the first quarter of 1998 was
$8.821 million, bringing the total to $447.559 million at March 31, 1998.
Much of the loan growth has come from our indirect loan network. The positive
trends seen in this portfolio in 1998 have continued into 1999. Also fueling
the increase was the continued growth of our leasing program. Introduced late
in the fourth quarter of 1998, this product has grown 1.224 million since year-
end 1998.
As a result of our solid loan growth, interest income at March 31, 1999 was
$ 12.519 million compared to $ 11.226 million as of March 31, 1998. This total
represents an increase of $1.293 million or 11.52 percent.
The Corporation's interest expense as of March 31, 1999 was $.676 million
higher than was recorded for the same period in 1998. During the first three
months of 1999, the Corporation was successful in increasing its deposit base
through various deposit campaigns and competitive pricing strategies. Since
December 31, 1998, total deposits have increased $ 25.823 million to $ 537.323
million at March 31, 1999. Included in this total is $14.300 million of brokered
certificates of deposits which the Corporation was able to raise in the first
quarter of 1999. Although this is not the first brokered deposit that the
Corporation has taken, it is by far the largest. This type of funding instrument
provides the Corporation with yet another funding option. During the first three
months of 1998, deposits grew from $ 500.060 million to $ 503.539 million or
$ 3.479 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 1999 increased 10.27
percent from the same period in 1998, $6.010 million to $ 6.627 million as of
March 31, 1999. Although net interest income increased, our Corporate net
interest margin dropped from 4.56 percent at December 31, 1998 to 4.39 percent
at March 31, 1999. Even though the net interest margin has dropped 3.87
percent, 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, at 1.12 percent at March 31, 1999 compared to 1.17
percent at March 31, 1998.
The provision for possible credit losses was $.425 million for the first
three months of 1999 compared to $.250 million for the same period in 1998. Net
charge-offs for the three months were $ .039 million, which equates to .007
percent of our net loan total of $521.784 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, 1999
----------------
Balance at the Beginning of the period $3,304
Charge-offs:
Commercial, financial and agricultural 33
Real estate - mortgage 4
Installment loans to individuals 146
----------------
183
----------------
Recoveries:
Commercial,financial and agricultural 126
Real estate - mortgage 4
Installment loans to individuals 14
----------------
144
----------------
Net Charge-offs 39
----------------
Additions charged to operations 425
----------------
Balance at the end of period $3,690
================
Ratio of net charge-offs during the period to average
Loans outstanding during the period .007%
================
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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.
First United's non-accrual loans increased $.397 million in the first quarter of
1999 from the year end total of $.460 million.
March 31 Dec. 31
1999 1998
-----------------------
Non-accrual loans $857 $460
Accruing loans past due 90 days or more 729 544
Information with respect to non-accrual loans at March 31, 1999 and 1998 is as
follows:
Non-accrual Loans $857 $460
Interest income that would have been recorded
under original terms 15 30
Interest income recorded during the period 19 6
One strength of First United is its capital position. Shareholders' equity
as of March 31, 1999 was equal to $ 58.620 million, comparable to the first
quarter total of 1998, which was $ 57.121 million. Risk based capital, which is
an expression of the Corporation's stability and security was 12.55 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 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
additional 5 percent or 309,048 shares. As of March 31, 1999 the Corporation has
repurchased 377,553 at a price of $6.686 million. This represents 5.803 percent
of the approved 10 percent.
The Corporation paid a cash dividend of $.155 on February 1, 1999. On
March 17,1999, the Corporation declared another dividend of equal amount, to be
paid May 1, 1999, to shareholders on record at April 20, 1999.
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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 4/30/99 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 4/30/99 /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 4/30/99
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 4/30/99
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
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