FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996
Commission File Number 0-17565
FIRST UNITED BANCORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0850174
(State or other jurisdiction (I. R. S. Employer
of incorporation) Identification No.)
304 North Main Street
Anderson, South Carolina 29621
(Address of principal executive
offices, including zip code)
(864) 224-1112
(Registrant's telephone number, including area code)
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 period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES [X] NO [ ]
The number of shares outstanding of each of registrant's classes of common stock
as of March 31, 1996:
2,327,054 shares of common stock, $1.67 Par Value
TABLE OF CONTENTS
PAGE
PART I ITEM 1 FINANCIAL INFORMATION
Consolidated Balance Sheets 3
March 31, 1996 and December 31, 1995
(unaudited)
Consolidated Statements of Income 4
Three months ended March 31, 1996
and 1995 (unaudited)
Consolidated Statement of Changes in
Shareholders' Equity 5
Year ended December 31, 1995 and three
months ended March 31, 1996 (unaudited)
Consolidated Statement of Cash Flows
Three months ended March 31, 1996 and 6
1995(unaudited)
Notes to Consolidated Financial Statements 7
(unaudited)
PART I ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II OTHER INFORMATION 19
SIGNATURES 20
Page 2
FIRST UNITED BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
------------ ------------
(In thousands)
ASSETS:
Cash and due from banks $ 7,926 $ 6,353
Federal funds sold 5,350 5,100
Investment securities:
Held to maturity (Market value of $8,944 and 8,801 9,481
$9,668)
Available for sale (Cost of $20,242 and $19,134) 20,101 19,032
Total loans 154,553 147,994
Less: Allowance for loan losses (2,391) (2,320)
-------- --------
Net loans 152,162 145,674
Premises, furniture and equipment (net) 6,044 5,588
Other real estate owned 74 74
Other assets 3,130 3,112
-------- --------
TOTAL ASSETS $203,588 $194,414
======== ========
LIABILITIES:
Demand deposits $ 21,113 $ 20,949
NOW accounts 25,024 24,710
Savings and money market deposits 29,888 25,420
Time deposits, $100,000 and over 26,552 23,855
Other time deposits 68,508 65,447
-------- --------
TOTAL DEPOSITS 171,085 160,381
-------- --------
Securities sold under repurchase agreements 3,147 3,096
Federal Home Loan Bank Borrowings 1,870 2,910
Other borrowed funds 8,350 9,470
Obligation under capital lease 14 21
Other liabilities 2,236 2,129
-------- --------
TOTAL LIABILITIES 186,702 178,007
-------- --------
SHAREHOLDERS' EQUITY:
Common stock ($1.67 par value, 15,000,000 3,880 3,859
shares authorized; 2,327,054 and 2,314,882
shares issued and outstanding, respectively)
Paid-in capital 11,313 11,269
Retained earnings 1,782 1,343
Unrealized gain (loss) on securities available for (89) (64)
sale, net of income taxes
-------- --------
TOTAL SHAREHOLDERS' EQUITY 16,886 16,407
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $203,588 $194,414
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1996 1995
------------ ------------
(In thousands except per share data)
INTEREST INCOME:
Loans $4,903 $3,975
Federal funds sold 75 69
Taxable investment securities 352 394
Non-taxable investment securities 64 66
------ ------
Total interest income 5,394 4,504
------ ------
INTEREST EXPENSE:
Interest on deposits 1,725 1,219
Interest on securities sold under repurchase agreements 40 45
Interest on other borrowed funds 263 234
------ ------
Total interest expense 2,028 1,498
------ ------
Net interest income 3,366 3,006
Provision for loan losses 321 72
------ ------
Net interest income after provision for loan losses 3,045 2,934
------ ------
OTHER INCOME:
Service fees 208 185
Other income 293 186
------ ------
Total other income 501 371
------ ------
OTHER EXPENSES:
Salaries, wages and benefits 1,734 1,351
Occupancy expenses 173 163
Furniture and equipment expenses 126 168
Other operating expenses 746 736
------ ------
Total other expenses 2,779 2,418
------ ------
Income before income taxes 767 887
Provision for income taxes 257 311
------ ------
NET INCOME $ 510 $ 576
====== ======
PER SHARE DATA:
Primary $0.21 $0.24
Fully diluted $0.21 $0.24
AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,466 2,410
Fully diluted 2,466 2,426
Cash dividends $0.03 $0.03
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
FIRST UNITED BANCORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTHS
ENDED MARCH 31,1996
(Unaudited)
(In thousands)
NUMBER OF COMMON PAID-IN RETAINED UNREALIZED SHARE-
SHARES STOCK CAPITAL EARNINGS NET GAIN HOLDERS'
OUTSTANDING (LOSS) ON EQUITY
SECURITIES
AVAILABLE
FOR SALE
----------- ------ ------- -------- ---------- ------------
Balance at 2,083 $3,471 $ 8,309 $ 2,452 $(641) $13,591
December 31, 1994
Issuance of 104 174 1,194 (1,371) - (3)
104,155 shares of
common stock relating
to 5% stock dividend
Issuance of 110 184 1,698 (1,887) - (5)
110,201 shares of
common stock relating
to 5% stock dividend
Cash dividends - - - (264) - (264)
declared
Employee stock 18 30 68 - - 98
options exercised
Net income - - - 2,413 - 2,413
Change in - - - - 577 577
unrealized net gain/loss
on securities available
for sale
------ ------ ------- ------- ----- -------
Balance at 2,315 3,859 11,269 1,343 (64) 16,407
December 31, 1995
Cash - - - (71) - (71)
dividends declared
Employee stock 12 21 44 - - 65
options exercised
Net income - - - 510 - 510
Changed in unrealized - - - - (25) (25)
net gain/loss on securities
available for sale
------ ------ ------- ------- ----- -------
Balance at March 31 1996 2,327 $3,880 $11,313 $ 1,782 $ (89) $16,886
====== ====== ======= ======= ===== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1996 1995
------------ ------------
(In thousands)
Cash flows from operating activities :
Net income $ 510 $ 576
Adjustments needed to reconcile net income to
net cash used by operating activities :
Provision for loan losses 321 72
Depreciation and amortization 157 176
Increase in other assets (33) (215)
Increase in other liabilities 107 157
------- -------
Net cash provided by operating activities 1,062 766
------- -------
Cash flows from investing activities :
Purchases of investment securities held to maturity (100) (56)
Proceeds from maturities of investment securities held 780 416
to maturity
Purchase of investment securities available for sale (3,342) (1,220)
Proceeds from maturities of investment securities 2,234 1,859
available for sale
Net increase in loans (6,809) (5,545)
Net additions to premises and equipment (584) (501)
------- -------
Net cash used by investing activities (7,821) (5,047)
------- -------
Cash flows from financing activities :
Net increase in deposits 10,704 2,633
Proceeds from other borrowed funds 180 10,965
Principal repayment of other borrowed funds (2,347) (8,977)
Net increase (decrease) in securities sold under 51 (234)
repurchase agreements
Proceeds from issuance of common stock 65 24
Cash dividends (71) (62)
------- -------
Net cash provided by financing activities 8,582 4,349
------- -------
Net increase in cash and cash equivalents 1,823 68
Cash and cash equivalents, beginning of period 11,453 9,166
------- -------
Cash and cash equivalents, end of period $13,276 $ 9,234
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 6
FIRST UNITED BANCORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of
First United Bancorporation and its wholly owned subsidiaries, Anderson
National Bank, Spartanburg National Bank, The Community Bank of
Greenville, National Association and Quick Credit Corporation,
(collectively, the "Company").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included
in the 1995 Annual Report to Shareholders.
(3) COMMON STOCK, EARNINGS PER SHARE, AND STOCK DIVIDENDS
On May 2, 1995 and October 22, 1995, the Company's Board of Directors
declared a five percent stock dividend. Accordingly, outstanding shares
of common stock were increased and a transfer representing the fair
market value of additional shares issued was made from retained
earnings to common stock at par value, cash for payment of fractional
shares and the balance to additional paid-in- capital. Per share data
for the 1995 period has been restated to reflect these dividends as if
they had occurred prior to the 1995 period presented.
During the period ended March 31, 1996, the Company issued 12,172
shares of its common stock at an average price of $5.28 per share in
connection with the exercise of stock options under its Employee Stock
Option Plans.
The Company calculates its earnings per share by dividing net earnings
for the periods presented by the weighted average equivalent shares
outstanding using the treasury stock method. Common stock equivalents
include options issued under the Company's Employee Stock Option Plans.
These options were dilutive for the periods presented.
(4) MANAGEMENT'S OPINION
In the opinion of management, the accompanying interim consolidated
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position of the Company and its subsidiaries at March 31, 1996, the
results of their operations for the quarters ended March 31, 1996 and
1995, and the statements of their cash flows for the three months ended
March 31, 1996 and 1995.
Page 7
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCUSSION OF CHANGES IN FINANCIAL CONDITION
Total assets increased $9,174,000, or 4.72%, from December 31, 1995 to
March 31, 1996. Total loans, the largest single category of assets, increased
$6,559,000, or 4.43%, to $154,553,000 during the period ended March 31, 1996, as
a result of an increase in the amount of outstanding loans at the Company's bank
subsidiaries. Total loans outstanding at March 31, 1996 for Spartanburg National
Bank amounted to $77,104,000, a 4.63% increase from the $73,689,000 reported at
December 31, 1995. Total outstanding loans, net of inter-company loans, at
Anderson National Bank at March 31, 1996 amounted to $68,017,000, an increase of
$4,883,000, or 7.73%, over total outstanding loans, net of inter-company loans,
at December 31, 1995.
Premises, furniture and equipment increased $456,000, or 8.16%, during
the first quarter of 1996. This increase is attributable to construction costs
and equipment costs associated with the Company's new bank subsidiary, The
Community Bank of Greenville, National Association, which officially opened for
business on April 17, 1996.
The Company's securities portfolios, collectively, at amortized cost,
increased $428,000 from December 31, 1995 as a result of purchases recorded
during the quarter ended March 31, 1996. Cash and due from banks increased
$1,573,000, or 24.76%, to $7,926,000 at March 31, 1996 as a result of
uncollected funds in correspondent bank accounts at quarter end. The amount of
Federal funds sold at March 31, 1996 was slightly above the amount sold at
December 31, 1995.
Other real estate owned amounted to $74,000 at March 31, 1995 and December
31, 1995, respectively. Management continues to pursue liquidation of this one
piece of property.
Total liabilities increased $8,695,000, or 4.88%, as a result of a
$10,704,000, or 6.67%, increase in total deposits at the Company's bank
subsidiaries. The largest increase in a single category of deposits was in the
savings and money market category, which increased $4,468,000, or 17.58%,
largely as a result of a single money market account at Spartanburg National
Bank. Time deposits of $100,000 or more, comprised largely of certificates of
deposit and representing 15.5% of total deposits at March 31, 1996, increased
$2,697,000, or 11.31%, from December 31, 1995 to $26,552,000 at March 31, 1996.
This increase resulted from growth in this size of deposit at both of the
Company's bank subsidiaries.
Page 8
During the period ended March 31, 1996, the Company also experienced modest
growth in the various other categories of deposits.
At March 31, 1996, the level of Securities Sold Under Agreements to
Repurchase, comprised largely of overnight repurchase agreements, remained near
the December 31, 1995 level. Federal Home Loan Bank borrowings decreased
$1,040,000, or 35.74%, to $1,870,000 at March 31, 1996 as Spartanburg National
Bank repaid $1,000,000 of short-term advances and Anderson National Bank made
principal reductions of $40,000 on its long-term borrowings during the period.
Other borrowed funds, comprised of various types of borrowings by Quick Credit
Corporation and borrowings by the parent company, decreased $1,120,000, or
11.83%, from December 31, 1995 primarily as a result of principal reductions
made by Quick Credit Corporation on its borrowings.
Shareholders' equity increased $479,000 from December 31, 1995 to March
31, 1996 as a result of net earnings for the period of $510,000 and the exercise
of stock options under the Company's Employee Stock Option Plans in the amount
of $65,000. These increases were partially offset by the declaration of cash
dividends in the amount of $71,000 during the period and an increase in the
amount of net unrealized losses on the Company's "available for sale" securities
portfolio of $25,000.
RESULTS OF OPERATIONS
Year-to-date and quarter ended March 31, 1996 vs. Year-to-date and quarter ended
March 31, 1995
Earnings Review
The Company's operations during the three months ended March 31, 1996
resulted in net income of $510,000, an 11.46% decrease from the $576,000 in net
income recorded for the comparable 1995 three month period. The decrease in
consolidated earnings for the 1996 period as compared with the 1995 period is
attributable to a $244,000, or 762.50%, increase in the provision for loan
losses at Quick Credit Corporation in the 1996 period and organizational
expenses of $65,000 incurred in the 1996 period associated with the formation of
the Company's new bank subsidiary, The Community Bank of Greenville, National
Association, which officially commenced banking operations on April 17, 1996.
Anderson National Bank recorded net earnings of $306,000 for the quarter
ended March 31, 1996, a 41.01% increase over $217,000 recorded for the first
quarter of 1995. The increase in earnings for this subsidiary resulted primarily
from an increase in net interest income of $109,000, or 10.98%, and an increase
in other income of $40,000, or 21.74%.
Page 9
Spartanburg National Bank recorded net earnings of $240,000 for the quarter
ended March 31, 1996, a 34.08% increase over the $179,000 recorded for the first
quarter earnings of $179,000. The increase in earnings for this subsidiary, like
that of Anderson National Bank's, resulted from an increase in net interest
income of $104,000, or 11.27%, and an increase in other income of $73,000, or
72.28%.
Quick Credit Corporation recorded net earnings of $29,000 for the quarter
ended March 31, 1996, a 86.19% decrease from the $210,000 recorded for the first
quarter of 1995. The significant decrease in earnings for this subsidiary
resulted primarily from higher loan charge-offs which required a significant
increase in the provision for loan losses for the 1996 period and an increase in
other operating expenses due to new offices opened in the third quarter of 1995.
Interest Income, Interest Expense and Net Interest Income
Net interest income, the major component of the Company's income, is the
amount by which interest and fees on interest earning assets exceeds the
interest paid on interest bearing deposits and other interest bearing funds. The
Company's net interest income increased $360,000, or 11.98%, to $3,366,000 for
the period ended March 31, 1996 compared to $3,006,000 for the period ended
March 31, 1995. The increase is attributable to an increase in interest income
on loans at the Company's bank subsidiaries resulting from an increase in the
volume of outstanding loans for the 1996 quarter when compared to the 1995
quarter.
The Company's interest income increased $890,000, or 19.76%, to $5,394,000
for the 1996 period compared to $4,504,000 for the 1995 period. The increase is
attributable to a $928,000, or 23.35% increase in loan interest income resulting
from a $28,814,000, or 23.53%, increase in the volume of average outstanding
loans for the 1996 quarter. The average yield on loans for the March 31, 1996
quarter was 12.97% compared to 12.99% for the March 31, 1995 quarter.
Average balances on securities and federal funds sold, collectively,
decreased by $2,343,000, or 6.52%, in the 1996 period when compared to the 1995
period. Largely as a result of this decrease, interest income on these
categories of earning assets, collectively, declined by $38,000.
Interest expense on deposits increased $506,000, or 41.5%, to $1,725,000
for the period ended March 31, 1996 compared to $1,219,000 for the period ended
March 31, 1995. The increase is attributable to increases in the Company's costs
of interest-bearing deposits resulting from increases in market interest rates
and an increase of $24,773,000, or 20.79%, in the volume of average
interest-bearing deposits for the 1996 period when compared to the 1995 period.
The weighted average cost of interest bearing
Page 10
deposits for the first three months of 1996 was 4.79% compared to 4.09% for the
first three months of 1995, a 17.11% increase.
Interest expense on Securities Sold Under Repurchase Agreements
declined $5,000, or 11.11% in the 1996 period as a result of a decline in the
rates paid on these short-term funds in the 1996 period. Interest expense
incurred by the Company's bank subsidiaries on average borrowings of $2,390,000
from the Federal Home Loan Bank of Atlanta for the 1996 quarter amounted to
$44,000, an 8.33% decline from the $48,000 incurred in the 1995 quarter. The
decline in interest expense on Federal Home Loan Bank borrowings resulted from a
decline in the amount borrowed during the 1996 period. Interest expense on the
various categories of other interest-bearing liabilities, which includes
Capitalized Leases, Subordinated Debt, Federal Funds Purchased and Other
Borrowed Funds, collectively, increased $33,000, or 17.74%, in the 1996 quarter
when compared to the 1995 quarter. The increase in interest expense associated
with these other interest-bearing liabilities is largely attributable to an
increase in the volume of borrowings by Quick Credit Corporation and First
United Bancorporation from third party lenders in the 1996 period.
Provision and Allowance for Loan Losses, Loan Loss Experience
The purpose of the Company's allowance for loan losses is to absorb
loan losses that occur in the loan portfolio. The allowance for loan losses
represents management's estimate of an amount adequate in relation to the risk
of future losses inherent in the loan portfolio and also reflects the
consideration of the amount of high rate/higher risk loans held by the Company's
consumer finance subsidiary, Quick Credit Corporation.
While it is the Company's policy to charge off in the current period
loans in which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the economy,
industry trends and conditions affecting individual borrowers, management's
judgment of the allowance is necessarily approximate and imprecise. The Company
is also subject to regulatory examinations and determinations as to adequacy,
which may take into account such factors as the methodology used to calculate
the allowance for loan losses and the size of the allowance for loan losses in
comparison to a group of peer companies identified by the regulatory agencies.
Management determines the adequacy of the allowance quarterly and
considers a variety of factors in establishing the level of the allowance for
losses and the related provision, which is charged to expense. In assessing the
adequacy of the allowance, management relies predominantly on its ongoing review
of the loan portfolio, which is undertaken both to ascertain whether there are
probable losses which must be charged off and to assess the risk characteristics
of the portfolio in the aggregate. The review considers the judgments of
management and also those of bank
Page 11
regulatory agencies that review the loan portfolio as part of their regular
examination process. The Comptroller of the Currency, as part of its routine
examination process of various national banks, including Anderson National Bank
and Spartanburg National Bank, may require additions to the allowance for loan
losses based upon information available to them at the time of their
examination.
Management considers the allowance for loan losses adequate to absorb
inherent losses on loans outstanding at March 31, 1996 and in the opinion of
management, there are no material risks or significant loan concentrations in
the present portfolio.
The allowance for loan losses was $2,391,000 at March 31, 1996 compared
to $1,936,000 at March 31, 1995. At March 31, 1996 and March 31, 1995, the
allowance for loan losses as a percentage of outstanding loans was 1.55%. During
the period ending March 31, 1996, the Company experienced net charge-offs of
$250,000, or 0.17%, of average loans, compared to net charge offs of $88,000, or
0.07% of average loans during the period ending March 31, 1995. The Company made
provisions for loan losses of $321,000 during the quarter ended March 31, 1996
compared to $72,000 for the quarter ended March 31, 1995. The increase in net
charge-offs and resulting increase in the provision for loan losses for the 1996
period is attributable to Quick Credit Corporation.
Anderson National Bank made no provisions for loan losses in either of
the two comparable periods. For the quarter ended March 31, 1996, this
subsidiary recorded net recoveries of $9,000 compared to net recoveries of
$23,000 for the 1995 quarter.
Spartanburg National Bank recorded a provision for loan losses of
$45,000 for the quarter ended March 31, 1996 compared to $40,000 for the 1995
quarter. The slight increase in the provision made by this subsidiary was a
result of loan growth experienced by this subsidiary during the 1996 period. For
the quarter ended March 31, 1996, this subsidiary recorded net charge-offs of
$12,000 compared to net charge-offs of $8,000 for the 1995 quarter.
Quick Credit Corporation recorded a provision for loan losses of
$276,000 for the quarter ended March 31, 1996 compared to $32,000 for the 1995
quarter. The increase in this subsidiary's provision for the 1996 period
resulted from an increase in the number and volume of loans charged off and an
increase in the volume of outstanding loans during the 1996 period. For the
quarter ended March 31, 1996, this subsidiary recorded net charge offs of
$247,000, or 2.40% of average outstanding loans, compared to net charge offs of
$103,000, or 1.19%, of average outstanding loans for the 1995 quarter.
Management continues to believe the significant increase in net charge offs and
the related increase in this subsidiary's provision is an industry-wide trend.
Quick Credit Corporation's customers are generally in the low-to-moderate income
group of borrowers. Over the past several years there has been a proliferation
of small consumer loan companies and other consumer debt providers competing for
pieces of this segment of the consumer debt market. It is not unusual for
customers of Quick
Page 12
Credit Corporation simultaneously to have loans outstanding at several small
loan companies which results in some customers incurring more debt than they can
service. As a result of increased charge offs experienced during the later half
of 1995 and during the first quarter of 1996, Quick Credit Corporation has
increased its allowance for loan losses as a percentage of outstanding loans,
net of unearned income, from 3.59% at March 31, 1995 to 6.68% at March 31, 1996.
Management expects this subsidiary to experience similar levels of defaults in
fiscal 1996 as experienced in fiscal 1995.
At March 31, 1996 the Company had $223,000 in non-accrual loans, which
are considered impaired, $296,000 in loans past due 90 days or more and still
accruing interest and $74,000 in OREO, compared to $276,000, $151,000, and
$74,000, respectively at March 31, 1995 and to $241,000, $271,000, and $74,000,
respectively at December 31, 1995. At March 31, 1996 and 1995, and December 31,
1995, the Company did not have a material amount of restructured loans.
In the cases of all non-performing loans, management of the Company has
reviewed the carrying value of any underlying collateral. In those cases where
the collateral value may be less than the carrying value of the loan the Company
has taken specific write downs to the credits, even though such credits may
still be performing. Management of the Company does not believe it has any
non-accrual loan which, individually, could materially impact the allowance for
loan losses or long term future operating results of the Company.
Other Income
Total other income increased $130,000 or 35.04%, during the three month
period ended March 31, 1996. The increase resulted largely from an $81,000, or
238.2%, increase in fee income generated, collectively, from the sale of
alternative investment products and mortgage lending activities at the Company's
banking subsidiaries. As a result of an increase in mortgage lending activity
during the first quarter of 1996, fee income from the Company's mortgage lending
activities increased $40,000, or 153.9%, to $66,000 in the 1996 period compared
to $26,000 for the 1995 period. Simultaneously, fee income generated from the
sale of alternative investment products (mutual funds and annuities), which
amounted to $8,000 in the 1995 period, increased $41,000, or 512.5%, to $49,000
for the 1996 period. This increase was a result of an increase in the volume of
sales of these type products during the 1996 period. The remaining increase in
other income is attributable to increases in service charge income on deposit
accounts resulting from a larger base of deposit accounts.
Other Expenses
Total other expenses increased $361,000, or 14.93%, in the 1996 period over
the 1995 comparable period. Salaries, wages and benefits ("personnel expense"),
the largest category of other
Page 13
operating expenses, increased $383,000, or 28.35%, in the 1996 period over the
1995 period. Of the increase in personnel expense, $199,000, or 51.96%, resulted
from additions to the staff of Quick Credit Corporation associated with new
offices opened during 1995 and $39,000, or approximately 10.18%, resulted from
personnel expenses associated with the Company's new bank subsidiary, The
Community Bank of Greenville, National Association. The remaining increase in
personnel expenses is attributable to additional staff and salary increases at
the Company's bank subsidiaries.
Occupancy expense and furniture and equipment expenses, collectively,
decreased $32,000, or 9.67%, in the 1996 period largely as a result of a decline
in depreciation expense associated with the Company's data processing equipment
which was sold during the second quarter of 1995.
Other operating expenses, the second largest category of other
expenses, increased only sightly during the 1996 period from the 1995 level.
Income Taxes
As a result of decreased income before income taxes, the Company incurred
income tax expense of $257,000 for the quarter ended March 31, 1996 compared to
income tax expense of $311,000 for the quarter ended March 31, 1995.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company's liquidity position is primarily dependent upon its need
to respond to short-term demand for funds caused by withdrawals from deposit
accounts and upon the liquidity of its assets. The Company's primary liquidity
sources include cash and due from banks, federal funds sold and "securities
available for sale". In addition, the Company (through its bank subsidiaries)
has the ability, on a short-term basis, to borrow funds from the Federal Reserve
System and to purchase federal funds from other financial institutions.
Spartanburg National Bank and Anderson National Bank are also members of the
Federal Home Loan Bank System and have the ability to borrow both short and
longer term funds on a secured basis. At March 31, 1996 Anderson National Bank
had $320,000 in long-term borrowings from the Federal Home Loan Bank of Atlanta.
At March 31, 1996 Spartanburg National Bank had $550,000 in long-term borrowings
and $1,000,000 in short-term borrowings from the Federal Home Loan Bank of
Atlanta.
First United Bancorporation has limited liquidity needs. First United
requires liquidity to pay limited operating expenses and dividends, and to
service its debt. In addition, First United has two lines of credit with third
party lenders totaling $6,100,000, of which $5,450,000 was available at March
31, 1996. One of these lines is a $6,000,000 line of credit with an unaffiliated
third party lender to be used for general corporate
Page 14
purposes and allows for interest to be paid on a quarterly basis for a period of
up to five (5) years if certain criteria are met. At the end of five (5) years,
or sooner if the Company desires, the line of credit can be converted to a term
loan with quarterly interest payments and annual principal reductions required
over a period of five (5) years. The line of credit bears interest at a variable
rate. On April 15,1996 the Company utilized $4,500,000 of this line to
capitalize its new bank subsidiary, The Community Bank of Greenville, National
Association. Further sources of liquidity for First United include management
fees which are paid by all of its subsidiaries and dividends from its
subsidiaries.
At March 31, 1996, the Company's consumer finance subsidiary, Quick
Credit Corporation, had debt outstanding of $800,000 in the form of subordinated
debt and $6,900,000 outstanding under a line of credit totaling $18,000,000 with
a third party lender. On March 1, 1996, Quick Credit Corporation and its third
party lender entered into a new loan agreement which increased Quick Credit's
line of credit from $10,000,000 to $18,000,000 and extended the line's maturity
from May 7, 1997 to May 31, 1999. This line of credit is secured by the
outstanding common stock of Quick Credit Corporation and all of Quick Credit
Corporation's loans receivable.
Management believes its liquidity sources are adequate to meet its
operating needs and does not know of any trends, other than those previously
discussed, that may result in the Company's liquidity materially increasing or
decreasing.
CAPITAL ADEQUACY AND RESOURCES
The capital needs of the Company have been met through the retention of
earnings and from the proceeds of a public stock offering in 1988.
For bank holding companies with total assets of more than $150 million,
such as the Company, capital adequacy is generally evaluated based upon the
capital of its banking subsidiaries. Generally, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") expects bank holding
companies to operate above minimum capital levels. The Office of the Comptroller
of the Currency ("Comptroller") regulations establish the minimum leverage
capital ratio requirement for national banks at 3% in the case of a national
bank that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other national banks are expected to
maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the
Comptroller reserves the right to require higher capital ratios in individual
banks on a case by case basis when, in its judgment, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. Neither of the Company's subsidiary banks have been notified
that they must maintain capital levels above regulatory minimums. The Company's
leverage capital ratio was 8.12% at March 31, 1996 and
Page 15
8.23% at December 31, 1995. The leverage capital ratios for Anderson National
Bank and Spartanburg National Bank were 7.59% and 6.83%, respectively at March
31, 1996, compared to 7.86% and 7.01%, respectively, at December 31, 1995. The
decrease in the leverage capital ratio for Anderson National Bank during the
period ending March 31, 1996 resulted from the payment of $325,000 in dividends
to the Company. The decrease in the leverage capital ratio for Spartanburg
National Bank and the consolidated Company is attributable to growth experienced
since December 31, 1995.
The Federal Reserve Board has adopted a risk-based capital rule which
requires bank holding companies to have qualifying capital to risk-weighted
assets of at least 8.00%, with at least 4% being "Tier 1" capital. Tier 1
capital consists principally of common stockholders' equity, noncumulative
preferred stock, qualifying perpetual preferred stock, and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets. "Tier 2" (or supplementary) capital consists of general loan
loss reserves (subject to certain limitations), certain types of preferred stock
and subordinated debt, and certain hybrid capital instruments and other debt
securities such as equity commitment notes. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital components, provided that the maximum amount of
Tier 2 capital that may be treated as qualifying capital is limited to 100% of
Tier 1 capital. The Comptroller imposes a similar standard on national banks.
The regulatory agencies expect national banks and bank holding companies to
operate above minimum risk-based capital levels. The Company's risk-based
capital ratio was 12.56% and its Tier 1 capital to risk weighted assets ratio
was 11.31% at March 31, 1996, compared to 12.73% and 11.48%, respectively, at
December 31, 1995. The risk-based capital ratios for Anderson National Bank and
Spartanburg National Bank were 11.85% and 10.96%, respectively, at March 31,
1996 compared to 12.72% and 11.09%, respectively, at December 31, 1995. Their
Tier 1 capital to risk weighted assets ratios were 10.60% and 9.76%,
respectively, at March 31, 1996 compared to 11.47% and 9.88%, respectively, at
December 31, 1995. The decline in Anderson National Bank's risk-based and Tier 1
capital to risk weighted assets ratios from December 31, 1995 levels resulted
from the payment of $325,000 in dividends to the Company during the period
ending March 31, 1996. The decrease in Spartanburg National Bank's and the
Company's risk-based and Tier 1 capital to risk weighted assets ratios from
December 31, 1995 levels is a result of growth experienced during the first
quarter of 1996.
The Company opened a new bank subsidiary, The Community Bank of Greenville,
National Association, in the city of Greenville, South Carolina on April 17,
1996. The Company capitalized this new bank subsidiary with $4.5 million of
capital. The capital required to open this new bank came from proceeds available
to the Company under a line of credit with an unaffiliated third-party lender
which had committed to lend the Company up to $6 million.
Page 16
Spartanburg National Bank has begun construction on a new branch
facility in the Boiling Springs area of Spartanburg County, South Carolina.
Spartanburg National Bank purchased the property on which this new branch is
being constructed in late 1995 for $211,000. Spartanburg National Bank expects
to incur approximately $600,000 in additional fixed assets costs in 1996 with
this facility.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principals which require the measurement of
financial position and results of operations in terms of historical dollars,
without consideration of changes in the relative purchasing power over time due
to inflation. Unlike most other industries, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on a financial
institution's performance than does the effect of inflation. Interest rates do
not necessarily change in the same magnitude as the prices of goods and
services.
While the effect of inflation on banks is normally not as significant as is
its influence on those businesses which have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above average growth in assets, loans and deposits. Also, general
increases in the prices of goods and services will result in increased operating
expenses.
ACCOUNTING AND REPORTING MATTERS
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". SFAS
No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset.
Page 17
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be disposed of be reported at the lower of carrying amount or fair
value less cost to sell. SFAS No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. SFAS No. 121 is not expected to
have a material impact on the financial statements of the Company.
In May, 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS No. 122 requires
that a mortgage banking enterprise recognize as a separate asset rights to
service mortgage loans for others, however the servicing rights are acquired.
SFAS No. 122 also requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on fair value of
those rights. SFAS No. 122 is effective prospectively in fiscal years beginning
after December 15, 1995, and applies to transactions in which a company sells or
securitizes mortgage loans with servicing rights retained and to impairment
evaluations of amounts capitalized as mortgage servicing rights, including those
purchased before the adoption of this statement. Earlier application is
encouraged. The Company adopted SFAS No. 122 January 1, 1996 and it did not have
a material impact in the first quarter of 1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes a new method of accounting
for stock-based arrangements by measuring the value of a stock compensation
award by the fair value method versus the intrinsic method as currently is used
under the provisions of Accounting Principles Board Opinion 25. If entities do
not adopt the fair value method of accounting for stock-based compensation, they
will be required to disclose in the footnotes pro forma net income and earnings
per share information as if the fair value based method had been adopted. The
disclosure requirements of SFAS No. 123 are effective for financial statements
with fiscal years beginning after December 15, 1995. The Company adopted SFAS
No. 123 January 1, 1996 . The Company has elected to continue its method of
expense recognition as allowed under Opinion 25, as such, SFAS No. 123 will have
a reporting only disclosure impact on the Company.
Page 18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is from time to time involved in various legal proceedings
arising out of the ordinary course of business, primarily related to
the collection of loans receivable. Based upon current information
available, management believes there are no legal proceedings
threatened or pending against the Company that could result in a
materially adverse change in the business or financial condition of
the Company.
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.
(a) Exhibits
10. Amended and Restated Loan and Security Agreement dated as of
March 1, 1996 between Bankamerica Business Credit, Inc., and
Quick Credit Corporation
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
Page 19
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 BANCORPORATION
Mason Y. Garrett
Dated: May 7, 1996 ---------------------------
Mason Y. Garrett, President
and Chief Executive Officer
William B. West, Sr.
----------------------------
William B. West, Sr. Vice
President and Chief Financial
and Accounting Officer
Page 20
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
10 Amendended and Restated Loan and Security Agreement dated as of
March 1, 1996 between Bankamerica Business Credit, Inc., and
Quick Credit Corporation
27 Financial Data Schedule