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, 1997
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, 1997:
2,591,958 shares of common stock, $1.67 Par Value
TABLE OF CONTENTS
PAGE
PART I ITEM 1 FINANCIAL INFORMATION
Consolidated Balance Sheets...................................... 3
March 31, 1997 and December 31, 1996
(unaudited)
Consolidated Statements of Income................................ 4
Three months ended March 31, 1997
and 1996 (unaudited)
Consolidated Statement of Changes in
Shareholders' Equity............................................. 5
Year ended December 31, 1996 and three
months ended March 31, 1997 (unaudited)
Consolidated Statement of Cash Flows
Three months ended March 31, 1997 and................... 6
1996(unaudited)
Notes to Consolidated Financial Statements....................... 7
(unaudited)
PART I ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 9
PART II OTHER INFORMATION................................................ 19
SIGNATURES................................................................ 20
Page 2
FIRST UNITED BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
------------ ------------
(In thousands)
ASSETS:
Cash and due from banks $ 9,087 $ 8,128
Federal funds sold 11,160 13,700
Investment securities:
Held to maturity (Market value of $7,120 and $8,006) 6,990 7,843
Available for sale (Cost of $26,939 and $26,218) 26,799 26,304
Total loans 213,595 205,551
Less: Allowance for loan losses (3,408) (3,160)
--------- ---------
Net loans 210,187 202,391
Premises, furniture and equipment (net) 7,525 7,627
Other real estate owned 74 85
Other assets 4,224 4,117
--------- ---------
TOTAL ASSETS $ 276,046 $ 270,195
========= =========
LIABILITIES:
Demand deposits $ 23,867 $ 23,180
NOW accounts 25,383 25,143
Savings and money market deposits 34,392 34,113
Certificates of deposit greater than $100,000 45,856 41,073
Certificates of deposit less than $100,00 and other time deposits 100,548 94,710
--------- ---------
TOTAL DEPOSITS 230,046 218,219
========= =========
Securities sold under repurchase agreements 3,537 8,167
Federal Home Loan Bank Borrowings 9,790 10,830
Other borrowed funds 10,300 11,900
Other liabilities 3,402 2,794
--------- ---------
TOTAL LIABILITIES 257,075 251,910
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock ($1.67 par value, 15,000,000 4,322 4,315
shares authorized; 2,591,958 and 2,587,895
shares issued and outstanding, respectively)
Paid-in capital 13,982 13,965
Retained earnings 755 14
Unrealized gain (loss) on securities available for (88) (9)
sale, net of income taxes
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 18,971 18,285
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER's EQUITY $ 276,046 $ 270,195
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1997 1996
------------ ------------
(In thousands except per share data)
INTEREST INCOME:
Loans $6,353 $4,903
Federal funds sold 140 75
Taxable investment securities 456 352
Non-taxable investment securities 64 64
------ ------
Total interest income 7,013 5,394
------ ------
INTEREST EXPENSE:
Interest on deposits 2,465 1,725
Interest on securities sold under repurchase agreements 37 40
Interest on other borrowed funds 418 263
------ ------
Total interest expense 2,920 2,028
------ ------
Net interest income 4,093 3,366
Provision for loan losses 270 321
------ ------
Net interest income after provision for loan losses 3,823 3,045
------ ------
OTHER INCOME:
Service fees 253 208
Other income 259 293
------ ------
Total other income 512 501
------ ------
OTHER EXPENSES:
Salaries, wages and benefits 1,820 1,734
Occupancy expenses 201 173
Furniture and equipment expenses 193 126
Other operating expenses 850 746
------ ------
Total other expenses 3,064 2,779
------ ------
Income before income taxes 1,271 767
Provision for income taxes 452 257
------ ------
NET INCOME $ 819 $ 510
====== ======
PER SHARE DATA:
Primary $ 0.30 $ 0.19
Fully diluted $ 0.30 $ 0.19
AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,713 2,728
Fully diluted 2,731 2,728
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, 1996 AND THE THREE MONTHS
ENDED MARCH 31,1997
(Unaudited)
(In thousands)
UNREALIZED
NET GAIN
(LOSS) ON
NUMBER OF SECURITIES SHARE-
SHARES COMMON PAID-IN RETAINED AVAILABLE HOLDERS'
OUTSTANDING STOCK CAPITAL EARNINGS FOR SALE EQUITY
----------- ----- ------- -------- -------- ------
Balance at December 31, 1995 2,315 $3,859 $11,269 $ 1,343 $(64) $ 16,407
Issuance of 116,418 shares of 116 195 1,260 (1,458) - (3)
common stock relating to 5%
stock dividend
Issuance of 122,959 shares of 123 205 1,317 (1,525) - (3)
common stock relating to 5%
stock dividend
Cash dividends declared - - - (292) - (292)
Employee stock options 34 56 119 - - 175
exercised
Net income - - - 1,946 - 1,946
Change in unrealized net - - - - 55 55
gain/loss on securities
available for sale
----- ------ ------- ------- ---- --------
Balance at December 31, 1996 2,588 4,315 13,965 14 (9) 18,285
Cash dividends declared - - - (78) - (78)
Employee stock options 4 7 17 - - 24
exercised
Net income - - - 819 - 819
Changed in unrealized net - - - - (79) (79)
gain/loss on securities
available for sale
----- ------ ------- ------- ---- --------
Balance at March 31, 1997 2,592 $4,322 $13,982 $ 755 $(88) $ 18,971
===== ====== ======= ======= ==== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
March 31, March 31,
1997 1996
------------ ------------
(In thousands)
Cash flows from operating activities:
Net income $ 819 $ 510
Adjustments needed to reconcile net income to net
cash used by operating activities:
Provision for loan losses 270 321
Depreciation and amortization 230 157
Net increase in other assets (77) (33)
Net increase in other liabilities 608 107
-------- --------
Net cash provided by operating activities 1,850 1,062
-------- --------
Cash flows from investing activities :
Purchases of investment securities held to maturity
-- (100)
Proceeds from maturities of investment securities held to maturity 853 780
Purchase of investment securities available for sale (3,204) (3,342)
Proceeds from maturities of investment securities available for sale 2,583 2,234
Net increase in loans (8,066) (6,809)
Net additions to premises and equipment (100) (584)
-------- --------
Net cash used by investing activities (7,934) (7,821)
-------- --------
Cash flows from financing activities:
Net increase in deposits 11,827 10,704
Proceeds from other borrowed funds 22,250 180
Principal repayment of other borrowed funds (24,890) (2,347)
Net increase (decrease) in securities sold under repurchase agreements (4,630) 51
Proceeds from issuance of common stock 24 65
Cash dividends (78) (71)
-------- --------
Net cash provided by financing activities 4,503 8,582
-------- --------
Net increase in cash and cash equivalents (1,581) 1,823
Cash and cash equivalents, beginning of period 21,828 11,453
-------- --------
Cash and cash equivalents, end of period $ 20,247 $ 13,276
======== ========
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 (the "Company") and its wholly owned
subsidiaries, Anderson National Bank, Spartanburg National Bank, The
Community Bank of Greenville, N. A., and Quick Credit Corporation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included
in the 1996 Annual Report to Shareholders.
(3) COMMON STOCK, EARNINGS PER SHARE, AND STOCK DIVIDENDS
On July 15, 1996 and December 13, 1996, the Company's Board of
Directors declared five percent stock dividends. 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 1996 period has been restated to reflect these
dividends as if they had occurred prior to the 1996 period presented.
During the period ended March 31, 1997, the Company issued 4,063 shares
of its common stock at an average price of $5.91 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.
(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, 1997, the
results of their operations for the quarters ended March 31, 1997 and
1996, and the statements of their cash flows for the three months ended
March 31, 1997 and 1996.
(5) FORWARD LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical
in nature are intended to be, and are hereby identified as "forward
looking statements" for purposes of the safe harbor provided by Section
21E of the Securities Exchange Act of 1934, as amended. The Company
cautions readers that forward looking statements, including without
limitation, those relating to the Company's future business prospects,
revenues, working capital, liquidity, capital needs, interest costs,
and income, are subject to certain risks and uncertainties that could
cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein
identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the Securities and
Exchange Commission.
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 $5,851,000, or 2.2%, from December 31, 1996 to March
31, 1997 as a result of an increase in the amount of outstanding loans at two of
the Company's banking subsidiaries. Total loans, the largest single category of
assets, increased $8,044,000, or 3.9%, to $213,595,000 at March 31, 1997. Total
loans outstanding at March 31, 1997 for Spartanburg National Bank amounted to
$92,967,000, a 2.4% increase from the $90,833,000 reported at December 31, 1996.
Total outstanding loans, net of inter-company loans, at Anderson National Bank
at March 31, 1997 amounted to $85,340,000, a slight decrease from the
$85,610,000 in total outstanding loans, net of inter-company loans, at December
31, 1996. At March 31, 1997, total loans outstanding for The Community Bank of
Greenville, N.A. amounted to $26,479,000, an increase of $7,443,000, or 39.1%,
from the $19,036,000 in outstanding loans at December 31, 1996. During the
quarter ended March 31, 1997 Quick Credit Corporation experienced a decrease in
total outstanding loans of $1,263,000 largely as a result of seasonal pay downs.
Premises, furniture and equipment decreased slightly during the period as a
result of depreciation associated with these assets.
The Company's securities portfolios, collectively, at amortized cost,
decreased slightly from year-end 1996 levels primarily as a result of maturities
in the portfolios. Cash and due from banks increased $959,000, or 11.8%, to
$9,087,000 at March 31, 1997 as a result of an increase in uncollected funds in
correspondent bank accounts at quarter end. Federal funds sold decreased
$2,540,000, or 18.5%, during the quarter as the Company used these funds to help
fund its loan growth.
During the quarter ended March 31, 1997, the Company liquidated one parcel
of other real estate owned valued at $11,000, thus reducing the amount of other
real estate owned to $74,000 at March 31, 1997. Management continues to pursue
liquidation of the one remaining piece of property currently owned.
Other assets, comprised largely of accrued income receivable, prepaid
expenses and deferred taxes, increased slightly from the year-end 1996 level.
Total liabilities increased $5,165,000, or 2.1%, as a result of a
$11,827,000, or 5.4%, increase in total deposits at the Company's banking
subsidiaries. The largest dollar increase in a single category of deposits was
in certificates of deposit of less than $100,000, which increased $5,383,000, or
6.2%. The largest percentage increase in a single category of deposits was in
certificates of deposit of more than $100,000, which increased 11.7%, or
$4,783,000, to $45,856,000 at March 31, 1997. During the period ending March 31,
1997, the Company also experienced a slight amount of growth in the various
other categories of its deposits.
Securities sold under agreements to repurchase, comprised largely of
overnight repurchase agreements, decreased $4,630,000, or 56.7%, from the
year-end 1996 level. This significant decrease is largely attributable to a
single customer of Spartanburg National Bank which reduced its level of invested
temporary funds during the quarter from the unusually high levels it had at
year-end 1996.
During the quarter ended March 31, 1997, the Company reduced its level of
Federal Home Loan Bank advances $1,040,000, or 9.6%, to $9,790,000 at March 31,
1997. Other borrowed funds, comprised of various types of borrowings by Quick
Credit Corporation and borrowings by the parent company, decreased $1,600,000,
or 13.4%, during the period as a result of principal reductions made by Quick
Credit Corporation on its borrowings.
Page 8
Other liabilities, comprised largely of accrued expenses payable increased
$608,000, or 21.8%, to $3,402,000 at March 31, 1997. The increase resulted
largely from an increase in interest payable on deposit accounts and an increase
in income taxes payable.
Shareholders' equity increased $686,000 from December 31, 1996 to March 31,
1997 as a result of net earnings for the period of $819,000 and the exercise of
stock options under the Company's Employee Stock Option Plans in the amount of
$24,000. These increases were partially offset by the declaration of cash
dividends in the amount of $78,000 during the period and an increase in the
amount of net unrealized losses on the Company's "available for sale" securities
portfolio of $79,000.
RESULTS OF OPERATIONS
Year-to-date and quarter ending March 31, 1997 vs. Year-to-date and quarter
ending March 31, 1997
Earnings Review
The consolidated Company's operations during the three months ended March
31, 1997 resulted in net income of $819,000, a 60.6% increase over the $510,000
in net income recorded for the comparable 1996 three month period. The increase
in consolidated earnings for the 1997 period is largely attributable to a
$727,000, or 21.6%, increase in the Company's net interest income, resulting
largely from an increase in interest and fee income generated by a larger loan
portfolio in the 1997 period, and from an increase in earnings recorded by the
Company's consumer finance subsidiary, Quick Credit Corporation.
Anderson National Bank recorded net earnings of $437,000 for the quarter
ended March 31, 1997, a 42.8% increase over 1996 first quarter earnings of
$306,000. The increase in earnings for this subsidiary resulted primarily from
an increase in net interest income of $317,000, or 28.8%, resulting largely from
an increase of $567,000, or 34.6%, in interest and fee income on a larger loan
portfolio in the 1997 period.
Spartanburg National Bank recorded net earnings of $295,000 for the quarter
ended March 31, 1997, a 22.9% increase over 1996 first quarter earnings of
$240,000. The increase in earnings for this subsidiary, like that of Anderson
National Bank's, resulted from an increase in net interest income of $177,000,
or 17.2%, attributable to an increase of $355,000, or 19.6%, in interest and fee
income on a larger loan portfolio in the 1997 period.
The Community Bank of Greenville, N.A., which commenced banking operations
on April 17, 1996 recorded a net loss of $20,000 for the 1997 period.
Quick Credit Corporation recorded net earnings of $142,000 for the quarter
ended March 31, 1997, a 389.7% increase over the $29,000 recorded for the first
quarter of 1996. The significant increase in earnings for this subsidiary
resulted primarily from a $186,000 reduction in the provision for loan losses
for the 1997 period when compared to the 1996 period.
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 $727,000, or 21.6%, to $4,093,000 for
the period ended March 31, 1997 compared to $3,366,000 for the period ended
March 31, 1996. The increase is largely attributable to an increase in interest
and fee income on loans at the Company's banking subsidiaries resulting from an
increase in the volume of outstanding loans for the 1997 quarter when compared
to the 1996 quarter.
The Company's total interest income increased $1,619,000, or 30.0%, to
$7,013,000 for the 1997 period compared to $5,394,000 for the 1996 period. Of
the $1,619,000 increase, $1,450,000 is attributable to an increase
Page 9
in loan interest and fee income resulting from a 38.7% increase in the volume of
outstanding loans during the 1997 period. The Company's outstanding loans for
the 1997 period were $209,748,000 compared to $151,245,000 for the 1996 period.
The average yield on loans for the March 31, 1997 year-to-date period was 12.12%
compared to 12.97% for the March 31, 1996 year-to-date period.
Primarily as a result of the impact of the Community Bank of Greenville,
N.A. on the Company's consolidated balance sheet, average balances on securities
and federal funds sold, collectively, increased by $11,124,000, or 33.2%, in the
1997 period when compared to the 1996 period. Largely as a result of this
increase, interest income on these categories of earning assets, collectively,
increased by $169,000, or 34.4%.
Interest expense on deposits increased $740,000, or 42.9%, to $2,465,000
for the period ended March 31, 1997 compared to $1,725,000 for the period ended
March 31, 1996. The increase is attributable to increases in the Company's costs
of interest-bearing deposits and an increase of $56,402,000, or 39.2%, in the
volume of average interest-bearing deposits for the 1997 period when compared to
the 1996 period. The weighted average cost of interest bearing deposits for the
first three months of 1997 was 4.93% compared to 4.79% for the first three
months of 1996.
Interest expense on Securities Sold Under Repurchase Agreements declined
$3,000, or 7.5% in the 1997 period primarily as a result of a decline in the
rates paid on these short-term funds in the 1997 period. Interest expense
incurred by the Company's banking subsidiaries on average borrowings of
$11,570,000 from the Federal Home Loan Bank of Atlanta for the 1997 quarter
amounted to $182,000, a 313.6% increase from the $44,000 incurred in the 1996
quarter. The increase in interest expense on Federal Home Loan Bank borrowings
resulted from an increase in the amount borrowed during the 1997 period.
Interest expense on the various categories of other interest-bearing
liabilities, which includes Subordinated Debt, Federal Funds Purchased and Other
Borrowed Funds, collectively, increased $18,000, or 8.3%, in the 1997 quarter
when compared to the 1996 quarter. The increase in interest expense associated
with these other interest-bearing liabilities is largely attributable to an
increase in interest expense incurred by the parent company on a larger volume
of outstanding borrowings in the 1997 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 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, Spartanburg National Bank and The Community Bank of Greenville,
N.A., may require additions to the allowance for loan losses based upon
information available to the Comptroller at the time of the examination.
Page 10
Management considers the allowance for loan losses adequate to absorb
losses on loans outstanding at March 31, 1997 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 $3,408,000 at March 31, 1997 compared to
$2,391,000 at March 31, 1996. At March 31, 1997 and March 31, 1996, the
allowance for loan losses as a percentage of outstanding loans was 1.60% and
1.55%, respectively. During the period ending March 31, 1997, the Company
experienced net charge-offs of $21,000, or 0.01%, of average loans, compared to
net charge offs of $250,000, or 0.17% of average loans during the period ending
March 31, 1996. The Company made provisions for loan losses of $270,000 during
the quarter ending March 31, 1997 compared to $321,000 for the quarter ending
March 31, 1996. The decrease in net charge-offs and resulting decrease in the
provision for loan losses for the 1997 period is largely attributable to
improved results at Quick Credit Corporation.
Anderson National Bank recorded a provision for loan losses of $75,000 in
the 1997 period as a result of increases in the volume of outstanding loans.
Anderson National Bank made no provision in the 1996 period. For the quarter
ending March 31, 1997, this subsidiary recorded net recoveries of $167,000
compared to net recoveries of $9,000 for the 1996 quarter.
The Community Bank of Greenville, N.A. recorded a provision for loan losses
of $55,000 in the 1997 period as it continued to establish its allowance for
loan losses. Since this subsidiary did not commence operations until the second
quarter of 1996, no provision was made in the 1996 quarter. This subsidiary has
not experienced any loan losses since commencing operations.
Spartanburg National Bank recorded a provision for loan losses of $50,000
for the quarter ending March 31, 1997 compared to $45,000 for the 1996 quarter.
The slight increase in the provision made by this subsidiary was a result of
loan growth experienced by this subsidiary during the 1997 period. For the
quarter ending March 31, 1997, this subsidiary recorded net charge-offs of
$20,000 compared to net charge-offs of $12,000 for the 1996 quarter.
Quick Credit Corporation recorded a provision for loan losses of $90,000
for the quarter ending March 31, 1997 compared to $276,000 for the 1996 quarter
and to $1,731,000 for fiscal 1996. The decrease in this subsidiary's provision
for the 1997 period resulted from a decrease in the number and volume of loans
charged off, a decrease in the volume of outstanding loans during the 1997
period and a moderate decline in the volume of overdue loans. For the quarter
ending March 31, 1997, this subsidiary recorded net charge offs of $168,000, or
1.80% of average outstanding loans, compared to net charge offs of $247,000, or
2.40%, of average outstanding loans for the 1996 quarter and to $1,144,000, or
11.66%, of average outstanding loans for fiscal 1996. 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 Credit
Corporation simultaneously to have loans outstanding at several small loan
companies which results in some customers incurring more debt than they can
service. Quick Credit Corporation increased its allowance for loan losses as a
percentage of outstanding loans, net of unearned income, from 6.68% at March 31,
1996 to 12.61% at March 31, 1997 as a result of an increase in charge offs
experienced during 1996. The increase in charge offs experienced during 1996
resulted from an increase in customers' inability to make scheduled payments and
an increase in declarations of bankruptcy.
At March 31, 1997 the Company had $347,000 in non-accrual loans, which are
considered impaired, $410,000 in loans past due 90 days or more and still
accruing interest and $74,000 in OREO, compared to $223,000, $296,000, and
$74,000, respectively at March 31, 1996 and to $437,000, $416,000, and $85,000,
respectively at December 31, 1996. At March 31, 1997 and 1996, and December 31,
1996, the Company did not have a material amount of restructured loans.
Page 11
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 consolidated other income for the 1997 quarter increased slightly
over consolidated other income recorded for the 1996 quarter. During the 1997
quarter the Company experienced a $45,000, or 21.6% increase in service fees on
deposit accounts as a result of a larger deposit base and increases in fees
levied on its existing deposit base. The increase in service fees was more than
offset by a decline of $72,000, or 24.6%, in other income items, mainly
alternative investment sales fees and mortgage loan fees. During the 1997 period
the Company recorded a gain on the sale of equity securities from its available
for sale securities portfolio of $38,000.
Other Expenses
Total other expenses increased $285,000, or 10.3%, in the 1997 period over
the 1996 comparable period. Salaries, wages and benefits ("personnel expense"),
the largest category of other operating expenses, increased $86,000, or 5.0%, in
the 1997 period over the 1996 period. The increase in personnel expense is
largely attributable to additional staffing for The Community Bank of
Greenville, N.A., which commenced operations in the second quarter of 1996.
Occupancy expense and furniture and equipment expenses, collectively,
increased $95,000, or 31.8%, in the 1997 period largely as a result of expenses
associated with The Community Bank of Greenville, N.A. and a new branch facility
for Spartanburg National Bank which opened during the third quarter of 1996.
Other operating expenses, the second largest category of other expenses,
increased $104,000, or 13.9%, largely as a result of additional expenses
associated with the operations of The Community Bank of Greenville, N.A..
Income Taxes
As a result of increased income before income taxes, the Company incurred
income tax expense of $452,000 for the year-to-date period ended March 31, 1997
compared to income tax expense of $257,000 for the period ended March 31, 1996.
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 Anderson National Bank
and Spartanburg National Bank) 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, 1997 Anderson
National Bank had $240,000 in long-term advances from the Federal Home Loan Bank
of Atlanta and $4,000,000 in short term advances. At March 31, 1997 Spartanburg
National Bank had $550,000 in long-term advances and $5,000,000 in short-term
advances from the Federal Home Loan Bank of Atlanta. Both Anderson National Bank
and Spartanburg National Bank have lines of credit established with the Federal
Home Loan Bank of Atlanta in excess of their existing advances at March 31,
1997.
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First United Bancorporation, the parent holding company, 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
$100,000 was available at March 31, 1997. One of these lines is a $6,000,000
line of credit with an unaffiliated third party lender to be used for general
corporate 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. 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, 1997, the Company's consumer finance subsidiary, Quick Credit
Corporation, had debt outstanding of $800,000 in the form of subordinated debt
and $3,500,000 outstanding under an $18,000,000 line of credit secured by Quick
Credit Corporations's loans receivable with a third party lender.
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 prior 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. The Company's subsidiary banks have not been notified that they
must maintain capital levels above regulatory minimums. The Company's leverage
capital ratio was 6.86% and 6.72% at March 31, 1997 and December 31, 1996,
respectively. The leverage capital ratios for Anderson National Bank,
Spartanburg National Bank and The Community Bank of Greenville, N.A. were
7.43%,7.01% and 9.29%, respectively at March 31, 1997, compared to 7.25%, 6.74%
and 10.45%, respectively, at December 31, 1996. The decline in The Community
Bank of Greenville's leverage ratio is a result of asset growth experienced
during the period ended March 31, 1997.
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 consist 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 10.39% and its Tier 1 capital to risk weighted assets ratio
was 9.05% at March 31, 1997, compared to 10.30% and 8.92%, respectively, at
December 31, 1996. The risk-based capital ratios for Anderson National Bank,
Spartanburg National Bank and The Community Bank of Greenville, N.A. were
10.99%, 10.18% and 14.92%, respectively, at March 31, 1997
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compared to 10.35%, 9.99% and 18.76%, respectively, at December 31, 1996. Their
Tier 1 capital to risk weighted assets ratios were 9.74%, 9.08% and 14.21%,
respectively, at March 31, 1997 compared to 9.34%, 8.90% and 17.88%,
respectively, at December 31, 1996. The decline in The Community Bank of
Greenville, N.A.'s risk-based capital ratio and its Tier 1 capital to risk
weighted assets ratio was a result from asset growth experienced during the
quarter ended March 31, 1997.
The Company opened its new bank subsidiary, The Community Bank of
Greenville, N. A., in the city of Greenville, South Carolina on April 17, 1996.
The Company capitalized this new bank subsidiary with $4.5 million of capital
acquired 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.
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 February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." SFAS
No. 128 simplifies the current computation of earnings per share and makes the
United States standards for the computation more compatible with international
earnings per share standards. The Statement requires dual presentation of
earnings per share for all entities with complex capital structures. It also
replaces the presentation of primary earnings per share with a presentation of
basic earnings per share. The Statement is effective for the Company for the
year ended December 31, 1997. The Company does not anticipate that adoption of
this Statement will have a material effect on its financial statements.
Page 14
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.
Exhibit 27 - Financial Data Schedule
Page 15
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 9, 1996 ----------------------------
Mason Y. Garrett, President
and Chief Executive Officer
William B. West
----------------------------
William B. West, Sr. Vice
President and Chief Financial
and Accounting Officer
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