First United (FUNC)
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First United (FUNC) - 2020 Q1 - Quarterly Report
2020-05-11 20:27
[FORM 10-Q Cover Page](index=1&type=section&id=FORM%2010-Q%20Cover%20Page) This cover page identifies First United Corporation's Form 10-Q filing details, registrant information, and filer status - Filing Type: **Quarterly Report on Form 10-Q** for the period ended March 31, 2020[2](index=2&type=chunk) - Registrant: **First United Corporation**[2](index=2&type=chunk) - Exchange Listing: Common Stock (**FUNC**) registered on **Nasdaq Stock Market**[3](index=3&type=chunk) - Filer Status: **Accelerated filer** and **Smaller reporting company**[3](index=3&type=chunk) Shares Outstanding (as of April 30, 2020) | Metric | Value | | :--- | :--- | | Common Stock, par value $.01 per share | 6,966,898 shares | [INDEX TO QUARTERLY REPORT](index=2&type=section&id=INDEX%20TO%20QUARTERLY%20REPORT) This section outlines the Quarterly Report's structure, dividing it into Part I (Financial Information) and Part II (Other Information) - Report Structure: Divided into **Part I (Financial Information)** and **Part II (Other Information)**[5](index=5&type=chunk) - Part I Items: Includes **Financial Statements**, **Management's Discussion and Analysis**, **Market Risk Disclosures**, and **Controls and Procedures**[5](index=5&type=chunk) - Part II Items: Covers **Legal Proceedings**, **Risk Factors**, **Unregistered Sales of Equity Securities**, **Defaults upon Senior Securities**, **Mine Safety Disclosures**, **Other Information**, and **Exhibits**[5](index=5&type=chunk) [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited consolidated financial statements and management's discussion for the quarter ended March 31, 2020 [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This item presents First United Corporation's unaudited consolidated financial statements and accompanying detailed notes [Consolidated Statement of Financial Condition](index=3&type=section&id=Consolidated%20Statement%20of%20Financial%20Condition) This statement provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific dates Total Assets | Date | Amount (in thousands) | Change (vs. Dec 31, 2019) | | :--- | :--- | :--- | | March 31, 2020 | $1,461,513 | +$19,486 | | December 31, 2019 | $1,442,027 | | Cash and Cash Equivalents | Date | Amount (in thousands) | Change (vs. Dec 31, 2019) | | :--- | :--- | :--- | | March 31, 2020 | $72,008 | +$22,029 | | December 31, 2019 | $49,979 | | Net Loans | Date | Amount (in thousands) | Change (vs. Dec 31, 2019) | | :--- | :--- | :--- | | March 31, 2020 | $1,038,058 | -$836 | | December 31, 2019 | $1,038,894 | | Total Deposits | Date | Amount (in thousands) | Change (vs. Dec 31, 2019) | | :--- | :--- | :--- | | March 31, 2020 | $1,172,394 | +$30,363 | | December 31, 2019 | $1,142,031 | | Total Shareholders' Equity | Date | Amount (in thousands) | Change (vs. Dec 31, 2019) | | :--- | :--- | :--- | | March 31, 2020 | $118,549 | -$7,391 | | December 31, 2019 | $125,940 | | [Consolidated Statement of Operations](index=4&type=section&id=Consolidated%20Statement%20of%20Operations) This statement reports the company's revenues, expenses, and net income over specific periods Net Income | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $1,755 | -$1,396 | | 3 months ended Mar 31, 2019 | $3,151 | | Basic Net Income Per Share | Period | Amount | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $0.25 | -$0.19 | | 3 months ended Mar 31, 2019 | $0.44 | | Net Interest Income | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $11,887 | +$541 | | 3 months ended Mar 31, 2019 | $11,346 | | Provision for Loan Losses | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $2,654 | +$2,305 | | 3 months ended Mar 31, 2019 | $349 | | Total Other Operating Income | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $4,049 | +$328 | | 3 months ended Mar 31, 2019 | $3,721 | | Total Other Operating Expenses | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $11,005 | +$315 | | 3 months ended Mar 31, 2019 | $10,690 | | [Consolidated Statement of Comprehensive (Loss)/Income](index=5&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20(Loss)%2FIncome) This statement presents net income and other comprehensive income items, reflecting changes in equity not from owners Comprehensive (Loss)/Income | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $(3,877) | -$9,743 | | 3 months ended Mar 31, 2019 | $5,866 | | Net Unrealized Losses on Pension | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $(4,915) | -$7,044 | | 3 months ended Mar 31, 2019 | $2,129 | | Net Unrealized Losses on Investments with OTTI | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $(1,225) | -$1,145 | | 3 months ended Mar 31, 2019 | $(80) | | [Consolidated Statement of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders'%20Equity) This statement details changes in shareholders' equity components, including net income, other comprehensive loss, and stock transactions Total Shareholders' Equity | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $118,549 | -$7,391 | | January 1, 2020 | $125,940 | | Other Comprehensive Loss (Q1 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Other comprehensive loss | $(5,632) | Stock Repurchase (Q1 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Stock repurchase | $(2,754) | Common Stock Dividend Declared (Q1 2020) | Metric | Amount (per share) | Total (in thousands) | | :--- | :--- | :--- | | Common stock dividend | $0.13 | $(910) | [Consolidated Statement of Cash Flows](index=7&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) This statement reports cash inflows and outflows from operating, investing, and financing activities over specific periods Cash and Cash Equivalents at End of Period | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $72,008 | +$18,004 | | 3 months ended Mar 31, 2019 | $54,004 | | Net Cash Provided by Operating Activities | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $3,669 | +$2,672 | | 3 months ended Mar 31, 2019 | $997 | | Net Cash Provided by Financing Activities | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $17,426 | -$7,047 | | 3 months ended Mar 31, 2019 | $24,473 | | Net Increase in Deposits (Q1 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Net increase in deposits | $30,363 | Stock Repurchase (Q1 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Stock repurchase | $(2,754) | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Note 1 – Basis of Presentation](index=8&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) This note clarifies that unaudited interim financial statements adhere to U.S. GAAP but lack full annual disclosures and are not indicative of full-year results - GAAP Compliance: Unaudited consolidated financial statements prepared in accordance with **U.S. GAAP** for interim financial information[18](index=18&type=chunk) - Interim Nature: Do not include all information and footnotes required for annual financial statements; interim results are not necessarily indicative of full-year results[18](index=18&type=chunk) [Note 2 – Significant Event](index=8&type=section&id=Note%202%20%E2%80%93%20Significant%20Event) This note details the COVID-19 pandemic's impact, including the company's business continuity plan, PPP participation, and increased allowance for loan losses - COVID-19 Impact: Declared a pandemic on **March 11, 2020**, leading to a health and financial crisis[20](index=20&type=chunk) - Business Continuity Plan: Successfully implemented to protect associates and customers[21](index=21&type=chunk) - Paycheck Protection Program (PPP) Participation: Funded **428 loan applications for ~$111.0 million** from the first tranche and an additional **492 loan applications for ~$29.0 million** through May 1, 2020, totaling **over $140 million** for **920 small businesses**, protecting **over 16,000 jobs**; anticipated fees are approximately **$3.5 million**[22](index=22&type=chunk)[135](index=135&type=chunk) Allowance for Loan Losses (ALL) Increase | Date | Amount (in thousands) | ALL to Total Loans | | :--- | :--- | :--- | | March 31, 2020 | $15,012 | 1.42% | | December 31, 2019 | $12,537 | 1.19% | - Loan Modifications: **15.3% of total loans ($161.2 million)** modified through May 6, 2020, including deferrals of principal and interest or interest-only periods[25](index=25&type=chunk)[26](index=26&type=chunk) - Federal Funds Rate Reduction: Federal Reserve Board reduced the federal funds rate by **150 basis points to 0%-0.25%** in March 2020, potentially reducing future net interest margin[26](index=26&type=chunk) [Note 3 – Earnings Per Common Share](index=9&type=section&id=Note%203%20%E2%80%93%20Earnings%20Per%20Common%20Share) This note details the calculation of basic and diluted earnings per common share, which decreased to $0.25 for Q1 2020 Basic and Diluted EPS | Period | Basic EPS | Diluted EPS | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $0.25 | $0.25 | | 3 months ended Mar 31, 2019 | $0.44 | $0.44 | Weighted Average Basic Shares Outstanding (Q1 2020) | Metric | Value (in thousands) | | :--- | :--- | | Weighted average basic shares outstanding | 7,063 | [Note 4 – Net Gains](index=10&type=section&id=Note%204%20%E2%80%93%20Net%20Gains) This note summarizes net gains, which increased to $41 thousand for Q1 2020, primarily from consumer loan sales Net Gains | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $41 | | 3 months ended Mar 31, 2019 | $14 | Gains on Sale of Consumer Loans (Q1 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Gains on sale of consumer loans | $59 | [Note 5 – Investments](index=11&type=section&id=Note%205%20%E2%80%93%20Investments) This note details investment securities, including AFS and HTM portfolios, highlighting net unrealized losses and OTTI evaluation for CDOs Total Available-for-Sale (AFS) Securities | Date | Amortized Cost (in thousands) | Fair Value (in thousands) | Net Unrealized (Loss)/Gain (in thousands) | | :--- | :--- | :--- | :--- | | March 31, 2020 | $134,336 | $130,792 | $(3,544) | | December 31, 2019 | $135,008 | $131,305 | $(3,703) | Total Held-to-Maturity (HTM) Securities | Date | Amortized Cost (in thousands) | Fair Value (in thousands) | | :--- | :--- | :--- | | March 31, 2020 | $91,399 | $98,311 | | December 31, 2019 | $93,979 | $100,656 | Collateralized Debt Obligations (CDO) in AFS | Date | Amortized Cost (in thousands) | Fair Value (in thousands) | Gross Unrealized Losses (in thousands) | OTTI in AOCL (in thousands) | | :--- | :--- | :--- | :--- | :--- | | March 31, 2020 | $18,470 | $12,380 | $6,090 | $(4,507) | | December 31, 2019 | $18,443 | $14,354 | $4,089 | $(2,835) | Credit-Related OTTI Balance | Period | Amount (in thousands) | | :--- | :--- | | March 31, 2020 | $2,396 | | January 1, 2020 | $2,446 | - No Credit-Related OTTI Charges: Management determined **no securities had credit-related non-cash OTTI charges** during the first three months of 2020 or 2019[33](index=33&type=chunk) [Note 6 – Loans and Related Allowance for Loan Losses](index=13&type=section&id=Note%206%20%E2%80%93%20Loans%20and%20Related%20Allowance%20for%20Loan%20Losses) This note details the loan portfolio and Allowance for Loan Losses (ALL), which significantly increased due to COVID-19 related qualitative factor adjustments Total Loans | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $1,053,732 | +$1,614 | | December 31, 2019 | $1,052,118 | | Loan Portfolio Composition (March 31, 2020) | Category | Balance (in thousands) | % of Total | | :--- | :--- | :--- | | Commercial real estate | $337,688 | 32% | | Residential mortgage | $434,969 | 41% | | Acquisition and development | $121,333 | 12% | | Commercial and industrial | $123,509 | 12% | | Consumer | $36,233 | 3% | Allowance for Loan Losses (ALL) | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $15,012 | +$2,475 | | December 31, 2019 | $12,537 | | ALL to Total Loans Ratio | Date | Ratio | | :--- | :--- | | March 31, 2020 | 1.42% | | December 31, 2019 | 1.19% | Non-accrual Loans | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $11,012 | +$163 | | December 31, 2019 | $10,849 | | - Troubled Debt Restructurings (TDRs): **15 loans totaling $4.1 million** at March 31, 2020, stable from December 31, 2019; **no new TDRs or modifications** in Q1 2020[48](index=48&type=chunk)[49](index=49&type=chunk) [Note 7 – Other Real Estate Owned, net](index=19&type=section&id=Note%207%20%E2%80%93%20Other%20Real%20Estate%20Owned%2C%20net) This note details the Other Real Estate Owned (OREO) portfolio, which slightly decreased, with valuation allowance activity including write-downs and sales Total OREO | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $4,040 | -$87 | | December 31, 2019 | $4,127 | | - OREO Valuation Allowance Activity (Q1 2020): Fair value write-down of **$26 thousand** and sales of OREO of **$(36) thousand**[51](index=51&type=chunk) Total OREO Expense, Net (Q1 2020) | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $0 | | 3 months ended Mar 31, 2019 | $143 | [Note 8 – Fair Value of Financial Instruments](index=20&type=section&id=Note%208%20%E2%80%93%20Fair%20Value%20of%20Financial%20Instruments) This note explains fair value determination using the ASC 820 hierarchy, classifying CDOs and impaired loans as Level 3 due to unobservable inputs - Fair Value Hierarchy: Utilizes **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than quoted prices), and **Level 3** (significant unobservable inputs)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) Level 3 Assets (March 31, 2020) | Asset Category | Fair Value (in thousands) | | :--- | :--- | | Investment Securities – available for sale | $12,380 | | Impaired Loans | $6,683 | | Other Real Estate Owned | $534 | - CDO Valuation: Classified as **Level 3** due to inactive markets and reliance on income valuation approach (discounted cash flow modeling) with significant adjustments[60](index=60&type=chunk)[61](index=61&type=chunk) - Impaired Loans & OREO Valuation: Classified as **Level 3**, fair value generally determined by independent third-party appraisals or discounted cash flows[65](index=65&type=chunk)[66](index=66&type=chunk) [Note 9 – Accumulated Other Comprehensive Loss](index=25&type=section&id=Note%209%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Loss) This note details the significant increase in accumulated other comprehensive loss, driven by unrealized losses on the pension plan and investments with OTTI Accumulated OCL Balance | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $(31,603) | $(5,632) | | December 31, 2019 | $(25,971) | | Other Comprehensive Loss (Q1 2020) | Metric | Amount (in thousands) | | :--- | :--- | | Other comprehensive loss, net of tax | $(5,632) | - Key Drivers of OCL (Q1 2020): Net unrealized losses on pension plan (**$(4.9 million)**), net unrealized losses on investments with OTTI (**$(1.2 million)**), and net unrealized losses on cash flow hedges (**$(963 thousand)**)[78](index=78&type=chunk) [Note 10 – Borrowed Funds](index=28&type=section&id=Note%2010%20%E2%80%93%20Borrowed%20Funds) This note summarizes short-term and long-term borrowings, with short-term decreasing due to municipalities utilizing cash Short-term Borrowings (Securities sold under agreements to repurchase) | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $39,418 | -$9,310 | | December 31, 2019 | $48,728 | | Long-term Borrowings (FHLB advances & Junior subordinated debt) | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $100,929 | $0 | | December 31, 2019 | $100,929 | | - Securities Pledged: Repurchase agreements secured by **$50.7 million** in investment securities; FHLB advances secured by **$228.2 million** in loans[81](index=81&type=chunk)[82](index=82&type=chunk) [Note 11 – Employee Benefit Plans](index=29&type=section&id=Note%2011%20%E2%80%93%20Employee%20Benefit%20Plans) This note details employee benefit plans, highlighting a **$7.0 million** decline in pension plan market value due to COVID-19, resulting in a net pension credit - Pension Plan Market Value Decline: Approximately **$7.0 million decline** at March 31, 2020, due to the COVID-19 pandemic's impact on the rate environment[84](index=84&type=chunk) Net Pension (Credit)/Expense | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $(66) | | 3 months ended Mar 31, 2019 | $9 | Defined Benefit SERP Expense | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $144 | | 3 months ended Mar 31, 2019 | $134 | - Pension Plan Contribution (Q1 2020): **$1.0 million**[88](index=88&type=chunk) [Note 12 - Equity Compensation Plan Information](index=30&type=section&id=Note%2012%20-%20Equity%20Compensation%20Plan%20Information) This note describes equity compensation plans, detailing RSU grants to executive officers in Q1 2020, resulting in **$31,242** in stock compensation expense - 2018 Equity Compensation Plan: Authorizes issuance of up to **325,000 shares** of common stock[92](index=92&type=chunk) Director Stock Compensation Expense | Period | Amount | | :--- | :--- | | 3 months ended Mar 31, 2020 | $66,983 | | 3 months ended Mar 31, 2019 | $66,717 | - Restricted Stock Units (RSUs) Granted (Q1 2020): **25,004 shares** (target level) granted to executive officers with a grant date fair market value of **$12.54 per share**; stock compensation expense for Q1 2020 was **$31,242**, with **$282,282** related to unvested units[99](index=99&type=chunk) - RSU Vesting: Includes **performance-vesting** (based on EPS and tangible book value growth) and **time-vesting** components over three years[96](index=96&type=chunk)[97](index=97&type=chunk) [Note 13 – Derivative Financial Instruments](index=31&type=section&id=Note%2013%20%E2%80%93%20Derivative%20Financial%20Instruments) This note discusses interest rate swap agreements used as cash flow hedges, with their fair value decreasing by **$1.3 million** in Q1 2020 - Purpose: Interest rate swap agreements used as **cash flow hedges** to modify re-pricing characteristics of interest-bearing liabilities[100](index=100&type=chunk) Fair Value of Interest Rate Swap Contracts | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $(1,448) | $(1,315) | | December 31, 2019 | $(133) | | - Impact on OCI (Q1 2020): **$1.3 million decrease** in derivative value and related deferred tax of **$352 thousand** recorded in net accumulated other comprehensive loss[103](index=103&type=chunk) - No Hedge Ineffectiveness: **No hedge ineffectiveness** recorded for Q1 2020[103](index=103&type=chunk) [Note 14 – Assets and Liabilities Subject to Enforceable Master Netting Arrangements](index=31&type=section&id=Note%2014%20%E2%80%93%20Assets%20and%20Liabilities%20Subject%20to%20Enforceable%20Master%20Netting%20Arrangements) This note clarifies that master netting arrangements exist for swaps and repurchase agreements, but assets and liabilities are not offset for presentation - Netting Arrangements: **Master netting arrangements** exist for interest rate swap agreements and repurchase agreements[107](index=107&type=chunk) - Financial Statement Presentation: Assets and liabilities are **not offset** for financial statement presentation purposes[107](index=107&type=chunk) - Collateral: Collateral (cash and investment securities) is pledged for net liability positions; repurchase agreements are secured by **$50.7 million** in investment securities[107](index=107&type=chunk)[81](index=81&type=chunk) [Note 15 - Goodwill](index=32&type=section&id=Note%2015%20-%20Goodwill) This note states goodwill is tested annually for impairment; an interim test due to COVID-19 found no impairment as fair value exceeded carrying value - Goodwill Balance: **$11.0 million** at March 31, 2020[8](index=8&type=chunk) - Impairment Testing: Goodwill is **not amortized** but tested annually or more frequently if triggering events occur[111](index=111&type=chunk) - COVID-19 Triggering Event: Economic deterioration due to **COVID-19 triggered an interim impairment test** in Q1 2020[112](index=112&type=chunk) - No Impairment Recognized: Based on the analysis, **fair value continues to exceed carrying value**, so no impairment was recognized[112](index=112&type=chunk) [Note 16 – Adoption of New Accounting Standards and Effects of New Accounting Pronouncements](index=33&type=section&id=Note%2016%20%E2%80%93%20Adoption%20of%20New%20Accounting%20Standards%20and%20Effects%20of%20New%20Accounting%20Pronouncements) This note discusses the adoption of ASU 2018-13, delayed CECL model implementation for smaller reporting companies, and evaluation of ASU 2020-04 - ASU 2016-13 (CECL Model): Required implementation delayed for **smaller reporting companies** (including First United Corporation) until **January 1, 2023**[113](index=113&type=chunk) - ASU 2018-13 (Fair Value Measurement): Effective **January 1, 2020**; did not have a significant impact[114](index=114&type=chunk) - ASU 2020-04 (Reference Rate Reform): Effective **March 12, 2020**, through **December 31, 2022**; impact is being evaluated but not expected to be material[115](index=115&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition and results, covering key drivers, critical accounting policies, COVID-19 impact, and outlook [INTRODUCTION](index=34&type=section&id=INTRODUCTION) This section introduces the review of material changes and significant factors affecting the company's financial condition and operations - Purpose: Review **material changes** and **significant factors** affecting financial condition and results of operations[117](index=117&type=chunk) - Context: To be read with unaudited consolidated financial statements and the **Annual Report on Form 10-K for December 31, 2019**[117](index=117&type=chunk) [FORWARD-LOOKING STATEMENTS](index=34&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights that the report contains forward-looking statements subject to risks and uncertainties, including the COVID-19 pandemic - Nature: Contains **forward-looking statements**, not historical facts, based on management's beliefs and objectives[119](index=119&type=chunk) - Risks: Involve **risks and uncertainties** that could cause actual results to differ materially[119](index=119&type=chunk) - COVID-19 Risk: Specifically identifies the **COVID-19 pandemic** as a significant risk factor that could adversely affect the Corporation's business, financial condition, and results of operations[119](index=119&type=chunk) [FIRST UNITED CORPORATION](index=34&type=section&id=FIRST%20UNITED%20CORPORATION) This section describes First United Corporation as a Maryland-based bank holding company with total assets of **$1.5 billion** - Company Structure: Maryland corporation, bank holding company for **First United Bank & Trust** and other subsidiaries (Trusts, consumer finance companies, real estate holding companies)[120](index=120&type=chunk) Key Financials (March 31, 2020) | Metric | Amount | | :--- | :--- | | Total assets | $1.5 billion | | Net loans | $1.0 billion | | Deposits | $1.2 billion | | Shareholders' equity | $118.5 million | [ESTIMATES AND CRITICAL ACCOUNTING POLICIES](index=35&type=section&id=ESTIMATES%20AND%20CRITICAL%20ACCOUNTING%20POLICIES) This section discusses critical accounting policies requiring significant management estimates and judgments, with no material changes since December 31, 2019 [Allowance for Loan Losses](index=35&type=section&id=Allowance%20for%20Loan%20Losses) The Allowance for Loan Losses (ALL) is a critical accounting policy based on management's estimates of probable losses, subject to inherent uncertainties - Purpose: ALL is established to cover **losses from borrowers' inability to make payments**[124](index=124&type=chunk) - Estimation Factors: **Loan-specific risks**, **portfolio trends**, **economic climate**, lending rates, political conditions, and legislation[124](index=124&type=chunk) - Uncertainty: Calculation relies on estimates and judgments related to inherently uncertain events, so actual results may vary[124](index=124&type=chunk) [Goodwill](index=35&type=section&id=Goodwill) Goodwill is tested annually for impairment; an interim test due to COVID-19 found no impairment as fair value exceeded carrying value Goodwill Balance (March 31, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Goodwill | $11.0 | - Impairment Testing: **Not amortized**; tested annually or more frequently if triggering events occur[126](index=126&type=chunk) - COVID-19 Impact: Economic deterioration due to **COVID-19 triggered an interim test** in Q1 2020[128](index=128&type=chunk) - No Impairment: **Fair value continues to exceed carrying value**, so no impairment was recognized[128](index=128&type=chunk) [Accounting for Income Taxes](index=36&type=section&id=Accounting%20for%20Income%20Taxes) This policy involves deferred tax recognition and valuation allowance assessment, requiring significant judgment and potentially leading to effective tax rate volatility - Deferred Taxes: Recognized for future tax consequences of **temporary differences** between financial statement and tax bases[129](index=129&type=chunk) - Valuation Allowance: Regularly reviewed; established if it's **more likely than not that deferred tax assets will not be realized**[130](index=130&type=chunk) - Volatility: Adherence to guidance may result in increased volatility in quarterly and annual effective income tax rates[131](index=131&type=chunk) [Other-Than-Temporary Impairment of Investment Securities](index=36&type=section&id=Other-Than-Temporary%20Impairment%20of%20Investment%20Securities) Management quarterly evaluates investment securities for OTTI, recognizing credit losses in earnings and other losses in other comprehensive loss - Evaluation Frequency: **Quarterly**[132](index=132&type=chunk) - Impairment Components: **Credit losses recognized in earnings**; **other losses recognized in other comprehensive loss**[132](index=132&type=chunk) - Considerations: Length and extent of fair value decline, adverse conditions, volatility, rating changes, payment failures, and cash flow projections[132](index=132&type=chunk) [Fair Value of Investments](index=36&type=section&id=Fair%20Value%20of%20Investments) Fair value of investments is determined using the ASC 820 hierarchy, with valuation techniques subject to different estimates based on methodologies - Standard: Fair value determined in accordance with **ASC Topic 820**[133](index=133&type=chunk) - Hierarchy: Uses **Level 1, Level 2, and Level 3 inputs**[133](index=133&type=chunk) - Subjectivity: Valuation techniques are appropriate, but different methodologies and assumptions could result in different estimates[58](index=58&type=chunk) [Pension Plan Assumptions](index=36&type=section&id=Pension%20Plan%20Assumptions) Pension plan costs and liabilities are calculated using actuarial concepts, with critical assumptions including discount rate and expected return on assets - Calculation Basis: Actuarial concepts under **ASC Topic 715**[134](index=134&type=chunk) - Critical Assumptions: **Discount rate** and **expected return on plan assets**, evaluated annually[134](index=134&type=chunk) - Other Factors: Employee demographics (retirement, turnover, mortality) and compensation increases[134](index=134&type=chunk) [Response to COVID-19](index=37&type=section&id=Response%20to%20COVID-19) The company implemented its Business Continuity Plan in response to COVID-19, focusing on associate and customer well-being, and actively participated in the PPP [Paycheck Protection Program](index=37&type=section&id=Paycheck%20Protection%20Program) The company actively participated in the PPP, funding **over $140 million** in loans to **920 small businesses**, protecting **over 16,000 jobs** - PPP Participation: Funded **428 loans for $111.0 million** (first tranche) and an additional **492 loans for $29.0 million** (second tranche) by May 1, 2020[135](index=135&type=chunk) - Total PPP Loans: **Over $140 million** to **920 small businesses**, protecting **over 16,000 jobs**[135](index=135&type=chunk) - Loan Characteristics: **100% SBA guaranteed**, up to **two-year maturity**, **six-month deferral**, **1% interest rate**, potential for forgiveness[135](index=135&type=chunk) Anticipated PPP Fees | Metric | Amount | | :--- | :--- | | Anticipated fees | ~$3.5 million | [Liquidity Sources](index=38&type=section&id=Liquidity%20Sources) The company maintains strong liquidity through unsecured lines of credit, FHLB borrowings, and access to the Federal Reserve Discount Window and PPPLF Liquidity Sources (March 31, 2020) | Source | Amount (in millions) | | :--- | :--- | | Unsecured lines of credit | $115.0 | | Federal Reserve Discount Window | $2.1 | | Secured borrowings with FHLB | $158.2 | - Additional Sources: Access to **brokered certificates of deposit market** and eligibility for the **Paycheck Protection Program Liquidity Facility (PPPLF)**[138](index=138&type=chunk)[139](index=139&type=chunk) [Capital](index=38&type=section&id=Capital) Both the Corporation and its Bank subsidiary maintain strong capital ratios, exceeding regulatory requirements and are well-capitalized - Capital Ratios: Both the Corporation and the Bank are considered **well-capitalized** by applicable regulatory measures[140](index=140&type=chunk) [SELECTED FINANCIAL DATA](index=39&type=section&id=SELECTED%20FINANCIAL%20DATA) This section presents key selected financial data and ratios for the three-month periods ended March 31, 2020 and 2019 Per Share Data | Metric | Mar 31, 2020 | Mar 31, 2019 | | :--- | :--- | :--- | | Basic net income per common share | $0.25 | $0.44 | | Diluted net income per common share | $0.25 | $0.44 | | Basic book value per common share | $17.01 | $17.27 | | Diluted Book Value per common share | $16.95 | $17.27 | Significant Ratios (Annualized) | Metric | Mar 31, 2020 | Mar 31, 2019 | | :--- | :--- | :--- | | Return on Average Assets | 0.49% | 0.91% | | Return on Average Equity | 5.62% | 10.49% | | Average Equity to Average Assets | 8.69% | 8.68% | [RESULTS OF OPERATIONS](index=39&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes operating results, highlighting decreased net income due to increased provision for loan losses from COVID-19 economic uncertainty [Overview](index=39&type=section&id=Overview) Consolidated net income decreased by **43% to $1.8 million** for Q1 2020, primarily due to a **$2.3 million increase** in provision for loan losses from COVID-19 uncertainty Consolidated Net Income | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $1,755 | -$1,396 | | 3 months ended Mar 31, 2019 | $3,151 | | - Basic and Diluted EPS: **$0.25** for Q1 2020 (**down 43%** from $0.44 in Q1 2019)[143](index=143&type=chunk) - Provision for Loan Losses: Increased by **$2.3 million**, with **$2.4 million** related to COVID-19 qualitative factor adjustments and **$0.3 million** to loan growth[143](index=143&type=chunk)[144](index=144&type=chunk) - Net Interest Income: Increased by **$0.5 million**[143](index=143&type=chunk) - Net Interest Margin (FTE): Stable at **3.69%** for Q1 2020 (vs. 3.72% for Q1 2019)[143](index=143&type=chunk) - Other Operating Income: Increased by **$0.3 million**[143](index=143&type=chunk) - Other Operating Expenses: Increased by **$0.3 million**[143](index=143&type=chunk) [Net Interest Income](index=40&type=section&id=Net%20Interest%20Income) Net interest income (FTE) increased by **$0.5 million (4.6%)** for Q1 2020 due to higher average loan balances, with stable net interest margin Net Interest Income (FTE) | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $12,110 | +$531 | | 3 months ended Mar 31, 2019 | $11,579 | | Net Interest Margin (FTE) | Period | Rate | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | 3.69% | -0.03% | | 3 months ended Mar 31, 2019 | 3.72% | | - Interest and Fees on Loans: Increased by **$0.7 million**, driven by a **$39.2 million increase** in average loan balances[145](index=145&type=chunk)[156](index=156&type=chunk) - Interest Expense: Remained flat due to **deposit rate reductions** and **$24.1 million average growth** in non-interest bearing accounts[146](index=146&type=chunk)[157](index=157&type=chunk) [Provision for Loan Losses](index=43&type=section&id=Provision%20for%20Loan%20Losses) The provision for loan losses significantly increased to **$2.7 million** for Q1 2020, primarily due to a **$2.4 million** adjustment for qualitative factors related to COVID-19 economic uncertainty Provision for Loan Losses | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $2,654 | +$2,305 | | 3 months ended Mar 31, 2019 | $349 | | - COVID-19 Impact: **$2.4 million** of the provision expense was due to qualitative factor adjustments related to economic uncertainty from the COVID-19 health crisis[160](index=160&type=chunk) - Loan Growth Impact: **$0.3 million** of the provision expense was related to loan growth[160](index=160&type=chunk) [Other Operating Income](index=43&type=section&id=Other%20Operating%20Income) Total other operating income, excluding net gains, increased by **$0.3 million** to **$4.0 million** for Q1 2020, driven by service charges and trust department income Total Other Operating Income (excluding net gains) | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $4,008 | +$301 | | 3 months ended Mar 31, 2019 | $3,707 | | Service Charges on Deposit Accounts | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $615 | Trust Department Income | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $1,753 | Debit Card Income | Period | Amount (in thousands) | | :--- | :--- | | 3 months ended Mar 31, 2020 | $634 | [Other Operating Expenses](index=43&type=section&id=Other%20Operating%20Expenses) Total other operating expenses increased slightly by **$0.3 million** to **$11.0 million** for Q1 2020, driven by professional services and occupancy costs, partially offset by reduced salaries Total Other Operating Expenses | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $11,005 | +$315 | | 3 months ended Mar 31, 2019 | $10,690 | | Salaries and Employee Benefits | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $5,923 | -$295 | | 3 months ended Mar 31, 2019 | $6,218 | | Professional Services | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $723 | +$519 | | 3 months ended Mar 31, 2019 | $204 | | FDIC Premiums | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $43 | -$68 | | 3 months ended Mar 31, 2019 | $111 | | [Provision for Income Taxes](index=43&type=section&id=Provision%20for%20Income%20Taxes) The effective income tax rate increased to **22.9%** for Q1 2020, primarily due to a reduction in tax-exempt income from the investment portfolio Effective Income Tax Rate | Period | Rate | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | 22.9% | +1.1% | | 3 months ended Mar 31, 2019 | 21.8% | | - Reason for Increase: Primarily due to **reduction in tax-exempt income** from the investment portfolio[164](index=164&type=chunk) [FINANCIAL CONDITION](index=44&type=section&id=FINANCIAL%20CONDITION) This section reviews the company's balance sheet, loan portfolio, risk elements, investment securities, deposits, borrowings, liquidity, market risk, and capital resources [Balance Sheet Overview](index=44&type=section&id=Balance%20Sheet%20Overview) Total assets increased by **$19.5 million** to **$1.46 billion** at March 31, 2020, driven by cash and deposit growth, while shareholders' equity decreased due to OCL and repurchases - Total Assets: Increased by **$19.5 million** to **$1.46 billion**[165](index=165&type=chunk) - Cash and Interest-Bearing Deposits: Increased by **$22.0 million**[165](index=165&type=chunk) - Total Liabilities: Increased by **$26.9 million**, primarily due to **$30.4 million** in deposit growth[165](index=165&type=chunk) - Total Shareholders' Equity: Decreased by **$7.4 million**, driven by increased accumulated other comprehensive loss and stock repurchases[165](index=165&type=chunk) [Loan Portfolio](index=44&type=section&id=Loan%20Portfolio) The total loan portfolio remained stable at **$1.1 billion** at March 31, 2020, with increases in CRE, A&D, and C&I loans offset by residential mortgage declines, and reduced loan demand anticipated Total Loans Outstanding | Date | Amount (in billions) | | :--- | :--- | | March 31, 2020 | $1.1 | - Loan Growth: **Commercial real estate (CRE) loans increased $2.2 million**, **Acquisition and development (A&D) loans increased $3.4 million**, and **Commercial and industrial (C&I) loans increased $1.2 million**[166](index=166&type=chunk) - Residential Mortgage Loans: Decreased by **$5.2 million**, with longer-term fixed-rate loans sold to Fannie Mae[166](index=166&type=chunk) - Mortgage Production (Q1 2020): Record production of approximately **$23.0 million**, with a strong pipeline of **$32.0 million**[167](index=167&type=chunk) - Outlook: Anticipate **reduced loan demand** for the remainder of 2020[167](index=167&type=chunk) [Risk Elements of Loan Portfolio](index=45&type=section&id=Risk%20Elements%20of%20Loan%20Portfolio) Non-accrual loans increased slightly to **$11.0 million**, and substandard loans rose by **$6.7 million**, while TDRs remained stable, and foreclosure activities are temporarily suspended due to COVID-19 Non-accrual Loans | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $11,012 | +$163 | | December 31, 2019 | $10,849 | | - Substandard Loan Category Increase: **$6.7 million increase** from December 31, 2019, to March 31, 2020, primarily due to one large relationship[38](index=38&type=chunk) Troubled Debt Restructurings (TDRs) | Date | Amount (in thousands) | | :--- | :--- | | March 31, 2020 | $4,103 | | December 31, 2019 | $4,166 | - Foreclosure/Repossession Suspension: Temporarily suspended due to the **COVID-19 pandemic** and federal/state guidance[41](index=41&type=chunk) Impaired Loans | Date | Amount (in thousands) | | :--- | :--- | | March 31, 2020 | $15,274 | | Impaired loans with a valuation allowance | $9,139 | [Allowance and Provision for Loan Losses](index=46&type=section&id=Allowance%20and%20Provision%20for%20Loan%20Losses) The Allowance for Loan Losses (ALL) increased by **20% to $15.0 million** due to COVID-19 related qualitative factor adjustments, with a provision of **$2.7 million** for Q1 2020 Allowance for Loan Losses (ALL) | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $15,012 | +$2,475 | | December 31, 2019 | $12,537 | | Provision for Loan Losses | Period | Amount (in thousands) | Change (YoY) | | :--- | :--- | :--- | | 3 months ended Mar 31, 2020 | $2,654 | +$2,305 | | 3 months ended Mar 31, 2019 | $349 | | ALL to Gross Loans Outstanding | Date | Ratio | | :--- | :--- | | March 31, 2020 | 1.42% | | March 31, 2019 | 1.15% | - Net Charge-offs (Q1 2020): **$0.2 million** (vs. net recoveries of $0.2 million in Q1 2019)[174](index=174&type=chunk) - COVID-19 Impact: **$2.4 million** of the provision expense was attributable to COVID-19 related factor adjustments[174](index=174&type=chunk) [Investment Securities](index=47&type=section&id=Investment%20Securities) AFS investment securities fair value decreased slightly to **$130.8 million**, with a net unrealized loss of **$3.5 million**, and the CDO portfolio had **$6.1 million** in net unrealized losses, including **$4.5 million** in non-credit related OTTI Total AFS Investment Securities (Fair Value) | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $130,792 | -$513 | | December 31, 2019 | $131,305 | | Net Unrealized Loss (AFS) | Date | Amount (in millions) | | :--- | :--- | | March 31, 2020 | $3.5 | - CDO Portfolio (Level 3 AFS): Fair Value of **$12.4 million** at March 31, 2020, with net unrealized losses of **$6.1 million**, including **$4.5 million** in non-credit related OTTI charges[180](index=180&type=chunk) - No Credit-Related OTTI: Management determined **no securities had credit-related OTTI** during Q1 2020[189](index=189&type=chunk) [Deposits](index=50&type=section&id=Deposits) Total deposits increased by **$30.4 million** to **$1.17 billion** at March 31, 2020, driven by growth in non-interest-bearing, savings, and money market accounts, partially offset by time deposit declines Total Deposits | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $1,172,394 | +$30,363 | | December 31, 2019 | $1,142,031 | | - Non-interest Bearing Deposits: Increased by **$5.3 million**[190](index=190&type=chunk) - Traditional Savings Accounts: Increased by **$5.6 million**[190](index=190&type=chunk) - Money Market Accounts: Increased by **$22.6 million**[190](index=190&type=chunk) - Time Deposits: Decreased by **$1.5 million** (less than $100k) and **$3.9 million** (greater than $100k)[190](index=190&type=chunk) [Borrowed Funds](index=50&type=section&id=Borrowed%20Funds) Total short-term borrowings decreased by **$9.3 million** in Q1 2020 due to municipalities utilizing cash, while long-term borrowings remained constant Short-term Borrowings | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $39,418 | -$9,310 | | December 31, 2019 | $48,728 | | Long-term Borrowings | Date | Amount (in thousands) | | :--- | :--- | | March 31, 2020 | $100,929 | - Reason for Short-term Decrease: Municipalities utilized existing cash for working capital needs[192](index=192&type=chunk) [Liquidity Management](index=51&type=section&id=Liquidity%20Management) The company actively manages liquidity through a Treasury Team, maintaining adequate funding through various sources like unsecured lines, FHLB advances, and the Fed Discount Window, with no material adverse trends anticipated - Management: Active management by **Treasury Team**, with monthly and quarterly reviews[193](index=193&type=chunk) - Policy: Satisfy liquidity needs through **normal Bank operations**, minimize unplanned asset sales or emergency borrowings[194](index=194&type=chunk) - Funding Sources: Unsecured Fed Funds lines of credit (**$115.0 million**), secured FHLB advances (**$158.2 million**), secured line of credit with Fed Discount Window (**$2.1 million**), brokered deposits, and Federal Reserve PPPLF[197](index=197&type=chunk)[207](index=207&type=chunk) - Outlook: Management believes **adequate liquidity is available** and is not aware of material adverse trends[195](index=195&type=chunk) [Market Risk and Interest Sensitivity](index=51&type=section&id=Market%20Risk%20and%20Interest%20Sensitivity) The company's primary market risk is interest rate fluctuation, managed through gap analysis and simulation models, indicating asset sensitivity with NII changes of **$798 thousand** for a +100 bps rate change and **$(1.9 million)** for a -100 bps change - Primary Market Risk: **Interest rate fluctuation**[196](index=196&type=chunk) - Management Tools: **Interest sensitivity gap analysis** and **simulation models**[196](index=196&type=chunk) - Asset Sensitivity: Company was **asset sensitive** at March 31, 2020[196](index=196&type=chunk) Simulated NII Changes (next 8 quarters) | Rate Change | Impact on NII (in thousands) | | :--- | :--- | | +400 basis points | $2,353 | | +100 basis points | $798 | | -100 basis points | $(1,897) | - No Material Changes: Management believes **no material changes** in market risks or mitigation procedures since December 31, 2019[204](index=204&type=chunk) [Capital Resources](index=53&type=section&id=Capital%20Resources) The company requires capital to fund operations and meet obligations, with both the Bank and First United Corporation considered well-capitalized by federal banking regulators, exceeding required thresholds - Capital Purpose: Fund loans, satisfy obligations, meet deposit withdrawal demands[207](index=207&type=chunk) - Regulatory Status: Both the Bank and First United Corporation are considered **well-capitalized**[208](index=208&type=chunk) Capital Ratios (Consolidated, March 31, 2020) | Metric | Ratio | Required for Capital Adequacy | Required to be Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to risk-weighted assets) | 16.01% | 8.00% | 10.00% | | Tier 1 Capital (to risk-weighted assets) | 14.76% | 6.00% | 8.00% | | Common Equity Tier 1 Capital (to risk-weighted assets) | 12.43% | 4.50% | 6.50% | | Tier 1 Capital (to average assets) | 11.52% | 4.00% | 5.00% | [Contractual Obligations, Commitments and Off-Balance Sheet Arrangements](index=53&type=section&id=Contractual%20Obligations%2C%20Commitments%20and%20Off-Balance%20Sheet%20Arrangements) This section outlines contractual obligations like FHLB advances and junior subordinated debentures, and commitments to extend credit, which increased by **$25.9 million** primarily for consumer and commercial construction [Contractual Obligations](index=53&type=section&id=Contractual%20Obligations) This section details contractual obligations, including FHLB advances and junior subordinated debentures, with short-term borrowings decreasing due to municipalities utilizing cash - Obligations: **FHLB advances** and **junior subordinated debentures**[210](index=210&type=chunk) - Short-term Borrowings Decrease: **$9.3 million decrease** in Q1 2020, due to municipalities utilizing cash[210](index=210&type=chunk) [Commitments](index=53&type=section&id=Commitments) This section details commitments to extend credit, which increased by **$25.9 million** due to demand for consumer and commercial construction Total Commitments | Date | Amount (in thousands) | Change (QoQ) | | :--- | :--- | :--- | | March 31, 2020 | $182,872 | +$25,946 | | December 31, 2019 | $156,926 | | - Increase Driver: Increased demand for **consumer and commercial construction** early in the quarter[212](index=212&type=chunk) - Monitoring: Management will monitor balances due to **COVID-19 impact** on projects[212](index=212&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item refers to market risk disclosures provided in Item 2 of Part I and the prior Annual Report on Form 10-K - Reference: Information is incorporated by reference from **"Market Risk and Interest Sensitivity"** section in Item 2 of Part I and the **Annual Report on Form 10-K**[214](index=214&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control over financial reporting - Disclosure Controls Effectiveness: Management concluded that **disclosure controls and procedures are effective** at the reasonable assurance level as of March 31, 2020[216](index=216&type=chunk) - Internal Control Over Financial Reporting: **No material changes** during Q1 2020[217](index=217&type=chunk) [PART II. OTHER INFORMATION](index=56&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part contains other information not directly related to financial statements, including legal proceedings, risk factors, and equity security sales [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) This item states that there are no legal proceedings to report - Status: **None**[219](index=219&type=chunk) [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) This item refers to the detailed discussion of risk factors in the company's Annual Report on Form 10-K, with no material changes since last disclosure - Reference: Risk factors are discussed in **Item 1A of Part I of the Annual Report on Form 10-K for December 31, 2019**[220](index=220&type=chunk) - No Material Changes: Management believes **no material changes** have occurred since last disclosure[220](index=220&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=56&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item reports that First United Corporation repurchased **145,291 shares** of common stock in March 2020 at an average price of **$18.96** per share, with **354,709 shares** remaining authorized for repurchase Shares Repurchased (March 2020) | Metric | Value | | :--- | :--- | | Total Number of Shares Purchased | 145,291 | | Average Price Paid per Share | $18.96 | Remaining Authorization | Metric | Value | | :--- | :--- | | Maximum Number of Shares that May Yet Be Purchased | 354,709 | [Item 3. Defaults upon Senior Securities](index=56&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) This item states that there are no defaults upon senior securities to report - Status: **None**[222](index=222&type=chunk) [Item 4. Mine Safety Disclosures](index=56&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item states that mine safety disclosures are not applicable to the company - Status: **Not Applicable**[222](index=222&type=chunk) [Item 5. Other Information](index=56&type=section&id=Item%205.%20Other%20Information) This item states that there is no other information to report - Status: **None**[223](index=223&type=chunk) [Item 6. Exhibits](index=57&type=section&id=Item%206.%20Exhibits) This item provides an index of exhibits filed or furnished with the quarterly report, including various plans, award agreements, certifications, and XBRL documents - Exhibits Listed: Includes **Long-Term Incentive Plan**, **Short-Term Incentive Plan**, **Restricted Stock Unit Award Agreements**, **Certifications (Section 302, Section 906)**, and **XBRL documents**[226](index=226&type=chunk) [SIGNATURES](index=58&type=section&id=SIGNATURES) This section contains the signatures of the Principal Executive Officer and Principal Financial Officer of First United Corporation, certifying the report's submission - Signatories: **Carissa L. Rodeheaver** (Principal Executive Officer) and **Tonya K. Sturm** (Principal Financial Officer)[230](index=230&type=chunk) - Date: **May 11, 2020**[230](index=230&type=chunk)
First United (FUNC) - 2019 Q4 - Annual Report
2020-03-13 21:30
PART I [Business](index=4&type=section&id=ITEM%201.%20Business) First United Corporation, a bank holding company with **$1.4 billion** in assets, offers comprehensive banking and wealth management services across 25 offices in Maryland and West Virginia, operating under extensive regulation and Basel III compliance Key Financial Metrics as of December 31, 2019 | Metric | Amount (USD) | | :--- | :--- | | Total Assets | $1.4 billion | | Net Loans | $1.0 billion | | Deposits | $1.1 billion | | Shareholders' Equity | $125.9 million | - The company operates 25 banking offices and 32 ATMs across several counties in Maryland and West Virginia, providing a complete range of retail and commercial banking services[17](index=17&type=chunk) - The Bank's Trust Department supervised approximately **$902.2 million** in assets as of December 31, 2019, an increase from **$810.0 million** in 2018[31](index=31&type=chunk) - The company faces intense competition from various financial institutions, competing by focusing on personalized services, local relationships, and tailored product offerings[32](index=32&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) - The Corporation and the Bank are subject to Basel III capital rules, including minimum capital ratios and a capital conservation buffer, with which the company was in compliance as of December 31, 2019[61](index=61&type=chunk)[68](index=68&type=chunk) - As of December 31, 2019, the Bank and the Corporation were categorized as "well capitalized" under the Prompt Corrective Action framework[78](index=78&type=chunk) [Risk Factors](index=17&type=section&id=ITEM%201A.%20Risk%20Factors) The company faces significant risks from regional economic dependence, real estate lending concentration, interest rate fluctuations, the upcoming CECL standard, cybersecurity threats, intense competition, regulatory changes, and an ongoing activist shareholder proxy contest - The company's business is geographically concentrated in Maryland and West Virginia, with a significant portion of its loan portfolio in real estate, making it vulnerable to local economic downturns[113](index=113&type=chunk) - The upcoming implementation of the Current Expected Credit Loss (CECL) accounting standard is expected to require an increase in the allowance for loan losses, potentially having a material adverse effect on financial condition[118](index=118&type=chunk) - The company faces significant competition from larger financial institutions with greater resources and access to capital markets, as well as non-bank financial service providers[126](index=126&type=chunk) - Cybersecurity threats are a major risk, as a breach in information systems could lead to legal claims, regulatory penalties, operational disruptions, and reputational damage[143](index=143&type=chunk) - The company is subject to risks from a proxy contest initiated by Driver Management Company LLC on December 3, 2019, which could be costly, disrupt operations, and divert management's attention[147](index=147&type=chunk) - The company's ability to pay dividends is restricted by the terms of its outstanding TPS Debentures, which prohibit dividend payments if the company elects to defer interest payments on the debentures[155](index=155&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=ITEM%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[162](index=162&type=chunk) [Properties](index=25&type=section&id=ITEM%202.%20Properties) The company owns its headquarters and 19 banking offices, leasing six others, with total rent expense for leased properties at **$0.4 million** in 2019 - The Corporation owns its headquarters and an operations center in Oakland, Maryland, while the Bank owns 19 of its banking offices and leases six[163](index=163&type=chunk) - Total rent expense on leased offices and properties was **$0.4 million** in 2019[163](index=163&type=chunk) [Legal Proceedings](index=25&type=section&id=ITEM%203.%20Legal%20Proceedings) The company is involved in ordinary course legal actions, but management anticipates no material adverse effect on its financial condition or operations - Management believes that losses from current legal actions, if any, will not materially and adversely affect the company's financial condition or results of operations[164](index=164&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not applicable[165](index=165&type=chunk) PART II [Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=ITEM%205.%20Market%20for%20the%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under "FUNC", with dividends resumed in 2018 after a 2010 suspension, and no share repurchases in 2019 - The Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "FUNC"[168](index=168&type=chunk) - The board of directors suspended cash dividends in November 2010 and lifted this suspension in 2018, with dividend payments remaining at the discretion of the board and subject to legal and regulatory limitations[169](index=169&type=chunk) - Neither the Corporation nor its affiliates repurchased any shares of its common stock during 2019[171](index=171&type=chunk) [Selected Financial Data](index=27&type=section&id=ITEM%206.%20Selected%20Financial%20Data) This section presents a five-year financial summary, highlighting **$1.44 billion** in total assets, **$13.1 million** net income, and **$1.85** diluted EPS for 2019, with strong returns on assets and equity Selected Financial Data (2015-2019) | (Dollars in thousands, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Balance Sheet Data** | | | | | | | Total Assets | $1,442,027 | $1,383,760 | $1,335,867 | $1,317,675 | $1,322,988 | | Net Loans | 1,038,894 | 996,103 | 882,117 | 881,670 | 866,801 | | Deposits | 1,142,031 | 1,067,527 | 1,039,390 | 1,014,229 | 998,794 | | Shareholders' Equity | 125,940 | 117,066 | 108,390 | 113,698 | 120,771 | | **Operating Data** | | | | | | | Net Interest Income | 46,391 | 44,182 | 39,578 | 37,640 | 35,625 | | Provision for Loan Losses | 1,320 | 2,111 | 2,534 | 3,122 | 1,054 | | Net Income | $13,129 | $10,667 | $5,269 | $7,281 | $12,991 | | **Per Share Data** | | | | | | | Basic and diluted net income per common share | $1.85 | $1.51 | $0.58 | $0.84 | $1.65 | | Dividends Paid | 0.40 | 0.27 | — | — | — | | **Significant Ratios** | | | | | | | Return on Average Assets | 0.93% | 0.81% | 0.40% | 0.55% | 0.98% | | Return on Average Equity | 10.44% | 9.39% | 4.52% | 6.38% | 11.40% | | Total Risk-based Capital Ratio | 16.29% | 15.91% | 15.98% | 16.71% | 17.21% | [Management's Discussion and Analysis of Financial Condition & Results of Operations](index=28&type=section&id=ITEM%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20%26%20Results%20of%20Operations) Consolidated net income rose to **$13.1 million** in 2019, a **23% EPS increase**, driven by higher net interest income and lower loan loss provisions, alongside growth in loans and deposits, while maintaining strong capital ratios [Overview](index=45&type=section&id=Overview) Consolidated net income for 2019 reached **$13.1 million**, a **23% increase** in diluted EPS, driven by higher net interest income, reduced loan loss provisions, and increased other operating income, alongside significant loan and deposit growth 2019 vs 2018 Performance Summary | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Net Income | $13.1M | $10.7M | +$2.4M | | Diluted EPS | $1.85 | $1.51 | +23% | | Net Interest Income | $46.4M | $44.2M | +$2.2M | | Provision for Loan Losses | $1.3M | $2.1M | -$0.8M | | Other Operating Income | $16.6M | $15.0M | +$1.6M | | Other Operating Expenses | $45.4M | $43.8M | +$1.6M | - Total loans increased by **$44.4 million** to **$1.1 billion**, driven by growth in commercial real estate, commercial & industrial, and consumer loans[183](index=183&type=chunk) - Total deposits grew by **$74.5 million**, led by a **$32.4 million** increase in non-interest bearing deposits and a **$41.0 million** increase in money market accounts[187](index=187&type=chunk) [Consolidated Statement of Income Review](index=51&type=section&id=Consolidated%20Statement%20of%20Income%20Review) Fully tax equivalent net interest income increased by **$2.3 million (5.1%)**, driven by loan growth, while the provision for loan losses decreased, and other operating income rose due to BOLI death benefits, partially offset by increased operating expenses Net Interest Income (FTE Basis) | (Dollars in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Interest Income (FTE) | $58,788 | $53,090 | | Interest Expense | $11,529 | $8,112 | | Net Interest Income (FTE) | $47,259 | $44,978 | | Net Interest Margin % (FTE) | 3.68% | 3.74% | - The provision for loan losses decreased to **$1.3 million** in 2019 from **$2.1 million** in 2018, despite a specific allocation of **$2.1 million** for one large non-accrual A&D loan[227](index=227&type=chunk) - Other operating income increased by **$1.6 million**, primarily due to a **$1.1 million** gain from bank owned life insurance (BOLI) death benefit proceeds received in Q3 2019[229](index=229&type=chunk) - Other operating expenses increased by **$1.6 million**, driven by higher salaries and benefits (**$0.5 million**) and equipment, occupancy, and technology expenses (**$1.1 million**), partially offset by a **$0.2 million** decrease in FDIC premiums due to assessment credits[230](index=230&type=chunk) [Consolidated Balance Sheet Review](index=59&type=section&id=Consolidated%20Balance%20Sheet%20Review) Total assets reached **$1.4 billion** at year-end 2019, an increase of **$58.3 million**, driven by **$44.4 million** in gross loan growth and **$74.5 million** in deposit growth, while the allowance for loan losses increased to **$12.5 million** - Total assets increased by **$58.3 million** to **$1.4 billion** at December 31, 2019, primarily due to strong deposit growth of **$74.5 million**[234](index=234&type=chunk) Loan Portfolio Composition (in millions) | Loan Type | 2019 | 2018 | | :--- | :--- | :--- | | Commercial real estate | $335.5 | $306.9 | | Acquisition and development | $117.9 | $118.4 | | Commercial and industrial | $122.3 | $111.4 | | Residential mortgage | $440.2 | $436.9 | | Consumer | $36.2 | $34.1 | | **Total Loans** | **$1,052.1** | **$1,007.7** | - Non-accrual loans increased to **$10.8 million** at year-end 2019 from **$4.9 million** in 2018, primarily due to one large A&D loan totaling **$8.0 million** being moved to non-accrual status[260](index=260&type=chunk) - The allowance for loan losses (ALL) increased to **$12.5 million** (**1.19%** of total loans) at December 31, 2019, up from **$11.0 million** (**1.10%** of total loans) at year-end 2018[258](index=258&type=chunk) - The investment securities portfolio decreased by **$6.4 million**, including collateralized debt obligations (CDOs) valued using Level 3 inputs, which had unrealized losses of **$4.1 million**[271](index=271&type=chunk)[273](index=273&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=51&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates market risk disclosures by reference from the "Market Risk and Interest Sensitivity" heading within Item 7 - Information regarding market risk is incorporated by reference from the 'Market Risk and Interest Sensitivity' section in Item 7[319](index=319&type=chunk) [Financial Statements and Supplementary Data](index=52&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements for 2019 and 2018, with an unqualified opinion from Baker Tilly Virchow Krause, LLP on both the financial statements and internal control effectiveness - The independent auditor, Baker Tilly Virchow Krause, LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2019[322](index=322&type=chunk) Consolidated Statement of Financial Condition Highlights (in thousands) | | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Net Loans | $1,038,894 | $996,103 | | Total Assets | $1,442,027 | $1,383,760 | | **Liabilities & Equity** | | | | Total Deposits | $1,142,031 | $1,067,527 | | Total Liabilities | $1,316,087 | $1,266,694 | | Total Shareholders' Equity | $125,940 | $117,066 | Consolidated Statement of Income Highlights (in thousands) | | Year Ended Dec 31, 2019 | Year Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $46,391 | $44,182 | | Provision for Loan Losses | $1,320 | $2,111 | | Net Income | $13,129 | $10,667 | - The company adopted the new lease accounting standard (ASU 2016-02) on January 1, 2019, recognizing a right-of-use asset of approximately **$2.7 million** and a lease liability of approximately **$3.3 million**[386](index=386&type=chunk)[391](index=391&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=109&type=section&id=ITEM%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None reported[579](index=579&type=chunk) [Controls and Procedures](index=109&type=section&id=ITEM%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, a conclusion attested by the independent registered public accounting firm - Management concluded that the Corporation's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2019[581](index=581&type=chunk) - Based on the COSO 2013 framework, management concluded that the Corporation's internal control over financial reporting was effective as of December 31, 2019[586](index=586&type=chunk) [Other Information](index=111&type=section&id=ITEM%209B.%20Other%20Information) The company reports no other information for this item - None[589](index=589&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=111&type=section&id=ITEM%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the 11 directors and executive officers, highlights the Audit Committee's financial expertise, confirms a Code of Ethics, and notes late Form 4 filings related to director dividend reinvestments - The Board of Directors consists of **11 members**, all of whom also serve on the board of the Bank[590](index=590&type=chunk) - The Board has a standing Audit Committee, and has determined that members M. Kathryn Burkey, Brian R. Boal, Robert W. Kurtz, and John W. McCullough each qualify as an "audit committee financial expert"[605](index=605&type=chunk) - The company has adopted a Code of Ethics applicable to its directors, officers, and employees, which is available on its website[613](index=613&type=chunk)[615](index=615&type=chunk) - Several directors filed late Form 4s during 2019, all related to purchases of shares under a dividend reinvestment feature of a brokerage account[616](index=616&type=chunk) [Executive Compensation](index=114&type=section&id=ITEM%2011.%20Executive%20Compensation) Director compensation for 2019 included cash and stock awards, while executive compensation, primarily base salary with no incentive awards, is detailed for the three named executive officers and includes various benefit and severance plans 2019 Director Compensation Summary | Name | Fees earned or paid in cash ($) | Stock awards ($) | Total ($) | | :--- | :--- | :--- | :--- | | John F. Barr | 23,908 | 28,292 | 52,200 | | Brian R. Boal | 26,608 | 28,292 | 54,900 | | M. Kathryn Burkey | 26,408 | 28,292 | 54,700 | | Robert W. Kurtz | 34,350 | 18,300 | 52,650 | | John W. McCullough | 23,308 | 28,292 | 51,600 | 2019 Summary Compensation Table | Name and principal position | Year | Salary ($) | Bonus ($) | All other compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Carissa L. Rodeheaver, Chairman, President & CEO | 2019 | 388,907 | - | 11,077 | 399,984 | | Robert L. Fisher, II, Senior Vice President, Chief Revenue Officer | 2019 | 268,876 | - | 10,453 | 279,329 | | Jason B. Rush, Senior Vice President, Chief Operating Officer | 2019 | 203,138 | - | 8,113 | 211,251 | - No incentive awards were granted to executive officers in 2019, though each named executive officer received a **$5,000** discretionary cash bonus in 2018[633](index=633&type=chunk)[637](index=637&type=chunk) - The company has change-in-control severance agreements with its named executive officers, providing a lump sum cash payment of two times final pay and other benefits upon a qualifying termination[641](index=641&type=chunk)[665](index=665&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=123&type=section&id=ITEM%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section outlines the 2018 Equity Compensation Plan with **297,423** available securities and details beneficial stock ownership, noting directors and executive officers collectively own **4.4%**, while Driver Opportunity Partners I LP holds **5.1%** - As of December 31, 2019, **297,423** securities remained available for future issuance under the company's 2018 Equity Compensation Plan[673](index=673&type=chunk) - As of February 29, 2020, all directors and executive officers as a group beneficially owned **314,589 shares**, representing **4.4%** of the outstanding common stock[675](index=675&type=chunk) - Driver Opportunity Partners I LP reported beneficial ownership of **365,212 shares**, or **5.1%** of the outstanding common stock, as of January 10, 2020[675](index=675&type=chunk)[676](index=676&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=125&type=section&id=ITEM%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company conducts ordinary course banking transactions with directors and officers, discloses specific related party services, and confirms a majority of its Board members are independent under NASDAQ rules - The Bank engages in ordinary course banking transactions with directors, officers, and their affiliates on terms comparable to those for unrelated persons[677](index=677&type=chunk) - A company owned by director H. Andrew Walls provided printing and other services to the Corporation, with fees totaling **$186,334** in 2019[678](index=678&type=chunk) - The Board of Directors has determined that **10 of its 11 members** are "independent directors" under NASDAQ rules[681](index=681&type=chunk) [Principal Accountant Fees and Services](index=125&type=section&id=ITEM%2014.%20Principal%20Accountant%20Fees%20and%20Services) This section details **$324,350** in fees paid to Baker Tilly Virchow Krause, LLP for fiscal year 2019, primarily for audit services, all pre-approved by the Audit Committee Accountant Fees (2018-2019) | Fee Type | FY 2019 | FY 2018 | | :--- | :--- | :--- | | Audit Fees | $321,050 | $302,000 | | Audit Related Fees | $3,300 | $3,875 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | **Total** | **$324,350** | **$305,875** | - All audit and permitted non-audit services provided by the independent registered public accounting firm were pre-approved by the Audit Committee[685](index=685&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=127&type=section&id=ITEM%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements and provides an index of all exhibits, including corporate governance documents, material contracts, certifications, and XBRL data files, filed with the Annual Report on Form 10-K - This section lists the financial statements and schedules filed with the report[687](index=687&type=chunk)[688](index=688&type=chunk) - An Exhibit Index is provided, listing all documents filed or furnished with the annual report, such as articles of incorporation, bylaws, material contracts, and certifications required by the Sarbanes-Oxley Act[689](index=689&type=chunk)[690](index=690&type=chunk)
First United (FUNC) - 2019 Q3 - Quarterly Report
2019-11-07 21:33
PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents First United Corporation's unaudited consolidated financial statements for Q3 and nine months ended September 30, 2019, including key financial statements and accompanying notes [Consolidated Statement of Financial Condition](index=3&type=section&id=Consolidated%20Statement%20of%20Financial%20Condition) As of September 30, 2019, total assets increased, driven by higher cash and deposits, while net loans slightly decreased and shareholders' equity grew Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 (Unaudited) | Dec 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $84,169 | $23,541 | | Net loans | $985,313 | $996,667 | | Total Assets | **$1,440,964** | **$1,384,516** | | **Liabilities & Equity** | | | | Total deposits | $1,136,787 | $1,067,527 | | Total Liabilities | $1,311,625 | $1,267,450 | | Total Shareholders' Equity | $129,339 | $117,066 | | Total Liabilities and Shareholders' Equity | **$1,440,964** | **$1,384,516** | [Consolidated Statement of Operations](index=4&type=section&id=Consolidated%20Statement%20of%20Operations) Net income for the nine months ended September 30, 2019, increased significantly, driven by higher net interest income and other operating income, with strong year-over-year growth in the third quarter Nine Months Ended September 30 (in thousands, except per share data) | Metric | 2019 (Unaudited) | 2018 | | :--- | :--- | :--- | | Net interest income | $34,469 | $32,706 | | Provision for loan losses | $669 | $1,187 | | Net Income | **$10,246** | **$8,285** | | Basic and diluted EPS | **$1.44** | **$1.17** | Three Months Ended September 30 (in thousands, except per share data) | Metric | 2019 (Unaudited) | 2018 | | :--- | :--- | :--- | | Net interest income | $11,596 | $11,256 | | Provision for loan losses | $(13) | $471 | | Net Income | **$4,493** | **$2,763** | | Basic and diluted EPS | **$0.63** | **$0.39** | [Consolidated Statement of Cash Flows](index=9&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) For the nine months ended September 30, 2019, cash and cash equivalents significantly increased, primarily driven by net cash provided by financing and investing activities, reversing the prior year's decrease Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Activity | 2019 (Unaudited) | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,092 | $7,605 | | Net cash provided by/(used in) investing activities | $14,721 | $(69,113) | | Net cash provided by financing activities | $39,815 | $1,313 | | **Increase/(decrease) in cash and cash equivalents** | **$60,628** | **$(60,195)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies and financial statement line items, including loan portfolios, allowance for loan losses, fair value, leases, and employee benefits - The loan portfolio is segmented into Commercial Real Estate (CRE), Acquisition and Development (A&D), Commercial and Industrial (C&I), Residential Mortgage, and Consumer loans. As of September 30, 2019, total loans were **$997.3 million**[37](index=37&type=chunk) - The Allowance for Loan Losses (ALL) increased to **$12.0 million** at September 30, 2019, from **$11.0 million** at year-end 2018. The provision for the first nine months of 2019 was **$0.7 million**[209](index=209&type=chunk) - The company adopted ASU 2016-02 (Leases) on January 1, 2019, recognizing a Right-of-Use (ROU) asset of **$2.7 million** and a lease liability of **$3.3 million** on the balance sheet[97](index=97&type=chunk)[132](index=132&type=chunk) - The company is preparing for the adoption of the Current Expected Credit Losses (CECL) model (ASU 2016-13), with an effective date for SEC filers after December 15, 2019, though a deferral for smaller reporting companies is expected[134](index=134&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 and nine-month 2019 financial results, attributing increased net income to higher net interest income, lower loan loss provision, and a BOLI death benefit, covering detailed analysis of financial condition and operations [Results of Operations](index=47&type=section&id=Results%20of%20Operations) Net income for the first nine months of 2019 increased, driven by higher net interest income and other operating income, including a BOLI death benefit, despite rising operating expenses and a decreased loan loss provision - Consolidated net income for the first nine months of 2019 was **$10.2 million** (**$1.44 per share**), up from **$8.3 million** (**$1.17 per share**) in the same period of 2018[158](index=158&type=chunk) - A key driver of increased other operating income was the receipt of **$2.1 million** in BOLI cash proceeds, which included a **$1.1 million** death benefit in the third quarter[158](index=158&type=chunk)[190](index=190&type=chunk) - In September 2019, the Corporation introduced a Voluntary Separation Program (VSP), expected to result in annual salary and benefit cost savings of approximately **$1.4 million** beginning in 2020[114](index=114&type=chunk)[164](index=164&type=chunk)[194](index=194&type=chunk) Net Interest Margin (FTE Basis) | Period | 2019 | 2018 | | :--- | :--- | :--- | | Nine Months Ended Sep 30 | 3.67% | 3.73% | | Three Months Ended Sep 30 | 3.62% | 3.79% | [Financial Condition](index=56&type=section&id=Financial%20Condition) Total assets increased since year-end 2018, driven by strong deposit growth and higher cash, while gross loans slightly decreased and shareholders' equity grew - Total assets remained stable at **$1.4 billion**, increasing **$56.4 million** from December 31, 2018[200](index=200&type=chunk) - Gross loans decreased by **$10.4 million**, with declines in Commercial Real Estate and A&D loans, while Residential Mortgage and Consumer loans saw modest increases[201](index=201&type=chunk) - Non-accrual loans increased to **$11.7 million** (**1.17% of total loans**) from **$4.9 million** at year-end, primarily due to one large A&D loan of **$7.7 million** moving to non-accrual status[43](index=43&type=chunk)[204](index=204&type=chunk) - Total deposits increased by **$69.3 million** during the first nine months of 2019, driven by growth in non-interest bearing accounts, money market accounts, and time deposits over **$100,000**[224](index=224&type=chunk) [Capital Resources](index=66&type=section&id=Capital%20Resources) The Corporation and Bank remained well-capitalized under Basel III as of September 30, 2019, with all capital ratios significantly above minimums, and elected to exclude certain comprehensive items from regulatory capital Capital Ratios as of September 30, 2019 | Ratio | Consolidated | Bank | Required (Well-Capitalized) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 13.32% | 15.08% | 6.50% | | Tier 1 Capital | 15.82% | 15.08% | 8.00% | | Total Capital | 16.95% | 16.25% | 10.00% | | Tier 1 Leverage | 11.68% | 10.91% | 5.00% | - The Corporation and Bank made a one-time permanent election to exclude the effects of certain accumulated other comprehensive items from regulatory capital, mitigating volatility from interest rate fluctuations on the AFS securities portfolio[247](index=247&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section incorporates by reference market risk disclosures from Item 2, specifically regarding market risk and interest sensitivity - The primary market risk is interest rate fluctuation. The company was asset sensitive as of September 30, 2019, meaning net interest income is expected to increase in a rising rate environment[232](index=232&type=chunk)[233](index=233&type=chunk) Estimated Change in Net Interest Income (NII) from Rate Changes (in thousands) | Rate Change (basis points) | Estimated NII Change | | :--- | :--- | | +400 | $3,002 | | +200 | $1,782 | | +100 | $970 | | -100 | $(2,425) | [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2019[257](index=257&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, internal controls[258](index=258&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[261](index=261&type=chunk) [Item 1A. Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) Management reported no material changes in the company's risk factors since their last disclosure in the 2018 Annual Report on Form 10-K - Management does not believe that any material changes in risk factors have occurred since they were last disclosed[262](index=262&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds during the period - None[263](index=263&type=chunk)
First United (FUNC) - 2019 Q2 - Quarterly Report
2019-08-08 20:50
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (800) 470-4356 19 South Second Street, Oakland, Maryland 21550-0009 (Address of principal executive offices) (Zip Code) FORM 10-Q ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended June 30, 2019 ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _______________ to ________________ Commission file number 0-14237 First United Co ...
First United (FUNC) - 2019 Q1 - Quarterly Report
2019-05-07 20:33
[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for the quarter ended March 31, 2019, show an increase in total assets to $1.417 billion from $1.385 billion at year-end 2018, with net income rising to $3.15 million from $2.51 million, and reflecting the adoption of the new lease accounting standard [Consolidated Statement of Financial Condition](index=3&type=section&id=Consolidated%20Statement%20of%20Financial%20Condition) As of March 31, 2019, total assets increased to $1.417 billion, driven by a significant rise in cash and cash equivalents to $54.0 million and growth in total deposits to $1.131 billion, while shareholders' equity grew to $122.4 million Consolidated Statement of Financial Condition Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $54,004 | $23,541 | | Net loans | $993,070 | $996,667 | | Total Assets | $1,416,901 | $1,384,516 | | **Liabilities & Equity** | | | | Total deposits | $1,130,612 | $1,067,527 | | Short-term borrowings | $39,695 | $77,707 | | Total Liabilities | $1,294,502 | $1,267,450 | | Total Shareholders' Equity | $122,399 | $117,066 | | **Total Liabilities and Shareholders' Equity** | **$1,416,901** | **$1,384,516** | [Consolidated Statement of Operations](index=4&type=section&id=Consolidated%20Statement%20of%20Operations) For the three months ended March 31, 2019, net income increased by 25.7% to $3.15 million from $2.51 million in the prior-year period, primarily driven by a 7.2% rise in net interest income to $11.35 million, with basic and diluted earnings per share increasing to $0.44 Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net interest income | $11,346 | $10,582 | | Provision for loan losses | $349 | $447 | | Total other operating income | $3,721 | $3,710 | | Total other operating expenses | $10,690 | $10,691 | | **Net Income** | **$3,151** | **$2,506** | | **Basic and diluted EPS** | **$0.44** | **$0.35** | [Consolidated Statement of Comprehensive Income](index=5&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) Comprehensive income for Q1 2019 significantly increased to $5.87 million from $3.33 million in the prior-year period, fueled by higher net income and a substantial rise in other comprehensive income due to net unrealized gains on pension plans Comprehensive Income (in thousands) | Component | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net Income | $3,151 | $2,506 | | Other comprehensive income, net of tax | $2,715 | $820 | | **Comprehensive income** | **$5,866** | **$3,326** | [Consolidated Statement of Changes in Shareholders' Equity](index=6&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity increased from $117.1 million at the beginning of 2019 to $122.4 million at March 31, 2019, primarily driven by net income and other comprehensive income, partially offset by common stock dividends - Key drivers for the increase in shareholders' equity in Q1 2019 were **net income of $3.15 million** and **other comprehensive income of $2.72 million**[13](index=13&type=chunk) [Consolidated Statement of Cash Flows](index=7&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) For the first three months of 2019, cash and cash equivalents increased by $30.5 million, primarily due to net cash provided by financing activities of $24.5 million, driven by deposit growth and reduced short-term borrowings Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2019 | Three months ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $997 | $3,225 | | Net cash provided by/(used in) investing activities | $4,993 | $(44,954) | | Net cash provided by/(used in) financing activities | $24,473 | $(20,797) | | **Increase/(decrease) in cash and cash equivalents** | **$30,463** | **$(62,526)** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the basis of presentation and significant accounting policies, including the adoption of the new lease accounting standard, composition of investment and loan portfolios, allowance for loan losses, fair value measurements, and employee benefit plans - The Corporation adopted ASU 2016-02, "Leases" (Topic 842) on January 1, 2019, resulting in the recognition of a **right-of-use asset of approximately $2.7 million** and a **lease liability of approximately $3.3 million** on the Consolidated Statement of Financial Condition[94](index=94&type=chunk)[131](index=131&type=chunk) - The company is preparing for the adoption of the **Current Expected Credit Losses (CECL) model (ASU 2016-13)** on January 1, 2020, with plans to run its existing allowance model in parallel for two to three quarters prior to implementation[133](index=133&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 25.7% increase in Q1 2019 net income to higher net interest income and a lower provision for loan losses, with total assets growing by $32.4 million due to strong deposit growth, despite an increase in non-accrual loans [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Net income for Q1 2019 was $3.2 million ($.44 per share), up from $2.5 million ($.35 per share) in Q1 2018, driven by a $0.8 million rise in net interest income as higher loan yields outpaced increased deposit costs Key Performance Ratios | Ratio | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Return on Average Assets | 0.91% | 0.76% | | Return on Average Equity | 10.49% | 9.13% | - Net interest income (FTE basis) increased by **$0.8 million (7.4%)** year-over-year, driven by a **$1.7 million increase in interest income**, partially offset by a **$0.9 million increase in interest expense**, with the **net interest margin stable at 3.72%** for Q1 2019[157](index=157&type=chunk)[169](index=169&type=chunk) - The provision for loan losses was **$0.3 million** for Q1 2019, a slight decline from **$0.4 million** in Q1 2018, attributed to reduced historical loss factors and slower loan growth, offset by a specific reserve on one large A&D loan[158](index=158&type=chunk)[176](index=176&type=chunk) [Financial Condition](index=55&type=section&id=Financial%20Condition) Total assets grew to $1.4 billion at March 31, 2019, an increase of $32.4 million from year-end 2018, funded by a $63.1 million increase in deposits, allowing for a $38.0 million reduction in short-term borrowings, though non-accrual loans increased to $11.6 million - Total deposits increased by **$63.1 million** during Q1 2019, with **non-interest bearing deposits growing by $26.0 million** and **money market accounts increasing by $29.8 million**[207](index=207&type=chunk) - Non-accrual loans increased to **$11.6 million** at March 31, 2019, from **$4.9 million** at December 31, 2018, primarily due to a forbearance agreement on one large A&D loan totaling **$7.0 million**[41](index=41&type=chunk)[188](index=188&type=chunk) Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2019 | % of Total | December 31, 2018 | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial real estate | $299,466 | 30% | $306,921 | 31% | | Acquisition and development | $123,326 | 12% | $118,360 | 12% | | Commercial and industrial | $109,419 | 11% | $111,466 | 11% | | Residential mortgage | $438,607 | 44% | $436,907 | 43% | | Consumer | $33,800 | 3% | $34,060 | 3% | | **Total Loans** | **$1,004,618** | **100%** | **$1,007,714** | **100%** | - The allowance for loan losses (ALL) increased to **$11.5 million** at March 31, 2019, representing **1.15% of gross loans outstanding**, up from **1.10%** at year-end 2018[193](index=193&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) The Corporation maintains adequate liquidity through core deposits and access to various funding sources, remaining well-capitalized under all regulatory measures with a consolidated Total Capital ratio of 16.40% and a Tier 1 Leverage ratio of 11.56% at March 31, 2019 - At March 31, 2019, available liquidity sources included **$100.0 million in unsecured lines** with correspondent banks, **$4.2 million from the Fed Discount Window**, and approximately **$144.4 million from the FHLB**[224](index=224&type=chunk) Regulatory Capital Ratios (Consolidated) | Ratio | March 31, 2019 | Required for Adequacy | Required to be Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to risk-weighted assets) | 16.40% | 8.00% | 10.00% | | Tier 1 Capital (to risk-weighted assets) | 15.30% | 6.00% | 8.00% | | Common Equity Tier 1 Capital | 12.83% | 4.50% | 6.50% | | Tier 1 Capital (to average assets) | 11.56% | 4.00% | 5.00% | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=69&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The primary market risk is interest rate fluctuation, managed using interest sensitivity gap analysis and simulation models, with the company being asset sensitive as of March 31, 2019, where a 100 basis point rate increase would increase NII by an estimated $0.82 million Net Interest Income Sensitivity Analysis (in thousands) | Rate Change | Estimated Change in NII (March 31, 2019) | | :--- | :--- | | +400 basis points | $2,230 | | +200 basis points | $1,452 | | +100 basis points | $820 | | -100 basis points | $(2,079) | [Item 4. Controls and Procedures](index=69&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2019, the PEO and PFO concluded that the company's **disclosure controls and procedures are effective** at the reasonable assurance level[238](index=238&type=chunk) [PART II. OTHER INFORMATION](index=70&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=70&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no legal proceedings during the period - **There are no legal proceedings to report**[242](index=242&type=chunk) [Item 1A. Risk Factors](index=70&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - Management does not believe that any **material changes in risk factors** have occurred since the last disclosure in the 2018 Form 10-K[243](index=243&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including certifications by the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act, and XBRL data files
First United (FUNC) - 2018 Q4 - Annual Report
2019-03-12 21:04
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 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 incorporation or organization) (I.R.S. Employer Identification Number) 19 South Second Street, Oakland, Maryland 21550 (Address of principal ...