First United (FUNC) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements First United Corporation's unaudited consolidated financial statements for Q2 2020, including key statements and accompanying notes Consolidated Statement of Financial Condition Total assets grew to $1.64 billion by June 30, 2020, driven by increased cash and loans, with liabilities and deposits also rising, and equity slightly decreasing Consolidated Statement of Financial Condition (in thousands) | | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $117,090 | $49,979 | | Net loans | $1,166,220 | $1,037,145 | | Total Assets | $1,639,636 | $1,442,027 | | Liabilities and Shareholders' Equity | | | | Total deposits | $1,351,568 | $1,142,031 | | Total Liabilities | $1,515,183 | $1,316,087 | | Total Shareholders' Equity | $124,453 | $125,940 | | Total Liabilities and Shareholders' Equity | $1,639,636 | $1,442,027 | Consolidated Statement of Operations Net income for the six months ended June 30, 2020, decreased to $4.3 million due to higher loan loss provisions, while Q2 net income remained flat at $2.6 million Six Months Ended June 30 (in thousands, except per share data) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net interest income | $24,543 | $22,873 | | Provision for loan losses | $4,821 | $682 | | Net Income | $4,325 | $5,753 | | Diluted net income per share | $0.62 | $0.81 | Three Months Ended June 30 (in thousands, except per share data) | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net interest income | $12,656 | $11,527 | | Provision for loan losses | $2,167 | $333 | | Net Income | $2,570 | $2,602 | | Diluted net income per share | $0.37 | $0.37 | Consolidated Statement of Comprehensive (Loss)/Income Comprehensive income for the six months ended June 30, 2020, significantly decreased to $2.8 million, while Q2 2020 comprehensive income increased to $6.7 million Comprehensive Income (in thousands) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Six Months Ended June 30 | | | | Net Income | $4,325 | $5,753 | | Other comprehensive (loss)/income | $(1,512) | $4,403 | | Comprehensive income | $2,813 | $10,156 | | Three Months Ended June 30 | | | | Net Income | $2,570 | $2,602 | | Other comprehensive income | $4,120 | $1,688 | | Comprehensive income | $6,690 | $4,290 | Consolidated Statement of Changes in Shareholders' Equity Shareholders' equity decreased to $124.5 million by June 30, 2020, primarily due to stock repurchases and comprehensive loss, partially offset by net income - Total Shareholders' Equity decreased by $1.5 million during the first six months of 2020, from $125.9 million to $124.5 million[16] - Key activities impacting equity in the first half of 2020 included net income of $4.3 million, an other comprehensive loss of $1.5 million, a stock repurchase of $2.8 million, and common stock dividends of $1.8 million[16] Consolidated Statement of Cash Flows Cash and cash equivalents increased by $67.1 million for the six months ended June 30, 2020, driven by financing activities and offset by investing activities Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,827 | $1,891 | | Net cash (used in)/provided by investing activities | $(128,041) | $5,756 | | Net cash provided by financing activities | $192,325 | $7,801 | | Increase in cash and cash equivalents | $67,111 | $15,448 | Notes to Consolidated Financial Statements Detailed notes explain accounting policies and significant events, including COVID-19 impact, PPP participation, loan modifications, and allowance for loan losses - The company participated in the SBA Paycheck Protection Program (PPP), processing applications until August 8, 2020, and anticipates receiving approximately $3.5 million in deferred loan fees[23] - The company implemented loan modification programs for borrowers affected by COVID-19, including deferrals of principal and interest or interest-only periods, which are not accounted for as Troubled Debt Restructurings (TDRs) under the CARES Act[28][29] Active COVID-19 Loan Modifications as of July 31, 2020 | Loan Category | Total Balance (000s) | Modified Balance (000s) | % of Category Modified | | :--- | :--- | :--- | :--- | | Total Commercial | $594,039 | $184,920 | 31.1% | | Total Residential Mortgage | $345,358 | $26,089 | 7.6% | | Total Consumer | $103,117 | $3,444 | 3.3% | | Total Loans | $1,042,514 | $214,453 | 20.6% | - The Allowance for Loan Losses (ALL) increased to $17.0 million at June 30, 2020, from $12.5 million at year-end 2019, primarily due to a $4.8 million provision for loan losses in the first half of 2020 reflecting economic uncertainty from COVID-19[48][50] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, highlighting COVID-19 impact, decreased net income due to loan loss provisions, PPP participation, asset growth, and a slightly lower net interest margin - Net income for the first six months of 2020 was $4.3 million ($0.62 per share), down from $5.8 million ($0.81 per share) in the same period of 2019. The decrease was primarily driven by a $4.1 million increase in the provision for loan losses due to COVID-19 related economic uncertainty[162] - The company responded to COVID-19 by implementing its Business Continuity Plan, participating in the Paycheck Protection Program (funding 1,176 loans for approximately $145.9 million as of July 31, 2020), and offering loan modifications to affected customers[153] - Total assets increased by $197.6 million to $1.6 billion since year-end 2019, driven by a $136.6 million increase in gross loans (including $144.4 million in PPP loans) and a $209.5 million increase in deposits[200][201] - The Allowance for Loan Losses (ALL) increased to $17.0 million (1.43% of gross loans) at June 30, 2020, from $12.5 million at year-end 2019. Excluding PPP loans, the ALL to loans ratio was 1.62%[211] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuation, with an asset-sensitive position as of June 30, 2020, indicating increased net interest income in a rising rate environment - The company's primary market risk is interest rate fluctuation. As of June 30, 2020, the company was asset sensitive[232][233] Estimated Change in Net Interest Income from Interest Rate Changes (in thousands) | Rate Change | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | +400 basis points | $4,008 | $1,500 | | +200 basis points | $2,291 | $1,075 | | +100 basis points | $1,208 | $645 | | -100 basis points | $(1,656) | $(2,477) | Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the period - Based on an evaluation as of June 30, 2020, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures are effective at the reasonable assurance level[253] - No changes in internal control over financial reporting occurred during the six months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[254] PART II. OTHER INFORMATION Legal Proceedings The company reports no material legal proceedings - None[257] Risk Factors The company reports no material changes in its risk factors since the 2019 Annual Report on Form 10-K - Management does not believe that any material changes in risk factors have occurred since they were last disclosed in the 2019 Form 10-K[258] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds during the period - None[259] Exhibits This section lists the exhibits filed with the quarterly report, including officer certifications and XBRL data files - Exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL instance documents and related files[264]