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Section 1: 10-Q (10-Q)

20190930 10Q Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



        For quarterly period ended September 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 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 No.)



 

 

19 South Second Street, Oakland, Maryland

 

21550-0009

(Address of principal executive offices)

 

(Zip Code)



(800) 470-4356

(Registrant's telephone number, including area code)



Securities registered pursuant to Section 12(b) of the Act:



Title of each class

Trading Symbols

Name of each exchange on which registered

Common Stock

FUNC

Nasdaq Stock Market



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No 



Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No 



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): 



Large accelerated filer

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. 



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 



Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,107,666 shares of common stock, par value $.01 per share, as of October 31, 2019.



 


 

 



INDEX TO QUARTERLY REPORT

FIRST UNITED CORPORATION 





 

Page

PART I.  FINANCIAL INFORMATION

Item 1.

Financial Statements (unaudited)



Consolidated Statement of Financial Condition – September 30, 2019 and December 31, 2018



Consolidated Statement of Operations – for the nine and three months ended September 30, 2019 and 2018



Consolidated Statement of Comprehensive Income – for the nine and three months ended September 30, 2019 and 2018



Consolidated Statement of Changes in Shareholders’ Equity – for three months ended March 31, June 30, September 30, 2019 and 2018



Consolidated Statement of Cash Flows – for the nine months ended September 30, 2019 and 2018



Notes to Consolidated Financial Statements

10 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

44 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

68 

Item 4.

Controls and Procedures

68 



 

 

PART II. OTHER INFORMATION

69 

Item 1.

Legal Proceedings

69 

Item 1A.  

Risk Factors

69 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69 

Item 3.

Defaults upon Senior Securities

69 

Item 4.

Mine Safety Disclosures

69 

Item 5.

Other Information

69 

Item 6.

Exhibits

69 

SIGNATURES

70 



 

2


 

 

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements



FIRST UNITED CORPORATION

Consolidated Statement of Financial Condition

(In thousands, except per share data)









 

 

 

 

 

 



 

 

 

 

 

 



 

September 30,
2019

 

December 31,
2018



 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

82,219 

 

$

22,187 

Interest bearing deposits in banks

 

 

1,950 

 

 

1,354 

Cash and cash equivalents

 

 

84,169 

 

 

23,541 

Investment securities – available for sale (at fair value)

 

 

135,076 

 

 

137,641 

Investment securities – held to maturity (fair value $104,173 at September 30, 2019 and $93,760 at December 31, 2018)

 

 

96,604 

 

 

94,010 

Restricted investment in bank stock, at cost

 

 

4,415 

 

 

5,394 

Loans

 

 

997,284 

 

 

1,007,714 

Allowance for loan losses

 

 

(11,971)

 

 

(11,047)

Net loans

 

 

985,313 

 

 

996,667 

Premises and equipment, net

 

 

38,364 

 

 

37,855 

Goodwill and other intangible assets, net

 

 

11,004 

 

 

11,004 

Bank owned life insurance

 

 

43,162 

 

 

43,317 

Deferred tax assets

 

 

6,386 

 

 

7,844 

Other real estate owned

 

 

4,721 

 

 

6,598 

Operating lease right-of-use asset

 

 

2,731 

 

 

 —

Accrued interest receivable and other assets

 

 

29,019 

 

 

20,645 

Total Assets

 

$

1,440,964 

 

$

1,384,516 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Non-interest bearing deposits

 

$

283,067 

 

$

262,250 

Interest bearing deposits

 

 

853,720 

 

 

805,277 

Total deposits

 

 

1,136,787 

 

 

1,067,527 

Short-term borrowings

 

 

50,345 

 

 

77,707 

Long-term borrowings

 

 

100,929 

 

 

100,929 

Operating lease liability

 

 

3,312 

 

 

 —

Accrued interest payable and other liabilities

 

 

19,332 

 

 

20,649 

Dividends payable

 

 

920 

 

 

638 

Total Liabilities

 

 

1,311,625 

 

 

1,267,450 

Shareholders’ Equity: 

 

 

 

 

 

 

Common Stock – par value $.01 per share;
Authorized 25,000 shares; issued and outstanding
7,108 shares at September 30, 2019 and 7,087 at December 31, 2018

 

 

71 

 

 

71 

Surplus

 

 

32,237 

 

 

31,921 

Retained earnings

 

 

117,524 

 

 

109,477 

Accumulated other comprehensive loss

 

 

(20,493)

 

 

(24,403)

Total Shareholders’ Equity

 

 

129,339 

 

 

117,066 

Total Liabilities and Shareholders’ Equity

 

$

1,440,964 

 

$

1,384,516 



See accompanying notes to the consolidated financial statements

 

3


 

 

FIRST UNITED CORPORATION

Consolidated Statement of Operations

(In thousands, except per share data)







 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2019

 

2018



 

(Unaudited)

Interest income

 

 

 

 

 

 

Interest and fees on loans

 

$

37,215 

 

$

32,895 

Interest on investment securities

 

 

 

 

 

 

Taxable

 

 

4,333 

 

 

4,380 

Exempt from federal income tax

 

 

771 

 

 

706 

Total investment income

 

 

5,104 

 

 

5,086 

Other

 

 

764 

 

 

369 

Total interest income

 

 

43,083 

 

 

38,350 

Interest expense

 

 

 

 

 

 

Interest on deposits

 

 

5,800 

 

 

2,856 

Interest on short-term borrowings

 

 

158 

 

 

253 

Interest on long-term borrowings

 

 

2,656 

 

 

2,535 

Total interest expense

 

 

8,614 

 

 

5,644 

Net interest income

 

 

34,469 

 

 

32,706 

Provision for loan losses

 

 

669 

 

 

1,187 

Net interest income after provision for loan losses

 

 

33,800 

 

 

31,519 

Other operating income

 

 

 

 

 

 

Net gains

 

 

84 

 

 

190 

Service charges on deposit accounts

 

 

1,652 

 

 

1,707 

Other service charges

 

 

707 

 

 

667 

Trust department

 

 

5,345 

 

 

5,010 

Debit card income

 

 

1,955 

 

 

1,818 

Bank owned life insurance

 

 

1,970 

 

 

872 

Brokerage commissions

 

 

646 

 

 

828 

Other

 

 

369 

 

 

306 

Total other income

 

 

12,644 

 

 

11,208 

Total other operating income

 

 

12,728 

 

 

11,398 

Other operating expenses

 

 

 

 

 

 

Salaries and employee benefits

 

 

18,644 

 

 

18,308 

FDIC premiums

 

 

337 

 

 

474 

Equipment

 

 

2,775 

 

 

2,246 

Occupancy

 

 

2,112 

 

 

1,909 

Data processing

 

 

2,979 

 

 

2,844 

Marketing

 

 

274 

 

 

386 

Professional services

 

 

776 

 

 

947 

Contract labor

 

 

502 

 

 

522 

Line rentals

 

 

641 

 

 

637 

Other real estate owned

 

 

1,266 

 

 

682 

Other

 

 

3,371 

 

 

3,450 

Total other operating expenses

 

 

33,677 

 

 

32,405 

Income before income tax expense

 

 

12,851 

 

 

10,512 

Provision for income tax expense

 

 

2,605 

 

 

2,227 

Net Income

 

$

10,246 

 

$

8,285 

Basic and diluted net income per common share

 

$

1.44 

 

$

1.17 

Weighted average number of basic and diluted shares outstanding

 

 

7,098 

 

 

7,076 

Dividends declared per common share

 

$

0.31 

 

$

0.27 



See accompanying notes to the consolidated financial statements

 

4


 

 

FIRST UNITED CORPORATION

Consolidated Statement of Operations

(In thousands, except per share data)





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

September 30,



 

2019

 

2018



 

(Unaudited)

Interest income

 

 

 

 

 

 

Interest and fees on loans

 

$

12,529 

 

$

11,487 

Interest on investment securities

 

 

           

 

 

           

Taxable

 

 

1,416 

 

 

1,459 

Exempt from federal income tax

 

 

249 

 

 

233 

Total investment income

 

 

1,665 

 

 

1,692 

Other

 

 

406 

 

 

85 

Total interest income

 

 

14,600 

 

 

13,264 

Interest expense

 

 

 

 

 

 

Interest on deposits

 

 

2,064 

 

 

1,072 

Interest on short-term borrowings

 

 

27 

 

 

129 

Interest on long-term borrowings

 

 

913 

 

 

807 

Total interest expense

 

 

3,004 

 

 

2,008 

Net interest income

 

 

11,596 

 

 

11,256 

Provision for loan losses

 

 

(13)

 

 

471 

Net interest income after provision for loan losses

 

 

11,609 

 

 

10,785 

Other operating income

 

 

 

 

 

 

Net gains

 

 

40 

 

 

Service charges on deposit accounts

 

 

578 

 

 

587 

Other service charges

 

 

274 

 

 

227 

Trust department

 

 

1,798 

 

 

1,705 

Debit card income

 

 

679 

 

 

617 

Bank owned life insurance

 

 

1,379 

 

 

288 

Brokerage commissions

 

 

205 

 

 

277 

Other

 

 

115 

 

 

96 

Total other income

 

 

5,028 

 

 

3,797 

Total other operating income

 

 

5,068 

 

 

3,806 

Other operating expenses

 

 

 

 

 

 

Salaries and employee benefits

 

 

6,280 

 

 

6,270 

FDIC premiums

 

 

43 

 

 

171 

Equipment

 

 

956 

 

 

810 

Occupancy

 

 

694 

 

 

657 

Data processing

 

 

984 

 

 

1,001 

Marketing

 

 

110 

 

 

153 

Professional services

 

 

254 

 

 

304 

Contract labor

 

 

171 

 

 

185 

Line rentals

 

 

226 

 

 

207 

Other real estate owned

 

 

337 

 

 

189 

Other

 

 

1,191 

 

 

1,142 

Total other operating expenses

 

 

11,246 

 

 

11,089 

Income before income tax expense

 

 

5,431 

 

 

3,502 

Provision for income tax expense

 

 

938 

 

 

739 

Net Income

 

$

4,493 

 

$

2,763 

Basic and diluted net income per common share

 

$

0.63 

 

$

0.39 

Weighted average number of basic and diluted shares outstanding

 

 

7,107 

 

 

7,084 

Dividends declared per common share

 

$

0.13 

 

$

0.09 



See accompanying notes to the consolidated financial statements



 

5


 

 

FIRST UNITED CORPORATION

Consolidated Statement of Comprehensive Income

(In thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2019

 

2018

Comprehensive Income (in thousands)

 

(Unaudited)

Net Income

 

$

10,246 

 

$

8,285 

Other comprehensive income, net of tax and reclassification adjustments:

 

 

 

 

 

 

Net unrealized (losses)/gains on investments with OTTI

 

 

(1,131)

 

 

1,851 

Net unrealized gains/(losses) on all other AFS securities

 

 

2,884 

 

 

(1,973)

Net unrealized gains on HTM securities

 

 

178 

 

 

146 

Net unrealized (losses)/gains on cash flow hedges

 

 

(1,040)

 

 

663 

Net unrealized gains/(losses) on pension

 

 

2,957 

 

 

(219)

Net unrealized gains on SERP

 

 

62 

 

 

87 

Other comprehensive income, net of tax

 

 

3,910 

 

 

555 

Comprehensive income

 

$

14,156 

 

$

8,840 



See accompanying notes to the consolidated financial statements





FIRST UNITED CORPORATION

Consolidated Statement of Comprehensive Income

(In thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended



 

September 30,



 

2019

 

2018

Comprehensive Income (in thousands)

 

(Unaudited)

Net Income

 

$

4,493 

 

$

2,763 

Other comprehensive (loss)/income, net of tax and reclassification adjustments:

 

 

 

 

 

 

Net unrealized (losses)/gains on investments with OTTI

 

 

(857)

 

 

261 

Net unrealized gains/(losses) on all other AFS securities

 

 

402 

 

 

(665)

Net unrealized gains on HTM securities

 

 

60 

 

 

63 

Net unrealized (losses)/gains on cash flow hedges

 

 

(239)

 

 

112 

Net unrealized gains on pension

 

 

121 

 

 

575 

Net unrealized gains on SERP

 

 

20 

 

 

29 

   Other comprehensive (loss)/income, net of tax

 

 

(493)

 

 

375 

Comprehensive income

 

$

4,000 

 

$

3,138 



See accompanying notes to the consolidated financial statements

 

6


 

 

FIRST UNITED CORPORATION

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands, except per share data)









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Shareholders'
Equity

Balance at January 1, 2019

 

$

71 

 

$

31,921 

 

$

109,477 

 

$

(24,403)

 

$

117,066 

Net income

 

 

 

 

 

 

 

 

3,151 

 

 

 

 

 

3,151 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,715 

 

 

2,715 

Stock based compensation

 

 

 

 

 

67 

 

 

 

 

 

 

 

 

67 

Common stock issued

 

 

 

 

 

39 

 

 

 

 

 

 

 

 

39 

Common stock dividend declared -
$.09 per share

 

 

 

 

 

 

 

 

(639)

 

 

 

 

 

(639)

Balance at March 31, 2019

 

$

71 

 

$

32,027 

 

$

111,989 

 

$

(21,688)

 

$

122,399 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

2,602 

 

 

 

 

 

2,602 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,688 

 

 

1,688 

Stock based compensation

 

 

 

 

 

67 

 

 

 

 

 

 

 

 

67 

Common stock issued

 

 

 

 

 

39 

 

 

 

 

 

 

 

 

39 

Common stock dividend declared -
$.09 per share

 

 

 

 

 

 

 

 

(640)

 

 

 

 

 

(640)

Balance at June 30, 2019

 

$

71 

 

$

32,133 

 

$

113,951 

 

$

(20,000)

 

$

126,155 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

4,493 

 

 

 

 

 

4,493 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(493)

 

 

(493)

Stock based compensation

 

 

 

 

 

66 

 

 

 

 

 

 

 

 

66 

Common stock issued

 

 

 

 

 

38 

 

 

 

 

 

 

 

 

38 

Common stock dividend declared -
$.13 per share

 

 

 

 

 

 

 

 

(920)

 

 

 

 

 

(920)

Balance at September 30, 2019

 

$

71 

 

$

32,237 

 

$

117,524 

 

$

(20,493)

 

$

129,339 





 

7


 

 

FIRST UNITED CORPORATION

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands, except per share data)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Shareholders'
Equity

Balance at January 1, 2018

 

$

71 

 

$

31,553 

 

$

101,359 

 

$

(24,593)

 

$

108,390 

Net income

 

 

 

 

 

 

 

 

2,506 

 

 

 

 

 

2,506 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

820 

 

 

820 

Stock based compensation

 

 

 

 

 

53 

 

 

 

 

 

 

 

 

53 

Common stock dividend declared -
$.09 per share

 

 

 

 

 

 

 

 

(635)

 

 

 

 

 

(635)

Balance at March 31, 2018

 

$

71 

 

$

31,606 

 

$

103,230 

 

$

(23,773)

 

$

111,134 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

3,016 

 

 

 

 

 

3,016 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(640)

 

 

(640)

Stock based compensation

 

 

 

 

 

63 

 

 

 

 

 

 

 

 

63 

Common stock issued

 

 

 

 

 

40 

 

 

 

 

 

 

 

 

40 

Common stock dividend declared -
$.09 per share

 

 

 

 

 

 

 

 

(639)

 

 

 

 

 

(639)

Balance at June 30, 2018

 

$

71 

 

$

31,709 

 

$

105,607 

 

$

(24,413)

 

$

112,974 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

2,763 

 

 

 

 

 

2,763 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

375 

 

 

375 

Stock based compensation

 

 

 

 

 

67 

 

 

 

 

 

 

 

 

67 

Common stock issued

 

 

 

 

 

39 

 

 

 

 

 

 

 

 

39 

Common stock dividend declared -
$.09 per share

 

 

 

 

 

 

 

 

(637)

 

 

 

 

 

(637)

Balance at September 30, 2018

 

$

71 

 

$

31,815 

 

$

107,733 

 

$

(24,038)

 

$

115,581 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to the consolidated financial statements

 

8


 

 

FIRST UNITED CORPORATION

Consolidated Statement of Cash Flows

(In thousands)



 

 

 

 

 

 



 

 

 

 

 

 



 

Nine Months Ended



 

September 30,



 

2019

 

2018



 

(Unaudited)

Operating activities

 

 

 

 

 

 

Net income

 

$

10,246 

 

$

8,285 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

           

 

 

           

Provision for loan losses

 

 

669 

 

 

1,187 

Depreciation

 

 

2,318 

 

 

1,748 

Stock compensation

 

 

200 

 

 

183 

Gains on sales of other real estate owned

 

 

(62)

 

 

(269)

Write-downs of other real estate owned

 

 

1,140 

 

 

656 

Originations of loans held for sale

 

 

(11,006)

 

 

(10,028)

Proceeds from sale of loans held for sale

 

 

11,073 

 

 

9,329 

Gains from sale of loans held for sale

 

 

(87)

 

 

(74)

Losses on disposal of fixed assets

 

 

 

 

 —

Net (accretion)/amortization of investment securities discounts and premiums- AFS

 

 

(5)

 

 

36 

Net amortization of investment securities discounts and premiums- HTM

 

 

53 

 

 

33 

Gains on sales/calls of investment securities – available-for-sale

 

 

(1)

 

 

(116)

Earnings on bank owned life insurance

 

 

(1,970)

 

 

(872)

Amortization of deferred loan fees

 

 

(611)

 

 

(565)

Amortization of operating lease right-of-use asset

 

 

206 

 

 

 —

Increase in accrued interest receivable and other assets

 

 

(6,652)

 

 

(3,251)

Increase in deferred tax benefit

 

 

1,481 

 

 

223 

Decrease in operating lease liability

 

 

(213)

 

 

 —

(Decrease)/increase in accrued interest payable and other liabilities

 

 

(691)

 

 

1,100 

Net cash provided by operating activities

 

 

6,092 

 

 

7,605 

Investing activities

 

 

 

 

 

         

Proceeds from maturities/calls of investment securities available-for-sale

 

 

7,677 

 

 

9,118 

Proceeds from maturities/calls of investment securities held-to-maturity

 

 

5,560 

 

 

4,760 

Proceeds from sales of investment securities available-for-sale

 

 

12,046 

 

 

2,005 

Purchases of investment securities available-for-sale

 

 

(14,744)

 

 

(3,390)

Purchases of investment securities held-to-maturity

 

 

(8,207)

 

 

(4,887)

Proceeds from sales of other real estate owned

 

 

1,415 

 

 

2,815 

Proceeds from BOLI death benefit

 

 

2,125 

 

 

 —

Net decrease/(increase) in FHLB stock

 

 

979 

 

 

(190)

Net decrease/(increase) in loans

 

 

10,700 

 

 

(46,415)

Purchases of loans

 

 

 —

 

 

(25,168)

Purchases of premises and equipment

 

 

(2,830)

 

 

(7,761)

Net cash provided by/(used in) investing activities

 

 

14,721 

 

 

(69,113)

Financing activities

 

 

 

 

 

 

Net increase/(decrease) in deposits

 

 

69,260 

 

 

(14,815)

Proceeds from sale of common stock

 

 

116 

 

 

79 

Cash dividends on common stock

 

 

(2,199)

 

 

(1,911)

Net (decrease)/increase in short-term borrowings

 

 

(27,362)

 

 

37,960 

Payments on long-term borrowings

 

 

 —

 

 

(20,000)

Net cash provided by financing activities

 

 

39,815 

 

 

1,313 

Increase/(decrease) in cash and cash equivalents

 

 

60,628 

 

 

(60,195)

Cash and cash equivalents at beginning of the year

 

 

23,541 

 

 

83,752 

Cash and cash equivalents at end of period

 

$

84,169 

 

$

23,557 

Supplemental information

 

 

 

 

 

 

Interest paid

 

$

8,550 

 

$

5,549 

Taxes paid

 

$

891 

 

$

445 

Non-cash investing activities:

 

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

616 

 

$

543 

  Initial recognition of operating lease right-of-use assets

 

$

2,730 

 

$

 —

  Initial recognition of operating lease liabilities

 

$

3,317 

 

$

 —

See accompanying notes to the consolidated financial statements

 

9


 

 

FIRST UNITED CORPORATION

NoteS to Consolidated Financial Statements (UNAUDITED)





Note 1 – Basis of Presentation



The accompanying unaudited consolidated financial statements of First United Corporation and its consolidated subsidiaries, including First United Bank & Trust (the “Bank”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 270, Interim Reporting, and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all the information and footnotes required for annual financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring items, have been included.  Operating results for the nine- and three-month periods ended September 30, 2019 are not necessarily indicative of the results that may be expected for the full year or for any future interim period.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.  For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2019 presentation.  Such reclassifications had no impact on net income or equity.



As used in these notes, the term “the Corporation” refers to First United Corporation and, unless the context clearly requires otherwise, its consolidated subsidiaries.



The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of September 30, 2019 for items that should potentially be recognized or disclosed in these financial statements.

 

Note 2 – Earnings Per Common Share



Basic earnings per common share is derived by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents.  Diluted earnings per share is derived by dividing net income available to common shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents.  No common stock equivalents were outstanding at September 30, 2019.



The following tables set forth the calculation of basic and diluted earnings per common share for the nine- and three-month periods ended September 30, 2019 and 2018:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine months ended September 30,



 

2019

 

2018



 

 

 

 

Average

 

Per Share

 

 

 

 

Average

 

Per Share

(in thousands, except for per share amount)

 

Income

 

Shares

 

Amount

 

Income

 

Shares

 

Amount

Basic and Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

10,246 

 

7,098 

 

$

1.44 

 

$

8,285 

 

7,076 

 

$

1.17 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three months ended September 30,



 

2019

 

2018



 

 

 

 

Average

 

Per Share

 

 

 

 

Average

 

Per Share

(in thousands, except for per share amount)

 

Income

 

Shares

 

Amount

 

Income

 

Shares

 

Amount

Basic and Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,493 

 

7,107 

 

$

0.63 

 

$

2,763 

 

7,084 

 

$

0.39 

 

 

10


 

 

Note 3 – Net Gains



The following table summarizes the gain/(loss) activity for the nine- and three-month periods ended September 30, 2019 and 2018:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Nine Months Ended

 

Three Months Ended



 

September 30,

 

September 30,

(in thousands)

 

2019

 

2018

 

2019

 

2018

Net gains/(losses):

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

Realized gains

 

$

74 

 

$

151 

 

$

 

$

Realized losses

 

 

(73)

 

 

(35)

 

 

 —

 

 

(16)

Gains on sale of consumer loans

 

 

87 

 

 

74 

 

 

42 

 

 

19 

Losses on disposal of fixed assets

 

 

(4)

 

 

 —

 

 

(3)

 

 

 —

Net gains

 

$

84 

 

$

190 

 

$

40 

 

$

 

Note 4 – Investments



The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.



The amortized cost of debt securities classified as available-for-sale is adjusted for the amortization of premiums to the first call date, if applicable, or to maturity, and for the accretion of discounts to maturity, or, in the case of mortgage-backed securities, over the estimated life of the security.  Such amortization and accretion is included in interest income from investments.  Interest and dividends are included in interest income from investments.  Gains and losses on the sale of securities are recorded using the specific identification method. 



 

11


 

 

The following table shows a comparison of amortized cost and fair values of investment securities at September 30, 2019 and December 31, 2018:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

OTTI
in AOCL

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

40,000 

 

$

 —

 

$

86 

 

$

39,914 

 

$

 —

Commercial mortgage-backed agencies

 

 

34,475 

 

 

421 

 

 

43 

 

 

34,853 

 

 

 —

Collateralized mortgage obligations

 

 

32,121 

 

 

309 

 

 

100 

 

 

32,330 

 

 

 —

Obligations of states and political subdivisions

 

 

14,139 

 

 

373 

 

 

 —

 

 

14,512 

 

 

 —

Collateralized debt obligations

 

 

18,415 

 

 

 —

 

 

4,948 

 

 

13,467 

 

 

(3,517)

Total available for sale

 

$

139,150 

 

$

1,103 

 

$

5,177 

 

$

135,076 

 

$

(3,517)

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

16,127 

 

$

667 

 

$

 —

 

$

16,794 

 

$

 —

Residential mortgage-backed agencies

 

 

45,197 

 

 

454 

 

 

129 

 

 

45,522 

 

 

 —

Commercial mortgage-backed agencies

 

 

15,597 

 

 

528