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Section 1: 10-K/A (10-K/A)

20191231 10K_A FY

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



FORM 10-K/A

(Amendment No. 1)



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



For the fiscal year ended December 31, 2019

or

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

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

Securities registered pursuant to Section 12(g) of the Act:  None.



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes    No 



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes    No 



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 such shorter period 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 smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act). : 



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 standards 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 Act).  Yes    No 



The aggregate market value of the registrant’s outstanding voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  $129,336,923.



The number of shares of the registrant’s common stock outstanding as of February 29, 2020:  7,112,189.



Documents Incorporated by Reference

None


 

EXPLANATORY NOTE



This Amendment No. 1 on Form 10-K/A to the Annual Report of First United Corporation on Form 10-K for the year ended December 31, 2019, which was initially filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2020 (the “Original Report”), is being filed to include a signed version of the report of First United Corporation’s independent registered public accounting firm required to be included in Item 8 of Part II of Form 10-K, which was inadvertently omitted from the Original Report.  Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by First United Corporation’s principal executive officer and principal financial officer are filed or furnished with this Amendment No. 1 as Exhibits 31.1, 31.2, and 32.1, so Item 15 of Part IV of the Original Report has also been amended. 



Except as expressly provided above, this Amendment No. 1 on Form 10-K/A speaks as of the date of the Original Report and First United Corporation has not updated the disclosures contained in any item thereof to speak as of a later date.  All information contained in this Amendment No. 1 on Form 10-K/A is subject to updating and supplementing as provided in First United Corporation’s reports filed with the SEC subsequent to the date on which the Original Report was filed.

 

2

 

 


 





First United Corporation

Table of Contents





 

PART II

 

 

ITEM 8.

Financial Statements and Supplementary Data

PART IV

 

 

ITEM 15.

Exhibits and Financial Statement Schedules

61 

SIGNATURES

63 





 

3

 

 


 



PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





 



Page

Report of Independent Registered Public Accounting Firm

Consolidated Statement of Financial Condition at December 31, 2019 and 2018

Consolidated Statement of Income for the years ended December 31, 2019 and 2018

Consolidated Statement of Comprehensive Income for the years ended December 31, 2019 and 2018

Consolidated Statement of Changes in Shareholders’ Equity for the years ended December 31, 2019 and 2018

10 

Consolidated Statement of Cash Flows for the years ended December 31, 2019 and 2018

11 

Notes to Consolidated Financial Statements for the years ended December 31, 2019 and 2018

13 



 

4

 

 


 

Report of Independent Registered Public Accounting Firm





To the Board of Directors and Shareholders

First United Corporation and Subsidiaries



Opinions on the Financial Statements and Internal Control over Financial Reporting



We have audited the accompanying consolidated statements of financial condition of First United Corporation and Subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).



In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.



Basis for Opinions



The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects.



 

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.



Definition and Limitations of Internal Control Over Financial Reporting



A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.



 

5

 

 


 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





/s/ Baker Tilly Virchow Krause, LLP





We have served as the Company’s auditor since 2006.



Pittsburgh, Pennsylvania

March 13, 2020

 

6

 

 


 

First United Corporation and Subsidiaries

Consolidated Statement of Financial Condition

(In thousands, except per share amounts)





 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,



 

2019

 

2018

Assets

 

 

 

 

 

 

Cash and due from banks

 

$

48,512 

 

$

22,187 

Interest bearing deposits in banks

 

 

1,467 

 

 

1,354 

Cash and cash equivalents

 

 

49,979 

 

 

23,541 

Investment securities – available-for-sale (at fair value)

 

 

131,305 

 

 

137,641 

Investment securities – held to maturity (fair value of $100,656 at December 31, 2019
and $93,760 at December 31, 2018)

 

 

93,979 

 

 

94,010 

Restricted investment in bank stock, at cost

 

 

4,415 

 

 

5,394 

Loans

 

 

1,052,118 

 

 

1,007,714 

Unearned fees

 

 

(687)

 

 

(564)

Allowance for loan losses

 

 

(12,537)

 

 

(11,047)

Net loans

 

 

1,038,894 

 

 

996,103 

Premises and equipment, net

 

 

38,710 

 

 

37,855 

Goodwill

 

 

11,004 

 

 

11,004 

Bank owned life insurance

 

 

43,449 

 

 

43,317 

Deferred tax assets

 

 

7,441 

 

 

7,844 

Other real estate owned

 

 

4,127 

 

 

6,598 

Operating lease asset

 

 

2,661 

 

 

 —

Accrued interest receivable and other assets

 

 

16,063 

 

 

20,453 

Total Assets

 

$

1,442,027 

 

$

1,383,760 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Non-interest bearing deposits

 

$

294,649 

 

$

262,250 

Interest bearing deposits

 

 

847,382 

 

 

805,277 

Total deposits

 

 

1,142,031 

 

 

1,067,527 

Short-term borrowings

 

 

48,728 

 

 

77,707 

Long-term borrowings

 

 

100,929 

 

 

100,929 

Operating lease liability

 

 

3,239 

 

 

 —

Accrued interest payable and other liabilities

 

 

20,235 

 

 

19,893 

Dividends Payable

 

 

925 

 

 

638 

Total Liabilities

 

 

1,316,087 

 

 

1,266,694 

Shareholders’ Equity: 

 

 

 

 

 

 

Common Stock – par value $.01 per share;
  Authorized 25,000,000 shares; issued and outstanding 7,110,022 shares at
  December 31, 2019 and 7,086,632 shares at December 31, 2018

 

 

71 

 

 

71 

Surplus

 

 

32,359 

 

 

31,921 

Retained earnings

 

 

119,481 

 

 

109,477 

Accumulated other comprehensive loss

 

 

(25,971)

 

 

(24,403)

Total Shareholders’ Equity

 

 

125,940 

 

 

117,066 

Total Liabilities and Shareholders’ Equity

 

$

1,442,027 

 

$

1,383,760 







See notes to consolidated financial statements

 

7

 

 


 

First United Corporation and Subsidiaries

Consolidated Statement of Income

(In thousands, except per share data)





 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2019

 

2018

Interest income

 

 

 

 

 

 

Interest and fees on loans

 

$

50,201 

 

$

45,073 

Interest on investment securities

 

 

 

 

 

 

Taxable

 

 

5,648 

 

 

5,820 

Exempt from federal income tax

 

 

1,031 

 

 

949 

Total investment income

 

 

6,679 

 

 

6,769 

Other

 

 

1,040 

 

 

452 

Total interest income

 

 

57,920 

 

 

52,294 

Interest expense

 

 

 

 

 

 

Interest on deposits

 

 

7,791 

 

 

4,246 

Interest on short-term borrowings

 

 

188 

 

 

525 

Interest on long-term borrowings

 

 

3,550 

 

 

3,341 

Total interest expense

 

 

11,529 

 

 

8,112 

Net interest income

 

 

46,391 

 

 

44,182 

Provision for loan losses

 

 

1,320 

 

 

2,111 

Net interest income after provision for loan losses

 

 

45,071 

 

 

42,071 

Other operating income

 

 

 

 

 

 

Net gains

 

 

147 

 

 

127 

Service charges on deposit accounts

 

 

2,192 

 

 

2,275 

Other service charges

 

 

966 

 

 

877 

Trust department

 

 

7,148 

 

 

6,692 

Debit card income

 

 

2,706 

 

 

2,534 

Bank owned life insurance

 

 

2,257 

 

 

1,162 

Brokerage commissions

 

 

919 

 

 

1,078 

Other

 

 

448 

 

 

423 

Total other income

 

 

16,636 

 

 

15,041 

Total other operating income

 

 

16,783 

 

 

15,168 

Other operating expenses

 

 

 

 

 

 

Salaries and employee benefits

 

 

24,641 

 

 

24,170 

FDIC premiums

 

 

405 

 

 

639 

Equipment

 

 

3,807 

 

 

3,160 

Occupancy

 

 

2,884 

 

 

2,551 

Data processing

 

 

4,004 

 

 

3,858 

Marketing

 

 

418 

 

 

530 

Professional services

 

 

1,480 

 

 

1,255 

Other real estate owned expenses

 

 

1,542 

 

 

1,456 

Contract labor

 

 

654 

 

 

723 

Telephony Expense

 

 

856 

 

 

841 

Other

 

 

4,698 

 

 

4,625 

Total other operating expenses

 

 

45,389 

 

 

43,808 

Income before income tax expense

 

 

16,465 

 

 

13,431 

Provision for income tax expense

 

 

3,336 

 

 

2,764 

Net Income

 

$

13,129 

 

$

10,667 

Basic and diluted net income per common share

 

$

1.85 

 

$

1.51 

Weighted average number of basic and diluted shares outstanding

 

 

7,101 

 

 

7,079 





See notes to consolidated financial statements

 

8

 

 


 



First United Corporation and Subsidiaries

Consolidated Statement of Comprehensive Income

(In thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,

Comprehensive Income

 

2019

 

2018

Net Income

 

$

13,129 

 

$

10,667 

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

 

 

 

 

 

 

Net unrealized (losses)/gains on investments with OTTI

 

 

(643)

 

 

1,040 

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

 

 

2,748 

 

 

(622)

Net unrealized gains on HTM securities

 

 

232 

 

 

216 

Net unrealized (losses)/gains on cash flow hedges

 

 

(858)

 

 

191 

Net unrealized losses on pension plan liability

 

 

(2,400)

 

 

(951)

Net unrealized (losses)/gains on SERP liability

 

 

(647)

 

 

316 

Other comprehensive (loss)/income, net of tax

 

 

(1,568)

 

 

190 

Comprehensive Income

 

$

11,561 

 

$

10,857 







See notes to consolidated financial statements

 

9

 

 


 

First United Corporation and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands)





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

Common
Stock

 

Surplus

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss, net of tax

 

Total
Shareholders'
Equity

Balance at January 1, 2018

 

 

$

71 

 

$

31,553 

 

$

101,359 

 

$

(24,593)

 

$

108,390 

Net income

 

 

 

 

 

 

 

 

 

10,667 

 

 

 

 

 

10,667 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

190 

 

 

190 

Common stock issued

 

 

 

 

 

 

119 

 

 

 

 

 

 

 

 

119 

Common stock dividend declared -
  $.27 per share

 

 

 

 

 

 

 

 

 

(2,549)

 

 

 

 

 

(2,549)

Stock based compensation

 

 

 

 

 

 

249 

 

 

 

 

 

 

 

 

249 

Balance at December 31, 2018

 

 

 

71 

 

 

31,921 

 

 

109,477 

 

 

(24,403)

 

 

117,066 

Net income

 

 

 

 

 

 

 

 

 

13,129 

 

 

 

 

 

13,129 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

(1,568)

 

 

(1,568)

Common stock issued

 

 

 

 

 

 

170 

 

 

 

 

 

 

 

 

170 

Common stock dividend declared -
  $.44 per share

 

 

 

 

 

 

 

 

 

(3,125)

 

 

 

 

 

(3,125)

Stock based compensation

 

 

 

 

 

 

268 

 

 

 

 

 

 

 

 

268 

Balance at December 31, 2019

 

 

$

71 

 

$

32,359 

 

$

119,481 

 

$

(25,971)

 

$

125,940 









See notes to consolidated financial statements

 

10

 

 


 

First United Corporation and Subsidiaries

Consolidated Statement of Cash Flows

(In thousands)





 

 

 

 

 

 



 

 

 

 

 

 



 

Year Ended



 

December 31,



 

2019

 

2018

Operating activities

 

 

 

 

 

 

Net income

 

$

13,129 

 

$

10,667 

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

 

 

           

 

 

           

Provision for loan losses

 

 

1,320 

 

 

2,111 

Depreciation

 

 

3,115 

 

 

2,435 

Stock compensation

 

 

268 

 

 

249 

Gains on sales of other real estate owned

 

 

(160)

 

 

(260)

Write-downs of other real estate owned

 

 

1,459 

 

 

1,356 

Origination of loans held for sale

 

 

(20,668)

 

 

(10,866)

Proceeds from sales of loans held for sale

 

 

19,502 

 

 

11,021 

Gains on sales of loans held for sale

 

 

(150)

 

 

(88)

Loss on disposal of fixed assets

 

 

 

 

74 

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

 

 

(3)

 

 

39 

Net amortization of investment securities discounts and premiums- HTM

 

 

114 

 

 

57 

Net gain on sales of investment securities – available-for-sale

 

 

 —

 

 

(113)

Amortization of deferred loan fees

 

 

(935)

 

 

(745)

Deferred tax expense

 

 

953 

 

 

1,338 

Earnings on bank owned life insurance

 

 

(2,257)

 

 

(1,162)

Amortization of operating lease right of use asset

 

 

277 

 

 

 —

Operating lease liability

 

 

(287)

 

 

 —

(Increase)/decrease in accrued interest receivable and other assets

 

 

(190)

 

 

367 

Increase in accrued interest payable and other liabilities

 

 

900 

 

 

1,814 

Net cash provided by operating activities

 

 

16,390 

 

 

18,294 

Investing activities

 

 

 

 

 

         

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

 

 

26,553 

 

 

10,888 

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

 

 

8,124 

 

 

6,741 

Proceeds from sales of investment securities available-for-sale

 

 

21,872 

 

 

2,005 

Purchases of investment securities available-for-sale

 

 

(39,307)

 

 

(3,390)

Purchases of investment securities held-to-maturity

 

 

(8,207)

 

 

(7,176)

Proceeds from sales of other real estate owned

 

 

2,777 

 

 

2,981 

Proceeds from BOLI

 

 

2,125 

 

 

 —

Net decrease/(increase)in FHLB stock

 

 

979 

 

 

(190)

Net increase in loans

 

 

(43,465)

 

 

(116,088)

Purchases of premises and equipment

 

 

(3,973)

 

 

(9,483)

Net cash used in investing activities

 

 

(32,522)

 

 

(113,712)

Financing activities

 

 

 

 

 

 

Net increase in deposits

 

 

74,504 

 

 

28,137 

Proceeds from issuance of common stock

 

 

170 

 

 

119 

Cash dividends paid on common stock

 

 

(3,125)

 

 

(1,911)

Net (decrease)/increase in short-term borrowings

 

 

(28,979)

 

 

28,862 

Payments on long-term borrowings

 

 

 —

 

 

(20,000)

Net cash provided by financing activities

 

 

42,570 

 

 

35,207 

Increase/(decrease) in cash and cash equivalents

 

 

26,438 

 

 

(60,211)

Cash and cash equivalents at beginning of the year

 

 

23,541 

 

 

83,752 

Cash and cash equivalents at end of period

 

$

49,979 

 

$

23,541 

Supplemental information

 

 

 

 

 

 

Interest paid

 

$

11,485 

 

$

8,110 

Taxes paid

 

$

1,011 

 

$

530 

Non-cash investing activities:

 

 

 

 

 

 

Transfers from loans to other real estate owned

 

$

1,605 

 

$

534 

 

11

 

 


 

Initial recognition of operating lease right of use assets at adoption

 

$

2,730 

 

$

 —

Initial recognition of operating lease liabilities at adoption

 

$

3,317 

 

$

 —

Operating lease right of use assets recognized

 

$

208 

 

$

 —

Operating lease liabilities recognized

 

$

208 

 

$

 —







See notes to consolidated financial statements

 

12

 

 


 

First United Corporation and Subsidiaries

Notes to Consolidated Financial Statements



1. Summary of Significant Accounting Policies



Business



First United Corporation is a Maryland corporation chartered in 1985 and a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended.   The Corporation’s primary business is serving as the parent company of First United Bank & Trust, a Maryland trust company (the “Bank”), First United Statutory Trust I (“Trust I”) and First United Statutory Trust II (“Trust II”), both Connecticut statutory business trusts.  Until September 14, 2018 when it was canceled, the Corporation also served as the parent company to First United Statutory Trust III, a Delaware statutory business trust (“Trust III” and together with Trust I and Trust II, the “Trusts”).  The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital.  The Bank has two consumer finance company subsidiaries - OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company - and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure - First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company.  The Bank also owns 99.9% of the limited partnership interests in Liberty Mews Limited Partnership; a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland (“Liberty Mews”). 



First United Corporation and its subsidiaries operate principally in four counties in Western Maryland and four counties in West Virginia.



As used in these Notes, the terms “the Corporation”, “we”, “us”, and “our” mean First United Corporation and, unless the context clearly suggests otherwise, its consolidated subsidiaries.



Basis of Presentation



The accompanying consolidated financial statements of the Corporation have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) that require management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.  Actual results could differ from these estimates.  Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the assessment of other-than-temporary impairment (“OTTI”) pertaining to investment securities, potential impairment of goodwill, and the valuation of deferred tax assets.  For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2018 presentation.  Such reclassifications had no impact on net income or equity. 



The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of December 31, 2019 for items that should potentially be recognized or disclosed in these consolidated financial statements as prescribed by ASC Topic 855, Subsequent Events.  



Principles of Consolidation



The consolidated financial statements of the Corporation include the accounts of First United Corporation, the Bank, the OakFirst Loan Centers, First OREO Trust and FUBT OREO I, LLC.  All significant inter-company accounts and transactions have been eliminated.



First United Corporation determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”) in accordance with GAAP.  Voting interest entities are entities in which the total equity investment at risk is sufficient to enable the entity to finance itself independently and provides the equity holders with the obligation to absorb losses, the right to receive residual returns and the right to make financial and operating decisions.  The Corporation consolidates voting interest entities in which it has 100%, or at least a majority, of the voting interest.  As defined in applicable accounting standards, a VIE is an entity that either (i) does not have equity investors with voting rights or (ii) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  A controlling financial interest in an entity exists when an enterprise has a variable interest, or a combination of variable interests that will absorb a majority of an entity’s expected losses, receive a majority of an entity’s expected residual returns, or both.  The enterprise with a controlling financial interest, known as the primary beneficiary, consolidates the VIE. 



 

13

 

 


 

The Corporation accounts for its investment in Liberty Mews utilizing the effective yield method under guidance that applies specifically to investments in limited partnerships that operate qualified affordable housing projects.  Under the effective yield method, the investor recognizes tax credits as they are allocated and amortizes the initial cost of the investment to provide a constant effective yield over the period that tax credits are allocated to the investor. The effective yield is the internal rate of return on the investment, based on the cost of the investment and the guaranteed tax credits allocated to the investor.  The tax credit allocated, net of the amortization of the investment in the limited partnership, is recognized in the income statement as a component of income taxes attributable to continuing operations. 



Significant Concentrations of Credit Risk



Most of the Corporation’s relationships are with customers located in Western Maryland and Northeastern West Virginia.  At December 31, 2019, approximately 12%, or $117.9 million, of total loans were secured by real estate acquisition, construction and development projects, with $109.3 million performing according to their contractual terms and $8.6 million considered to be impaired based on management’s concerns about the borrowers’ ability to comply with present repayment terms. Of the $8.6 million in impaired loans, $.5 million were classified as troubled debt restructurings (“TDRs”) performing in accordance with their modified terms, and $8.1 million were classified as non-performing loans at December 31, 2019.  Additionally, loans collateralized by commercial rental properties represented 16% of the total loan portfolio as of December 31, 2019.  Note 6 discusses the types of securities in which the Corporation invests and Note 7 discusses the Corporation’s lending activities.   



Investments



The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.  Securities bought and held principally for the purpose of selling them in the near term are classified as trading account securities and reported at fair value with unrealized gains and losses included in net gains/losses in other operating income. Securities purchased with the intent and ability to hold the securities to maturity are classified as held-to-maturity securities and are recorded at amortized cost.  All other investment securities are classified as available-for-sale.  These securities are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions or for liquidity purposes as part of our overall asset/liability management strategy.  Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income included in the consolidated statement of comprehensive income, net of applicable income taxes. 



The amortized cost of debt securities 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. 



Restricted Investment in Bank Stock



Restricted stock, which represents required investments in the common stock of the Federal Home Loan Bank (“FHLB”) of Atlanta, Atlantic Community Bankers Bank (“ACBB”) and Community Banker’s Bank (“CBB”), is carried at cost and is considered a long-term investment



Management evaluates the restricted stock for impairment in accordance with ASC Industry Topic 942, Financial Services – Depository and Lending, (942-325-35).  Management’s evaluation of potential impairment is based on its assessment of the ultimate recoverability of the cost of the restricted stock rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability is influenced by criteria such as (i) the significance of the decline in net assets of the issuing bank as compared to the capital stock amount for that bank and the length of time this situation has persisted, (ii) commitments by the issuing bank to make payments required by law or regulation and the level of such payments in relation to the operating performance of that bank, and (iii) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuing bank. Management has evaluated the restricted stock for impairment and believes that no impairment charge is necessary as of December 31, 2019 or 2018.



The Corporation recognizes dividends on a cash basis.  For the years ended December 31, 2019 and December 31, 2018, dividends of $290,415 and $279,762, respectively, were recorded in other operating income.



Loans



Loans that management has the intent and ability to hold for the foreseeable future or until maturity or full repayment by the borrower are reported at their unpaid principal balance outstanding, adjusted for any deferred fees or costs pertaining to origination.

 

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Loans that management has the intent to sell are reported at the lower of cost or fair value determined on an individual basis.  Loans held for sale were $1.7 million at December 31, 2019 and $.4 million at December 31, 2018.



The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance.  The commercial real estate (“CRE”) loan segment is further disaggregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include loans secured by farmland, multifamily structures and owner-occupied commercial structures.  The acquisition and development (“A&D”) loan segment is further disaggregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built.  All other A&D loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures.  These loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the A&D loan.  The commercial and industrial (“C&I”) loan segment consists of loans made for the purpose of financing the activities of commercial customers.  The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens.  The consumer loan segment consists primarily of installment loans (direct and indirect), student loans and overdraft lines of credit connected with customer deposit accounts.



Interest and Fees on Loans



Interest on loans (other than those on non-accrual status) is recognized based upon the principal amount outstanding.   Loan fees in excess of the costs incurred to originate the loan are recognized as income over the life of the loan utilizing either the interest method or the straight-line method, depending on the type of loan.  Generally, fees on loans with a specified maturity date, such as residential mortgages, are recognized using the interest method.  Loan fees for lines of credit are recognized using the straight-line method.



A loan is considered to be past due when a payment has not been received for 30 days past its contractual due date.  For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection.  All non-accrual loans are considered to be impaired.  Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. 



Generally, consumer installment loans are not placed on non-accrual status, but are charged off after they are 120 days contractually past due.  Loans other than consumer loans are charged-off based on an evaluation of the facts and circumstances of each individual loan.



Allowance for Loan Losses



An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.



The Corporation’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement, for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies-Loss Contingencies, for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Bank’s ALL.



The Corporation maintains an ALL on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements.  The allowance is determined utilizing a methodology that is similar to that used to determine the ALL, modified to take into account the probability of a draw down on the commitment.  This allowance is reported as a liability on the balance sheet within accrued interest payable and other liabilities.  The balance in the liability account was $78,463 at December 31, 2019 and $63,230 at December 31, 2018.



Premises and Equipment



Land is carried at cost.  Premises and equipment are carried at cost, less accumulated depreciation. The provision for depreciation for financial reporting has been made by using the straight-line method based on the estimated useful lives of the assets,  

 

15

 

 


 

which range from 10 to 31.5 years for buildings and three to 20 years for furniture and equipment. Accelerated depreciation methods are used for income tax purposes.



Goodwill



Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired in business combinations.  In accordance with ASC Topic 350, Intangibles - Goodwill and Other, goodwill is not amortized but is subject to an annual impairment test.



Bank-Owned Life Insurance (“BOLI”)



BOLI policies are recorded at their cash surrender values. Changes in the cash surrender values are recorded as other operating income.



Other Real Estate Owned (“OREO”)



Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less the cost to sell at the date of foreclosure, with any losses charged to the ALL, establishing a new cost basis.  Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.  Changes in the valuation allowance, sales gains and losses, and revenue and expenses from holding and operating properties are all included in net expenses from other real estate owned.



Income Taxes



First United Corporation and its subsidiaries file a consolidated federal income tax return.  Income taxes are accounted for using the asset and liability method. Under the asset and liability method, the deferred tax liability or asset is determined based on the difference between the financial statement and tax bases of assets and liabilities (temporary differences) and is measured at the enacted tax rates that will be in effect when these differences reverse. Deferred tax expense is determined by the change in the net liability or asset for deferred taxes adjusted for changes in any deferred tax asset valuation allowance.



ASC Topic 740, Taxes, provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  We have not identified any income tax uncertainties.



State corporate income tax returns are filed annually.  Federal and state returns may be selected for examination by the Internal Revenue Service and the states where we file, subject to statutes of limitations.  At any given point in time, the Corporation may have several years of filed tax returns that may be selected for examination or review by taxing authorities. 



Interest and penalties on income taxes are recognized as a component of income tax expense.



Defined Benefit Plans



The defined benefit pension plan and supplemental executive retirement plan are accounted for in accordance with ASC Topic 715, Compensation – Retirement Benefits. Under the provisions of Topic 715, the defined benefit pension plan and the supplemental executive retirement plan are recognized as liabilities in the Consolidated Statement of Financial Condition, and unrecognized net actuarial losses, prior service costs and a net transition asset are recognized as a separate component of other comprehensive loss, net of tax.  Actuarial gains and losses in excess of 10 percent of the greater of plan assets or the pension benefit obligation are amortized over a blend of future service of active employees and life expectancy of inactive participants.  Refer to Note 18 for a further discussion of the pension plan and supplemental executive retirement plan obligations.



Statement of Cash Flows



Cash and cash equivalents are defined as cash and due from banks and interest-bearing deposits in banks in the Consolidated Statement of Cash Flows.



Trust Assets and Income



Assets held in an agency or fiduciary capacity are not the Bank’s assets and, accordingly, are not included in the Consolidated Statement of Financial Condition.  Income from the Bank’s trust department represents fees charged to customers.

 

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Business Segments



The Corporation operates in one segment, community banking, as defined by ASC Topic 280, Segment Reporting.  The Corporation in its entirety is managed and evaluated on an ongoing basis by First United Corporation’s Board of Directors and executive management, with no division or subsidiary receiving separate analysis regarding performance or resource allocation.



Equity Compensation Plan



At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation Plan which authorizes the issuance of up to 325,000 shares of common stock to employees, directors and qualifying consultants pursuant to stock options, stock appreciation rights, stock awards, dividend equivalents, and other stock-based awards. 



The Corporation measures and records compensation expenses for share-based payments based on the instruments fair value on the date of grant.  The fair value of stock awards is based on the Corporation’s stock price.  Share-based compensation expense is recognized over the service period, generally defined as the vesting period.



Stock-based awards were made to non-employee directors in May 2019 pursuant to First United Corporation’s director compensation policy.  Each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $10,000 to be paid, at the director’s election, in cash or additional shares of common stock.  In 2019, a total of 14,641 fully-vested shares of common stock were issued to directors, which had a grant date fair market value of $18.30 per share.  Director stock compensation expense was $267,577 for the year ended December 31, 2019 and $249,324 for the year ended December 31, 2018.



Stock Repurchases



Under the Maryland General Corporation Law, shares of capital stock that are repurchased are cancelled and treated as authorized but unissued shares.  When a share of capital stock is repurchased, the payment of the repurchase price reduces stated capital by the par value of that share (currently, $0.01 for common stock and $0.00 for preferred stock), and any excess over par value reduces capital surplus.  There were no stock repurchases in 2019 and 2018.



Adoption of New Accounting Standards and Effects of New Accounting Pronouncements



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  ASU 2016-02 is intended to improve financial reporting about leasing transactions by requiring organizations that lease assets – referred to as “lessees” – to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  From the lessee’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. The guidance also eliminates the current real estate-specific provision and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs. With respect to lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. In applying this guidance, entities will also need to determine whether an arrangement contains a lease or service agreement. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.  The amendments will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.  ASU 2016-02 is effective for the Corporation for annual and interim periods after December 15, 2018.  The Corporation adopted ASU 2016-02 effective January 1, 2019.  See Note 10 for additional details.



In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation, Improvements to Nonemployee Share-Based Payment Accounting.  ASU 2018-07 was issued to require share-based payment transactions for acquiring goods and services from nonemployees be accounted for under the same guidance as those issued to employees.  Among other things, the guidance requires non-employee share-based payments be measured at grant-date fair value of the equity instrument received.  The Corporation adopted this guidance effective January 1, 2019.  There was no effect on the consolidated financial statements upon adoption. 



In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements.  ASU 2018-10 provides improvements related to ASU 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements.  The amendments affect narrow aspects of the guidance issued in ASU 2016-02.  ASU 2018-11 allows entities adopting ASU  2016-02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening

 

17

 

 


 

balance of retained earnings in the period of adoption.  ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met.  



The Corporation elected the optional transition method permitted by ASU 2018-11.  Under this method, an entity shall recognize and measure leases that exist at the application date and prior comparative periods are not adjusted.  In addition, the Corporation elected the package of practical expedients to leases that commenced before the effective date:





 

 

 

1.

An entity need not reassess whether any expired or existing contracts contain leases.

 

2.

An entity need not reassess the lease classification for any expired or existing leases.



3.

An entity need not reassess initial direct costs for any existing leases.



The Corporation also elected the practical expedient, which must be applied consistently to all leases, to use hindsight in determining the lease term and in assessing impairment of our right-of-use assets.  The Corporation recorded a ROU asset in the amount of approximately $2.7 million and a lease liability in the amount of approximately $3.3 million on the Consolidated Statement of Financial Condition upon adoption on January 1, 2019.  The adoption did not have a material impact to the Consolidated Statements of Operations or Cash Flows.



In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  ASU 2017-12 is intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  ASU 2017-12 is effective for the Corporation for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  The Corporation adopted ASU 2017-12 effective January 1, 2019.  The adoption did not have a material impact on the Corporation’s Consolidated Financial Statements.



In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments.  It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchases financial assets with credit deterioration since their origination.  The new model referred to as current expected credit losses (“CECL”) model, will apply to: (a) financial assets subject to credit losses and measured at amortized cost; and (b) certain off-balance sheet credit exposures.  This includes loans, held to maturity debt securities, loan commitments, financial guarantees and net investments in leases as well as reinsurance and trade receivables.  The estimate of expected credit losses should consider historical information, current information, and supportable forecasts, including estimates of prepayments.  ASU 2016-13 was originally effective for the SEC filers for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  In November 2019, the FASB approved a delay of the required implementation date of ASU No. 2016-13 for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023.  



In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment.  ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test.  Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.”  The ASU does not change the qualitative assessment, however, it removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test.  ASU 2017-04 is effective for the Corporation for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  The Corporation early adopted the provisions of ASU 2017-04 effective December 31, 2019.  This adoption did not have an impact on the Corporation's financial condition or results of operations.

   

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.  There were no common stock equivalents at December 31, 2019 or December 31, 2018. 



 

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The following table sets forth the calculation of basic and diluted earnings per common share for the years ended December 31, 2019 and 2018:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

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

 

$

13,129 

 

7,101 

 

$

1.85 

 

$

10,667 

 

7,079 

 

$

1.51 

 

3. Net Gains



The following table summarizes the gain/(loss) activity for the years ended December 31, 2019 and 2018:





 

 

 

 

 

 



 

 

 

 

 

 

(in thousands)

 

2019

 

2018

Net gains/(losses):

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

Realized gains

 

$

75 

 

$

151 

Realized losses

 

 

(75)

 

 

(38)

Gain on sale of consumer loans

 

 

150 

 

 

88 

Loss on disposal of fixed assets

 

 

(3)

 

 

(74)

Net gains

 

$

147 

 

$

127 









4. Regulatory Capital Requirements



We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdrawal demands of the Bank’s customers, and satisfy our other monetary obligations.  To the extent that deposits are not adequate to fund our capital requirements, we can rely on a number of funding sources, including an unsecured Fed Funds lines of credit with upstream correspondent banks; secured advances with the FHLB of Atlanta, which are collateralized by eligible one to four family residential mortgage loans, home equity lines of credit, commercial real estate loans, and various securities.  Cash may also be pledged as collateral.  In addition, First United Corporation has a secured line of credit with the Fed Discount Window for use in borrowing funds up to 90 days, using municipal securities as collateral; brokered deposits, including CDs and money market funds; and One Way Buy CDARS/ ICS funding, which is a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly. At December 31, 2019, the Bank had $115.0 million available through unsecured lines of credit with correspondent banks, $2.1 million through a secured line of credit with the Fed Discount Window and approximately $143.7 million at the FHLB.  Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements.



 

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The following table presents our capital ratios for years ended December 31, 2019 and 2018:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Actual

 

For Capital Adequacy
Purposes

 

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

(in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

182,941 

 

16.29% 

 

$

89,837 

 

8.00% 

 

$

112,296 

 

10.00% 

First United Bank & Trust

 

 

169,943 

 

15.60% 

 

 

87,159 

 

8.00% 

 

 

108,948 

 

10.00% 

Tier 1 Capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

Consolidated

 

 

170,326 

 

15.17% 

 

 

67,378 

 

6.00% 

 

 

89,837 

 

8.00% 

First United Bank & Trust

 

 

157,328 

 

14.44% 

 

 

65,369 

 

6.00% 

 

 

87,159 

 

8.00% 

Common Equity Tier 1 Capital
  (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

143,614 

 

12.79% 

 

 

50,533 

 

4.50% 

 

 

72,992 

 

6.50% 

First United Bank & Trust

 

 

157,328 

 

14.44% 

 

 

49,027 

 

4.50% 

 

 

70,817 

 

6.50% 

Tier 1 Capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Consolidated

 

 

170,326 

 

11.77% 

 

 

57,491 

 

4.00% 

 

 

71,864 

 

5.00% 

First United Bank & Trust

 

 

157,328 

 

10.99% 

 

 

56,729 

 

4.00% 

 

 

70,912 

 

5.00% 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Actual

 

For Capital Adequacy
Purposes

 

To Be Well Capitalized
Under Prompt Corrective
Action Provisions

(in thousands)

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

169,905 

 

15.91% 

 

$

85,431 

 

8.00% 

 

$

106,789 

 

10.00% 

First United Bank & Trust

 

 

157,631 

 

15.43% 

 

 

81,729 

 

8.00% 

 

 

102,162 

 

10.00% 

Tier 1 Capital (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

Consolidated

 

 

158,795 

 

14.87% 

 

 

64,073 

 

6.00% 

 

 

85,431 

 

8.00% 

First United Bank & Trust

 

 

146,521 

 

14.35% 

 

 

61,297 

 

6.00% 

 

 

81,729 

 

8.00% 

Common Equity Tier 1 Capital
  (to risk-weighted assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

132,938 

 

12.45% 

 

 

48,055 

 

4.50% 

 

 

69,413 

 

6.50% 

First United Bank & Trust

 

 

146,521 

 

14.35% 

 

 

45,973 

 

4.50% 

 

 

66,405 

 

6.50% 

Tier 1 Capital (to average assets)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        

Consolidated

 

 

158,795 

 

11.47% 

 

 

55,136 

 

4.00% 

 

 

68,920 

 

5.00% 

First United Bank & Trust

 

 

146,521 

 

10.70% 

 

 

54,338 

 

4.00% 

 

 

67,922 

 

5.00% 



As of December 31, 2019 and 2018, the most recent notifications from the regulators categorized First United Corporation and the Bank as “well capitalized” under the regulatory framework for prompt corrective action.  The consolidated total risk-based capital ratios include $30.9 million of First United Corporation’s junior subordinated debentures (“TPS Debentures”) which qualified as Tier 1 capital at December 31, 2019 under guidance issued by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). 

At the Bank level, the ratios increased when comparing December 31, 2019 to December 31, 2018.  At December 31, 2019, we were in compliance with the requirements.

 

5. Cash and Cash Equivalents



Cash and due from banks, which represents vault cash in the retail offices and invested cash balances at the Federal Reserve, is carried at fair value.





 

 

 

 

 

 



 

 

 

 

 

 

(in thousands)

 

December 31, 2019

 

December 31, 2018

Cash and due from banks, weighted average interest rate of 2.45% (at December 31, 2019)

 

$

48,512 

 

$

22,187 



 

20

 

 


 

Interest bearing deposits in banks, which represent funds invested at a correspondent bank, are carried at fair value and, as of December 31, 2019 and 2018, consisted of daily funds invested at the FHLB of Atlanta, and M&T Bank (“M&T”).  In addition, at December 31, 2019, cash was pledged at Raymond James for the interest rate swap.





 

 

 

 

 

 



 

 

 

 

 

 

(in thousands)

 

December 31, 2019

 

December 31, 2018

FHLB daily investments, interest rate of 1.43% (at December 31, 2019)

 

$

467 

 

$

338 

M&T daily investments, interest rate of 0.15% (at December 31, 2018)

 

 

 —

 

 

1,016 

Raymond James pledged cash, interest rate of 1.55% (at December 31, 2019)

 

 

1,000 

 

 

 —



 

$

1,467 

 

$

1,354 

 

6. Investment Securities



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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair
Value

 

OTTI
in AOCL

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

39,987 

 

$

 —

 

$

93 

 

$

39,894 

 

$

 —

Residential mortgage-backed agencies

 

 

4,917 

 

 

 —

 

 

17 

 

 

4,900 

 

 

 —

Commercial mortgage-backed agencies

 

 

27,634 

 

 

222 

 

 

92 

 

 

27,764 

 

 

 —

Collateralized mortgage obligations

 

 

29,903 

 

 

129 

 

 

109 

 

 

29,923 

 

 

 —

Obligations of states and political subdivisions

 

 

14,124 

 

 

346 

 

 

 —

 

 

14,470 

 

 

 —

Collateralized debt obligations

 

 

18,443 

 

 

 —

 

 

4,089 

 

 

14,354 

 

 

(2,835)

Total available for sale

 

$

135,008 

 

$

697 

 

$

4,400 

 

$

131,305 

 

$

(2,835)

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

16,164 

 

$

659 

 

$

 —

 

$

16,823 

 

$

 —

Residential mortgage-backed agencies

 

 

42,939 

 

 

469 

 

 

155 

 

 

43,253 

 

 

 —

Commercial mortgage-backed agencies

 

 

15,521 

 

 

344 

 

 

 —

 

 

15,865 

 

 

 —

Collateralized mortgage obligations

 

 

3,140 

 

 

 

 

 —

 

 

3,143 

 

 

 —

Obligations of states and political subdivisions

 

 

16,215 

 

 

5,357 

 

 

 —

 

 

21,572 

 

 

 —

Total held to maturity

 

$

93,979 

 

$

6,832 

 

$

155 

 

$

100,656 

 

$

 —







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available for Sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

30,000 

 

$

 —

 

$

974 

 

$

29,026 

 

$

 —

Commercial mortgage-backed agencies

 

 

39,013 

 

 

 —

 

 

1,261 

 

 

37,752 

 

 

 —

Collateralized mortgage obligations

 

 

36,669 

 

 

 —

 

 

965 

 

 

35,704 

 

 

 —

Obligations of states and political subdivisions

 

 

20,083 

 

 

132 

 

 

333 

 

 

19,882 

 

 

 —

Collateralized debt obligations

 

 

18,358 

 

 

 —

 

 

3,081 

 

 

15,277 

 

 

(1,966)

Total available for sale

 

$

144,123 

 

$

132 

 

$

6,614 

 

$

137,641 

 

 

(1,966)

Held to Maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies

 

$

16,017 

 

$

120 

 

$

 —

 

$

16,137 

 

$

 —

Residential mortgage-backed agencies

 

 

46,491 

 

 

 

 

1,287 

 

 

45,210 

 

 

 —

Commercial mortgage-backed agencies

 

 

15,821 

 

 

75 

 

 

68 

 

 

15,828 

 

 

 —

Collateralized mortgage obligations

 

 

3,761 

 

 

 —

 

 

156 

 

 

3,605 

 

 

 —

Obligations of states and political subdivisions

 

 

11,920 

 

 

1,156 

 

 

96 

 

 

12,980 

 

 

 —

Total held to maturity

 

$

94,010 

 

$

1,357 

 

$

1,607 

 

$

93,760 

 

$

 —



 

21

 

 


 

Proceeds from sales of available-for-sale securities and the realized gains and losses for the years ended December 31, 2019 and 2018 are as follows:





 

 

 

 

 

 



 

 

 

 

 

 

(in thousands)

 

2019

 

2018

Proceeds

 

$

21,872 

 

$

2,005 

Realized gains

 

 

75 

 

 

151 

Realized losses