FIRST UNITED CORP/MD/ [FUNC] Filings

10-Q 1 func-20230331x10q.htm 10-Q

Table of Contents

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 March 31, 2023

◻ 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: 6,688,710 shares of common stock, par value $.01 per share, as of April 30, 2023.

Table of Contents

INDEX TO QUARTERLY REPORT

FIRST UNITED CORPORATION


		Page
PART I. FINANCIAL INFORMATION		3
Item 1.	Financial Statemets (unaudited)	3
	Consolidated Statements of Financial Condition – March 31, 2023 and December 31, 2022	3
	Consolidated Statements of Operations – for the three months ended March 31, 2023 and 2022	4
	Consolidated Statements of Comprehensive Income/(Loss) – for the three months ended March 31, 2023 and 2022	5
	Consolidated Statements of Changes in Shareholders’ Equity – for three months ended March 31, 2023 and 2022	6
	Consolidated Statements of Cash Flows – for the three months ended March 31, 2023 and 2022	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4.	Controls and Procedures	58

PART II. OTHER INFORMATION		59
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
SIGNATURES		61

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

First United Corporation and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except share data - Unaudited)



	March 31, 2023		December 31, 2022

Assets
Cash and due from banks	$	154,022	$	72,720
Interest bearing deposits in banks		1,873		1,595
Cash and cash equivalents		155,895		74,315
Investment securities – available for sale (at fair value)		123,978		125,889
Investment securities – held to maturity (fair value $204,541 at March 31, 2023 and $203,080 at December 31, 2022)		233,083		235,659
Restricted investment in bank stock, at cost		4,490		1,027
Loans held for sale		184		—
Loans		1,289,080		1,279,494
Unearned fees		(257)		(174)
Allowance for credit losses		(16,871)		(14,636)
Net loans		1,271,952		1,264,684
Premises and equipment, net		34,207		34,948
Goodwill and other intangibles		12,350		12,433
Bank owned life insurance		46,652		46,346
Deferred tax assets		11,356		10,605
Other real estate owned, net		4,598		4,733
Right of use assets		2,072		1,898
Trust receivable		1,970		8,244
Pension asset		8,416		8,001
Accrued interest receivable		6,519		6,051
Other assets		19,720		13,336
Total Assets	$	1,937,442		1,848,169
Liabilities and Shareholders’ Equity
Liabilities:
Non-interest bearing deposits	$	468,554	$	506,613
Interest bearing deposits		1,122,731		1,064,120
Total deposits		1,591,285		1,570,733
Short-term borrowings		52,030		64,565
Long-term borrowings		110,929		30,929
Operating lease liability		2,536		2,373
SERP deferred compensation		7,227		7,194
Allowance for credit losses on off-balance sheet credit exposures		1,128		133
Accrued interest payable and other liabilities		18,105		19,250
Dividends payable		1,334		1,199
Total Liabilities		1,784,574		1,696,376
Shareholders’ Equity:
Common Stock – par value $0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,688,710 shares at March 31, 2023 and 6,666,428 at December 31, 2022		67		67
Surplus		24,529		24,409
Retained earnings		167,229		166,343
Accumulated other comprehensive loss		(38,957)		(39,026)
Total Shareholders’ Equity		152,868		151,793
Total Liabilities and Shareholders’ Equity	$	1,937,442	$	1,848,169

See accompanying notes to the consolidated financial statements

Table of Contents

First United Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)


	Three Months Ended
	March 31,
	2023		2022

	(Unaudited)
Interest income
Interest and fees on loans	$	15,444	$	12,432
Interest on investment securities
Taxable		1,768		1,406
Exempt from federal income tax		270		282
Total investment income		2,038		1,688
Other		347		27
Total interest income		17,829		14,147
Interest expense
Interest on deposits:
Savings		79		18
Interest-bearing transaction accounts		2,186		152
Time deposits		413		305
Total interest on Deposits		2,678		475
Interest on short-term borrowings		31		18
Interest on long-term borrowings		602		313
Total Interest Expense		3,311		806
Net Interest income		14,518		13,341
Credit loss expense/(credit) - loans		414		(419)
Credit loss expense/(credit) - off-balance sheet credit exposures		129		(2)
Credit loss expense/(credit)		543		(421)
Net interest income after provision for credit losses		13,975		13,762
Other operating income
Net gains on investments, available for sale		—		3
Net gains on sale of residential mortgage loans		54		21
Net gains on disposal of fixed assets		—		28
Net gains		54		52
Other Income
Service charges on deposit accounts		516		465
Other service charges		232		213
Trust department		1,970		2,189
Debit card income		955		886
Bank owned life insurance		305		292
Brokerage commissions		297		220
Other		64		117
Total other income		4,339		4,382
Total other operating income		4,393		4,434
Other operating expenses
Salaries and employee benefits		7,290		5,968
FDIC premiums		193		174
Equipment expense		1,092		1,044
Occupancy expense of premises		785		727
Data processing expense		969		821
Marketing expense		117		106
Professional services		518		520
Contract labor		139		165
Telephone		110		114
Losses on sales and write downs of other real estate owned, net		124		95
Investor relations		57		96
Contributions		64		21
Other		1,180		729
Total other operating expenses		12,638		10,580
Income before income tax expense		5,730		7,616
Provision for income tax expense		1,355		1,901
Net Income	$	4,375	$	5,715
Basic net income per share	$	0.66	$	0.86
Diluted net income per share	$	0.65	$	0.86
Weighted average number of basic shares outstanding		6,675		6,628
Weighted average number of diluted shares outstanding		6,697		6,636
Dividends declared per common share	$	0.20	$	0.15

See accompanying notes to the consolidated financial statements

Table of Contents

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income/(Loss)

(In thousands)



	Three Months Ended
	March 31,
	2023		2022

Comprehensive Income/(Loss)	(Unaudited)
Net Income	$	4,375	$	5,715
Other comprehensive income/(loss), net of tax and reclassification adjustments:
Available for sale securities:
Unrealized holding (losses)/gains on investments with OTTI	$	(1,606)	$	141
Reclassification adjustment for accretable yield realized in income		50		50
Other comprehensive (loss)/income on investments with OTTI		(1,656)		91

Unrealized holding gains/(losses) on all other AFS investments	$	1,340	$	(10,844)
Unrealized holding losses on securities transferred from available for sale to held to maturity		—		8,328
Reclassification adjustment for gains realized in income		—		3
Other comprehensive income/(losses) on all other AFS investments		1,340		(2,519)

Held to Maturity Securities
Unrealized holding losses on securities transferred to held to maturity	$	—	$	(8,328)
Reclassification adjustment for amortization realized in income		(181)		(94)
Other comprehensive income/(losses) on HTM investments		181		(8,234)

Cash flow hedges:
Unrealized holding (losses)/gains on cash flow hedges	$	(188)	$	839
Reclassification adjustment for (losses)/gains realized in income		—		—
Other comprehensive (loss)/income on cash flow hedges		(188)		839

Pension plan liability:
Unrealized holding gains/(losses) on pension plan liability	$	168	$	(3,620)
Reclassification adjustment for amortization of unrecognized loss realized in income		(250)		(279)
Other comprehensive income/(loss) on pension plan liability		418		(3,341)

SERP liability:
Unrealized holding losses on SERP liability	$	—	$	(68)
Reclassification adjustment for amortization of unrealized loss realized in income		2		—
Other comprehensive (loss)/income on SERP liability		(2)		68

Other comprehensive gains/(losses) before income tax		93		(13,096)
Income tax (expense)/benefit related to other comprehensive income		(24)		3,503

Other comprehensive income/(loss), net of tax		69		(9,593)
Comprehensive income/(loss)	$	4,444	$	(3,878)

See accompanying notes to the consolidated financial statements

Table of Contents

First United Corporation and Subsidiaries

Consolidated Statements 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, 2023	$	67	$	24,409	$	166,343	$	(39,026)	$	151,793
Adoption of ASC 326- Financial Instruments- Credit Losses						(2,155)				(2,155)
Net income						4,375				4,375
Other comprehensive income								69		69
Stock based compensation				56						56
Common stock issued - 22,282 shares				64						64
Common stock dividend declared - $0.20 per share						(1,334)				(1,334)
Balance at March 31, 2023	$	67	$	24,529	$	167,229	$	(38,957)	$	152,868

First United Corporation and Subsidiaries

Consolidated Statements 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, 2022	$	66	$	23,661	$	145,487	$	(27,314)	$	141,900
Net income						5,715				5,715
Other comprehensive loss								(9,593)		(9,593)
Stock based compensation				(4)						(4)
Common stock issued - 15,456 shares				55						55
Common stock dividend declared - $0.15 per share						(995)				(995)
Balance at March 31, 2022	$	66	$	23,712	$	150,207	$	(36,907)	$	137,078

See accompanying notes to the consolidated financial statements

Table of Contents

First United Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)


	Three Months Ended
	March 31,
	2023		2022

	(Unaudited)
Operating activities
Net income	$	4,375	$	5,715
Adjustments to reconcile net income to net cash provided by operating activities:
Provision/(credit) for credit/loan losses		543		(421)
Depreciation		853		820
Stock based compensation		56		(4)
Gains on sales of other real estate owned		(36)		—
Write-downs of other real estate owned		32		—
Originations of loans held for sale		(552)		(963)
Proceeds from sale of loans held for sale		422		911
Gains from sale of loans held for sale		(54)		(21)
Gains on disposal of fixed assets		—		(28)
Net (accretion)/ amortization of investment securities discounts and premiums- AFS		(15)		83
Net accretion of investment securities discounts and premiums- HTM		(200)		(165)
Amortization of intangible assets		83		52
Gains on sales/calls of investment securities – AFS		—		(3)
Earnings on bank owned life insurance		(306)		(292)
Amortization of deferred loan costs/(fees), net		12		(113)
Amortization of operating lease right of use asset		82		86
Decrease in accrued interest receivable and other assets		542		105
Deferred tax (benefit)/expense		(934)		549
Operating lease liability		(93)		(95)
Decrease in accrued interest payable and other liabilities		(1,300)		(3,141)
Net cash provided by operating activities		3,510		3,075
Investing activities
Proceeds from maturities/calls of investment securities - AFS		1,609		5,063
Proceeds from maturities/calls of investment securities - HTM		2,776		3,260
Proceeds from sales of investment securities - AFS		—		1,023
Purchases of investment securities - AFS		—		(12,892)
Purchases of investment securities - HTM		—		(49,456)
Proceeds from sales of other real estate owned		139		—
Proceeds from disposal of fixed assets		—		30
Net (increase)/decrease in restricted stock		(3,463)		3
Net increase in loans		(9,761)		(28,030)
Purchases of premises and equipment		(112)		(126)
Net cash used in by investing activities		(8,812)		(81,125)
Financing activities
Net increase in deposits		20,552		38,181
Issuance of common stock		64		55
Cash dividends paid on common stock		(1,199)		(993)
Net(decrease)/increase in short-term borrowings		(12,535)		1,203
Proceeds from long-term borrowings		80,000		—
Net cash provided by/(used in) financing activities		86,882		38,446
Increase/(decrease) in cash and cash equivalents		81,580		(39,604)
Cash and cash equivalents at beginning of the year		74,315		115,720
Cash and cash equivalents at end of period	$	155,895	$	76,116
Supplemental information
Interest paid	$	2,989	$	840
Taxes paid	$	90	$	2,568
Non-cash investing activities:
Transfers from securities available for sale to held to maturity	$	—	$	139,036

See accompanying notes to the consolidated financial statements

Table of Contents

FIRST UNITED CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Basis of Presentation

The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“GAAP”). The Company has prepared these unaudited condensed consolidated financial statements in accordance with GAAP for interim financial information, SEC rules that permit reduced disclosure for interim periods, and Article 10 of Regulation S-X. Certain reclassifications have been made to prior year amounts to conform with current year classifications. These reclassifications did not have a material impact on the Corporation’s consolidated financial condition or results of operations. Operating results for the three month period ended March 31, 2023 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, 2022.

In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of First United Corporation, First United Bank & Trust (the “Bank”), First United Statutory Trust I, First United Statutory Trust II, OakFirst Loan Center, LLC, Oakfirst Loan Center, Inc., First OREO Trust and FUBT OREO I, LLC. All significant inter-company accounts and transactions have been eliminated.

As used in these notes, the terms “the Corporation” “we”, “us”, and “our” refer 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 March 31, 2023 and through the date these consolidated financial statements were issued, for items of potential recognition or disclosure.

Newly Adopted Pronouncements in 2023

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, universally referred to as CECL. The amendments in the ASU, among other things, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied previously are still permitted, although the inputs to those techniques changed to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on purchased financial assets with credit deterioration. For periodic report filers that are smaller reporting companies, such as the Company, this standard (Topic 326) was effective as of January 1, 2023.

As part of its process of adopting the CECL accounting method, management implemented a third party software solution and determined the appropriate loan segments, methodologies, model assumptions and qualitative components. Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management had a third party independent consultant review and validate our CECL model.

Table of Contents

In addition, Topic 326 amends the accounting for credit losses on certain debt securities. The Company did not record any ACL on its debt securities as a result of adopting Topic 326.

The ultimate impact of adopting Topic 326, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, compensation of our loan portfolio, and other management judgments. The Company adopted Topic 326 using the modified retrospective method. Results beginning after January 1, 2023 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP. We made the accounting policy election to not measure an ACL for accrued interest receivables for loans and securities. Accrued interest deemed uncollectible will be written off through interest income.

The following table illustrates the day-one impact of adopting Topic 326.


		January 1, 2023
(Dollars in thousands)		As Reported Under Topic 326		Pre Topic 326		Impact of Topic 326 Adoption
Assets
Allowance for credit losses on loans
Commercial real estate	$	5,202	$	6,345	$	(1,143)
Acquisition and development		964		979		(15)
Commercial and industrial		4,179		2,845		1,334
Residentail mortgage		5,272		3,160		2,112
Consumer		1,085		877		208
Unallocated		-		430

FIRST UNITED CORP/MD/ [FUNC] Filings
10-Q	[2023-05-12]
10-K	[2023-03-24]
10-Q	[2022-11-10]
10-Q	[2022-08-11]
10-Q	[2022-05-09]
10-K	[2022-03-25]
10-Q	[2021-11-09]
10-Q	[2021-08-12]
10-Q	[2021-05-14]
10-K	[2021-03-25]
10-Q	[2020-11-10]
10-Q	[2020-08-10]
10-Q	[2020-05-11]
10-K	[2020-03-13]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-07]
10-K	[2019-03-12]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-Q	[2018-05-09]
10-K	[2018-03-09]
10-Q	[2017-11-13]
10-Q	[2017-08-10]
10-Q	[2017-05-10]
10-K	[2017-03-08]
10-Q	[2016-11-07]
S-1	[2016-11-07]
10-Q	[2016-08-11]
10-Q	[2016-05-10]
10-K	[2016-03-09]
10-Q	[2015-11-10]
10-Q	[2015-08-10]
10-Q	[2015-05-12]
10-K	[2015-03-09]
10-Q	[2014-11-10]
10-Q	[2014-08-12]
10-Q	[2014-05-12]
10-K	[2014-03-10]
10-Q	[2013-11-08]
10-Q	[2013-08-14]
10-Q	[2013-05-13]
10-K	[2013-03-15]
10-Q	[2012-11-13]
10-Q	[2012-08-13]
10-Q	[2012-05-14]
S-1	[2012-04-02]
10-K	[2012-03-14]