Edgar Filing: FIRST UNITED CORP/MD/

f10q0310_firstunited.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For quarterly period ended March 31, 2010

£ 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)

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 R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes £ No £ (Not Applicable)

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

Large accelerated filer £ Accelerated filer R

Non-accelerated filer £ (Do not check if a smaller reporting company) Smaller reporting company £

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,143,947 shares of common stock, par value $.01 per share, as of April 30, 2010.

INDEX TO QUARTERLY REPORT

FIRST UNITED CORPORATION


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3

	Consolidated Statements of Financial Condition –March 31, 2010 and December 31, 2009	3

	Consolidated Statements of Operations - for the three months ended March 31, 2010 and 2009	4

	Consolidated Statements of Changes in Shareholders’ Equity - for the three months ended March 31, 2010 and year ended December 31, 2009	5

	Consolidated Statements of Cash Flows - for the three months ended March 31, 2010 and 2009	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	[Removed and Reserved]	37

Item 5.	Other Information	37

Item 6.	Exhibits	37

SIGNATURES		38

EXHIBIT INDEX		39

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST UNITED CORPORATION

Consolidated Statements of Financial Condition

(In thousands, except per share and percentage data)

	March 31, 2010			December 31, 2009
	(Unaudited)
Assets
Cash and due from banks	$	199,596		$	139,169
Interest bearing deposits in banks		49,278			50,502
Cash and cash equivalents		248,874			189,671
Investment securities - available-for-sale (at fair value)		158,862			273,784
Investment securities – trading (at fair value)		117,078			-
Total investment securities		275,940			273,784
Restricted Investments in Bank stock, at cost		13,861			13,861
Loans		1,100,571			1,121,884
Allowance for loan losses		(21,886	)		(20,090	)
Net loans		1,078,685			1,101,794
Premises and equipment, net		31,230			31,719
Goodwill and other intangible assets, net		15,221			15,241
Bank owned life insurance		29,636			29,386
Deferred tax assets		27,104			29,189
Accrued interest receivable and other assets		63,715			59,151

Total Assets	$	1,784,266		$	1,743,796

Liabilities and Shareholders' Equity
Liabilities:
Non-interest bearing deposits	$	113,234		$	106,976
Interest bearing deposits		1,243,930			1,197,190
Total deposits		1,357,164			1,304,166
Short-term borrowings		41,748			47,563
Long-term borrowings		263,890			270,544
Accrued interest payable and other liabilities		20,800			20,342
Dividends payable		63			615
Total Liabilities		1,683,665			1,643,230

Shareholders' Equity:
Preferred stock --no par value;
Authorized 2,000 shares of which 30 shares of Series A,
$1,000 per share liquidation preference, 5% cumulative
increasing to 9% cumulative on February 15, 2014, were
issued and outstanding on March 31, 2010 and December
31, 2009 (discount of $246 and $261, respectively)		29,754			29,739
Common Stock – par value $.01 per share;
Authorized 25,000 shares; issued and outstanding
6,144 shares at March 31, 2010 and December 31, 2009		61			61
Surplus		21,338			21,305
Retained earnings		70,557			76,120
Accumulated other comprehensive loss		(21,109	)		(26,659	)
Total Shareholders' Equity		100,601			100,566

Total Liabilities and Shareholders' Equity	$	1,784,266		$	1,743,796

See accompanying notes to the consolidated financial statements.

FIRST UNITED CORPORATION

Consolidated Statements of Operations

(In thousands, except per share data)

	Three Months Ended March 31,
	2010			2009
	(Unaudited)
Interest income
Interest and fees on loans	$	15,854		$	17,573
Interest on investment securities:
Taxable		2,643			3,859
Exempt from federal income tax		932			957
Total investment income		3,575			4,816
Other		92			(16	)
Total interest income		19,521			22,373
Interest expense
Interest on deposits		4,615			5,549
Interest on short-term borrowings		66			75
Interest on long-term borrowings		2,847			2,923
Total interest expense		7,528			8,547
Net interest income		11,993			13,826
Provision for loan losses		3,555			2,049
Net interest income after provision for
loan losses		8,438			11,777
Other operating income
Service charges		1,118			1,315
Trust department		986			830
Total other-than-temporary security impairment losses		(11,217	)		(3,342	)
Less: Portion of loss recognized in other
comprehensive income (before taxes)		3,703			2,592
Net securities impairment losses recognized in earnings		(7,514	)		(750	)
Net gains (losses) – trading securities		1			(367	)
Net (losses) gains – available-for-sale securities		(1,992	)		42
Insurance commissions		623			723
Debit card income		363			325
Bank owned life insurance		250			137
Other		243			335
Total other operating income		(5,922	)		2,590
Other operating expenses
Salaries and employee benefits		5,596			5,899
FDIC Premiums		876			237
Equipment		830			805
Occupancy		736			710
Data processing		749			536
Other		2,455			2,799
Total other operating expenses		11,242			10,986
(Loss)/Income before income taxes		(8,726	)		3,381
Applicable income tax (benefit) expense		(3,615	)		1,002
Net (Loss)/Income		(5,111	)		2,379
Preferred stock dividends and discount accretion		(390	)		(259	)
Net (Loss) Attributable to/Income Available to
Common Shareholders	$	(5,501	)	$	2,120
Basic net (loss)/income per common share	$	(.90	)	$	.35
Diluted net (loss)/income per common share	$	(.90	)	$	.35
Dividends declared per common share	$	.01		$	.20
Weighted average number of common shares outstanding		6,144			6,101
Weighted average number of diluted shares outstanding		6,144			6,119
See accompanying notes to the consolidated financial statements.

FIRSTUNITED CORPORATION

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except per share data)

	Preferred Stock		Common Stock		Surplus			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
Balance at January 1, 2009	$	-	$	61	$	20,520		$	93,092		$	(40,983	)	$	72,690

Comprehensive income:
Net loss for the year									(11,324	)					(11,324	)
Unrealized gain on securities available-for- sale, net of reclassifications and income taxes of $8,407												12,422			12,422
Change in accumulated unrealized losses for pension and SERP obligations, net of income taxes of $1,311												1,938			1,938
Unrealized loss on derivatives, net of income taxes of $24 Comprehensive income												(36	)		(36	)
															3,000
Issuance of 43,680 shares of common stock under dividend reinvestment plan						488									488
Stock based compensation						(16	)								(16	)
Preferred stock issued pursuant to TARP- 30,000 shares		29,687													29,687
Preferred stock discount accretion		52							(52	)					-
Warrant issued pursuant to TARP						313									313
Preferred stock dividends									(1,186	)					(1,186	)
Common stock dividends declared - $.70 per share									(4,410	)					(4,410	)

Balance at December 31, 2009	$	29,739	$	61	$	21,305		$	76,120		$	(26,659	)	$	100,566

Comprehensive income:
Net loss for the quarter									(5,111	)					(5,111	)
Unrealized gain on securities available- for-sale, net of reclassifications and income taxes of $3,866												5,713			5,713
Unrealized loss on derivatives,
net of income taxes of $111												(163	)		(163	)
Comprehensive income															439
Stock based compensation						33									33
Preferred stock discount accretion		15							(15	)					-
Preferred stock dividends									(375	)					(375	)
Common stock dividends declared - $.01 per share									(62	)					(62	)

Balance at March 31, 2010	$	29,754	$	61	$	21,338		$	70,557		$	(21,109	)	$	100,601

See accompanying notes to the consolidated financial statements.

FIRST UNITED CORPORATION

Consolidated Statements of Cash Flows

(In thousands)

	Three Months Ended March 31,
	2010			2009
Operating activities	(Unaudited)
Net (loss)/income	$	(5,111	)	$	2,379
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Provision for loan losses		3,555			2,049
Depreciation		649			677
Stock compensation		33			49
Amortization of intangible assets		209			209
Loss on sales of foreclosed real estate		97			78
Net amortization of investment securities discounts and premiums		40			32
Other-than-temporary-impairment loss on securities		7,514			750
Proceeds from sales of investment securities trading		1			-
(Gain)/loss on trading securities		(1	)		367
Loss/(gain) on investment securities- available for sale		1,992			(42	)
(Increase)/decrease in accrued interest receivable and other Assets		(2,426	)		1,853
Deferred tax benefit		(1,670	)		(49	)
Increase/(decrease) in accrued interest payable andother liabilities		518			(230	)
Earnings on bank owned life insurance		(250	)		(137	)
Net cash provided by operating activities		5,150			7,985

Investing activities
Proceeds from maturities of investment securities available-for-sale		29,356			31,018
Proceeds from sales of investment securities available-for-sale		2,268			18,891
Purchases of investment securities available-for-sale		(33,748	)		(42,789	)
Proceeds from sales of foreclosed real estate		362			264
Net decrease in loans		16,435			8,229
Net decrease in FHLB stock		-			70
Purchases of premises and equipment		(160	)		(844	)
Net cash provided by investing activities		14,513			14,839

Financing activities
Net increase in deposits		52,998			626
Net decrease in short-term borrowings		(5,815	)		(8,165	)
Proceeds from long-term borrowings		3,609			-
Payments on long-term borrowings		(10,263	)		(263	)
Proceeds from issuance of preferred stock and warrants		-			30,000
Cash dividends paid on common stock		(614	)		(1,221	)
Proceeds from issuance of common stock		-			125
Preferred stock dividends paid		(375	)		-
Net cash provided by financing activities		39,540			21,102
Increase in cash and cash equivalents		59,203			43,926
Cash and cash equivalents at beginning of the year		189,671			19,305
Cash and cash equivalents at end of period	$	248,874		$	62,231

Supplemental information
Interest paid	$	7,896		$	9,453
Non-cash investing activities:
Transfers from loans to foreclosed real estate	$	3,119		$	431
Transfers from available-for-sale securities to trading	$	117,078			-

See accompanying notes to the consolidated financial statements.

FIRST UNITED CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE QUARTER ENDED MARCH 31, 2010

Note A – Basis of Presentation

The accompanying unaudited consolidated financial statements of First United Corporation and its consolidated subsidiaries (the “Corporation”) 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 10-01 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 three-month period ended March 31, 2010 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, 2009. For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2010 presentation. Such reclassifications had no impact on net income/(loss) or equity.

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2010 for items that should potentially be recognized or disclosed in these financial statements as prescribed by ASC Topic 855, Subsequent Events.

Note B – Earnings per Common Share

Basic earnings/(loss) per common share is derived by dividing net income/(loss) 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/(loss) per share is derived by dividing net income/(loss) available to common shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents. There is no dilutive effect on the earnings/(loss) per share during loss periods.

The following table sets forth the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2010 and 2009 (in thousands, except for per share amounts):

	For the three months ended
	March 31, 2010								March 31, 2009
	Income			Average Shares		Per Share Amount			Income			Average Shares		Per Share Amount
Basic Earnings Per Share:
Net (loss)/income	$	(5,111	)						$	2,379
Accumulated preferred stock dividends		(375	)							(250	)
Discount accretion on preferred stock		(15	)							(9	)
Net (loss) attributable to/income available to common shareholders	$	(5,501	)		6,144	$	(.90	)	$	2,120			6,101	$	.35

Diluted Earnings Per Share:
Net (loss) attributable to/income available to common shareholders	$	(5,501	)		6,144	$	(.90	)	$	2,120			6,101	$	.35
Non-vested employee stock award													18
Diluted net (loss) attributable to/income available to common shareholders	$	(5,501	)		6,144	$	(.90	)	$	2,120			6,119	$	.35

Note C – Investments

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

During the quarter ended March 31, 2010, the Corporation embarked on a restructuring of its available-for-sale investment portfolio with goals of reducing sensitivity to future increases in interest rates and reducing future negative credit exposure. As part of this restructuring, six securities totaling $20.0 million from the available-for-sale collateralized mortgage obligation portfolio were transferred to the trading portfolio, and previously unrealized losses of $5.1 million were recognized in earnings at the time of transfer. Further, 18 securities totaling $89.5 million from the available-for-sale U.S. government agency and residential mortgage-backed agency portfolios and 16 securities totaling $7.5 million from the available-for-sale municipal security portfolio were transferred to the trading portfolio, and previously unrealized gains of $2.9 million were recognized in earnings at the time of transfer.

The following table shows a comparison of amortized cost and fair values of investment securities available-for-sale at March 31, 2010 and December 31, 2009 (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCI
March 31, 2010
U.S. government agencies	$	22,222	$	154	$	16	$	22,360	$	-
Residential mortgage-backed agencies		23,587		1,429		2		25,014		-
Collateralized mortgage obligations		13,764		-		941		12,823		-
Obligations of states and political subdivisions		87,740		2,571		367		89,944		-
Collateralized debt obligations		36,790		-		28,069		8,721		19,404

Totals	$	184,103	$	4,154	$	29,395	$	158,862	$	19,404
December 31, 2009
U.S. government agencies	$	68,487	$	274	$	498	$	68,263	$	-
Residential mortgage-backed agencies		59,640		2,946		13		62,573		-
Collateralized mortgage obligations		40,809		-		7,612		33,197		1,574
Obligations of states and political subdivisions		95,190		2,501		388		97,303		-
Collateralized debt obligations		44,478		-		32,030		12,448		14,127

Totals	$	308,604	$	5,721	$	40,541	$	273,784	$	15,701

The following table summarizes the activity from sales and transfers of securities for the quarters ended March 31, 2010 and 2009 (in thousands):

	March 31, 2010			March 31, 2009
Sales of available-for –sale securities:
Proceeds	$	2,268		$	18,891

Realized gains	$	262		$	42
Realized losses		-			-
Transfers of available-for-sale securities to trading:
Gains recognized in earnings		2,852			-
Losses recognized in earnings		( 5,106	)		---
Net gain (loss) recognized on available-for sale securities		( 1,992	)		42

Trading securities:
Gross gains on sales		1			-
Gross losses on sales		-			-
Net gain recognized on sales		1			-
Unrealized loss recognized on trading securities still held		-			(367	)
Net gain (loss) on trading securities		1			(367	)
Net loss on securities activities	$	(1,991	)	$	(325	)

Gains and losses on the sale of securities are recorded using the specific identification method.

The following table shows the Corporation’s available-for-sale securities with gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2010 and December 31, 2009 (in thousands):

	March 31, 2010
	Less than 12 months				12 months or more
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. government agencies	$	5,003	$	16	$	-	$	-
Residential mortgage-backed agencies		475		2		-		-
Collateralized mortgage obligations		-		-		12,823		941
Obligations of states and political subdivisions		10,881		112		8,085		255
Collateralized debt obligations		-		-		8,721		28,069
	$	16,359	$	130	$	29,629	$	29,265

	December 31, 2009
	Less than 12 months				12 months or more
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. government agencies	$	36,090	$	371	$	14,873	$	127
Residential mortgage-backed agencies		589		13		-		-
Collateralized mortgage obligations		-		-		33,197		7,612
Obligations of states and political subdivisions		12,154		123		8,075		265
Collateralized debt obligations		-		-		12,448		32,030
	$	48,833	$	507	$	68,593	$	40,034

Management systematically evaluates securities for impairment on a quarterly basis. Management assesses whether (a) it has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery. If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components. The first is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses, which are recognized in other comprehensive loss. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35).

Management believes that the valuation of certain securities is a critical accounting policy that requires significant estimates in preparation of its consolidated financial statements. Beginning in the first quarter of 2010, management utilized an independent third party to prepare both the impairment valuations and fair value determinations for its collateralized debt obligation portfolio consisting of pooled trust preferred securities. In previous periods management performed internal impairment valuations and utilized a third party service for the portfolio pricing. Management will continue to review the assumptions and results and does not believe that there were any material differences in the valuations between December 31, 2009 and March 31, 2010.

U.S. Government Agencies – One security has been in a small unrealized loss position for one month. This unrealized loss is attributable to movement in interest rates compared to the premium paid at the time of purchase for call features associated with the security. The security is of the highest investment grade and the Corporation does not intend to sell this investment and it is not more likely than not that the Corporation will be required to sell it before recovery of its amortized cost basis, which may be at maturity. Therefore, no other-than-temporary impairment exists at March 31, 2010.

Residential Mortgage-Backed Agencies - Two residential mortgage-backed agencies have been in a small unrealized loss position for less than 12 months at March 31, 2010. The securities are of the highest investment grade and the Corporation does not intend to sell them and it is not more likely than not that the Corporation will be required to sell them before recovery of their amortized cost bases, which may be at maturity. Therefore, no other-than-temporary impairment exists at March 31, 2010.

Collateralized Mortgage Obligations – The collateralized mortgage obligation portfolio, consisting of three securities at March 31, 2010, has been in an unrealized loss position for 12 months or more. These securities are private label residential mortgage-backed securities and are reviewed for factors such as loan to value ratio, credit support levels, borrower FICO scores, geographic concentration, prepayment speeds, delinquencies, coverage ratios and credit ratings. Management believes that each security continues to demonstrate collateral coverage ratios that are adequate to support the Corporation’s investment. At the time of purchase, these securities were of the highest investment grade and were purchased all of these securities at a discount relative to their face amounts. As of March 31, 2010, two remain at investment grade and one has been downgraded to one level below investment grade. All of these securities continue to perform as expected at the time of purchase. The Corporation does not intend to sell these investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

Obligations of State and Political Subdivisions – The unrealized losses on the Corporation’s investments in state and political subdivisions were in an unrealized loss position of $367,000 at March 31, 2010. Ten securities have had a fair value less than amortized cost for over 12 months and 17 securities have been in an unrealized loss position for less than 12 months. All of these investments are of investment grade as determined by the major rating agencies. Management believes that this portfolio is well-diversified throughout the United States, and all bonds continue to perform according to their contractual terms. The Corporation does not intend to sell these investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity. Accordingly, management does not consider these investments to be other-than-temporarily impaired at March 31, 2010.

Collateralized Debt Obligations - The $28.1 million in unrealized losses greater than 12 months at March 31, 2010 relates to 18 pooled trust preferred securities that comprise the collateralized debt obligation (“CDO”) portfolio. See Note F for a discussion of the methodology used by management to determine the fair values of these securities. Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that there were six securities that had credit-related other-than temporary impairment (“OTTI”) for the first time during the quarter, while six other securities had add additional credit-related OTTI during the quarter and one security with previously recorded OTTI had no further impairment. As a result of this assessment, the Corporation recorded a $7.5 million credit-related OTTI loss on these securities as of March 31, 2010. The unrealized losses on the remaining five securities in the portfolio are primarily attributable to continued depression in market interest rates, marketability, liquidity and the current economic environment.

The following table presents a cumulative roll-forward of the amount of other-than-temporary impairment (“OTTI”) related to credit losses which have been recognized in earnings for debt securities held and not intended to be sold (in thousands):

	March 31, 2010			March 31, 2009
Balance of credit-related OTTI at beginning of period	$	10,765		$	2,724
Additions for credit-related OTTI not previously recognized		1,402			750
Additional increases for credit-related OTTI previously
recognized when there is no intent to sell and no
requirement to sell before recovery of amortized cost basis		6,112			-
Decreases for previously recognized credit-related OTTI
because there is current intent to sell		(4,369	)		(2,724	)

Balance of credit-related OTTI at end of period	$	13,910		$	750

The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at March 31, 2010 are shown in the following table (in thousands). Actual maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2010				December 31, 2009
Contractual Maturity	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years		7,699		8,188		14,095		14,294
Due after five years through ten years		19,284		19,645		26,687		27,367
Due after ten years		119,769		93,192		167,373		136,353
		146,752		121,025		208,155		178,014
Residential mortgage-backed agencies		23,587		25,014		59,640		62,573
Collateralized mortgage obligations		13,764		12,823		40,809		33,197
	$	184,103	$	158,862	$	308,604	$	273,784

Note D – 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.

	March 31, 2010		December 31, 2009

Cash and due from banks, weighted average interest rate of .10% (at March 31, 2010)	$	199,596	$	139,169

Interest bearing deposits in banks, which represent funds invested at a correspondent bank, are carried at fair value and, as of March 31, 2010 and December 31, 2009, consisted of daily funds invested at the Federal Home Loan Bank (“FHLB”) of Atlanta and First Tennessee Bank (“FTN”).

	March 31, 2010		December 31, 2009

FHLB daily investments, interest rate of 0.01% (at March 31, 2010)	$	48,437	$	49,727
FTN daily investments, interest rate of 0.16% (at March 31, 2010)		700		700
FTN Fed Funds sold, interest rate of 0.25% (at March 31, 2010)		141		75

Note E - Restricted Investment in Bank Stock

Restricted stock, which represents required investments in the common stock of the FHLB of Atlanta and Atlantic Central Bankers Bank, is carried at cost and is considered a long-term investment.

A dividend of $9,400 was posted during the first quarter of 2010 relating to the fourth quarter of 2009. The Corporation did not accrue any dividends for the first quarter of 2010.

Management has evaluated the restricted stock for impairment and believes that no impairment charge is necessary as of March 31, 2010.

Note F – Fair Value of Financial Instruments

The Corporation complies with the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. The Corporation also follows the guidance on matters relating to all financial instruments found in ASC Subtopic 825-10, Financial Instruments – Overall.

Fair value is defined as the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. Fair value is best determined by values quoted through active trading markets. Active trading markets are characterized by numerous transactions of similar financial instruments between willing buyers and willing sellers. Because no active trading market exists for various types of financial instruments, many of the fair values disclosed were derived using present value discounted cash flows or other valuation techniques described below. As a result, the Corporation’s ability to actually realize these derived values cannot be assumed.

The Corporation measures fair values based on the fair value hierarchy established in ASC Paragraph 820-10-35-37. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs that may be used to measure fair value under the hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities. This level is the most reliable source of valuation.

Level 2: Quoted prices that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). It also includes inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Several sources are utilized for valuing these assets, including a contracted valuation service, Standard & Poor’s (S&P) evaluations and pricing services, and other valuation matrices.

Level 3: Prices or valuation techniques that require inputs that are both significant to the valuation assumptions and not readily observable in the market (i.e. supported with little or no market activity). Level 3 instruments are valued based on the best available data, some of which is internally developed, and consider risk premiums that a market participant would require.

The level established within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The Corporation believes that its valuation techniques are appropriate and consistent with other market participants. However, the use of different methodologies and assumptions could result in a different estimate of fair values at the reporting date. The following valuation techniques were used to measure the fair value of assets in the table below which are measured on a recurring and non-recurring basis as of March 31, 2010.

Investments held for trading – The fair value of investments held for trading is determined using a market approach and are classified as Level 2 within the valuation hierarchy. As of March 31, 2010, trading securities include U.S. Government Agencies and residential mortgage-backed securities, private label residential mortgage-backed securities and municipal bonds. Their fair values were determined based upon market-corroborated inputs and valuation matrices which were obtained through third party data service providers or securities brokers through which the Corporation has historically transacted both purchases and sales of investment securities.

Investments available for sale – The fair value of investments available-for-sale is determined using a market approach. As of March 31, 2010, the U.S. Government agencies and residential mortgage-backed securities, private label residential mortgage-backed securities and municipal bonds segments are classified as Level 2 within the valuation hierarchy. Their fair values were determined based upon market-corroborated inputs and valuation matrices which were obtained through third party data service providers or securities brokers through which the Corporation has historically transacted both purchases and sales of investment securities.

The CDO segment, which consists of pooled trust preferred securities issued by banks, thrifts and insurance companies, is classified as Level 3 within the valuation hierarchy. At March 31, 2010, the Bank owned 18 pooled trust preferred securities with an amortized cost of $36.8 million and a fair value of $8.7 million. The market for these securities at March 31, 2010 is not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive as no new CDOs have been issued since 2007. There are currently very few market participants who are willing to transact for these securities. The market values for these securities or any securities other than those issued or guaranteed by the U.S. Department of the Treasury (the “Treasury”), are very depressed relative to historical levels. Therefore, in the current market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issue. Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that 1) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at March 31, 2010, 2) an income valuation approach technique (i.e. present value) that maximizes the use of relevant observable inputs and minimizes the use of observable inputs will be equally or more representative of fair value than a market approach, and 3) the CDO segment is appropriately classified within Level 3 of the valuation hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

Beginning in the first quarter of 2010, management utilized an independent third party to prepare both the evaluations of other than temporary impairment as well as the fair value determinations for its collateralized debt obligation portfolio. In previous periods management performed internal impairment valuations and utilized a third party service for the portfolio pricing. Management believes the change will provide a more consistent approach going forward and does not believe that there were any material differences in the impairment evaluations and pricing between December 31, 2009 and March 31, 2010.

The approach of the third party utilized in the first quarter of 2010 to determine fair value involved several steps; including detailed credit and structural evaluation of each piece of collateral in each bond, default, recovery and prepayment/amortization probabilities for each piece of collateral in the bond, and discounted cash flow modeling. The discount rate methodology used by the third party combines a baseline current market yield for comparable corporate and structured credit products with adjustments based on evaluations of the differences found in structure and risks associated with actual and projected credit performance of each CDO being valued. Currently the only active and liquid trading market that exists is for stand-alone trust preferred securities; therefore adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments.

Previously, the Corporation obtained fair values for these securities from Moody’s Analytics and from S&P. Information such as performance of the underlying collateral, deferral/default rates, cash flow projections, related relevant trades, models, inquiries of trading firms who are prominent in the trust preferred securities market, actual market activity, clearing levels where bonds are likely to trade, current market sentiment and other analytical tools were utilized by the third-parties in determining individual security valuations in accordance with proper accounting guidance.

In determining the fair values of the CDOs with no intent to sell at December 31, 2009, Moody’s Analytics utilized an income valuation approach (present value technique) which maximizes the use of observable inputs and minimizes the use of unobservable inputs. This approach is more indicative of fair value than the market approach that has been used historically, and involves several steps. The credit quality of the collateral was estimated using the average probability of default values for each underlying issuer, adjusted for credit ratings. The default probabilities also considered the potential for correlation among issuers within the same industry, such as banks with other banks. The loss given default was assumed to be 95%, allowing for a 5% recovery of collateral. Management elected to utilize the option assuming that there were no defaults or deferrals for a two-year time period for those banks who have publicly announced participation in the Treasury’s Capital Purchase Program (the “CPP”). The cash flows for the securities were forecast for the underlying collateral and applied to each tranche in the structure to determine the resulting distribution among the securities. These expected cash flows were then discounted to calculate the present value of the security. The effective discount rate utilized by Moody’s Analytics for the various securities in the present value calculation was the three-month LIBOR plus 200 basis points (a risk free rate plus a premium for illiquidity). The resulting prices are highly dependent upon the credit quality of the collateral, the relative position of the tranche in the capital structure of the security and the prepayment assumptions. Moody’s Analytics modeled the calculations in several thousand scenarios using a Monte Carlo engine and the average price was used for valuation purposes.

S&P is another independent third party whose pricing methodology is based upon inquiries of trading firms who are prominent in the trust preferred market. Information such as actual market activity, clearing levels where bonds are likely to trade and current market sentiment are considered in valuations. S&P structures their approach to pricing on the premise that the market now trades on dollar price versus yield or discount margin. This pricing methodology is more market driven, considering distressed sales, and is more indicative of the pricing likely to be achieved should the securities be sold in the short term. Management utilized this approach in determining the fair values of the CDOs for which the Corporation had intent to sell at December 31, 2009. These securities were sold in the first quarter of 2010.

Derivative Financial Instruments – The Corporation’s open derivative positions are interest rate swaps that are classified as Level 3 within the valuation hierarchy. Open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Corporation has considered counterparty credit risk in the valuation of its interest rate swap assets.

Impaired loans – Loans included in the table below are those that are considered impaired under the guidance of the loan impairment subsection of the Receivables Topic, ASC Section 310-10-35, under which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value consists of the loan balance less its valuation allowance and is generally determined based on independent third-party appraisals of the collateral or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.

Foreclosed real estate – Fair value of foreclosed assets was based on independent third-party appraisals of the properties. These values were determined based on the sales prices of similar properties in the approximate geographic area. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2010 and December 31, 2009 are as follows:

				Fair Value Measurements at March 31, 2010 Using (Dollars in Thousands)
Description	Assets Measured at Fair Value 03/31/10			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring:
Investment securities – trading:
U.S. government agencies	$	56,538			$	56,538
Residential mortgage-backed agencies	$	32,973			$	32,973
Collateralized mortgage obligations	$	20,067			$	20,067
Obligations of states and political subdivisions	$	7,500			$	7,500
Investment securities available-for-sale:
U.S. government agencies	$	22,360			$	22,360
Residential mortgage-backed agencies	$	25,014			$	25,014
Collateralized mortgage obligations	$	12,823			$	12,823
Obligations of states and political subdivisions	$	89,944			$	89,944
Collateralized debt obligations	$	8,721					$	8,721
Financial Derivative	$	(334	)				$	(334	)
Non-recurring:
Impaired loans¹	$	14,402					$	14,402
Foreclosed real estate	$	403					$	403
¹ The impaired loans fair value consists of impaired loans net of the $6,955 valuation allowance.

				Fair Value Measurements at December 31, 2009 Using (Dollars in Thousands)
Description	Assets Measured at Fair Value 12/31/09			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring:
Investment securities- trading	$	-
Investment securities available-for-sale:
U.S. government agencies	$	68,263			$	68,263
Residential mortgage-backed agencies	$	62,573			$	62,573
Collateralized mortgage obligations	$	33,197			$	33,197
Obligations of states and political Subdivisions	$	97,303			$	97,303
Collateralized debt obligations	$	12,448					$	12,448
Financial Derivative	$	(60	)				$	(60	)
Non-recurring:
Impaired loans¹	$	21,053					$	21,053
Foreclosed real estate	$	40					$	40
¹ The impaired loans fair value consists of impaired loans net of the $7,624 valuation allowance.

There were no transfers of assets between Level 1 and Level 2 of the fair value hierarchy for the three months ended March 31, 2010 or March 31, 2009.

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured using Level 3 significant unobservable inputs for the three months ended March 31, 2010 and the year ended December 31, 2009:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Dollars in Thousands)
	Investment Securities Available for Sale			Investment Securities – Trading			Cash Flow Hedge
Beginning balance January 1, 2010	$	12,448		$	-		$	(60	)
Total gains/(losses) realized/unrealized:
Included in earnings (or changes in net assets)		(7,514	)		1			-
Included in other comprehensive loss		3,989			-			(274	)

Purchases, issuances, and settlements
Transfers from Available for Sale to Trading		-			-			-
Transfers in and/or out of Level 3		-			-			-
Sales		(202	)		(1	)		-
Ending balance March 31, 2010	$	8,721		$	-		$	(334	)

The amount of total gains or losses for the period included in earnings attributable to the change in realized/unrealized gains or losses related to assets still held at the reporting date	$	(7,514	)	$	-		$	-

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Dollars in Thousands)
	Investment Securities Available for Sale			Investment Securities – Trading			Cash Flow Hedge
Beginning balance January 1, 2009	$	24,266		$	-		$	-
Total gains/(losses) realized/unrealized:
Included in earnings (or changes in net assets)		(26,522	)		(443	)		-
Included in other comprehensive loss		15,147			-			-

Purchases, issuances, and settlements		-			-			(60	)
Transfers from Available for Sale to Trading		(443	)		443			-
Transfers in and/or out of Level 3		-			-			-
Sales		-			-			-
Ending balance December 31, 2009	$	12,448		$	-		$	(60	)

The amount of total gains or losses for the period included in earnings attributable to the change in realized/unrealized gains or losses related to assets still held at the reporting date	$	(26,522	)	$	(443	)	$	-

Gains and losses (realized and unrealized) included in earnings for the periods above are reported in the Consolidated Statements of Operations in Other Operating Income.

The fair values disclosed may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies. The derived fair values are subjective in nature and involve uncertainties and significant judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could significantly impact the derived estimates of fair value. Disclosure of non financial assets such as buildings as well as certain financial instruments such as leases is not required. Accordingly, the aggregate fair values presented do not represent the underlying value of the Corporation.

The following methods and assumptions were used by the Corporation in estimating its fair value disclosures for financial instruments:

Cash and due from banks: The carrying amounts as reported in the statement of financial condition for cash and due from banks approximate their fair values.

Interest bearing deposits in banks: The carrying amount of interest bearing deposits approximates their fair values.

Restricted Bank stock: The carrying value of stock issued by the FHLB of Atlanta and Atlantic Central Bankers Bank approximates fair value based on the redemption provisions of the stock.

Loans (excluding impaired loans with specific loss allowances): For variable rate loans and leases that reprice frequently or “in one year or less,” and with no significant change in credit risk, fair values are based on carrying values. Fair values for fixed rate loans and leases and loans and leases that do not reprice frequently are estimated using a discounted cash flow calculation that applies current market interest rates being offered on the various loan products.

Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and certain types of money market accounts, etc.) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on the various certificates of deposit to the cash flow stream.

Borrowed funds: The fair value of the Corporation’s FHLB borrowings and junior subordinated debt is calculated based on the discounted value of contractual cash flows, using rates currently existing for borrowings with similar remaining maturities. The carrying amounts of federal funds purchased and securities sold under agreements to repurchase approximate their fair values.

Accrued Interest: The carrying amount of accrued interest receivable and payable approximates their fair values.

Off-Balance-Sheet Financial Instruments: In the normal course of business, the Corporation’s trust company subsidiary, First United Bank & Trust (the “Bank”), makes commitments to extend credit and issues standby letters of credit. The Bank expects most of these commitments to expire without being drawn upon; therefore, the commitment amounts do not necessarily represent future cash requirements. Due to the uncertainty of cash flows and difficulty in the predicting the timing of such cash flows, fair values were not estimated for these instruments.

The following table presents fair value information about financial instruments, whether or not recognized in the statement of financial condition, for which it is practicable to estimate that value. The actual carrying amounts and estimated fair values of the Corporation’s financial instruments that are included in the statement of financial condition are as follows (in thousands):

	March 31, 2010				December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	$	199,596	$	199,596	$	139,169	$	139,169
Interest bearing deposits in banks		49,278		49,278		50,502		50,502
Investment securities (AFS and trading)		275,940		275,940		273,784		273,784
Restricted Bank stock		13,861		13,861		13,861		13,861
Loans, net		1,078,685		1,060,487		1,101,794		1,093,241
Accrued interest receivable		6,251		6,251		6,103		6,103


Financial Liabilities:
Deposits		1,357,164		1,306,330		1,304,166		1,251,465
Borrowed funds		305,638		313,093		318,107		325,090
Accrued interest payable		2,493		2,493		2,861		2,861
Financial derivative		334		334		60		60
Off balance sheet financial instruments		-		-		-		-

Note G – Comprehensive Income/(Loss)

Unrealized gains and losses on investment securities available-for-sale and on pension obligations are included in accumulated other comprehensive loss. Other comprehensive income/(loss) (“OCI”) consists of the changes in unrealized gains (losses) on investment securities available-for-sale and pension obligations. Total comprehensive income/(loss), which consists of net income/(loss) plus the changes in other comprehensive income/(loss), was $0.4 million and ($4.5) million for the three months ended March 31, 2010 and 2009, respectively.

The following tables present the accumulated other comprehensive loss for the 12 months ended December 31, 2009 and the three months ended March 31, 2010 and the components included:

	Investment securities with OTTI			Investment securities – all other			Cash Flow Hedges			Pension Plan			SERP			Total

Accumulated OCI, net:
Balance – December 31, 2008	$	-		$	(33,190	)	$	-		$	(7,386	)	$	(407	)	$	(40,983	)

Net gain/(loss) during period		(9,364	)		21,786			(36	)		2,335			(397	)		14,324
Balance – December 31, 2009		(9,364	)		(11,404	)		(36	)		(5,051	)		(804	)		(26,659	)

Net gain/(loss) during period		(2,208	)		7,921			(163	)		-			-			5,550
Balance – March 31, 2010	$	(11,572	)	$	(3,483	)	$	(199	)	$	(5,051	)	$	(804	)	$	(21,109	)

Components of OCI
	Pre-Tax			Taxes			Net
Year ended December 31, 2009:
Available for sale (AFS) securities with OTTI:
Securities with OTTI charges during the period	$	(42,394	)	$	17,110		$	(25,284	)
Less: OTTI charges recognized in income		(26,693	)		10,773			(15,920	)
Net unrealized losses on investments with OTTI		(15,701	)		6,337			(9,364	)
Available for sale securities – all other:
Unrealized holding losses during the period		(5,733	)		2,313			(3,420	)
Less: reclassification adjustment for gains recognized in income		131			(53	)		78
Less: securities with OTTI charges during the period		(42,394	)		17,110			(25,284	)
Net unrealized gains on all other AFS securities		36,530			(14,744	)		21,786
Net unrealized gains on AFS investment securities		20,829			(8,407	)		12,422
Unrealized losses on cash flow hedges		(60	)		24			(36	)
Defined benefit plans liability adjustment		3,249			(1,311	)		1,938
	$	24,018		$	(9,694	)	$	14,324
Quarter ended March 31, 2010:
Available for sale (AFS) securities with OTTI:
Securities with OTTI charges during the period	$	(11,217	)	$	4,528		$	(6,689	)
Less: OTTI charges recognized in income		(7,514	)		3,033			(4,481	)
Net unrealized losses on investments with OTTI		(3,703	)		1,495			(2,208	)
Available for sale securities – all other:
Unrealized holding gains during the period		73			(29	)		44
Less: reclassification adjustment for losses recognized in income		(1,992	)		804			(1,188	)
Less: securities with OTTI charges during the period		(11,217	)		4,528			(6,689	)
Net unrealized gains on all other AFS securities		13,282			(5,361	)		7,921
Net unrealized gains on AFS investment securities		9,579			(3,866	)		5,713

Unrealized losses on cash flow hedges		(274	)		111			(163	)
Defined benefit plans liability adjustment		-			-			-
	$	9,305		$	(3,755	)	$	5,550

Note H – Junior Subordinated Debentures

In March 2004, First United Corporation’s two Connecticut statutory trusts, First United Statutory Trust I and First United Statutory Trust II, issued preferred securities with an aggregate liquidation amount of $30.9 million to third-party investors and issued common equity with an aggregate liquidation amount of $.9 million to First United Corporation. These trusts used the proceeds of these offerings to purchase an equal amount of junior subordinated debentures of First United Corporation, as follows:

$20.6 million—floating rate payable quarterly based on floating rate based on three-month LIBOR plus 275 basis points (3.00% at March 31, 2010), maturing in 2034, redeemable five years after issuance at First United Corporation’s option.

$10.3 million--floating rate payable quarterly based on three-month LIBOR plus 275 basis points (3.00% at March 31, 2010) maturing in 2034, redeemable five years after issuance at First United Corporation’s option.

In December 2004, First United Corporation issued $5.0 million of junior subordinated debentures. The debentures have a fixed rate of 5.88% for the first five years, payable quarterly, and convert to a floating rate in March 2010 based on the three month LIBOR plus 185 basis points. The debentures mature in 2014, but are redeemable five years after issuance at First United Corporation’s option.

In December 2009, First United Corporation’s Delaware statutory trust, First United Statutory Trust III (“Trust III”), issued 9.875% fixed-rate preferred securities with an aggregate liquidation amount of approximately $7.2 million to private investors and issued common securities to First United Corporation with an aggregate liquidation amount of approximately $.2 million. Trust III used the proceeds of the offering to purchase approximately $7.2 million of 9.875% fixed-rate junior subordinated debentures of First United Corporation. Interest on the debentures is payable quarterly, and the debentures mature in 2040 but are redeemable five years after issuance at First United Corporation’s option.

In January 2010, Trust III issued an additional $3.5 million of 9.875% fixed-rate preferred securities to private investors and issued common securities to First United Corporation with an aggregate liquidation amount of $.1 million. Trust III used the proceeds of the offering to purchase $3.6 million of 9.875% fixed-rate junior subordinated debentures of First United Corporation. Interest on the debentures is payable quarterly, and the debentures mature in 2040 but are redeemable five years after issuance at First United Corporation’s option.

The debentures issued to the foregoing trusts represent the sole assets of those trusts, and payments of the debentures by First United Corporation are the only sources of cash flow for the trusts. First United Corporation has the right to defer interest on all of the foregoing debentures for up to 20 quarterly periods, in which case distributions on the preferred securities will also be deferred. Should this occur, First United Corporation may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. As of March 31, 2010, First United Corporation has not deferred any payments.

Note I – Borrowed Funds

The following is a summary of short-term borrowings with original maturities of less than one year (dollars in thousands):

	March 31, 2010		December 31, 2009
Securities sold under agreements to repurchase, with weighted average interest rate at end of period of 0.66%.		41,748		47,563
	$	41,748	$	47,563

At March 31, 2010, the repurchase agreements were secured by $42.0 million in available for sale agency securities.

The following is a summary of long-term borrowings with original maturities exceeding one year (dollars in thousands):

FHLB advances, bearing interest at rates ranging from 2.46% to 4.98% at March 31, 2010	$	217,160	$	227,423
Junior subordinated debt, bearing interest at rates ranging from 2.11% to 9.88% at March 31, 2010		46,730		43,121
	$	263,890	$	270,544

At March 31, 2010, the long-term FHLB advances are secured by $138.8 million in loans, $46.0 million in cash, and $33.9 million in securities.

The contractual maturities of all long-term borrowings are as follows (in thousands):

	March 31 December 31
	2010		2009

Due in 2010	$	21,000	$	31,000
Due in 2011		51,000		51,000
Due in 2012		44,000		44,250
Due in 2013		-		-
Due in 2014		5,000		-
Thereafter		142,890		144,294
Total long-term debt	$	263,890	$