First United Corp. has a market cap of $22.4 million; its shares were traded at around $3.65 with and P/S ratio of 0.3. The dividend yield of First United Corp. stocks is 1%.
Highlight of Business Operations:Collateralized Debt Obligations - The $27.1 million in unrealized losses greater than 12 months at June 30, 2010 relates to 18 pooled trust preferred securities that comprise the CDO portfolio. See Note G 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 was one security that had additional credit-related OTTI charges during the second quarter of 2010 and 12 securities with previously recorded OTTI charges that had no further impairment. As a result of this assessment, the Corporation recorded $8.1 million in credit-related OTTI losses on these securities for the six months ended June 30, 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 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 June 30, 2010, the Corporation owned 18 pooled trust preferred securities with an amortized cost of $36.4 million and a fair value of $9.3 million. The market for these securities at June 30, 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 (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at June 30, 2010, (b) an income valuation approach technique (i.e. present value) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than a market approach, and (c) 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.
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