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community banks, First United derives most
of its income from this margin. In fact, the net interest
margin provides approximately 73% of gross income. With
the frequent and precipitous drop in rates by the Federal
Reserve last year, the Company was challenged to respond
to these changes quickly, while remaining competitive in
the marketplace. While the Company was successful in maintaining
(and actually increasing) the margin, growth in deposits
was slower throughout the year. While core customer deposits
grew slightly, this growth was overshadowed by a decision
to payoff $20 million in brokered deposits and by transferring
the Trust Department's money market fund, totalling $30
million, to an outside vendor. These decisions were also
motivated by decreased loan demand in areas other than commercial
lending.
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Mortgage
Area Faces Challenges |
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Our
mortgage area was challenged in 2001 as rates lowered and
the demand for long-term fixed mortgages increased. Since
money provided for these mortgages comes from deposits with
shorter maturities, care must be exercised to limit the number
of these types of mortgages in the Bank's portfolio. Vendors
of secondary market mortgages can transfer this risk to investors.
This was a primary reason why we were not successful in meeting
our goals in the mortgage area. For 2002, we have redoubled
our efforts to penetrate the market, serve our customers,
and meet our new goals. |
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Another
challenge faced by
your Company was in
the area of our automobile
franchise line. Over
the last few years,
First United has continued
to tighten the credit
quality standards
of our paper. While
this is prudent, and
has enhanced the asset
quality of our loans,
it has resulted in
our booking far fewer
loans. Manufacturers
underwrite more deals
at lower rates, and
some of our competitors
accept loans of lesser
quality. While we
are satisfied with
the position we have
taken, this has resulted
in a decrease in balances
in this portfolio. |
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