Table of Contents
th
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, 2025
◻ 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: 6,478,634 shares of common stock, par value $0.01 per share, as of April 30, 2025.
INDEX TO QUARTERLY REPORT
FIRST UNITED CORPORATION
Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Financial Statements (unaudited)
Consolidated Statements of Financial Condition – March 31, 2025 and December 31, 2024
Consolidated Statements of Operations – for the three months ended March 31, 2025 and 2024
4
Consolidated Statements of Comprehensive Income – for the three months ended March 31, 2025 and 2024
5
Consolidated Statements of Changes in Shareholders’ Equity – for the three months ended March 31, 2025 and 2024
6
Consolidated Statements of Cash Flows – for the three months ended March 31, 2025 and 2024
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
59
PART II. OTHER INFORMATION
60
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
61
SIGNATURES
62
2
Item 1. Financial Statements
First United Corporation and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except share data - Unaudited)
March 31,2025
December 31,2024
Assets
Cash and due from banks
$
82,813
77,020
Interest bearing deposits in banks
1,618
1,307
Cash and cash equivalents
84,431
78,327
Investment securities – available for sale (at fair value)
99,998
94,494
Investment securities – held to maturity, net of allowance for credit losses of $59 at March 31, 2025 and December 31, 2024 (fair value $146,771 at March 31, 2025 and $144,760 at December 31, 2024)
174,144
175,497
Equity investments not held for trading with readily determinable fair values
1,001
—
Restricted investment in bank stock, at cost
5,815
5,768
Loans held for sale
806
Loans
1,479,869
1,480,793
Unearned fees
(457)
(442)
Allowance for credit losses
(18,467)
(18,170)
Net loans
1,460,945
1,462,181
Premises and equipment, net
30,010
30,081
Goodwill and other intangibles
11,691
11,773
Bank owned life insurance
49,293
48,952
Deferred tax assets
10,021
9,989
Other real estate owned, net
3,062
Repossessed assets
2,802
Right of use assets
1,131
1,204
Pension asset
16,064
17,824
Accrued interest receivable
6,975
7,473
Other assets
22,370
22,789
Total Assets
1,979,753
1,973,022
Liabilities and Shareholders’ Equity
Liabilities:
Non-interest bearing deposits
422,415
426,737
Interest bearing deposits
1,201,159
1,148,092
Total deposits
1,623,574
1,574,829
Short-term borrowings
20,342
65,409
Long-term borrowings
120,929
Operating lease liability
1,308
1,384
SERP deferred compensation
8,400
8,335
Allowance for credit losses on off-balance sheet credit exposures
863
Accrued interest payable
693
489
Other liabilities
18,524
20,065
Dividends payable
1,426
1,424
Total Liabilities
1,796,059
1,793,727
Shareholders’ Equity:
Common Stock – par value $0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,478,634 shares at March 31, 2025 and 6,471,096 at December 31, 2024
65
Surplus
20,606
20,476
Retained earnings
193,382
189,002
Accumulated other comprehensive loss
(30,359)
(30,248)
Total Shareholders’ Equity
183,694
179,295
Total Liabilities and Shareholders’ Equity
See accompanying notes to the consolidated financial statements
Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended
March 31,
2025
2024
(Unaudited)
Interest income
Interest and fees on loans
21,755
19,218
Interest on investment securities
Taxable
1,763
1,744
Exempt from federal income tax
45
53
Total investment income
1,808
1,797
Other
499
883
Total interest income
24,062
21,898
Interest expense
Interest on deposits:
Savings
43
48
Interest-bearing transaction accounts
5,200
4,701
Time deposits
1,440
1,517
Total interest on deposits
6,683
6,266
Interest on short-term borrowings
20
461
Interest on long-term borrowings
1,343
1,359
Total Interest Expense
8,046
8,086
Net Interest income
16,016
13,812
Credit loss expense
Credit loss expense - loans
657
961
Credit loss credit - off-balance sheet credit exposures
(1)
(15)
Total credit loss expense
656
946
Net interest income after provision for credit losses
15,360
12,866
Other operating income
Net gains on sales of residential mortgage loans
92
82
Net gains
Other Income
Service charges on deposit accounts
547
556
Other service charges
206
215
Trust department
2,323
2,188
Debit card income
921
932
341
326
Brokerage commissions
421
495
63
81
Total other income
4,822
4,793
Total other operating income
4,914
4,875
Other operating expenses
Salaries and employee benefits
7,331
7,157
FDIC premiums
245
269
Equipment expense
578
923
Occupancy expense of premises
689
954
Data processing expense
1,503
1,318
Marketing expense
238
134
Professional services
476
486
Contract labor
163
183
Telephone
98
109
Other real estate owned expense, net
86
Investor relations
Contributions
56
50
1,045
1,159
Total other operating expenses
12,576
12,881
Income before income tax expense
7,698
4,860
Provision for income tax expense
1,892
1,162
Net Income
5,806
3,698
Basic net income per share
0.90
0.56
Diluted net income per share
0.89
Weighted average number of basic shares outstanding
6,474
6,642
Weighted average number of diluted shares outstanding
6,490
6,655
Dividends declared per common share
0.22
0.20
Consolidated Statements of Comprehensive Income
(In thousands)
Comprehensive Income
Other comprehensive (loss)/income, net of tax and reclassification adjustments:
Available for sale securities:
Unrealized holding gains on investments with credit related impairment
210
Reclassification adjustment for accretable yield realized in income
Other comprehensive (loss)/income on investments with credit related impairment
(42)
160
Unrealized holding gains/(losses) on all other AFS investments
1,849
(623)
Other comprehensive income/(loss) on all other AFS investments
Held to Maturity Securities
Unrealized holding gains on securities transferred to held to maturity
Reclassification adjustment for amortization realized in income
(154)
(160)
Other comprehensive income on HTM investments
154
Cash flow hedges:
Unrealized holding (losses)/gains on cash flow hedges
(108)
73
Other comprehensive (loss)/income on cash flow hedges
Pension plan assets:
Unrealized holding (losses)/gains on pension plan liability
(2,128)
1,489
Reclassification adjustment for amortization of unrecognized losses realized in income
(132)
(203)
Other comprehensive (loss)/income on pension plan liability
(1,996)
1,692
SERP liability:
Unrealized holding gains on SERP liability
Reclassification adjustment for amortization of unrealized losses realized in income
(39)
Other comprehensive income on SERP liability
39
Other comprehensive (loss)/income before income tax
(143)
1,501
Income tax effect related to other comprehensive (loss)/income
32
(396)
Other comprehensive (loss)/income, net of tax
(111)
1,105
Comprehensive income
5,695
4,803
Consolidated Statements of Changes in Shareholders’ Equity
CommonStock
RetainedEarnings
AccumulatedOtherComprehensiveLoss
TotalShareholders'Equity
Balance at January 1, 2025
Net income
Other comprehensive loss
Stock based compensation
55
Common stock issued - 7,538 shares
75
Common stock dividend declared - $0.22 per share
(1,426)
Balance at March 31, 2025
Balance at January 1, 2024
66
23,734
173,900
(35,827)
161,873
Other comprehensive income
57
Common stock issued - 8,757 shares
74
Common stock dividend declared - $0.20 per share
(1,326)
Balance at March 31, 2024
23,865
176,272
(34,722)
165,481
Consolidated Statements of Cash Flows
Operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation
1,256
Gains on sales of other real estate owned
(23)
Originations of loans held for sale
(153)
(1,707)
Proceeds from sales of loans held for sale
1,051
2,057
Gains from sales of loans held for sale
(92)
(82)
Net accretion of investment securities discounts and premiums- AFS
(48)
(22)
Net accretion of investment securities discounts and premiums- HTM
(134)
(178)
Amortization of intangible assets
Earnings on bank owned life insurance
(341)
(326)
Amortization of deferred loan fees, net
(27)
(44)
Amortization of operating lease right of use asset
68
Decrease in accrued interest receivable and other assets
868
387
Deferred tax (benefit)/expense
(32)
397
Amortization of operating lease liability
(76)
(72)
Decrease in accrued interest payable and other liabilities
(1,379)
(2,906)
Net cash provided by operating activities
6,965
3,588
Investing activities
Proceeds from maturities/calls of investment securities - AFS
1,219
1,145
Proceeds from maturities/calls of investment securities - HTM
1,487
31,339
Purchases of investment securities - AFS
(4,870)
Purchases of equity securities with readily determinable fair market values
(1,001)
Proceeds from sales of other real estate owned
114
Net (increase)/decrease in restricted stock
(47)
1,860
Net decrease/(increase) in loans
607
(6,101)
Purchases of premises and equipment
(585)
(65)
Net cash (used in)/provided by investing activities
(3,190)
28,292
Financing activities
Net increase in deposits
48,745
12,476
Issuance of common stock
Cash dividends paid on common stock
(1,424)
(1,327)
Net (decrease)/increase in short-term borrowings
(45,067)
34,076
Payments of long-term borrowings
(40,000)
Net cash provided by financing activities
2,329
5,299
Increase in cash and cash equivalents
6,104
37,179
Cash and cash equivalents at beginning of the year
49,753
Cash and cash equivalents at end of period
86,932
Supplemental information
Interest paid
7,842
7,779
Taxes paid
52
70
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”). First United Corporation has prepared these unaudited condensed consolidated financial statements in accordance with GAAP for interim financial information, rules of the Securities and Exchange Commission that permit reduced disclosure for interim periods, and Article 8 of Regulation S-X. Operating results for the three-month period ended March 31, 2025 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, 2024.
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, 2025 and through the date these consolidated financial statements were issued, for items of potential recognition or disclosure.
Note 2 – Accounting Statements Issued but Not Yet Adopted
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about Federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU No. 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by Federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU No. 2023-09 became effective for annual periods beginning after December 15, 2024 and early adoption is permitted. First United Corporation will adopt this ASU in its annual report for the period ending December 31, 2025 and does not believe that such adoption will have a significant impact on the Corporation’s financial statements.
In November 2024, FASB issued ASU No. 2024-03, “Income Statement- Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU No. 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU No. 2024-03 requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU No. 2024-03 is effective on a prospective basis for annual periods beginning
after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, though early adoption and retrospective application is permitted. ASU No. 2024-03 is not expected to have a significant impact on our financial statements.
Note 3 – 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, such as restricted stock units (“RSUs”). There were no anti-dilutive shares outstanding at March 31, 2025 or 2024.
The following table sets forth the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2025 and 2024:
Three months ended March 31,
Average
Per Share
(in thousands, except for per share amount)
Income
Shares
Amount
Basic Earnings Per Share:
Diluted Earnings Per Share:
Restricted stock units
16
13
9
Note 4 – Investments
The following tables show a comparison of amortized cost and fair values of investment securities at March 31, 2025 and December 31, 2024:
(in thousands)
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Allowance for Credit Losses
Estimated Fair Value
March 31, 2025
Available for Sale:
U.S. treasuries
3,862
151
4,013
U.S. government agencies
7,000
781
6,219
Residential mortgage-backed agencies
24,050
3,841
20,217
Commercial mortgage-backed agencies
36,943
8,018
28,925
Collateralized mortgage obligations
20,706
2,943
17,763
Obligations of states and political subdivisions
7,543
287
7,258
Corporate bonds
1,000
94
906
Collateralized debt obligations
18,707
4,010
14,697
Total available for sale
119,811
161
19,974
GrossUnrecognizedGains
GrossUnrecognizedLosses
Held to Maturity:
68,374
9,483
58,891
31,539
25
3,051
28,513
21,089
5,441
15,648
48,696
8,905
39,791
4,505
188
765
3,928
Total held to maturity
174,203
213
27,645
146,771
December 31, 2024
885
6,115
24,621
4,425
20,196
37,205
8,571
28,634
21,069
3,343
17,726
6,533
324
6,209
104
896
18,686
3,968
14,718
116,114
21,620
10
68,301
11,192
57,109
32,171
1
3,561
28,611
21,134
5,794
15,340
49,439
9,724
39,715
4,511
177
703
3,985
175,556
178
30,974
144,760
The Corporation utilizes FASB Accounting Standards Codification (“ASC”) Topic 326 to evaluate its available-for-sale (“AFS”) and held-to-maturity (“HTM”) debt security portfolio for expected credit losses.
For any AFS debt security in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery to its amortized cost basis. If either criterion regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the ACL is recognized in other comprehensive income (“OCI”).
The Corporation adopted ASC Topic 326 using the prospective transition approach for debt securities for which other than temporary impairment (“OTTI”) had been recognized prior to January 1, 2023, such as AFS collateralized debt obligations. As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC Topic 326. The effective interest rate on these debt securities was not changed. Amounts previously written off are recognized in OCI as of January 1, 2023 relating to improvements in cash flows expected to be collected are accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2023 are recorded in earnings when received.
The ACL on HTM securities is a contra-asset valuation account, calculated in accordance with ASC Topic 326. Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Management has elected not to measure an ACL for accrued interest on securities. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Management classifies the HTM portfolio into the following major security types: (i) securities issued or guaranteed by U.S. government agencies (including U.S. treasuries, agency bonds, and U.S. guaranteed residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized mortgage obligations); (ii) rated municipal securities, and (iii) unrated municipal securities. With regard to securities issued by U.S. government agencies and corporations, it is expected that the securities will not settle at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no ACL has been recorded on these securities. With regard to securities issued by states and political subdivisions, management considers (x) issuer bond ratings, (y) historical loss rates for given bond ratings, and (z) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Non-rated securities are evaluated internally based on financial performance and expected future cash flows.
11
As of both March 31, 2025 and December 31, 2024, the Corporation recorded ACL of approximately $59,000 related to one municipal bond in its HTM security portfolio.
The following tables show the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at March 31, 2025 and December 31, 2024, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:
Less than 12 months
12 months or more
FairValue
UnrealizedLosses
Number ofInvestments
18,298
27,233
7,955
2,905
14,858
2,935
1,946
44
4,050
243
6,543
115
86,261
19,859
36
UnrecognizedLosses
4,459
20,310
2,995
35
2,111
136,751
27,589
12
1,974
18
18,222
4,407
1,688
26,946
8,512
2,892
14,834
3,293
1,224
3,742
306
Corporate Bonds
7,778
145
85,473
21,475
8,291
132
20,243
3,429
2,179
134,586
30,842
The amortized cost and estimated fair value of securities by contractual maturities at March 31, 2025 are shown in the following table. Expected maturities for mortgage-backed securities and collateralized mortgage obligations will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Contractual Maturity
Due after one year through five years
5,250
5,101
Due after five years through ten years
5,400
5,180
Due after ten years
27,462
22,812
38,112
33,093
17,050
16,317
36,044
31,322
19,785
15,180
72,879
62,819
At March 31, 2025 and December 31, 2024, AFS investment securities with an aggregate fair value of $79.3 million and $71.6 million, respectively, and HTM investment securities with an aggregate book value of $167.4 million and $161.2 million, respectively, were pledged as permitted or required to secure public deposits, for securities sold under agreements to repurchase as required or permitted by law and as collateral for borrowing capacity.
Note 5 – Loans and Related Allowance for Credit Losses
The following table summarizes the primary segments of the loan portfolio at March 31, 2025 and December 31, 2024:
CommercialReal Estate
AcquisitionandDevelopment
CommercialandIndustrial
ResidentialMortgage
Consumer
Total
Individually evaluated for impairment
1,839
1,593
3,432
Collectively evaluated for impairment
532,764
94,063
280,531
518,479
50,600
1,476,437
Total loans
282,370
520,072
574
2,048
1,810
4,432
525,790
95,314
285,486
517,005
52,766
1,476,361
526,364
287,534
518,815
14
The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2025 and December 31, 2024:
Current
30-59 DaysPast Due
60-89 DaysPast Due
90 Days+Past Due
Total PastDue andAccruing
Non-Accrual
Total Loans
Commercial real estate:
Non-owner-occupied
304,568
All other CRE
224,979
721
2,417
3,138
79
228,196
Acquisition and development:
1-4 family residential construction
20,490
All other A&D
73,482
73,573
Commercial and industrial
280,461
Residential mortgage:
Residential mortgage - term
450,936
773
790
140
1,703
1,869
454,508
Residential mortgage - home equity
64,620
314
450
93
857
87
65,564
50,045
355
442
113
1,469,581
2,235
3,794
233
6,262
4,026
296,259
228,875
257
317
230,105
16,630
78,588
78,684
285,675
21
1,838
447,161
2,411
504
2,981
2,100
452,242
65,824
371
228
69
668
66,573
52,117
364
83
28
475
174
1,471,129
1,058
2,757
918
4,733
4,931
Non-accrual loans that have been subject to partial charge-offs totaled $0.7 million at March 31, 2025 and December 31, 2024. There were no loans secured by 1-4 family residential real estate properties in the process of foreclosure at March 31, 2025. Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $1.6 million at December 31, 2024. Accruing loans past due 30 days or more constituted 0.42% of the loan portfolio at March 31, 2025 compared to 0.32% at December 31, 2024.
A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $0.1 million or greater; otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 6, Fair Value of Financial Instruments.
The Corporation maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Corporation’s financial instruments over the life of those instruments as of the balance sheet date. The Corporation develops and documents a systematic ACL methodology based on the following portfolio segments: (i) commercial real estate; (ii) acquisition and development; (iii) commercial and industrial; (iv) residential mortgage; and (v) consumer. The Corporation’s loan portfolio is
15
segmented by homogeneous loan types that behave similarly to economic cycles. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.
Commercial Real Estate- loans are secured by commercial purpose real estate, including both owner-occupied properties and properties obtained for investment purposes, such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary source of repayment of these loans. The condition of the local economy is an important indicator of risk, but there are more specific risks depending on the collateral type as well as the business.
Acquisition and Development- loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for supply of the property being constructed.
Commercial and Industrial- loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. The primary repayment source for local municipalities includes the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset service requirements give this type of loan a very low risk profile in the continuum of the Corporation’s loan portfolio.
Residential Mortgage- loans are secured by first and second liens such as home equity lines of credit and 1-4 family residential mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy debt.
Consumer- loans are made to individuals and may be either secured by assets other than real estate or unsecured. This segment includes automobile loans and unsecured loans and lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.
The following table summarizes the primary segments of the ACL at March 31, 2025 and December 31, 2024, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:
Individually evaluatedfor impairment
Collectively evaluatedfor impairment
5,670
940
4,334
6,723
800
18,467
Total ACL
5,272
909
4,205
7,010
774
18,170
Changes in the fair value of the types of collateral for individually evaluated loans are reported as provision for credit loss in the period of change. The evaluation of the need and amount of a specific allocation of the ACL and whether a loan can be removed from impairment status is made on a quarterly basis.
The following tables present the amortized cost basis of collateral-dependent individually evaluated loans as of March 31, 2025 and December 31, 2024.
Real Estate
Other Collateral
Non-Accrual Loans with No Allowance
Residential mortgage
Commercial real estate
2,384
17
The following tables present the activity in the ACL for the three-month periods ended March 31, 2025 and 2024:
Nine months ended (in thousands)
Beginning balance at January 1, 2025
Loan charge-offs
(3)
(355)
(184)
(542)
Recoveries collected
64
100
182
Credit loss (credit)/expense
398
(30)
482
(303)
110
ACL balance at March 31, 2025
Beginning balance at January 1, 2024
5,120
3,717
6,774
929
17,480
(112)
(506)
(618)
37
31
159
(195)
71
366
225
494
ACL balance at March 31, 2024
4,962
1,014
4,002
7,017
987
17,982
The Corporation’s methodology for estimating the ACL includes:
Segmentation. The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles.
Specific Analysis. A specific reserve analysis is applied to certain individually evaluated loans. These loans are evaluated quarterly generally based on collateral value, observable market value or the present value of expected future cash flows. A specific reserve is established if the fair value is less than the loan balance. A charge-off is recognized when the loss is quantifiable. Individually evaluated loans not specifically analyzed reside in the Quantitative Analysis.
Quantitative Analysis. The Corporation elected to use discounted cash flows. Economic forecasts include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product. These forecasts are assumed to revert to the long-term average and are utilized in the model to estimate the probability of default and the loss given default is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumption related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values.
Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. Management reviews the peaks and troughs of the model’s calibrations, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary. This process challenges unexpected variability resulting from outputs beyond the model’s calibrations that appear to be unreasonable. Management also enhances the calculation through the use of Moody’s economic forecast data in its calculation. Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective.
The Corporation has elected to forecast the first four quarters of the credit loss estimate and revert on a straight-line basis. Based on the final values in the forecast and the uncertainty of a post-pandemic recovery, management has elected to revert over eight quarters. By reverting these modeling inputs to their historical mean and considering loan/borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the reversion period.
The ACL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date.
Credit Quality Indicators:
The Corporation’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to pass grade until a loan migrates to past due status.
The Corporation has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: (i) credit quality of the loan portfolio; (ii) compliance with loan policy; (iii) adequacy of documentation in credit files; and (iv) validity of risk ratings.
The Corporation’s internally assigned grades are as follows:
Pass- The Corporation uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality.
Special Mention- Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.
Substandard- Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful- Assets with all weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
Loss- Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.
19
The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments for the periods presented:
2023
2022
2021
2020 and Prior
Revolving
Total Portfolio Loans
Pass
22,723
36,103
73,044
28,629
138,309
2,334
301,213
Special Mention
Substandard
2,662
Total non-owner occupied
141,664
Current period gross charge-offs
2,976
43,041
32,269
28,660
23,655
86,188
4,531
221,320
913
992
1,737
2,848
386
5,963
Total all other CRE
44,033
25,392
89,949
4,917
14,560
2,400
3,035
Total acquisition and development
1,018
24,961
12,270
11,039
1,854
10,294
12,046
91
Total all other A&D
10,385
Commercial and industrial:
3,782
35,325
28,084
62,622
15,291
18,512
76,160
239,776
4,251
13,000
3,500
49
1,773
9,325
31,898
117
1,192
669
6,713
1,980
10,696
Total commercial and industrial
3,807
39,693
41,084
67,314
16,009
26,998
87,465
6,745
33,565
69,683
90,865
77,551
166,715
1,147
446,271
678
830
503
2,011
211
1,339
4,652
24
6,226
Total residential mortgage - term
91,754
79,720
171,870
1,171
755
3,679
679
58,591
64,773
748
791
Total residential mortgage - home equity
989
59,339
Consumer:
2,681
9,960
9,588
5,405
2,934
16,958
2,727
50,253
54
202
22
347
Total consumer
10,014
9,790
5,450
2,952
16,980
2,733
38
184
17,812
184,214
191,152
275,314
150,593
437,922
160,571
1,417,578
4,178
879
3,882
35,515
1,163
1,448
3,763
17,031
3,144
26,776
17,837
189,628
204,354
280,940
155,235
458,835
173,040
Current YTD Period:
412
542
2020
2019 and Prior
22,807
23,454
73,649
28,941
52,080
89,977
1,960
292,868
706
2,685
52,786
92,662
42,855
32,599
29,951
24,073
16,842
72,630
4,535
223,485
199
994
3,453
230
6,421
43,849
25,817
17,041
76,083
4,765
11,686
3,317
1,627
23,304
24,114
10,672
1,848
9,230
7,661
78,602
9,312
35,898
29,786
65,663
17,558
6,777
13,758
75,440
244,880
4,250
1,842
9,084
31,676
122
1,209
680
6,562
692
1,713
10,978
40,270
42,786
70,372
18,238
15,181
14,450
86,237
465
125
892
1,610
32,582
70,643
91,775
78,892
35,790
133,725
1,235
444,642
684
840
1,524
1,054
4,923
6,076
92,519
80,786
138,648
1,274
30
171
803
3,948
696
361
622
59,307
65,908
33
620
665
394
634
59,927
11,132
10,945
6,312
3,525
1,091
16,593
2,833
52,431
335
11,135
11,122
6,412
3,549
1,116
16,597
2,835
204
23
655
1,369
180,435
195,661
281,970
155,533
114,714
336,535
154,598
1,419,446
4,184
2,747
34,105
1,119
3,502
6,620
11,851
2,604
27,242
185,804
208,838
287,523
159,875
124,081
348,386
166,286
249
956
772
3,024
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past.
The following tables present loan balances by year of origination segregated by performing and non-performing loans for the periods presented:
Performing
Nonperforming
89,870
228,117
10,346
73,534
66,122
15,362
647
79,596
169,985
452,499
124
1,885
2,009
958
59,190
65,384
149
180
9,677
50,487
204,241
279,748
154,464
456,801
172,891
1,475,610
771
2,034
4,259
25,500
75,427
229,132
973
69,180
17,592
285,696
646
80,661
136,184
1,259
449,638
2,464
59,810
66,423
150
11,008
6,378
16,543
52,564
34
208,724
286,297
158,787
124,048
345,130
166,154
1,474,944
1,226
1,088
3,256
5,849
Loan Modifications for Borrowers Experiencing Financial Difficulty
The Corporation evaluates all loan modifications according to the accounting guidance in ASU No. 2022-02 to determine if the modification results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or combinations of the listed
modifications. Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows.
The Corporation may offer various types of modifications when restructuring a loan. Commercial and industrial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested.
Commercial mortgage and construction loans modified in a loan restructuring often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a loan restructuring may also involve extending the interest-only payment period.
Loans modified in a loan restructuring for the Corporation may have the financial effect of increasing the specific allowance associated with the loan. An allowance for loans that have been modified in a loan restructuring is measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.
Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Corporation evaluates the loan for possible further loss. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
The following table present the amortized cost basis as of March 31, 2025 and the financial effect of loans modified to borrowers experiencing financial difficulty during the three-month period ended March 31, 2025:
Term Extension
Percentage of Total Loan Type
Weighted Average Term and Principal Payment Extension
Three months ended March 31, 2025
0.01%
60 months
There were no loan modifications made to borrowers experiencing financial difficulty during the three-month period ended March 31, 2024.
The Corporation monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default. The borrowers for whom loan modifications were made in the three-month period ended March 31, 2025 have made all contractual payments.
If a modified loan with an outstanding balance of $0.1 million or greater subsequently defaults and goes on non-accrual status, then the Corporation individually evaluates the loan when performing its CECL estimate to calculate the ACL. Upon determination that a modified loan (or a portion of a modified loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.
Note 6 – 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.
The fair value of an asset or liability is the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. In estimating fair value, the Corporation utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASU Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is 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. Transfers in and out of Level 1, 2 or 3 are recorded at fair value at the beginning of the reporting period.
Investments – The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.
The fair value of investments available-for-sale is determined using a market approach. At March 31, 2025 and December 31, 2024, the U.S. Government agencies and treasuries, residential and commercial mortgage-backed securities, and municipal bonds segments were 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 we have historically transacted both purchases and sales of investment securities.
Equity investments not held for trading with readily determinable fair values consisted of money market mutual funds as of March 31, 2025 and are classified as Level 1 within the valuation hierarchy. Their fair values were determined based upon daily published net asset values with which investors can freely redeem from the fund.
Derivative financial instruments (cash flow hedge) – The Corporation’s open derivative positions are interest rate swap agreements. Those classified as Level 2 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.
Individually evaluated loans – Loans included in the table below are those that are considered individually evaluated with a specific allocation or with partial charge-offs, based upon 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.
Equity investments- Equity investments included in the table below are considered are recorded with a write-down to fair value recorded in other operating expenses. Fair value of the equity investment was based on an independent third-party valuation
report where the value was determined based on the revenue multiples of like kind information technology businesses. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
Other real estate owned – OREO included in the table below are recorded with specific write-downs. Fair value of other real estate owned 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, 2025 and December 31, 2024 were as follows:
Fair Value Measurementsat March 31, 2025 Using
Quoted
Prices in
Significant
Active Markets
Measured at
for Identical
Observable
Unobservable
Fair Value
Inputs
03/31/25
(Level 1)
(Level 2)
(Level 3)
Recurring:
Investment securities available-for-sale:
Financial derivatives
Non-recurring:
Equity investment
4,034
26
Fair Value Measurementsat December 31, 2024 Using
Assets/(liabilities)
12/31/24
455
Individually evaluated loans, net
Other real estate owned
2,698
Individually evaluated loans, with no valuation allowance, had a net carrying amount of $3.4 million and $4.4 million at March 31, 2025 and December 31, 2024, respectively. Individually evaluated loans recorded at fair value at both March 31, 2025 and December 31, 2024 totaled $0.6 million, which was inclusive of $0.2 million in partial charge-offs.
There were no transfers of assets between any of the fair value hierarchy for the three-month periods ended March 31, 2025 or 2024.
27
For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
Fair Value atMarch 31,2025
ValuationTechnique
SignificantUnobservableInputs
SignificantUnobservableInput Value
Investment securities – available for sale -CDO
Discounted Cash Flow
Discount Margin
Range of low 300 to high 400
Market Method
Revenue Multiples
2.8x
Fair Value atDecember 31,2024
Range of low to mid 300 and low 500
Individually Evaluated Loans
Market Comparable Properties
Marketability Discount
N/A
Other real estate owned (1)
5.0% to 15.0%(weighted avg 5.9%)
The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the three-month periods ended March 31, 2025 and 2024:
Fair Value Measurements
Using Significant Unobservable Inputs
Investment Securities
Available for Sale
Beginning balance January 1, 2025
Total losses realized/unrealized:
Included in other comprehensive income
(21)
Ending balance March 31, 2025
Beginning balance January 1, 2024
14,709
Total gains realized/unrealized:
Included in other comprehensive loss
Ending balance March 31, 2024
14,886
There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the three-month periods ended March 31, 2025 or 2024.
The disclosed fair values 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.
29
The following tables present fair value information about financial instruments, whether or not recognized in the Consolidated 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 Consolidated Statement of Financial Condition are as follows:
Carrying
Fair
Value
Financial Assets:
Investment securities - AFS
85,301
Investment securities - HTM
144,924
1,847
Equity securities not held for trading with readily determinable fair values
Restricted bank stock
Loans, net
1,408,335
796
6,179
Financial Liabilities:
Deposits - non-maturity
1,428,220
Deposits - time deposits
195,354
193,981
Short-term borrowed funds
Long-term borrowed funds
119,442
79,776
142,954
1,806
1,421,600
Financial derivative
827
6,646
1,431,662
143,167
141,698
119,586
Note 7 – Accumulated Other Comprehensive Loss
The following table presents the changes in each component of accumulated other comprehensive loss for the three-month periods ended March 31, 2025 and 2024:
Investment
securities-
with credit
related
impairment
all other
Cash Flow
Pension
AFS
HTM
Hedge
Plan
SERP
Accumulated OCL, net:
Balance - January 1, 2025
(2,592)
(13,792)
(4,696)
372
(9,723)
Other comprehensive income/(loss) before reclassifications
1,357
(85)
(1,562)
(284)
Amounts reclassified from accumulated other comprehensive income
(37)
97
173
Balance - March 31, 2025
(2,623)
(12,435)
(4,583)
(11,188)
Balance - January 1, 2024
(2,482)
(13,217)
(5,201)
569
(14,263)
(1,233)
155
(459)
1,096
846
118
259
Balance - March 31, 2024
(2,364)
(13,676)
(5,083)
623
(13,018)
(1,204)
The following tables present the components of other comprehensive (loss)/income for the three-month periods ended March 31, 2025 and 2024:
Before
Tax
Components of Other Comprehensive Loss
(Expense)
Benefit
Net
For the three months ended March 31, 2025
Available for sale (AFS) securities with credit related impairment:
Unrealized holding gains
(2)
Less: accretable yield recognized in income
(13)
Net unrealized loss on investments with credit related impairment
(31)
Available for sale securities – all other:
(492)
Held to maturity securities:
Less: amortization recognized in income
(113)
Net unrealized gains on HTM securities
(41)
Unrealized holding losses
Pension Plan:
Unrealized net actuarial losses
566
Less: amortization of unrecognized gains
(97)
Net pension plan asset adjustment
531
(1,465)
Components of Other Comprehensive Income
For the three months ended March 31, 2024
(55)
Net unrealized gains on investments with credit related impairment
164
42
(118)
(19)
Unrealized net actuarial gains
(393)
Less: amortization of unrecognized losses
(149)
(447)
1,245
SERP:
(29)
Net SERP liability adjustment
(10)
The following table presents the details of amounts reclassified from accumulated other comprehensive (loss)/income for the three-month periods ended March 31, 2025 and 2024:
Amounts Reclassified from
Accumulated Other
Details of Accumulated Other Comprehensive Loss
Comprehensive Loss
Components
Affected Line Item in the Statement
Where Net Income is Presented
Net unrealized gains on available for sale investment securities with credit related impairment:
Accretable yield
Interest income on taxable investment securities
Taxes
Credit for income tax expense
Net of tax
Net unrealized losses on held to maturity securities:
Amortization
Net pension plan asset adjustment:
Amortization of unrecognized losses
Other Expense
Total reclassifications for the period
(173)
Details of Accumulated Other Comprehensive Income
Three Months Ended March 31,
March 31, 2024
Net SERP liability adjustment:
Amortization of unrecognized gains
Provision/(credit) for income tax expense
(259)
Note 8 - Equity Compensation Plan Information
At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation Plan (the “Equity 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 complies with the provisions of ASC Topic 718, Compensation-Stock Compensation, in measuring and disclosing stock compensation cost. The measurement objective in ASC Paragraph 718-10-30-6 requires public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost is recognized in expense over the period in which an employee is required to provide service in exchange for the award (the vesting period).
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 $15,000 to be paid, at the director’s election, in cash or additional shares of common stock. In May 2024, a total of 14,325 fully vested shares of common stock were issued to directors, which had a grant date fair value of $21.94 per share. Director stock compensation expense was $78,573 and $61,937 for the three-month periods ended March 31, 2025 and 2024, respectively.
Employee stock compensation expense was $15,567 and $5,058 for the three-month periods ended March 31, 2025 and 2024, respectively.
Restricted Stock Units
On March 26, 2020, pursuant to the Corporation’s Long Term Incentive Plan (the "LTIP"), which is a sub-plan of the Equity Plan, the Compensation Committee of First United Corporation’s Board of Directors (the "Compensation Committee") granted RSUs to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers. An RSU contemplates the issuance of shares of common stock of First United Corporation if and when the RSU vests.
The RSUs granted to each of the foregoing officers consist of (i) a performance-vesting award for a three-year performance period and (ii) a time-vesting award that will vest ratably over a three-year period. Target performance levels were set based on the annual budget which supports the Corporation’s long-term objective of achieving high performance as compared to peers. Threshold performance is the minimum level of acceptable performance as defined by the Compensation Committee and maximum performance represented a level potentially achievable under ideal circumstances. Achievement of all threshold performance levels would result in each executive participant earning a payout at 50% of his or her respective target award opportunity. Achievement of all target performance levels would result in the executive participant earning the target award. Achievement at or above all maximum performance levels would result in the executive participant earning 150% of the target opportunity. Actual results for any goal that falls between performance levels would be interpolated to calculate a proportionate award.
To receive any shares under an RSU, a grantee must be employed by the Corporation or one of its subsidiaries on the applicable vesting date, except that a grantee whose employment terminates prior to such vesting date due to death, disability or retirement will be entitled to a pro-rated portion of the shares subject to the RSUs, assuming that, in the case of performance-vesting RSUs, the performance goals had been met at their "target" levels.
In May 2021, the Corporation granted performance-vesting RSUs relating to 7,389 shares (target) and time-vesting RSUs relating to 3,693 shares, which had a grant date fair market value of $17.93 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs was the three-year period ended December 31, 2023. On March 9, 2024, it was determined that 7,389 performance-vesting RSUs failed to vest. The time-vesting RSUs vested ratably over a three-year period that began on May 5, 2021. On May 5, 2022, 1,230 shares underlying the time-vesting RSUs were issued to participants. On May 5, 2023, 1,230 additional shares underlying the time-vesting RSUs were issued to participants. On May 5, 2024, the remaining 1,233 shares underlying the time-vesting RSUs were issued to participants. Stock compensation expense was $16,571 for the three-month period ended March 31, 2024. All compensation expense related to these RSUs was recognized as of June 30, 2024.
In March 2022, the Corporation granted performance-vesting RSUs relating to 8,096 shares (target) and time-vesting RSUs relating to 6,238 shares, which had a grant date fair market value of $21.88 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2024. The time-vesting RSUs will vest ratably over a three-year period that began on March 9, 2022. On March 9, 2023, 2,079 shares underlying the time-vesting RSUs were issued to participants. On March 9, 2024, 2,079 additional shares underlying the time-vesting RSUs were issued to participants. On March 9, 2025, the remaining 2,080 shares underlying the RSUs were issued to participants. In the third quarter of 2024, it was projected that the performance-vesting RSUs would not be satisfied, and the stock compensation expense was adjusted accordingly. Stock compensation expense was $11,379 and $26,145 for each of the three-month periods ended March 31, 2025 and 2024, respectively. All compensation expense related to these RSUs were recognized as of March 31, 2025.
In March 2023, the Corporation granted performance-vesting RSUs relating to 10,214 shares (target) and time-vesting RSUs relating to 7,920 shares, which had a grant date fair market value of $18.25 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2025. The time-vesting RSUs will vest ratably over a three-year period that began on March 15, 2023. On March 15, 2024, 2,639 shares underlying the time-vesting RSUs were issued to participants. On March 15, 2025, 2,639 shares underlying the time-vesting RSUs were issued to participants. Stock compensation expense was $27,585 for both of the three-month periods ended March 31, 2025 and 2024. Unrecognized compensation expense related to these RSUs that have not vested was $110,340 as of March 31, 2025.
In May 2024, the Corporation granted performance-vesting RSUs relating to 8,593 shares (target) and time-vesting RSUs relating to 6,662 shares, which had a grant date fair market value of $22.26 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2026. The time-vesting RSUs will vest ratably over a three-year period that began on May 20, 2024. Stock compensation expense was $28,314 for the three-month
period ended March 31, 2025. Unrecognized compensation expense related to these RSUs that have not vested was $245,388 as of March 31, 2025.
In February 2025, the Corporation granted performance-vesting RSUs relating to 6,006 shares (target) and time-vesting RSUs relating to 4,797 shares, which had a grant date fair market value of $37.59 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2027. The time-vesting RSUs will vest ratably over a three-year period beginning on February 25, 2025. Stock compensation expense was $11,287 for the three-month period ended March 31, 2025. Unrecognized compensation expense related to these RSUs that have not vested was $395,036 as of March 31, 2025.
Note 9– Derivative Financial Instruments
As a part of managing interest rate risk, the Corporation entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated its interest rate swap agreements as cash flow hedges under the guidance of ASC Subtopic 815-30, Derivatives and Hedging – Cash Flow Hedges. Cash flow hedges have the effective portion of changes in the fair value of the derivative, net of taxes, recorded in net accumulated other comprehensive income.
In March 2016, the Corporation entered into four interest rate swap contracts totaling $30.0 million notional amount, hedging future cash flows associated with floating rate trust preferred debt. As of March 31, 2025, $15.0 million notional amount remains. The interest rate swap creates an effective fixed interest rate of 4.6550% on the $15.0 million notional amount of the Corporation’s junior subordination debt until the interest rate swap’s maturity in March 2026. The fair value of the interest rate swap contracts was $0.4 million and $0.5 million at March 31, 2025 and December 31, 2024, respectively.
For the three-month period ended March 31, 2025, a $108,000 decrease in the aggregate value of the derivatives and $23,000 in related deferred tax benefits was recorded in net accumulated other comprehensive income to reflect the effective portion of cash flow hedges. This compares to a $73,000 increase in value and related deferred taxes of $19,000 for the three-months ended March 31, 2024. ASC Subtopic 815-30 requires the net accumulated other comprehensive (loss)/income to be reclassified to earnings if the hedge becomes ineffective or is terminated. There was no hedge ineffectiveness recorded for any of the three-month periods ended March 31, 2025 or 2024. The Corporation does not expect any material losses relating to these hedges to be reclassified into earnings within the next 12 months.
Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of March 31, 2025.
The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three-month periods ended March 31, 2025 and 2024.
Derivative in Cash Flow Hedging Relationships
Amount of gain or
(loss) recognized in
Amount of (loss) or
income or derivative
gain recognized in
(loss) reclassified from
(ineffective portion
OCI on derivative
accumulated OCI into
and amount excluded
(effective portion),
income (effective
from effectiveness
net of tax
portion) (a)
testing) (b)
Interest rate contracts:
Three months ended:
Notes:
Note 10 – Regulatory Capital Requirements
The following table presents the Bank’s capital ratios as of March 31, 2025 and December 31, 2024.
Required forCapitalAdequacyPurposes
Requiredto be WellCapitalized
Total Capital (to risk-weighted assets)
14.83
%
14.59
8.00
10.00
Tier 1 Capital (to risk-weighted assets)
13.58
13.35
6.00
Common Equity Tier 1 Capital (to risk-weighted assets)
4.50
6.50
Tier 1 Capital (to average assets)
10.76
10.70
4.00
5.00
As of March 31, 2025 and December 31, 2024, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.
Note 11 – Deposits
The following table summarizes deposits at March 31, 2025 and December 31, 2024.
Balance
Percent
Non-Interest-bearing deposits:
26%
27%
Interest-bearing deposits:
Demand
368,945
23%
386,803
25%
Money market-retail
465,504
29%
447,149
28%
Money market- brokered
0%
Savings deposits
171,354
10%
170,972
11%
Time deposits- retail
145,354
9%
Time deposits- brokered
50,000
3%
Total Deposits
100%
Note 12 – Borrowed Funds
The following is a summary of borrowings at March 31, 2025 and December 31, 2024:
Short-term borrowings:
Securities sold under agreements to repurchase:
Outstanding at end of period
15,409
Weighted average interest rate at end of period
0.23%
0.24%
Maximum amount outstanding as of any month end
44,415
Average amount outstanding
18,274
29,805
Approximate weighted average rate during the period
0.22%
0.26%
Overnight borrowings, weighted average interest rate of 4.50% at December 31, 2024
Long-term borrowings:
FHLB advances, bearing fixed interest rate ranging from 3.84% to 4.04% at March 31, 2025 and December 31, 2024.
90,000
Junior subordinated debt, bearing variable interest rate of 7.31% at March 31, 2025 and 7.36% at December 31, 2024
30,929
Total borrowings outstanding
141,271
186,338
Short-term borrowings decreased by $45.1 million as a result of the purchase of $50.0 million in brokered CDs to fully repay the $50.0 million in overnight borrowings outstanding at December 31, 2024. This decrease was partially offset by increases in balances of the overnight investment sweep product.
At March 31, 2025, the repurchase agreements were secured by $28.0 million in investment securities issued by government related agencies. A minimum of 102% of fair value is pledged against account balances.
The following table presents contractual maturities of long-term borrowings outstanding at March 31, 2025 and December 31 2024:
Fixed Rate
Floating Rate
Due in 2025
25,000
Due in 2026
65,000
Thereafter
Total long-term debt
Note 13 – Segment Reporting
The Corporation is managed under an organizational structure that conducts business in two primary operating segments; (i) Community Banking and (ii) Wealth Management. The Corporation is primarily managed based on the line of business structure. In that regard, the Corporation provides the same lines of business, which have the same product and service offerings, have similar types and classes of customers and utilize similar service delivery methods across our entire geographic footprint. Pricing guidelines for products and services are across all regions. Community Banking and Trust and Investment Services are delineated by the products and services that each segment offers.
Business activity for the operating segments are as follows:
Community Banking: The Community Banking segment is conducted through the Bank and involves delivering a broad range of financial products and services, including various loan and deposit products, to consumer, business, and not-for-profit customers. Parent company income and assets are included in the Community Banking segment, as the majority of parent company functions are related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, and service charges on deposit accounts. Expenses include salaries and employee benefits, occupancy, data processing, FDIC premiums, marketing, equipment, and other expenses.
Wealth Management: The Wealth Management segment is conducted through the Bank and offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenues for this segment is generated from administration, service and custody fees, brokerage commissions, and management fees that are derived from Assets Under Management. Expenses include personnel, occupancy, data processing, marketing, equipment, and other expenses.
The accounting policies of each reportable segment are the same as those of our consolidated entity except that expenses for consolidated back-office operations and general overhead-type expenses such as executive administration, accounting, information technology and human resources are recorded in the Community Banking segment and reimbursed by the Wealth Management segment through a monthly management fee based on estimated uses of those services.
An internal team of the Corporation’s executive directors including the Chief Executive Officer, Chief Financial Officer, and Chief Wealth Officer serve as the Corporation’s Chief Operating Decision Maker (“CODM”). The CODM reviews actual net income verses budgeted net income to assess segment performance on a monthly basis and to make decisions about allocating capital and personnel to the segments.
Financial results by operating segment, including significant expense categories provided to the CODM are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation. The Trust and Investment Services segment excludes off-balance-sheet assets under management with a total fair value of $1.7 billion at both March 31, 2025 and December 31 2024.
Total assets of each operating segment at March 31, 2025 and December 31, 2024 were as follows:
Community
Wealth
Banking
Management
Total assets as of March 31, 2025
1,979,296
457
Total assets as of December 31, 2024
1,972,513
509
Information for the operating segments for the three-month periods ended March 31, 2025 and 2024 are presented in the following tables:
Net interest income
Net interest income after credit loss expense
Other operating income:
Net gains on sales of residential mortgages
Trust department income
Other segment income (1)
404
2,170
2,744
Other operating expenses:
6,247
1,084
Equipment and occupancy
1,242
1,267
Data processing
1,408
95
Other segment expenses (2)
2,103
127
2,230
Total operating expenses
11,245
1,331
Income before income taxes and intercompany fees
6,285
1,413
Intercompany management fee income (expense)
Income before income taxes
6,288
1,410
Income tax expense
1,595
297
4,693
1,113
Significant noncash items
652
(1) Other segment income includes net gains/(losses) on disposals of fixed assets, bank owned life insurance income, and miscellaneous income.
(2) Other segment expenses include professional services, contract labor, line rentals, investor relations, contributions, net OREO expense/(income), and miscellaneous expenses.
40
407
2,192
2,683
6,114
1,043
1,845
1,877
1,220
2,147
2,260
11,595
1,286
3,463
1,397
3,466
1,394
869
293
2,597
1,101
1,246
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
INTRODUCTION
The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of First United Corporation and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, as well as the audited consolidated financial statements and related notes included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024.
Unless the context clearly suggests otherwise, references in this report to “us”, “we”, “our”, and “the Corporation” are to First United Corporation and its consolidated subsidiaries.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but are statements about management’s beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objectives. These statements are evidenced by terms such as "anticipate," "estimate," "should," “will”, "expect," "believe," "intend," and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. The beliefs, plans and objectives on which forward-looking statements are based involve risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports that First United Corporation files with the Securities and Exchange Commission entitled "Risk Factors".
First United Corporation is a Maryland corporation chartered in 1985 and a financial holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended, that elected financial holding company status in 2021. 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” and together with Trust I, “the Trusts”), both Connecticut statutory business 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. In addition, the Bank 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, and a 99.9% non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland.
At March 31, 2025, the Corporation’s total assets were $2.0 billion, net loans were $1.5 billion, and deposits were $1.6 billion. Shareholders’ equity at March 31, 2025 was $183.7 million.
We maintain an Internet site at www.mybank.com on which we make available, free of charge, First United Corporation’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.
RESULTS OF OPERATIONS
Overview
Consolidated net income was $5.8 million for the first quarter of 2025. This compares to $3.7 million for the first quarter of 2024. Basic net income was $0.90 per share and diluted net income was $0.89 per share for the first quarter of 2025, compared to basic and diluted net income of $0.56 per share for the first quarter of 2024.
The $2.1 million increase in quarterly net income when compared to the first quarter of 2024 was primarily driven by a $2.2 million increase in net interest income, a $0.3 million decrease in provision for credit loss, stable non-interest income, and a decrease in non-interest expense of $0.3 million, partially offset by an increase in income tax expense of $0.7 million. Comparing the first quarter of 2025 to the same period of 2024, interest and fees on loans increased by $2.5 million resulting from new loans booked at higher rates, the repricing of adjustable-rate loans, and growth in our loan portfolio. Interest expense remained stable when comparing year-over-year quarterly expense as reductions in the rate environment offset the increased funding.
Other operating income, including net gains, for the first quarter of 2025 was stable when compared to the same period of 2024. Wealth management income increased by $0.1 million due to increased market values and growth in new and existing customer relationships. This was offset by a decrease in brokerage commissions due to slower annuity sales comparing these quarters.
Operating expenses decreased by $0.3 million in the first quarter of 2025 when compared to the first quarter of 2024. The decrease was largely driven by a $0.6 million decrease in equipment and occupancy expense due to the accelerated depreciation expenses recognized in the first quarter of 2024 in conjunction with the branch closures in February 2024. This decrease was partially offset by a $0.2 million increase in salaries and benefits primarily driven by increases in incentive pay and life and health insurance expenses due to increased claims. Additionally, data processing expenses increased by $0.2 million in the first quarter of 2025 when compared to the first quarter of 2024, partially offset by a decrease in other miscellaneous expenses of $0.1 million due primarily to reduced net periodic pension costs and check fraud related costs.
Net Interest Income
Net interest income is our largest source of operating revenue. Net interest income is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to a fully taxable equivalent (“FTE”) basis to facilitate performance comparisons between taxable and tax-exempt assets by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate. This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure.
The tables below summarize net interest income for the three-month periods ended March 31, 2025 and 2024.
Non-GAAP
GAAP
24,111
21,955
16,065
13,869
Net interest margin %
3.56
3.12
3.55
3.10
The following tables set forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the three-month periods ended March 31, 2025 and 2024:
Interest
Yield/Rate
1,483,151
21,768
5.95
1,407,886
19,234
5.49
Investment Securities:
284,303
2.51
294,526
2.38
Non taxable
6,524
5.04
7,806
4.84
290,827
1,844
2.57
302,332
2.45
Federal funds sold
41,750
384
3.73
63,843
758
4.78
Interest-bearing deposits with other banks
8,488
0.72
8,787
1.42
Other interest earning assets
5,774
7.02
5,107
7.40
Total earning assets
1,829,990
5.34
1,787,955
4.94
Allowance for loan losses
(18,413)
(17,696)
Non-earning assets
165,125
188,425
1,976,702
1,958,684
Deposits
Interest-bearing demand deposits
373,903
1,652
1.79
348,998
1,441
1.66
Interest-bearing money markets - retail
464,151
3,547
322,965
3,260
4.06
Interest-bearing money markets - brokered
3.03
171,517
0.10
189,572
Time deposits - retail
144,519
1,055
2.96
157,678
1,118
2.85
Time deposits - brokered
36,041
385
4.33
30,000
399
5.35
1,190,265
2.28
1,049,213
2.42
23,053
0.35
73,351
2.53
103,017
5.31
Total interest-bearing liabilities
1,334,247
1,225,581
2.65
Non-interest-bearing deposits
427,518
534,412
31,474
34,747
Shareholders’ Equity
183,463
163,944
Net interest income and spread
2.89
2.29
Net interest margin
Net interest income, on a non-GAAP, FTE basis, increased by $2.2 million for the first quarter of 2025 when compared to the first quarter of 2024. This increase was driven by an increase of $2.2 million in interest income. Interest income on loans increased by $2.5 million due to the increase of 46 basis points in overall yield on the loan portfolio as new loans were booked at higher rates during 2024, upward repricing of adjustable-rate loans, and an increase in average balances of $75.3 million. Interest income on Federal funds sold decreased by $0.4 million due to a decrease of 105 basis points in average rates and a decrease of $22.1 million in average balances. Interest expense in the first quarter of 2025 was stable when compared to the first quarter of 2024. Interest expense paid on deposits increased by $0.4 million due to a $141.1 million increase in average balances, partially offset by a decrease of 12 basis points on the rate paid. Interest paid on short-term borrowings decreased by $0.4 million for the first
quarter of 2025 when compared to the same period of 2024 due to the repayment of the $40.0 million from the Bank Term Funding Program late in the third quarter of 2024.
The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the three-month periods ended March 31, 2025 and 2024:
compared to the three months ended March 31, 2024
(in thousands and tax equivalent basis)
Volume
Rate
Interest Income:
4,132
(1,598)
2,534
Taxable Investments
(243)
262
Non-taxable Investments
(62)
(1,056)
682
(374)
Interest-bearing deposits
(4)
(12)
(16)
(43)
2,816
(660)
2,156
Interest Expense:
413
(202)
Interest-bearing money markets- retail
5,732
(5,445)
Interest-bearing money markets- brokered
(133)
(18)
(5)
(375)
312
(63)
323
(337)
(14)
(1,273)
832
(441)
951
(967)
Total interest expense
5,887
(5,927)
(40)
(3,071)
5,267
2,196
Provision for Credit Losses
Specific allocations have been made for loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the estimated allowance for credit losses (“ACL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio. For the first three months of 2025 and 2024, net provision expense was $0.7 million and $0.9 million, respectively. The decreased provision expense recorded in the first quarter of 2025 when compared to the same period in 2024 was primarily related to the $12.1 million in commercial loan balances moved to non-accrual in the first quarter of 2024.
The composition of other operating income for the three-month periods ended March 31, 2025 and 2024 is illustrated in the following table:
Income as % of
Total Other Income
12%
4%
48%
46%
19%
7%
Other income
1%
2%
Other Operating Expenses
The composition of other operating expenses for the three-month periods ended March 31, 2025 and 2024 is illustrated in the following table:
Expense as % of
Total Other Operating Expenses
58%
56%
Equipment
5%
8%
Provision for Income Taxes
In reporting interim financial information, income tax provisions should be determined under the procedures set forth in Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (Section 740-270-30). This guidance provides that at the end of each interim period, an entity should make its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined should be used in providing for income taxes on a current year-to-date basis. The effective tax rate should reflect anticipated investment tax credits, capital gains rates, and other available tax planning alternatives. In arriving at this effective tax rate, however, no effect should be included for the tax related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect in reports for the interim period or for the fiscal year.
46
The effective income tax rates as a percentage of income for the three-month periods ended March 31, 2025 and March 31, 2024 were 24.6% and 23.9%, respectively.
GAAP and Non-GAAP Financial Measures
The following tables sets forth certain selected financial data for the periods ended March 31, 2025 and 2024 under GAAP (as reported) and non-GAAP. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP in the United States. The Corporation’s management believes that the presentation of non-GAAP financial measures provides investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP. While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.
The following table presents a reconciliation of net income and diluted earnings per share (as reported) to adjusted net income and adjusted diluted earnings per share:
Per Share Data
Basic net income per common share
Basic net income per common share - non-GAAP
0.62
Diluted net income per common share
Diluted net income per common share - non-GAAP
Basic book value per common share
28.40
24.89
Diluted book value per common share
28.42
24.86
Net income - as reported
Adjustments:
Accelerated depreciation expenses
562
Income tax effect of adjustments
(137)
Adjusted net income (non-GAAP)
4,123
Diluted earnings per share - as reported
0.08
(0.02)
Adjusted diluted earnings per share (non-GAAP)
Significant Ratios:
Return on Average Assets - as reported
1.19%
0.76%
-
0.03%
(0.01%)
Adjusted Return on Average Assets (non-GAAP)
0.78%
Return on Average Equity - as reported
12.83%
9.07%
0.34%
(0.08%)
Adjusted Return on Average Equity (non-GAAP)
9.33%
47
FINANCIAL CONDITION
Balance Sheet Overview
Total assets at March 31, 2025 were $2.0 billion, representing a $6.7 million increase since December 31, 2024. During the first quarter of 2025, cash and interest-bearing deposits in other banks increased by $6.1 million. The investment portfolio increased by $5.2 million as bonds were purchased to gain yield before long-term rates decline. Gross loans decreased slightly by $0.9 million. While loan production was modest during the quarter, amortization and payoffs exceeded growth levels. Pension assets decreased by $1.8 million due to decreased market values.
Total liabilities at March 31, 2025 were $1.8 billion, representing a $2.3 million increase since December 31, 2024. Total deposits increased by $48.7 million when compared to December 31, 2024 related primarily to the $50.0 million in new brokered deposits that were obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024. Savings and money market accounts increased by $18.7 million and retail time deposits increased by $2.2 million. Interest-bearing demand deposits, primarily our ICS product, decreased by $17.9 million and non-interest-bearing deposits decreased by $4.3 million due primarily to seasonal fluctuations in municipal deposit accounts and increased spending by businesses and consumers related to inflation, respectively. Short-term borrowings decreased by $45.1 million primarily due to the repayment of $50.0 million in overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product.
Loan Portfolio
The following table presents the composition of our loan portfolio at the dates indicated:
36%
Acquisition and development
6%
35%
Outstanding loans of $1.5 billion at March 31, 2025 reflected a $0.9 million decrease since December 31, 2024. Since December 31, 2024, commercial real estate loans increased by $6.4 million, acquisition and development loans decreased by $1.2 million, commercial and industrial loans decreased by $5.2 million, residential mortgage loans increased by $1.3 million, and consumer loans decreased by $2.2 million.
New commercial loan production for the three months ended March 31, 2025 was approximately $36.1 million. The pipeline of commercial loans as of March 31, 2025 was $56.0 million. Commercial amortization and payoffs were approximately $35.0 million through March 31, 2025, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.
New consumer mortgage loan production for the first quarter of 2025 was approximately $11.4 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of March 31, 2025 was $10.9 million.
Non-accrual loans totaled $4.0 million at March 31, 2025 compared to $4.9 million at December 31, 2024. The decrease in non-accrual balances at March 31, 2025 was related to principal reductions.
The following table presents loans in our commercial real estate portfolio by industry type at March 31, 2025.
Owner-occupied
Multi-family
Accommodations and food services
70,613
5,437
76,050
Administration and support, waste management, and remediation services
Agriculture, forestry, fishing and hunting
1,360
Arts, entertainment and recreation
4,364
Construction
2,019
5,641
7,662
Educational services
851
Finance and insurance
106
Health care and social assistance
6,407
14,119
20,526
Manufacturing
12,996
Other services (except public services)
19,722
305
20,027
Professional, scientific and technical services
1,884
Public administration
1,415
927
2,342
Commercial rental properties
3,761
3,520
339
7,620
Residential rental properties
177,742
84,970
262,712
Student rental properties
1,940
528
17,490
19,958
Mixed use rental properties
120
25,371
25,679
Storage units
40,406
Real estate rental and leasing- other
2,659
Retail trade
77
3,090
3,167
Transportation and warehousing
452
Wholesale trade
20,546
182,030
46,166
Our loan portfolio does not consist of any loans secured by office buildings located in major metropolitan areas or that are over four stories or any retail properties rented to major big box retail tenants. There have been no significant changes in our commercial real estate concentrations since December 31, 2024.
Risk Elements of Loan Portfolio
The following table presents the risk elements of our loan portfolio at the dates indicated. Management is not aware of any potential problem loans other than those listed in this table or discussed below.
% ofApplicablePortfolio
Non-accrual loans:
0.12%
0.04%
0.09%
0.65%
0.00%
1,956
0.38%
2,181
0.42%
0.33%
Total non-accrual loans
0.27%
Accruing Loans Past Due 90 days or more:
573
Total loans past due 90 days or more
Total non-accrual and accruing loans past due 90 days or more
Total Non-performing assets
10,123
11,713
Individually evaluated loans without a valuation allowance
Total individually evaluated loans
Non-accrual loans to total loans (as %)
Non-performing loans to total loans (as %)
0.29%
0.39%
Non-performing assets to total assets (as %)
0.51%
0.59%
Allowance for credit losses to non-accrual loans (as %)
458.69%
368.49%
Allowance for credit losses to non-performing assets (as %)
182.43%
155.13%
The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.
Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.
Management believes that it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial conditions of borrowers.
The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes. Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. For the period ended March 31, 2025 the range of outcomes would produce a 16% reduction or a 63% increase in reserves based on the best-case and worst-case scenarios, respectively.
The following table presents a summary of the activity in the ACL for the three-month periods ended March 31, 2025 and 2024:
Balance, January 1
Charge-offs:
Total charge-offs
Recoveries:
Total recoveries
Net losses
(360)
Balance at end of period
Allowance for credit losses to gross loans outstanding (as %)
1.25
1.27
51
Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio
(0.50)%
(0.12)%
(0.65)%
(2.89)%
(0.10)%
(0.13)%
At March 31, 2025, the total amortized cost basis of the available-for-sale investment portfolio was $119.8 million compared to a fair value of $100.0 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $174.2 million compared to a fair value of $146.8 million.
The following table presents the composition of our securities portfolio at amortized cost and fair values at the dates indicated:
Amortized
FV as %
Cost
(FV)
of Total
Available for Sale Securities:
20%
21%
30%
18%
Obligations of state and political subdivisions
15%
16%
Held to Maturity Securities:
40%
39%
Total fair value of investment securities available for sale increased by $5.5 million since December 31, 2024 as cash flow from the portfolio was reinvested into securities at higher yields and to maintain balances for liquidity. At March 31, 2025, the securities classified as available-for-sale included a net unrealized loss of $19.8 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
Total amortized cost of securities held to maturity decreased by $1.4 million since December 31, 2024 due primarily to principal paydowns of the portfolio.
As discussed in Note 6 to the consolidated financial statements presented elsewhere in this report, the Corporation measures fair market values based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures. 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). Level 3 prices or valuation techniques require inputs that are both significant to the valuation assumptions and are not readily observable in the market (i.e., supported with little
or no market activity). These Level 3 instruments are valued based on both observable and unobservable inputs derived from the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
Approximately $85.3 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $15.8 million at March 31, 2025. The remaining $14.7 million of the available-for-sale securities represents the entire collateralized debt obligation portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $4.0 million in net unrealized losses associated with this portfolio relates to nine pooled trust preferred securities that comprise the collateralized debt obligation portfolio.
The following table presents the composition of our deposits at the dates indicated:
Non-interest-bearing demand deposits
Money market- retail
Total deposits at March 31, 2025 increased by $48.7 million when compared to December 31, 2024 driven by the purchase of $50.0 million in brokered certificates of deposit with an average interest rate of 4.24% to fully repay the $50.0 million in overnight borrowings that were outstanding at December 31, 2024. Savings and money market accounts increased by $18.7 million due primarily to the expansion of current and new relationships throughout the first three months of 2025. Non-interest-bearing checking deposits decreased by $4.3 million and interest-bearing checking deposits decreased by $17.9 million due to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers related to inflation. Retail time deposits increased by $2.2 million since December 31, 2024.
The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of March 31, 2025 and December 31, 2024.
Insured deposits
1,230,373
76%
1,192,182
Uninsured and fully collateralized deposits
83,365
77,369
Uninsured and uncollateralized deposits
309,836
305,278
The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of March 31, 2025 and December 31, 2024.
Retail deposits
795,181
49%
798,664
51%
Business deposits
828,393
776,165
Borrowed Funds
The following table presents the composition of our borrowings at the dates indicated:
Overnight borrowings from Federal Reserve Discount Window
Securities sold under agreements to repurchase
Total short-term borrowings
FHLB advances
Junior subordinated debt
Total long-term borrowings
Short-term borrowings decreased by $45.1 million as a result of the purchase of a $50.0 million brokered CD to fully repay the overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product. There were no changes in long-term borrowings when comparing March 31, 2025 to December 31, 2024.
Liquidity Management
Liquidity is a financial institution’s capability to meet customer demands for deposit withdrawals while funding all credit-worthy loans. The factors that determine the institution’s liquidity are:
We actively manage our liquidity position through meetings of a sub-committee of executive management, which looks forward 12 months at 30-day intervals. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. Monthly reviews by management and quarterly reviews by the Asset and Liability Committee under prescribed policies and procedures are designed to ensure that we will maintain adequate levels of available funds.
It is our policy to manage our affairs so that liquidity needs are fully satisfied through normal Bank operations. That is, the Bank will manage its liquidity to minimize the need to make unplanned sales of assets or to borrow funds under emergency conditions. The Bank will use funding sources where the interest cost is relatively insensitive to market changes in the short run (periods of one year or less) to satisfy operating cash needs. The remaining normal funding will come from interest-sensitive liabilities, either deposits or borrowed funds. When the marginal cost of needed wholesale funding is lower than the cost of raising this funding in the retail markets, the Corporation may supplement retail funding with external funding sources such as:
The following table presents sources of liquidity available to the Corporation as of March 31, 2025.
Total Availability
Amount Used
Net Availability
Internal Sources
Excess cash
62,422
Unpledged securities
31,036
External Sources
Federal Reserve (discount window)
87,275
Correspondent unsecured lines of credit
140,000
FHLB
334,100
96,214
237,886
654,833
558,619
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.
Market Risk and Interest Sensitivity
Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities that we engage in, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on our liabilities. Interest rate sensitivity refers to the degree that earnings will be impacted by changes in the prevailing level of interest rates. Interest rate risk arises from mismatches in the repricing or maturity characteristics between interest-bearing assets and liabilities. Management seeks to minimize fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates. Management uses interest sensitivity gap analysis and simulation models to measure and manage these risks. The interest rate sensitivity gap analysis assigns each interest-earning asset and interest-bearing liability to a time frame reflecting its next repricing or maturity date. The differences between total interest-sensitive assets and liabilities at each time interval represent the interest sensitivity gap for that interval. A positive gap generally indicates that rising interest rates during a given interval will increase net interest income, as more assets than liabilities will reprice. A negative gap position would benefit us during a period of declining interest rates.
At March 31, 2025, we were asset sensitive.
Our interest rate risk management goals are:
To manage interest sensitivity risk, management formulates guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These guidelines are based on management’s outlook regarding future
interest rate movements, the state of the regional and national economy, and other financial and business risk factors. Management uses computer simulations to measure the effect on net interest income of various interest rate scenarios. Key assumptions used in the computer simulations include cash flows and maturities of interest rate sensitive assets and liabilities, changes in asset volumes and pricing, and management’s capital plans. This modeling reflects interest rate changes and the related impact on net interest income over specified periods.
We evaluate the effect of a change in interest rates of +/-100 basis points to +/-400 basis points on both NII and Net Portfolio Value (“NPV”) / Economic Value of Equity (“EVE”). We concentrate on NII rather than net income as long as NII remains the significant contributor to net income.
NII modeling allows management to view how changes in interest rates will affect the spread between the yield paid on assets and the cost of deposits and borrowed funds. Unlike traditional Gap modeling, NII modeling takes into account the different degree to which installments in the same repricing period will adjust to a change in interest rates. It also allows the use of different assumptions in a falling versus a rising rate environment. The period considered by the NII modeling is the next eight quarters.
NPV / EVE modeling focuses on the change in the market value of equity. NPV / EVE is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, NPV / EVE modeling takes a longer-term view of interest rate risk. This complements the shorter-term view of the NII modeling.
Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.
Based on the simulation analysis performed at March 31, 2025 and December 31, 2024, management estimated the following changes in net interest income, assuming the indicated rate changes:
+400 basis points
10,677
5,722
+300 basis points
8,785
5,300
+200 basis points
6,402
4,253
+100 basis points
3,462
2,391
-100 basis points
(3,764)
(2,851)
-200 basis points
(7,194)
(5,424)
-300 basis points
(10,809)
(8,080)
-400 basis points
(14,968)
(11,151)
Due to the current rate environment and changes to prepayment speeds, the Corporation became slightly more asset sensitive as compared to December 31, 2024. All changes in net interest income from our simulation analysis remains within our policy limits.
This estimate is based on assumptions that may be affected by unforeseeable changes in the general interest rate environment and any number of unforeseeable factors. Rates on different assets and liabilities within a single maturity category adjust to changes in interest rates to varying degrees and over varying periods of time. The relationships between lending rates and rates paid on purchased funds are not constant over time. Management can respond to current or anticipated market conditions by lengthening or shortening the Bank’s sensitivity through loan repricings or changing its funding mix. The rate of growth in interest-free sources of funds will influence the level of interest-sensitive funding sources. In addition, the absolute level of interest rates will affect the volume of earning assets and funding sources. As a result of these limitations, the interest-sensitive gap is only one factor to be considered in estimating the net interest margin.
Management believes that no material changes in our market risks, our procedures used to evaluate and mitigate those risks, or our actual or simulated sensitivity positions have occurred since December 31, 2024. Our NII simulation analysis as of December 31, 2024 is included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Market Risk and Interest Sensitivity.
Impact of Inflation – Our assets and liabilities are primarily monetary in nature, and as such, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During inflationary periods, monetary assets lose value in terms of purchasing power and monetary liabilities have corresponding purchasing power gains. The concept of purchasing power is not an adequate indicator of the impact of inflation on financial institutions because it does not incorporate changes in our earnings.
Capital Resources
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 the funding sources identified above under the heading “Liquidity Management”.
In addition to operational requirements, the Bank is subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit.
The following table presents the Bank’s capital ratios as of the dates indicated:
As of both March 31, 2025 and December 31, 2024, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Contractual Obligations
The Corporation enters into contractual obligations in the normal course of business. Among these obligations are Federal Home Loan Bank advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing March 31, 2025 to December 31, 2024, short-term borrowings decreased by $45.1 million primarily due to the repayment of $50.0 million in overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product.
Commitments
Loan commitments are made to accommodate the financial needs of our customers. Letters of credit commit us to make payments on behalf of customers when certain specified future events occur. The credit risks inherent in loan commitments and letters of credit are essentially the same as those involved in extending loans to customers, and these arrangements are subject to our normal credit policies. We are not a party to any other off-balance sheet arrangements.
Commitments to extend credit in the form of consumer, commercial and business at the dates indicated were as follows:
70,386
70,894
Residential mortgage - construction
10,996
13,138
Commercial
162,727
163,079
Consumer - personal credit lines
4,307
4,224
Standby letters of credit
16,363
16,522
264,779
267,857
The decrease of $3.1 million in commitments at March 31, 2025 when compared to December 31, 2024 was due to businesses and consumers utilizing construction funding. These balances shifted to loans outstanding.
For the three-month periods ended March 31, 2025 and 2024, net credit loss expense for off-balance sheet exposures was a credit of approximately $1,000 and a credit of approximately $15,000, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
First United Corporation is a “smaller reporting company” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, and, accordingly, is not required to include the information required by this item.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act with the Securities and Exchange Commission (the “SEC”), such as this Quarterly Report, is recorded, processed, summarized and reported within the periods specified in those rules and forms, and that such information is accumulated and communicated to our management, including First United Corporation’s principal executive officer (“PEO”) and its principal financial officer (“PFO”), as appropriate, to allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
An evaluation of the effectiveness of these disclosure controls as of March 31, 2025 was carried out under the supervision and with the participation of management, including the PEO and the PFO. Based on that evaluation, management, including the PEO and the PFO, has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.
During the three months ended March 31, 2025, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
The risks and uncertainties to which our financial condition and operations are subject are discussed in detail in Item 1A of Part I of First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024. Management does not believe that any material changes in our risk factors have occurred since they were last disclosed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
During the quarter ended March 31, 2025, Julie Peterson, an officer of the Company, terminated a “non-Rule 10b5-1 trading arrangement” (as defined in Item 408(c) of the SEC’s Regulation S-K). The arrangement was adopted on February 2, 2024 and contemplated the monthly purchase on the open market of a specified dollar amount of shares of the Corporation’s common stock on the 15th business day of each month, beginning on February 15, 2024.
During the three months ended March 31, 2025, based on information provided to the Corporation, no other director or officer of the Corporation adopted or terminated (i) any contract, instruction or written plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) promulgated under the Exchange Act or (ii) any “non-Rule 10b51 trading arrangement” (as defined in Item 408(c) of the SEC’s Registration S-K).
Item 6. Exhibits
The exhibits filed or furnished with this quarterly report are listed in the following Exhibit Index.
Exhibit
Description
10.1
Revised Appendix A to the First United Corporation Short-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed on March 3, 2025)*
10.2
Form of First Amendment to the Participation Agreement under the First United Bank & Trust Defined Benefit Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed on March 28, 2025
31.1
Certifications of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
31.2
Certifications of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith)
101.INS
Inline XBRL Instance Document (filed herewith)
101.SCH
Inline XBRL Taxonomy Extension Schema (filed herewith)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
The cover page of First United Corporation’s Quarterly Report on Form 10Q for the quarter ended March 31, 2025 formatted in Inline XBRL, included within the Exhibit 101 attachments (filed herewith).
*Portions of Exhibit 10.1, identified in brackets, are excluded because they are both not material and would likely cause competitive harm to the Corporation if publicly disclosed. Such information will be disclosed as, if and when required pursuant to Item 402 of Regulation S-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 7, 2025
/s/ Carissa L. Rodeheaver
Carissa L. Rodeheaver, CPA
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Tonya K. Sturm
Tonya K. Sturm, Senior Vice President,
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)