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 June 30, 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: 6,494,611 shares of common stock, par value $0.01 per share, as of July 31, 2025.
INDEX TO QUARTERLY REPORT
FIRST UNITED CORPORATION
Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Financial Statements (unaudited)
Consolidated Statements of Financial Condition – June 30, 2025 and December 31, 2024
Consolidated Statements of Operations – for the six and three months ended June 30, 2025 and 2024
4
Consolidated Statements of Comprehensive Income – for the six and three months ended June 30, 2025 and 2024
6
Consolidated Statements of Changes in Shareholders’ Equity – for the six and three months ended June 30, 2025 and 2024
8
Consolidated Statements of Cash Flows – for the six months ended June 30, 2025 and 2024
9
Notes to Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
65
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
66
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
67
SIGNATURES
68
2
Item 1. Financial Statements
First United Corporation and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except share data - Unaudited)
June 30,2025
December 31,2024
Assets
Cash and due from banks
$
77,313
77,020
Interest bearing deposits in banks
1,800
1,307
Cash and cash equivalents
79,113
78,327
Investment securities – available for sale (at fair value)
103,582
94,494
Investment securities – held to maturity, net of allowance for credit losses of $59 at June 30, 2025 and December 31, 2024 (fair value $148,496 at June 30, 2025 and $144,760 at December 31, 2024)
174,951
175,497
Equity investments not held for trading with readily determinable fair values
1,008
—
Restricted investment in bank stock, at cost
5,815
5,768
Loans held for sale
110
806
Loans
1,502,481
1,480,793
Unearned fees
(533)
(442)
Allowance for credit losses
(19,044)
(18,170)
Net loans
1,482,904
1,462,181
Premises and equipment, net
29,644
30,081
Goodwill and other intangibles
11,609
11,773
Bank owned life insurance
49,642
48,952
Deferred tax assets
9,151
9,989
Other real estate owned, net
3,035
3,062
Repossessed assets
2,802
Right of use assets
1,058
1,204
Pension asset
18,537
17,824
Accrued interest receivable
7,160
7,473
Other assets
27,350
22,789
Total Assets
2,007,471
1,973,022
Liabilities and Shareholders’ Equity
Liabilities:
Non-interest bearing deposits
425,784
426,737
Interest bearing deposits
1,188,423
1,148,092
Total deposits
1,614,207
1,574,829
Short-term borrowings
50,954
65,409
Long-term borrowings
120,929
Operating lease liability
1,231
1,384
SERP deferred compensation
8,465
8,335
Allowance for credit losses on off-balance sheet credit exposures
995
863
Accrued interest payable
935
489
Other liabilities
17,179
20,065
Dividends payable
1,429
1,424
Total Liabilities
1,816,324
1,793,727
Shareholders’ Equity:
Common Stock – par value $0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,494,611 shares at June 30, 2025 and 6,471,096 at December 31, 2024
Surplus
21,121
20,476
Retained earnings
197,938
189,002
Accumulated other comprehensive loss
(27,977)
(30,248)
Total Shareholders’ Equity
191,147
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)
Six Months Ended
June 30,
2025
2024
(Unaudited)
Interest income
Interest and fees on loans
44,049
39,439
Interest on investment securities
Taxable
3,539
3,441
Exempt from federal income tax
102
106
Total investment income
3,641
3,547
Other
1,243
2,025
Total interest income
48,933
45,011
Interest expense
Interest on deposits:
Savings
88
94
Interest-bearing transaction accounts
10,304
9,712
Time deposits
3,079
2,858
Total interest on deposits
13,471
12,664
Interest on short-term borrowings
41
970
Interest on long-term borrowings
2,698
2,327
Total Interest Expense
16,210
15,961
Net Interest income
32,723
29,050
Credit loss expense
Credit loss expense - loans
1,385
2,212
Credit loss expense/(credit) - off-balance sheet credit exposures
131
(72)
Total credit loss expense
1,516
2,140
Net interest income after provision for credit losses
31,207
26,910
Other operating income
Net gains on sales of residential mortgage loans
238
141
Net gains
Other Income
Service charges on deposit accounts
1,124
1,112
Other service charges
420
440
Trust department
4,709
4,443
Debit card income
1,904
1,931
690
660
Brokerage commissions
791
857
124
132
Total other income
9,762
9,575
Total other operating income
10,000
9,716
Other operating expenses
Salaries and employee benefits
14,650
14,413
FDIC premiums
512
554
Equipment expense
1,143
1,558
Occupancy expense of premises
1,364
1,606
Data processing expense
3,103
2,740
Marketing expense
434
318
Professional services
1,065
Contract labor
329
267
Telephone
194
212
Other real estate owned expense, net
300
100
Investor relations
144
Contributions
134
116
2,128
2,282
Total other operating expenses
25,550
25,245
Income before income tax expense
15,657
11,381
Provision for income tax expense
3,867
2,769
Net Income
11,790
8,612
Basic net income per share
1.82
1.31
Diluted net income per share
1.81
Weighted average number of basic shares outstanding
6,482
6,585
Weighted average number of diluted shares outstanding
6,498
6,596
Dividends declared per share
0.44
0.40
Three Months Ended
22,294
20,221
1,776
1,697
57
53
1,833
1,750
744
1,142
24,871
23,113
45
5,104
5,011
1,639
1,341
6,788
6,398
21
509
1,355
968
8,164
7,875
16,707
15,238
728
1,251
(57)
860
1,194
15,847
14,044
146
59
577
556
214
225
2,386
2,255
983
999
349
334
370
362
61
51
4,940
4,782
5,086
4,841
7,319
7,256
285
565
635
675
652
1,600
1,422
196
184
589
449
166
84
96
103
208
14
91
78
1,083
1,123
12,974
12,364
7,959
6,521
1,975
1,607
5,984
4,914
0.92
0.75
6,489
6,527
6,506
6,537
0.22
0.20
5
Consolidated Statements of Comprehensive Income
(In thousands)
Comprehensive Income
Other comprehensive income/(loss), net of tax and reclassification adjustments:
Available for sale securities:
Unrealized holding gain/(loss) on investments with credit related impairment
506
(633)
Reclassification adjustment for accretable yield realized in income
101
Other comprehensive income/(loss) on investments with credit related impairment
405
(734)
Unrealized holding gains/(losses) on all other AFS investments
2,334
(1,341)
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
(317)
(320)
Other comprehensive income on HTM investments
317
320
Cash flow hedges:
Unrealized holding (losses)/gains on cash flow hedges
(189)
Other comprehensive (loss)/income on cash flow hedges
Pension plan liability:
Unrealized holding (losses)/gains on pension plan liability
(23)
951
Reclassification adjustment for amortization of unrecognized losses realized in income
(265)
(406)
Other comprehensive income on pension plan liability
242
1,357
SERP liability:
Unrealized holding gains on SERP liability
Reclassification adjustment for amortization of unrealized losses realized in income
(78)
Other comprehensive income on SERP liability
Other comprehensive income/(loss) before income tax
3,109
(316)
Income tax effect related to other comprehensive income/(loss)
(838)
83
Other comprehensive income/(loss), net of tax
2,271
(233)
Comprehensive income
14,061
8,379
Unrealized holding gains/(losses) on investments with credit related impairment
498
(843)
447
(894)
485
(717)
Unrealized holding losses on securities transferred to held to maturity
Unrealized holding gains on HTM investments
(163)
(160)
163
160
Unrealized holding losses on cash flow hedges
(81)
(69)
Other comprehensive loss on cash flow hedges
Unrealized holding gains/(losses) on pension plan liability
2,105
(538)
(133)
(203)
Other comprehensive income/(loss) on pension plan liability
2,238
(335)
(39)
39
3,252
(1,816)
(870)
478
2,382
(1,338)
8,366
3,576
7
Consolidated Statements of Changes in Shareholders’ Equity
CommonStock
RetainedEarnings
AccumulatedOtherComprehensiveLoss
TotalShareholders'Equity
Balance at January 1, 2025
Net income
5,806
Other comprehensive loss
(111)
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
20,606
193,382
(30,359)
183,694
Other comprehensive income
Common stock issued - 15,977 shares
(1,428)
Balance at June 30, 2025
Balance at January 1, 2024
23,734
173,900
(35,827)
161,873
3,698
1,105
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
376
Common stock issued - 18,756 shares
70
Common stock repurchase- 201,800 shares
(1)
(4,031)
(4,032)
(1,294)
Balance at June 30, 2024
20,280
179,892
(36,060)
164,177
Consolidated Statements of Cash Flows
Operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation
1,311
1,952
495
433
Gains on sales of other real estate owned
(126)
Write-downs of other real estate owned, net
27
Originations of loans held for sale
(3,172)
(4,100)
Proceeds from sales of loans held for sale
4,106
4,237
Gains from sales of loans held for sale
(238)
(141)
Net accretion of investment securities discounts and premiums- AFS
(94)
(48)
Net accretion of investment securities discounts and premiums- HTM
(271)
Amortization of intangible assets
164
165
Earnings on bank owned life insurance
(690)
(660)
Amortization of deferred loan fees, net
(86)
Amortization of operating lease right of use asset
137
(Increase)/decrease in accrued interest receivable and other assets
(4,370)
1,326
Deferred tax benefit
(32)
Amortization of operating lease liability
(153)
(144)
Decrease in accrued interest payable and other liabilities
(2,497)
(2,548)
Net cash provided by operating activities
7,960
10,751
Investing activities
Proceeds from maturities/calls of investment securities - AFS
2,576
2,186
Proceeds from maturities/calls of investment securities - HTM
3,169
40,417
Purchases of investment securities - AFS
(8,832)
Purchases of investment securities - HTM
(2,352)
Purchases of equity securities with readily determinable fair market values
(1,008)
Proceeds from sales of other real estate owned
1,710
Net (increase)/decrease in restricted stock
(47)
1,855
Net increase in loans
(22,030)
(18,094)
Purchases of premises and equipment
(874)
(181)
Net cash (used in)/provided by investing activities
(29,398)
27,893
Financing activities
Net increase/(decrease) in deposits
39,378
(13,906)
Issuance of common stock
150
Cash dividends paid on common stock
(2,849)
(2,657)
Net (decrease)/increase in short-term borrowings
(14,455)
17,146
Stock repurchase
Payments of long-term borrowings
(40,000)
Net cash provided by/(used in) financing activities
22,224
(43,305)
Increase/(decrease) in cash and cash equivalents
786
(4,661)
Cash and cash equivalents at beginning of the year
49,753
Cash and cash equivalents at end of period
45,092
Supplemental information
Interest paid
15,761
15,221
Taxes paid
3,668
923
Non-cash investing activities:
Transfers from loans to other real estate owned
69
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 six- and three-month periods ended June 30, 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 June 30, 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 Share
Basic earnings per share is derived by dividing net income available to 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 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 June 30, 2025 or 2024.
The following table sets forth the calculation of basic and diluted earnings per common share for the six- and three-month periods ended June 30, 2025 and 2024:
Six months ended June 30,
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
11
Three months ended June 30,
17
Note 4 – Investments
The following tables show a comparison of amortized cost and fair values of investment securities at June 30, 2025 and December 31, 2024:
(in thousands)
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Allowance for Credit Losses
Estimated Fair Value
June 30, 2025
Available for Sale:
U.S. treasuries
3,865
149
4,014
U.S. government agencies
7,000
771
6,229
Residential mortgage-backed agencies
24,915
19
3,669
21,265
Commercial mortgage-backed agencies
38,217
8,066
30,151
Collateralized mortgage obligations
20,171
15
2,718
17,468
Obligations of states and political subdivisions
8,557
254
8,303
Corporate bonds
1,000
89
911
Collateralized debt obligations
18,738
3,497
15,241
Total available for sale
122,463
183
19,064
GrossUnrecognizedGains
GrossUnrecognizedLosses
Held to Maturity:
68,447
9,143
59,304
33,363
32
3,003
30,392
21,042
5,394
15,648
47,751
8,464
39,287
4,407
173
715
Total held to maturity
175,010
205
26,719
148,496
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
12
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 the Corporation 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 any 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 recorded 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 of OTTI that were recorded prior to January 1, 2023 are being accreted into income over the remaining life of the assets.
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 to not 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 that are 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.
13
As of both June 30, 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 June 30, 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
17,919
3,099
115
27,052
7,951
14,663
3,978
36
4,075
218
7,077
151
86,090
18,913
UnrecognizedLosses
6,859
64
19,875
2,939
35
2,153
136,267
26,655
1,974
18
18,222
1,688
26,946
8,512
2,892
50
14,834
3,293
1,224
3,742
306
Corporate Bonds
7,778
145
85,473
21,475
8,291
20,243
3,429
2,179
134,586
30,842
The amortized cost and estimated fair value of securities by contractual maturities at June 30, 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
5,126
Due after five years through ten years
5,398
5,229
Due after ten years
28,512
24,343
39,160
34,698
17,050
16,432
36,003
31,550
19,801
15,187
72,854
63,169
At June 30, 2025 and December 31, 2024, AFS investment securities with an aggregate fair value of $85.2 million and $71.6 million, respectively, and HTM investment securities with an aggregate book value of $166.6 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 June 30, 2025 and December 31, 2024:
CommercialReal Estate
AcquisitionandDevelopment
CommercialandIndustrial
ResidentialMortgage
Consumer
Total
Individually evaluated for impairment
1,838
1,454
3,292
Collectively evaluated for impairment
550,717
98,937
279,646
520,514
49,375
1,499,189
Total loans
281,484
521,968
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
The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at June 30, 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
318,098
318,201
All other CRE
231,922
516
232,516
Acquisition and development:
1-4 family residential construction
19,791
All other A&D
79,119
79,146
Commercial and industrial
279,540
81
25
Residential mortgage:
Residential mortgage - term
452,121
62
1,518
182
1,762
1,819
455,702
Residential mortgage - home equity
65,168
483
271
1,060
38
66,266
48,921
262
133
47
442
1,494,680
1,507
1,947
535
3,989
3,812
296,259
228,875
257
656
230,105
16,630
78,588
82
78,684
285,675
447,161
2,411
504
2,981
2,100
452,242
65,824
371
228
668
66,573
52,117
364
28
475
174
1,471,129
2,757
918
4,733
4,931
Non-accrual loans that have been subject to partial charge-offs totaled $0.7 million at both June 30, 2025 and December 31, 2024. Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $0.1 million and $1.6 million at June 30, 2025 and December 31, 2024, respectively. Accruing loans past due 30 days or more constituted 0.27% of the loan portfolio at June 30, 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
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. The collateral for these types of loans often does 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 June 30, 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
6,166
1,043
4,226
6,902
707
19,044
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 June 30, 2025 and December 31, 2024.
Real Estate
Other Collateral
Non-Accrual Loans with No Allowance
Residential mortgage
Commercial real estate
2,384
The following tables present the activity in the ACL for the six- and three-month periods ended June 30, 2025 and 2024:
Six months ended (in thousands)
Beginning balance at January 1, 2025
Loan charge-offs
(9)
(370)
(399)
(778)
Recoveries collected
71
29
154
Credit loss expense/(credit)
894
72
378
(137)
ACL balance at June 30, 2025
Beginning balance at January 1, 2024
5,120
940
3,717
6,774
929
17,480
(1,230)
(45)
(824)
(2,099)
37
34
26
227
330
Credit loss (credit)/expense
(305)
1,443
407
621
ACL balance at June 30, 2024
4,852
992
3,964
7,162
953
17,923
Three months ended (in thousands)
ACL balance at April 1, 2025
5,670
4,334
6,723
800
18,467
(6)
(15)
(215)
(236)
54
85
496
(104)
ACL balance at April 1, 2024
4,962
1,014
4,002
7,017
987
17,982
(1,119)
(318)
(1,482)
157
172
Credit loss(credit)/expense
(110)
(25)
1,078
181
127
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 has 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.
The Corporation has elected to forecast out the first four quarters of the credit loss estimate and revert this forecast to long-term historical averages on a straight-line basis over eight quarters. By reverting these modeling inputs to their historical average 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.
20
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 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.
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
21,725
24,236
35,894
75,278
28,318
126,999
2,433
314,883
Special Mention
680
Substandard
2,638
Total non-owner occupied
130,317
Current period gross charge-offs
8,695
45,622
32,075
27,755
22,127
84,014
4,631
224,919
877
716
1,593
926
1,726
2,752
600
6,004
Total all other CRE
46,548
24,730
87,482
5,231
2,305
13,922
772
2,792
Total acquisition and development
8,130
24,381
11,878
6,472
1,677
10,005
16,388
78,931
188
215
Total all other A&D
10,032
16,576
Commercial and industrial:
8,420
34,174
26,889
59,195
13,780
17,075
80,276
239,809
4,250
13,000
3,648
42
1,703
8,721
31,364
24
112
1,192
673
6,526
1,784
10,311
Total commercial and industrial
8,444
38,536
39,889
64,035
14,495
25,304
90,781
355
14,679
36,812
69,078
90,624
74,375
160,865
1,118
447,551
672
784
494
1,950
207
1,331
4,640
23
6,201
Total residential mortgage - term
91,503
76,490
165,999
1,141
203
3,499
59,263
65,272
994
Total residential mortgage - home equity
60,246
Consumer:
8,909
8,493
4,613
16,162
2,743
49,098
22
277
Total consumer
8,974
8,587
4,677
2,398
16,180
2,765
99
40
142
86
399
69,951
188,131
185,782
267,436
143,250
416,060
169,644
1,440,254
4,320
3,593
35,587
1,103
1,463
3,744
16,612
3,600
26,640
69,975
193,484
198,876
273,219
148,697
436,265
181,965
Current YTD Period:
386
778
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
1,744
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
1,773
9,230
7,661
78,602
9,312
35,898
29,786
65,663
17,558
6,777
13,758
75,440
244,880
3,500
1,842
9,084
31,676
122
1,209
6,562
692
1,713
10,978
40,270
42,786
70,372
18,238
15,181
14,450
86,237
465
125
892
87
1,610
32,582
70,643
91,775
78,892
35,790
133,725
1,235
444,642
684
840
1,524
60
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
314
109
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
669
249
956
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
87,404
232,438
62,844
13,848
1,191
647
76,366
164,122
453,701
1,877
2,001
59,902
65,922
344
8,959
8,575
4,653
16,172
49,316
193,469
198,864
272,004
147,926
434,275
181,621
1,498,134
1,215
1,990
4,347
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
117
11,008
6,378
16,543
52,564
114
202
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 tables present the amortized cost basis as of June 30, 2025 and the financial effect of loans modified to borrowers experiencing financial difficulty during the six- and three-month periods ended June 30, 2025 and 2024:
Term Extension
Percentage of Total Loan Type
Weighted Average Term and Principal Payment Extension
Six months ended June 30, 2025
Owner-occupied commercial real estate
874
0.38%
12 months
0.01%
60 months
898
Six months ended June 30, 2024
893
0.40%
Three months ended June 30, 2025
Three months ended June 30, 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 six-month period ended June 30, 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 estimate of current expected credit losses 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 June 30, 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 June 30, 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 June 30, 2025 and December 31, 2024 were as follows:
Fair Value Measurementsat June 30, 2025 Using
Quoted
Prices in
Significant
Active Markets
Measured at
for Identical
Observable
Unobservable
Fair Value
Inputs
06/30/25
(Level 1)
(Level 2)
(Level 3)
Recurring:
Investment securities available-for-sale:
Financial derivatives
266
Non-recurring:
Equity investment
4,088
Other real estate owned
176
Fair Value Measurementsat December 31, 2024 Using
Assets/(liabilities)
12/31/24
455
Individually evaluated loans, net
3,928
Individually evaluated loans, with no valuation allowance, had a net carrying amount of $3.3 million and $4.4 million at June 30, 2025 and December 31, 2024, respectively. Individually evaluated loans recorded at fair value at both June 30, 2025 and December 31, 2024 totaled $0.6 million, which was inclusive of $0.2 million in partial charge-offs recorded in the year ended December 31, 2024.
There were no transfers of assets between any of the fair value hierarchy for the six- or three-month periods ended June 30, 2025 or 2024.
For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
Fair Value atJune 30,2025
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
Other real estate owned (1)
Market Comparable Properties
Marketability Discount
10.00%
Fair Value atDecember 31,2024
Range of low to mid 300 and low 500
Individually Evaluated Loans
N/A
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 six- and three-month periods ended June 30, 2025 and 2024:
Fair Value Measurements
Using Significant Unobservable Inputs
Investment Securities
Available for Sale
Beginning balance January 1, 2025
Total gains realized/unrealized:
Included in other comprehensive income
523
Ending balance June 30, 2025
Beginning balance January 1, 2024
14,709
Total losses realized/unrealized:
Included in other comprehensive loss
Ending balance June 30, 2024
13,975
Fair Value MeasurementsUsing Significant Unobservable Inputs(Level 3)
Investment SecuritiesAvailable for Sale
Beginning balance April 1, 2025
14,697
544
Beginning balance April 1, 2024
14,886
(911)
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 six- or three-month periods ended June 30, 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.
31
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
88,341
Investment securities - HTM
146,784
1,712
Equity securities not held for trading with readily determinable fair values
Restricted bank stock
Loans, net
1,432,772
890
6,270
Financial Liabilities:
Deposits - non-maturity
1,417,096
Deposits - time deposits
197,111
195,746
Short-term borrowed funds
Long-term borrowed funds
120,240
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 six- and three-month periods ended June 30, 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
(85)
(1,562)
(284)
Amounts reclassified from accumulated other comprehensive income
(37)
113
97
Balance - March 31, 2025
(2,623)
(12,435)
(4,583)
287
(11,188)
365
356
(64)
1,545
2,202
120
180
Balance - June 30, 2025
(2,295)
(12,079)
(4,463)
223
(9,546)
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)
Other comprehensive (loss)/income before reclassifications
(620)
(528)
(51)
(396)
-
(1,595)
Amounts reclassified from accumulated other comprehensive loss
(40)
Balance - June 30, 2024
(3,024)
(14,204)
(4,965)
572
(13,264)
(1,175)
The following tables present the components of other comprehensive income/(loss) for the six- and three-month periods ended June 30, 2025 and 2024:
Before
Tax
Components of Other Comprehensive Income
(Expense)
Benefit
Net
For the six months ended June 30, 2025
Available for sale (AFS) securities with credit related impairment:
Unrealized holding gains
(135)
Less: accretable yield recognized in income
(27)
Net unrealized gains on investments with credit related impairment
(108)
297
Available for sale securities – all other:
(621)
Held to maturity securities:
Less: amortization recognized in income
Net unrealized gains on HTM securities
(84)
233
Unrealized holding losses
(149)
Pension Plan:
Unrealized net actuarial losses
(17)
Less: amortization of unrecognized gains
(194)
Net pension plan asset adjustment
(65)
Components of Other Comprehensive Loss
For the six months ended June 30, 2024
168
(465)
(24)
77
Net unrealized losses on investments with credit related impairment
192
(542)
354
(987)
236
Unrealized net actuarial gains
(251)
700
Less: amortization of unrecognized losses
107
(299)
(358)
SERP:
Less: amortization of unrecognized loss
(58)
Net SERP liability adjustment
(20)
58
Components of Other Comprehensive Income(in thousands)
BeforeTaxAmount
Tax(Expense)Benefit
For the three months ended June 30, 2025
(14)
(119)
328
(129)
Net unrealized gains on all other AFS securities
43
(120)
(43)
(560)
(97)
Net pension plan liability adjustment
(596)
1,642
Components of Other Comprehensive Loss(in thousands)
For the three months ended June 30, 2024
(11)
234
189
Net unrealized losses on all other AFS securities
(118)
(42)
Unrealized net actuarial loss
(150)
(246)
(29)
(10)
The following table presents the details of amounts reclassified from accumulated other comprehensive (loss)/income for the six- and three-month periods ended June 30, 2025 and 2024:
Amounts Reclassified from
Accumulated Other Comprehensive Loss
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
Net SERP liability adjustment:
Total reclassifications for the period
(353)
(516)
Net pension plan liability adjustment:
Other expense
(180)
(257)
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 2025, a total of 11,692 fully vested shares of common stock were issued to directors, which had a grant date fair value of $31.52 per share. 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 was $166,185 and $134,964 for the six-month periods ending June 30, 2025 and 2024, respectively. Director stock compensation expense was $87,613 and $73,027 for the three-month periods ended June 30, 2025 and 2024, respectively.
Employee stock compensation was $18,596 and $5,757 for the six-month periods ended June 30, 2025 and 2024, respectively. Employee stock compensation expense was $3,029 and $699 for the three-month periods ended June 30, 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 $7,365 for the six-month period ended June 30, 2024. Stock compensation expense was $1,841 for the three-month period ended June 30, 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 was the three-year period ended December 31, 2024. The time-vesting RSUs vested 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 $26,145 and $55,290 for the six-month periods ended June 30, 2025 and 2024, respectively. Stock compensation expense was $0 and $26,145 for each of the three-month periods ended June 30, 2025 and 2024, respectively. All compensation expense related to these RSUs were recognized as of June 30, 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 $55,170 for both the six-month periods ended June 30, 2025 and 2024. Stock compensation expense was $27,585 for both of the three-month periods ended June 30, 2025 and 2024. Unrecognized compensation expense related to these RSUs that have not vested was $82,755 as of June 30, 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. On May 20, 2025, 2,219 shares of the 6,602 time-vesting RSUs were issued to participants. Stock compensation expense was $56,628 and $9,438 for the six-month periods ended June 30, 2025 and 2024, respectively. Stock compensation expense was $28,314 and $9,438 for the three-month period ended June 30, 2025 and 2024, respectively. Unrecognized compensation expense related to these RSUs that have not vested was $217,074 as of June 30, 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 $45,147 for the six-month period ended June 30, 2025. Stock compensation expense was $33,860 for the three-month period ended June 30, 2025. Unrecognized compensation expense related to these RSUs that have not vested was $361,176 as of June 30, 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 June 30, 2025, $15.0 million notional amount remains. The interest rate swap creates an effective fixed interest rate of 4.66% 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 $0.3 million and $0.5 million at June 30, 2025 and December 31, 2024, respectively.
For the six-month period ended June 30, 2025, a $189,000 decrease in the aggregate value of the derivatives and $40,000 in related deferred tax benefits were recorded in net accumulated other comprehensive income to reflect the effective portion of cash flow hedges. This compares to a $4,000 increase in value and related deferred taxes of $1,000 for the six-month period ended June 30, 2024. For the three-month period ended June 30, 2025, a $81,000 decrease in the aggregate value of the derivatives and $17,000 in related deferred tax benefits were recorded in net accumulated other comprehensive income to reflect the effective portion of cash flow hedges. This compares to a $69,000 decrease in the aggregate value of the derivatives and $18,000 in related deferred tax benefits for the three-month period ended June 30, 2024. ASC Subtopic 815-30 requires the net accumulated other comprehensive income/(loss) to be reclassified to earnings if the hedge becomes ineffective or is terminated. There was no hedge ineffectiveness recorded for any of the six- or three-month periods ended June 30, 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 June 30, 2025.
The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six- and three-month periods ended June 30, 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:
Six months ended:
June 30, 2024
Three months ended:
Notes:
Note 10 – Regulatory Capital Requirements
The following table presents the Bank’s capital ratios as of June 30, 2025 and December 31, 2024.
Required forCapitalAdequacyPurposes
Requiredto be WellCapitalized
Total Capital (to risk-weighted assets)
14.99
%
14.59
8.00
10.00
Tier 1 Capital (to risk-weighted assets)
13.74
13.35
6.00
Common Equity Tier 1 Capital (to risk-weighted assets)
4.50
6.50
Tier 1 Capital (to average assets)
10.87
10.70
4.00
5.00
As of June 30, 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 June 30, 2025 and December 31, 2024.
Balance
Percent
Non-Interest-bearing deposits:
26%
27%
Interest-bearing deposits:
Demand
347,752
22%
386,803
25%
Money market-retail
476,917
30%
447,149
28%
Money market- brokered
0%
Savings deposits
166,637
10%
170,972
11%
Time deposits- retail
147,111
9%
Time deposits- brokered
50,000
3%
Total Deposits
100%
Note 12 – Borrowed Funds
The following is a summary of borrowings at June 30, 2025 and December 31, 2024:
Short-term borrowings:
Securities sold under agreements to repurchase:
Outstanding at end of period
21,812
15,409
Weighted average interest rate at end of period
0.17%
0.24%
Maximum amount outstanding as of any month end
44,415
Average amount outstanding
18,609
29,805
Approximate weighted average rate during the period
0.22%
0.26%
Overnight borrowings, weighted average interest rate of 4.50% at June 30, 2025 and December 31, 2024
29,142
Long-term borrowings:
FHLB advances, bearing fixed interest rate ranging from 3.84% to 4.04% at June 30, 2025 and December 31, 2024.
90,000
Junior subordinated debt, bearing variable interest rate of 7.32% at June 30, 2025 and 7.36% at December 31, 2024
30,929
Total borrowings outstanding
171,883
186,338
At June 30, 2025, the repurchase agreements were secured by $28.3 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 June 30, 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 is 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 June 30, 2025 and December 31 2024.
Total assets of each operating segment at Jun 30, 2025 and December 31, 2024 were as follows:
Community
Wealth
Banking
Management
Total assets as of June 30, 2025
2,007,120
351
Total assets as of December 31, 2024
1,972,513
Information for the operating segments for the six- and three-month periods ended June 30, 2025 and 2024 is 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)
814
4,500
5,500
Other operating expenses:
12,397
2,253
Equipment and occupancy
2,457
2,507
Data processing
2,908
195
Other segment expenses (2)
4,540
4,778
Total operating expenses
22,814
2,736
Income before income taxes and intercompany fees
12,893
2,764
Intercompany management fee income/(expense)
Income before income taxes
12,899
2,758
Income tax expense
3,287
580
9,612
2,178
Significant noncash items
1,302
(1) Other segment income includes bank owned life insurance income, and miscellaneous income.
(2) Other segment expenses include professional services, contract labor, telephone, investor relations, contributions, net other real estate owned (“OREO”) expense/(income), and miscellaneous expenses.
792
4,416
5,300
12,250
2,163
3,124
3,164
2,561
179
4,120
4,374
22,609
2,636
8,717
2,664
8,723
2,658
2,210
559
6,513
2,099
105
(2) Other segment expenses include professional services, contract labor, telephone, investor relations, contributions, net OREO expense/(income), and miscellaneous expenses.
410
2,330
2,756
6,150
1,169
1,240
1,500
2,437
111
2,548
11,569
1,405
6,608
1,351
(3)
6,611
1,348
1,692
283
4,919
52
44
385
2,224
2,617
6,136
1,120
1,287
1,342
80
1,993
121
2,114
11,015
1,349
5,253
1,268
5,256
1,265
3,915
834
844
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 (“OREO I”). OREO I was dissolved on July 1, 2025. 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 June 30, 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 June 30, 2025 was $191.1 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 $6.0 million for the second quarter of 2025, or $0.92 per basic and diluted share, compared to $4.9 million, or $0.75 per basic and diluted share, for the second quarter of 2024. Net income for the first six months of 2025 was $11.8 million, or $1.82 per basic share and $1.81 per diluted common share, compared to $8.6 million, or $1.31 per basic and diluted share, for the same period of 2024.
The $1.1 million increase in quarterly net income when compared to the second quarter of 2024 was primarily driven by a $1.5 million increase in net interest income, a $0.3 million decrease in provision for credit loss, and a $0.2 million increase in non-interest income, partially offset by increases in non-interest expense of $0.6 million and income tax expense of $0.4 million. Comparing the second quarter of 2025 to the same period of 2024, interest and fees on loans increased by $2.1 million due to from the repricing of adjustable-rate loans and growth in our loan portfolio. Interest expense increased by $0.3 million when comparing year-over-year quarterly expense as increased funding was offset by reductions in deposit rates and borrowing costs.
Comparing the six months ended June 30, 2025 to the six months ended June 30, 2024, net interest income, on a non-GAAP, fully taxable equivalent (“FTE”) basis, increased by $3.7 million. Interest income increased by $3.9 million and was driven by an increase of $4.6 million on interest and fees on loans as average loan balances increased by $74.7 million and the overall yield increased by 36 basis points in correlation with upward repricing of adjustable-rate loans. Interest expense on deposits increased by $0.8 million as the average deposit balances increased by $75.3 million, driven by increases of $4.8 million in demand deposit accounts, $76.6 million in money market balances and $15.9 million in brokered time deposits, partially offset by decreases in savings balances of $16.1 million and $6.1 million in retail time deposits. Interest expense on short-term borrowings decreased by $0.9 million due to the Bank’s utilization of the Bank Term Funding Program (the “BTFP”) in 2024 and subsequent repayment late in the third quarter of 2024.
Other operating income, including net gains, for the second quarter of 2025 increased by $0.2 million when compared to the same period of 2024. This increase was driven by a $0.1 million increase in wealth management income, reflecting higher market valuations and expanded relationships with both new and existing clients. Additionally, gains on sales of residential mortgages increased by $0.1 million due to growth in production year-over-year.
Other operating income for the six months ended June 30, 2025 increased by $0.3 million when compared to the same period of 2024. This was attributable to a $0.2 million increase in wealth management income, driven by improving market conditions, increased annuity sales and growth in new and existing customer relationships. Gains on sales of residential mortgages increased by $0.1 million. Service charge and debit card income were both stable when comparing the first six months of 2025 to the same period of 2024.
Operating expenses increased by $0.6 million in the second quarter of 2025 when compared to the second quarter of 2024. Net other real estate owned (“OREO”) expenses increased by $0.2 million due to a $0.1 million gain on the sale of OREO property in the second quarter of 2024 and an increase in costs associated with one OREO property in the second quarter of 2025. Data processing fees increased by $0.2 million and professional services expenses increased by $0.1 million. Salaries and employee benefits increased by $0.1 million due to a $0.3 million increase in salary expense related to normal merit increases effective April 1, 2025, partially offset by decreases in employee life and health insurance expense due to reduced health claims.
For the six months ended June 30, 2025, non-interest expense increased by $0.3 million when compared to the six months ended June 30, 2024. Salaries and employee benefits increased by $0.2 million due to normal merit increases effective April 1, 2025, increases in stock compensation expense as a result of increased stock prices and 401K expenses offset by reduced life and health insurance costs related to reduced claims in 2025. Net OREO expenses increased by $0.2 million due to a $0.1 million gain on the sale of OREO in 2024 as well as one-time expense associated with an OREO property recorded in the second quarter of 2025, increases of $0.1 million in marketing and professional services and an increase in data processing expenses of $0.4 million. These increases were partially offset by a $0.7 million decrease in occupancy and equipment expenses related to accelerated depreciation expense recognized in the first quarter of 2024 related to branch closures.
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 an 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 six- and three-month periods ended June 30, 2025 and 2024.
Non-GAAP
GAAP
49,036
45,126
32,826
29,165
Net interest margin %
3.61
3.31
3.60
3.29
24,925
23,171
16,761
15,296
3.65
3.49
3.64
3.47
48
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 six- and three-month periods ended June 30, 2025 and 2024:
Interest
Yield/Rate
1,486,334
44,072
5.98
1,411,619
39,471
5.62
Investment Securities:
284,612
2.51
281,524
2.46
Non-taxable
6,977
5.26
7,803
4.87
291,589
3,721
2.57
289,327
3,630
2.52
Federal funds sold
46,213
1,012
4.42
65,251
1,795
5.53
Interest-bearing deposits with other banks
3,174
2.22
1,352
49
7.29
Other interest-earning assets
5,795
6.82
4,248
8.57
Total earning assets
1,833,105
5.39
1,771,797
5.12
Allowance for loan losses
(18,550)
(17,940)
Non-earning assets
174,298
201,873
1,988,853
1,955,730
Deposits
Interest-bearing demand deposits
366,170
3,173
1.75
361,358
2,937
1.63
Interest-bearing money markets - retail
468,732
7,125
3.07
392,164
Interest-bearing money markets - brokered
316
3.83
3.66
170,178
0.10
186,280
Time deposits - retail
145,984
2,176
3.01
152,049
2,134
2.82
Time deposits - brokered
43,059
903
4.23
27,198
724
5.35
1,194,439
2.27
1,119,104
2.28
21,423
0.39
72,626
2.69
86,973
5.38
Total interest-bearing liabilities
1,336,791
2.45
1,278,703
Non-interest-bearing deposits
435,362
478,655
30,682
33,624
Shareholders’ Equity
186,018
164,748
Net interest income and spread
2.94
2.61
Net interest margin
(dollars in thousands)
AverageBalance
AverageYield/Rate
1,489,485
22,304
6.01
1,415,353
20,237
5.75
283,914
268,522
2.54
7,424
5.46
7,800
95
4.90
291,338
2.58
276,322
1,792
50,675
628
4.97
66,658
1,037
6.26
3,799
2.11
2,194
3.30
6.62
3,390
10.32
1,841,112
5.43
1,763,917
5.28
(18,685)
(18,184)
175,323
198,749
1,997,750
1,944,482
357,725
1,521
1.71
369,835
1,496
473,262
3,579
3.03
400,747
3,514
3.53
4.04
3.62
168,854
0.11
182,988
147,433
3.05
146,420
1,016
2.79
518
4.16
24,396
325
5.36
1,197,770
1,124,497
2.29
19,811
0.43
71,900
2.85
4.49
70,929
5.49
1,338,510
1,267,326
2.50
440,779
479,232
29,889
32,884
188,572
165,040
2.98
2.78
Net interest income, on a non-GAAP, FTE basis, increased by $1.5 million for the second quarter of 2025 when compared to the second quarter of 2024. This increase was driven by an increase of $1.8 million in interest income due to a $2.1 million increase in interest income on loans that resulted from an increase of 26 basis points in the overall yield on the loan portfolio, upward repricing of adjustable-rate loans, and an increase in average balances of $74.1 million. Interest income on Federal funds sold decreased by $0.4 million due to a decrease of 129 basis points in average rates and a decrease of $16.0 million in average balances. Interest expense increased by $0.3 million when compared to the second quarter of 2024. Interest expense paid on deposits increased by $0.4 million due to a $73.3 million increase in average balances, partially offset by a decrease of 2 basis points on the rate paid. Interest paid on short-term borrowings decreased by $0.5 million when compared to the same period of 2024 due to the repayment of the $40.0 million from the BTFP late in the third quarter of 2024. Interest paid on long-term borrowings increased by $0.4 million when compared to the second quarter of 2024 due to a $50.0 million increase in average balances, partially offset by a decrease in 100 basis points on rates paid.
Comparing the six months ended June 30, 2025 to the six months ended June 30, 2024, net interest income, on a non-GAAP, FTE basis, increased by $3.7 million. Interest income increased by $3.9 million and was driven by an increase of $4.6 million on interest and fees on loans as average loan balances increased by $74.7 million and the overall yield increased by 36 basis points in correlation with upward repricing of adjustable-rate loans. Interest expense on deposits increased by $0.8 million as the average deposit balances increased by $75.3 million, driven by increases of $4.8 million in demand deposit accounts, $76.6 million in money market balances and $15.9 million in brokered time deposits, partially offset by decreases in savings balances of $16.1 million and $6.1 million in retail time deposits. Interest expense on short-term borrowings decreased by $0.9 million due to the Bank’s utilization of the BTFP program in 2024 and subsequent repayment late in the third quarter of 2024. The net interest margin for the six months ended June 30, 2025 was 3.61% compared to 3.31% for the six months ended June 30, 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 six- and three-month periods ended June 30, 2025 and 2024:
compared to the six months ended June 30, 2024
(in thousands and tax equivalent basis)
Volume
Rate
Interest Income:
2,502
4,601
Taxable Investments
98
Non-taxable Investments
(7)
(526)
(783)
Interest-bearing deposits
(80)
Other interest earning assets
1,723
2,187
3,910
Interest Expense:
197
Interest-bearing money markets- retail
1,328
(977)
Interest-bearing money markets- brokered
0
(8)
128
424
(245)
(689)
(240)
(929)
913
Total interest expense
1,926
(1,677)
3,864
3,661
compared to the three months ended June 30, 2024
1,066
1,001
2,067
(19)
79
(5)
(250)
(159)
(409)
63
(54)
985
769
1,754
(49)
640
(575)
(4)
343
193
(371)
(117)
(488)
686
387
1,255
(966)
289
(270)
1,735
1,465
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 six months of 2025 and 2024, net provision expense was $1.5 million and $2.1 million, respectively. For the second quarters of 2025 and 2024, net provision expense was $0.9 million and $1.2 million. The decreased provision expense recorded in the first six months of 2025 when compared to the same period in 2024 was primarily related to $1.1 million in charge-offs related to one non-accrual commercial loan relationship that occurred in 2024.
The composition of other operating income for the six- and three-month periods ended June 30, 2025 and 2024 is illustrated in the following table:
Income as % of
Total Other Income
12%
4%
5%
48%
46%
47%
20%
21%
7%
8%
Other income
1%
Other Operating Expenses
The composition of other operating expenses for the six- and three-month periods ended June 30, 2025 and 2024 is illustrated in the following table:
Expense as % of
Total Other Operating Expenses
58%
57%
56%
59%
2%
Equipment
6%
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.
The effective income tax rates as a percentage of income for the six-month periods ended June 30, 2025 and June 30, 2024 were 24.7% and 24.3%, respectively.
GAAP and Non-GAAP Financial Measures
The following table sets forth certain selected financial data for the periods ended June 30, 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.
Per Share Data
Basic net income per share - non-GAAP
1.37
Diluted net income per share - non-GAAP
Basic book value per common share
29.43
25.39
Diluted book value per common share
29.38
25.34
Net income - as reported
Adjustments:
Accelerated depreciation expenses
562
Income tax effect of adjustments
Adjusted net income (non-GAAP)
9,037
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
1.20%
0.89%
0.12%
(0.03%)
Adjusted Return on Average Assets (non-GAAP)
0.98%
Return on Average Equity - as reported
12.78%
10.51%
1.38%
(0.34%)
Adjusted Return on Average Equity (non-GAAP)
11.55%
FINANCIAL CONDITION
Balance Sheet Overview
Total assets at June 30, 2025 were $2.0 billion, representing a $34.4 million increase since December 31, 2024. During the first six months of 2025, the investment portfolio increased by $9.6 million as bonds were purchased to gain yield in anticipation of potential declines in long-term rates. Gross loans increased by $21.7 million. Management expects stronger growth in the second half of the year due to strong loan pipelines. Other assets, including deferred taxes, premises and equipment, bank owned life insurance, pension assets, and accrued interest receivable, increased by $4.0 million.
Total liabilities at June 30, 2025 were $1.8 billion, representing a $22.6 million increase since December 31, 2024. Total deposits increased by $39.4 million when compared to December 31, 2024 due primarily to $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 that were outstanding at December 31, 2024. Savings and money market accounts increased by $25.4 million and retail time deposits increased by $3.9 million. Interest-bearing demand deposits, primarily our ICS product, decreased by $39.1 million due primarily to seasonal fluctuations in municipal deposit accounts, and non-interest-bearing deposits decreased by $1.0 million due to increased spending by businesses and consumers related to inflation. Short-term borrowings decreased by $14.5 million due to a change in balances of $20.9 million in overnight borrowings, partially offset by an increase 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
19%
35%
Outstanding loans of $1.5 billion at June 30, 2025 reflected a $21.7 million increase since December 31, 2024. Since December 31, 2024, commercial real estate loans increased by $24.4 million, acquisition and development loans increased by $3.6 million, commercial and industrial loans decreased by $6.1 million, residential mortgage loans increased by $3.2 million, and consumer loans decreased by $3.4 million.
New commercial loan production for the second quarter of 2025 was approximately $65.1 million. The pipeline of commercial loans as of June 30, 2025 was $32.3 million and unfunded, committed commercial construction loans totaled approximately $47.0 million. Commercial amortization and payoffs were approximately $27.0 million for the three months ended June 30, 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 second quarter of 2025 was approximately $19.2 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of June 30, 2025 was $11.4 million. Unfunded commitments related to residential construction loans totaled $10.0 million at June 30, 2025.
Non-accrual loans totaled $3.8 million at June 30, 2025 compared to $4.9 million at December 31, 2024. The decrease in non-accrual balances at June 30, 2025 was related to principal reductions and a payoff of a residential mortgage loan.
The following table presents loans in our commercial real estate portfolio by industry type at June 30, 2025.
Owner-occupied
Multi-family
Accommodations and food services
70,004
5,320
75,324
Administration and support, waste management, and remediation services
1,447
Agriculture, forestry, fishing and hunting
2,852
Arts, entertainment and recreation
4,300
Construction
2,003
5,894
7,897
Educational services
829
Finance and insurance
Health care and social assistance
13,361
17,724
31,085
Manufacturing
14,218
Other services (except public services)
19,222
302
19,524
Professional, scientific and technical services
1,469
Public administration
1,391
887
2,278
Commercial rental properties
177,994
85,664
263,658
Residential rental properties
186
23,333
23,636
Student rental properties
2,326
Mixed use rental properties
1,913
17,837
20,524
Storage units
40,557
Real estate rental and leasing- other
10,713
2,490
13,203
Retail trade
3,255
3,334
Transportation and warehousing
445
Wholesale trade
21,706
188,718
43,798
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.
56
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:
0.03%
0.09%
0.65%
0.64%
1,857
0.36%
2,181
0.42%
0.02%
0.33%
Total non-accrual loans
0.25%
Accruing Loans Past Due 90 days or more:
488
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
10,184
11,713
Modified Loans:
1,006
Total modified loans
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 %)
499.58%
368.49%
Allowance for credit losses to non-performing assets (as %)
187.00%
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 June 30, 2025, the range of outcomes would produce a 15% reduction or a 58% 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 six-month periods ended June 30, 2025 and 2024:
Balance, January 1
Charge-offs:
Total charge-offs
Recoveries:
Total recoveries
Net losses
(511)
(1,769)
Balance at end of period
Allowance for credit losses to gross loans outstanding (as %)
1.27
1.26
Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio
0.00%
0.13%
(0.25)%
(0.89)%
(0.01)%
(0.96)%
(2.02)%
(0.07)%
At June 30, 2025, the total amortized cost basis of the available-for-sale investment portfolio was $122.5 million compared to a fair value of $103.6 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 $175.0 million compared to a fair value of $148.5 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:
29%
17%
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 $9.1 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 June 30, 2025, the securities classified as available-for-sale included a net unrealized loss of $18.9 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 $0.5 million since December 31, 2024 as principal paydowns were partially offset by reinvestment in new security purchases.
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 consider risk premiums that a market participant would require.
Approximately $88.3 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $15.4 million at June 30, 2025. The remaining $15.2 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 $3.5 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 deposits:
Money market- retail
Total deposits at June 30, 2025 increased by $39.4 million when compared to December 31, 2024. In January 2025, $50.0 million in brokered time deposits with an average interest rate of 4.24% were obtained to fund the repayment of $50.0 million in overnight borrowings that were outstanding at December 31, 2024. Savings and money market accounts increased by $25.4 million due primarily to the expansion of current and new relationships throughout the first six months of 2025. Non-interest-bearing checking deposits decreased by $1.0 million and interest-bearing checking deposits decreased by $39.1 million due primarily to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers related to inflation. Retail time deposits increased by $3.9 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 June 30, 2025 and December 31, 2024.
Insured deposits
1,232,329
76%
1,192,182
Uninsured and fully collateralized deposits
77,317
77,369
Uninsured and uncollateralized deposits
304,561
305,278
The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of June 30, 2025 and December 31, 2024.
Retail deposits
796,108
49%
798,664
51%
Business deposits
818,099
776,165
Borrowed Funds
The following table presents the composition of our borrowings at the dates indicated:
Overnight borrowings from Federal Reserve Discount Window
Overnight borrowings from Zions Bank
Securities sold under agreements to repurchase
Total short-term borrowings
FHLB advances
Junior subordinated debt
Total long-term borrowings
Short-term borrowings decreased by $14.5 million when compared to December 31, 2024. Overnight borrowings were $29.1 million and $50.0 million at June 30, 2025 and December 31, 2024, respectively. The decrease in overnight borrowings was partially offset by increases in balances of the overnight investment sweep product. There were no changes in long-term borrowings when comparing June 30, 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 June 30, 2025.
Total Availability
Amount Used
Net Availability
Internal Sources
Excess cash
51,753
Unpledged securities
30,804
External Sources
Federal Reserve (discount window)
88,378
Correspondent unsecured lines of credit
140,000
110,858
FHLB
342,381
96,921
245,460
653,316
126,063
527,253
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 June 30, 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 June 30, 2025 and December 31, 2024, management estimated the following changes in net interest income, assuming the indicated rate changes:
+400 basis points
5,917
5,722
+300 basis points
5,508
+200 basis points
4,401
4,253
+100 basis points
2,468
2,391
-100 basis points
(2,974)
(2,851)
-200 basis points
(5,475)
(5,424)
-300 basis points
(8,341)
(8,080)
-400 basis points
(11,738)
(11,151)
Due to the current rate environment and changes to prepayment speeds, the Corporation became slightly less asset sensitive as compared to December 31, 2024. All changes in net interest income from our simulation analysis remain 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 June 30, 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 FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing June 30, 2025 to December 31, 2024, short-term borrowings decreased by $14.5 million primarily due to the changes in overnight borrowings outstanding, 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:
72,219
70,894
Residential mortgage - construction
9,970
13,138
Commercial
184,571
163,079
Consumer - personal credit lines
4,276
4,224
Standby letters of credit
16,261
16,522
287,297
267,857
The increase of $19.4 million in commitments at June 30, 2025 when compared to December 31, 2024 was due to new commercial loan commitments originated during 2025. Unfunded commercial real estate construction commitments increased by $11.5 million and unfunded revolving commercial and industrial commitments increased by $10.6 million
For the six-month periods ended June 30, 2025 and 2024, net credit loss expense/(credit) for off-balance sheet exposures was approximately $131,000 and ($72,000), respectively. For the three-month periods ended June 30, 2025 and 2024, net credit loss expense/(credit) for off-balance sheet exposures was approximately $132,000 and ($57,000), 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 June 30, 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 six months ended June 30, 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.
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 three months ended June 30, 2025, based on information provided to the Corporation, no 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
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 June 30, 2025 formatted in Inline XBRL, included within the Exhibit 101 attachments (filed herewith).
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: August 13, 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)