15 unchanged sentences
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.
−Removed: 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", including the risk factor set forth in First United Corporation’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2020 entitled, “The outbreak of the recent coronavirus (‘COVID-19’), or an outbreak of another highly infectious or contagious disease, could adversely affect the Corporation’s business, financial condition and results of operations.” and any updates thereto that might be contained in subsequent reports filed by First United Corporation.
−Removed: The risks and uncertainties associated with the COVID-19 pandemic and its impact on the Corporation will depend on, among other things, the length of time that the pandemic continues;
−Removed: the duration of the potential imposition of further restrictions on travel in the future;
−Removed: the effect of the pandemic on the global, national, and local economies and on the businesses of our borrowers and their ability to make payments on their obligations;
−Removed: the remedial actions and stimulus measures adopted by federal, state, and local governments;
−Removed: and the inability of employees to work due to illness, quarantine, or government mandates.
+Added: 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
−Removed: First United Corporation is a Maryland corporation chartered in 1985 and a bank holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended.
+Added: 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 (the “FRB”) under the Bank Holding Company Act of 1956, as amended.
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.
2 unchanged sentences
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, LC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland.
−Removed: At September 30, 2021, the Corporation’s total assets were $1.7 billion, net loans were $1.1 billion, and deposits were $1.4 billion.
−Removed: Shareholders’ equity at September 30, 2021 was $133.8 million.
+Added: At March 31, 2022, the Corporation’s total assets were $1.8 billion, net loans were $1.2 billion, and deposits were $1.5 billion.
+Added: Shareholders’ equity at March 31, 2022 was $137.1 million.
The Corporation maintains an Internet site at www.mybank.com on which it makes available, free of charge, its 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.
−Removed: The COVID-19 pandemic has adversely impacted our business and financial results and that of many of our customers, and the ultimate impact will depend on future developments, which are highly uncertain, cannot be predicted, and are largely outside of our control, including the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
−Removed: The COVID-19 pandemic has created extensive disruptions to the global and U.S.
−Removed: economies and to the lives of individuals throughout the world.
−Removed: Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including closures of businesses and schools, fiscal and monetary stimulus, and legislation designed to deliver financial aid and other relief.
−Removed: While the scope, duration, and full effects of COVID-19 are not fully known, the pandemic and the efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted market interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.
−Removed: Congress, the President, and the FRB have taken several actions designed to cushion the economic fallout.
−Removed: Most notably, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), a $2 trillion legislative package, was signed into law at the end of March 2020.
−Removed: The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors, such as by providing funds for loans under the Paycheck Protection Program (the “PPP”) administered by the Small Business Administration (the “SBA”).
−Removed: Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” provides banks the option to temporarily suspend certain requirements under U.S.
−Removed: GAAP related to trouble debt restructurings (“TDRs”) for a limited period of time to account for the effects of COVID-19.
−Removed: Additionally, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) was enacted on December 27, 2020 and provided for a second round of PPP loans.
−Removed: The PPP Extension Act of 2021, which was enacted on March 30, 2021, extended the PPP application deadline to May 31, 2021 and provided the SBA with additional time to process applications through June 30, 2021.
−Removed: Also, the Consolidated Appropriations Act (the “CAA”) passed on December 27, 2020, which, among other things, extended the provisions of Section 4013 of the CARES Act to January 1, 2022.
−Removed: The Federal Reserve’s actions have included cutting the federal funds rate 150 basis points and targeting a 0 to 25 basis point rate.
−Removed: In addition to the general impact of the COVID-19 pandemic, certain provisions of the CARES Act as well as other legislative and regulatory relief efforts are expected to have a material impact on the Corporation’s operations.
−Removed: During the first nine months of 2021, we continued to assist our business customers with the PPP loan forgiveness process and to originate additional PPP loans through the third round of funding.
−Removed: We remained diligent in protecting our associates and customers from the lingering effects of the pandemic, delaying opening our lobbies until April 1, 2021.
−Removed: During the third quarter, we made the decision to reclose our lobbies as COVID cases increased in most of our markets and staffing was at reduced levels.
−Removed: Many of our sales and support employees continue to work remotely as we have adjusted to a hybrid work environment.
−Removed: We have continued to monitor our market areas, maintaining travel protocols and utilizing safety precautions while continuing to provide full banking services to our customers.
−Removed: The Corporation continues to actively participate in the PPP.
−Removed: On January 19, 2021, the SBA implemented a third round of funding for PPP loans.
−Removed: During 2020, the Corporation originated a total of $148.5 million in PPP loans under the first and second rounds of funding, consisting of 1,174 loans with an average loan size of $162 thousand.
−Removed: During 2021, the Corporation originated a total of $66.1 million in PPP loans under the third round of funding, consisting of 870 loans with an average loan size of $80 thousand.
−Removed: Net PPP origination fees recognized in the first nine months of 2021 were $3.2 million due to amortization and forgiveness, compared to $2.4 million in 2020.
−Removed: During 2020, 290 PPP loans, totaling $34.5 million were forgiven, resulting in 885 loans with a remaining balance of $114.0 million at December 31, 2020.
−Removed: During the first nine months of 2021, an additional 1,384 PPP loans originated under all three rounds, with an aggregate principal balance of $150.0 million, were forgiven, resulting in 371 PPP loans with a total remaining balance of $30.3 million at September 30, 2021.
−Removed: Of the 2,046 PPP loans originated by the Corporation since the PPP’s inception, 1,675 loans, totaling $184.9 million, have been forgiven through the end of third quarter 2021, representing 86% of the number of loans originated and 82% of originated principal balances.
−Removed: COVID Modifications
−Removed: While the COVID-19 pandemic has had an impact on most industries, some have been more affected than others.
−Removed: In accordance with Section 4013 of the CARES Act and related regulatory pronouncements, we have not accounted for modifications of loans affected by the pandemic as troubled debt restructurings (“TDRs”) nor have we designated them as past due or nonaccrual.
−Removed: As of October 15, 2021, modified loans not treated as TDRs consisted of eleven commercial loans relating to real estate rental, food services and health care sectors and one mortgage loan, with an aggregate balance of $9.9 million.
−Removed: These loans are scheduled to return to contractual payment terms within the next quarter.
−Removed: Liquidity Sources
−Removed: Management has reviewed its Liquidity Contingency Funding Plan in preparation of funding needs as it relates to the COVID-19 pandemic.
−Removed: As of September 30, 2021, the Corporation had approximately $130.0 million in unsecured lines of credit with its correspondent banks, $1.0 million with the Federal Reserve Discount Window, and approximately $189.0 million of secured borrowings with the Federal Home Loan Bank of Atlanta (“FHLB”).
−Removed: Additionally, the Corporation has access to the brokered certificates of deposit market.
−Removed: The Corporation was eligible to access the FRB’s Paycheck Protection Program Liquidity Facility (“PPPLF”), a source providing funding using PPP loans as collateral at 100% value.
−Removed: The Corporation did not use this program, which expired on July 31, 2021.
−Removed: The Corporation’s and the Bank’s capital ratios are strong, and both institutions are considered to be well-capitalized by applicable regulatory measures.
SELECTED FINANCIAL DATA
−Removed: The following table sets forth certain selected financial data for the nine month periods ended September 30, 2021 and 2020 and is qualified in its entirety by the detailed information and unaudited financial statements, including the notes thereto, included elsewhere in this quarterly report.
−Removed: As of the nine months ended
−Removed: September 30,
+Added: The following table sets forth certain selected financial data for the three month periods ended March 31, 2022 and 2021 and is qualified in its entirety by the detailed information and unaudited financial statements, including the notes thereto, included elsewhere in this quarterly report.
+Added: As of the three months ended
Per Share Data
7 unchanged sentences
Return on Average Assets (a) (1) - as reported
−Removed: Settlement and FHLB expenses, net of income tax
+Added: Settlement expenses, net of income tax
Adjusted Return on Average Assets (a) (1) (non-GAAP)
Return on Average Equity (a) (1) - as reported
−Removed: Settlement and FHLB expenses, net of income tax
+Added: Settlement expenses, net of income tax
+Added: Income tax effect of adjustment
Adjusted Return on Average Equity (a) (1) (non-GAAP)
5 unchanged sentences
Consolidated Tier 1 Capital (to average assets)
−Removed: (1) See reconciliation of this non-GAAP financial measure provided elsewhere herein associated with settlement expenses incurred during the first quarter of 2021 and prepayment penalties incurred during the third quarter of 2021.
+Added: (1) See reconciliation of this non-GAAP financial measure provided elsewhere herein associated with settlement expenses incurred during the first quarter of 2021.
(a) Annualized
RESULTS OF OPERATIONS
−Removed: Consolidated net income for the nine months ended September 30, 2021 was $12.2 million, inclusive of litigation settlement expenses of $3.3 million and FHLB prepayment penalties of $2.4 million, compared to $9.3 million for the nine months ended September 30, 2020.
−Removed: Basic and diluted net income per share for the first nine months of 2021 were both $1.81, a 37.1% increase when compared to basic and diluted net income per share of $1.32 for the same period of 2020.
−Removed: The increase in earnings for the first nine months of 2021 was attributable to an increase in net interest income of $2.2 million, reduced provision expense of $4.9 million and an increase in other operating income, including gains on sales of mortgage loans and securities’ of $1.3 million.
−Removed: These changes were partially offset by an increase in other operating expenses of $4.0 million, inclusive of the $3.3 million in litigation settlement expenses and the $2.4 million FHLB prepayment penalty.
−Removed: Net interest income, on a non-GAAP, FTE basis, increased by $2.2 million (5.9%) during the nine months ended September 30, 2021 when compared to the nine months ended September 30, 2020 driven by a $2.7 million (36.5%) decrease in interest expense, partially offset by a decrease in interest income of $0.5 million.
−Removed: The decrease in interest expense resulted from proactive efforts to reduce the cost of funds by further reductions to rates on deposit accounts throughout 2021, the runoff of balances in the time deposits of $100,000 or more, including brokered deposits, and the expiration of empowered rates on money market accounts.
−Removed: The prepayment of the FHLB advances in the third quarter should significantly reduce interest expense in the fourth quarter and future years.
−Removed: The net interest margin, on an FTE basis, declined to 3.21% for the nine months ended September 30, 2021 compared to 3.43% for the same period of 2020.
−Removed: Excluding the average balance of PPP loans of $100.6 million and interest and fees of $4.0 million, the net interest margin for the nine months ended September 2021 was 3.07%.
−Removed: Other operating income, including net gains on sales of mortgage loans and sales of investment securities, increased $1.3 million for the nine months ended September 30, 2021 when compared to the nine months ended September 30, 2020.
−Removed: Gains on the sale of mortgage loans to the secondary market decreased $0.5 million due to refinancing activity occurring at a slower pace than the pace experienced in 2020.
−Removed: Trust and brokerage income increased $1.2 million year-over-year due to growth in new client relationships and assets under management.
−Removed: Debit card income increased $0.6 million for the nine months ended September 30, 2021 when compared to the same period of 2020 due to growth in deposit relationships and increased customer usage of our electronic services.
−Removed: Other income increased $0.5 million, due primarily to the receipt of insurance proceeds related to litigation claims recorded in the first quarter of 2021.
−Removed: Service charge income remained stable when comparing the first nine months of 2021 to the same time period of 2020.
−Removed: Other operating expenses increased $4.0 million for the nine months ended September 30, 2021 when compared to the same period of 2020.
−Removed: This increase was driven by $3.3 million of litigation settlement expenses recorded in the first quarter of 2021 and a $2.4 million penalty on the prepayment of $70.0 million FHLB advances in the third quarter of 2021.
−Removed: Salaries and benefits remained stable when compared to the first nine months of 2020, as increases in salaries, incentive pay and stock compensation were offset by decreases in pension and life and health insurance costs, a $0.3 million offset in salary expense from deferred loan origination costs primarily attributable to PPP loans and $0.1 million of reduced executive equity compensation due to a timing difference in long-term incentive grants.
−Removed: Federal Deposit Insurance Corporation premiums increased slightly by $0.2 million due to credits received on quarterly assessments in 2020.
−Removed: Equipment, occupancy and technology expenses decreased $0.9 million when compared to the first nine months of 2020 as we began to realize cost savings from our core processor related to a new contract negotiated in the fourth quarter of 2020.
−Removed: Other real estate owned (“OREO”) expenses were a net credit in the first nine months of 2021 due to $0.8 million in gains attributable to the sale of OREO properties.
−Removed: Professional services increased $0.8 million as a result of increased legal and professional fees related to shareholder litigation early in 2021, partially offset by decreased investor relations expenses.
−Removed: The provision for loan losses was $0.1 million for the nine months ended September 30, 2021 and $5.0 million for the nine months ended September 30, 2020.
−Removed: The higher provision expense recorded in the first nine months of 2020 was driven by an increase in the qualitative factors reflecting the uncertainty of the economic environment related to the COVID-19 pandemic.
−Removed: Net recoveries of $0.4 million were recorded for the nine months ended September 30, 2021, compared to net charge offs of $1.3 million for the same period of 2020.
−Removed: The ratio of the ALL to loans outstanding, including PPP loan balances, was 1.46% at September 30, 2021 compared to 1.36% at September 30, 2020 and 1.41% at December 31, 2020.
−Removed: The ALL to loans outstanding, excluding PPP loan balances of $30.3 million and $148.9 million, was 1.49% at September 30, 2021 and 1.55% at September 30, 2020 and December 31, 2020, non-GAAP.
−Removed: Consolidated net income was $4.4 million for the third quarter of 2021 compared to $5.0 million for the third quarter of 2020.
−Removed: Basic and diluted net income per share for the third quarter of 2021 were both $0.66, a 5.7% decrease when compared to basic and diluted net income per share of $0.70 for the third quarter of 2020.
−Removed: The decline in earnings in the third quarter of 2021 was due to an increase in net interest income, a credit to provision expense, and increased wealth management income, offset by increased non-interest expenses, including the prepayment penalty of $2.4 million on FHLB borrowings.
−Removed: Net interest income, on a non-GAAP, FTE basis, increased by $1.7 million (14.2%) for the third quarter 2021 when compared to the third quarter of 2020.
−Removed: This increase resulted from an increase in interest income of $0.7 million and a decrease in interest expense of $1.1 million.
−Removed: The increase in interest income on loans was a result of increased interest on consumer loans related to the purchase of a loan pool in the second quarter as well as an increase in the unearned fees related to the PPP forgiveness during
−Removed: The reduction of interest expense resulted from the further reduction of deposit rates early in the third quarter and the declining balances in the higher cost CD portfolio.
−Removed: The prepayment of the FHLB advances should positively impact interest expense for the remainder of 2021 and future years.
−Removed: The weighted rate on the $70.0 million FHLB long-term borrowings was 1.90%.
−Removed: The net interest margin for the third quarter of 2021 was 3.38%, compared to 3.12% for the third quarter of 2020.
−Removed: Excluding the average balance of PPP loans of $48.5 million and interest and fees of $1.4 million, the net interest margin for the third quarter of 2021 was 3.12%.
−Removed: Other operating income, including gains, for the third quarter of 2021 decreased by approximately $0.6 million when compared to the same period of 2020.
−Removed: Service charge income remained stable during the third quarter of 2021 when compared to the third quarter of 2020.
−Removed: Trust and brokerage income increased $0.3 million due to increased production and market values on assets under management.
−Removed: Net gains decreased $1.1 million when comparing the third quarter of 2021 to the third quarter of 2020.
−Removed: This decrease was due to the slowing of refinancing activity in the mortgage portfolio, which resulted in less gains on sales as well as no sales activity in the investment portfolio during the third quarter of 2021.
−Removed: Bank Owned Life Insurance (“BOLI”) income decreased by $0.1 million when comparing the third quarter of 2021 to the third quarter of 2020 due to the receipt of policy proceeds in the third quarter of 2020.
−Removed: Other operating expenses increased by $2.5 million when comparing the third quarter of 2021 to the third quarter of 2020.
−Removed: This increase was driven by an increase in salaries and benefits of $0.3 million related to a reduction in deferred loan origination costs in 2021 (primarily related to PPP activities) and the $2.4 million prepayment penalties incurred in connection with the prepayment of the FHLB advances.
−Removed: As noted above, the prepayment was a strategic decision to use $70.0 million of cash for the purpose of reducing the cost of funds for the remainder of 2021 and future years.
−Removed: Occupancy, equipment and technology service expenses were stable during the third quarter of 2021 when compared to the third quarter of 2020.
−Removed: Investor relations and professional services costs were also stable during the third quarter of 2021 when compared to the third quarter of 2020.
−Removed: Other miscellaneous expenses, such as Visa processing fees, contract labor, schools and seminars, dues and licenses, in-house training, trust department expense, debit card expense and other personnel related expenses, declined.
−Removed: The decreases were offset by increases in marketing, contributions and consulting expenses.
−Removed: The effective income tax rates as a percentage of income for the nine-month periods ended September 30, 2021 and 2020 were 24.9% and 22.1%, respectively.
−Removed: The increase in the tax rate for the first nine months of 2021 was primarily due to the reduction in tax exempt income as well as the reduction in tax credits related to the expiration of a low-income housing tax credit in June 2021.
−Removed: A new 2021 investment in low-income housing is expected to provide tax benefits in 2022 and beyond.
+Added: Consolidated net income was $5.7 million for the first quarter of 2022 compared to $3.4 million for the first quarter of 2021.
+Added: Basic and diluted net income per share for the first quarter of 2022 were both $0.86, compared to basic and diluted net income per share of $0.49 for the first quarter of 2021.
+Added: The increase in earnings for the first quarter of 2022 was primarily driven by the reduction of $3.3 million in litigation settlement expenses recorded in the first quarter of 2021.
+Added: Additionally, we experienced an increase in net interest income, a credit to provision expense, stable non-interest income and reduced professional fees, marketing
+Added: expenses and telephone related expenses offset by increases to salaries and employee benefits and other real estate owned (“OREO”) expenses.
+Added: Net interest income, on a non-GAAP, fully tax equivalent (“FTE”) basis, increased by $1.1 million (8.9%) for the first quarter 2022 when compared to the first quarter of 2021.
+Added: This increase was driven by stable interest income and a 56% decrease in interest expense of $1.0 million.
+Added: Interest income on loans decreased $0.3 million due to a decrease in average loan balances of $33.9 million and a reduction of unearned fees, primarily related to Paycheck Protection Program (“PPP”) loan forgiveness during 2021.
+Added: Investment income increased $0.4 million due to an increase in average balances related to the deployment of excess cash balances to purchase investment securities late in the fourth quarter of 2021 and early in the first quarter of 2022.
+Added: The reduction of interest expense resulted from the lowering of deposit rates throughout 2021, the declining balances in the higher cost CD portfolio and the prepayment of the Federal Home Loan Bank (“FHLB”) advances in 2021.
+Added: The net interest margin for the first quarter of 2022 was 3.40%, compared to 3.11% for the first quarter of 2021.
+Added: Other operating income, including gains, for the first quarter of 2022 decreased by approximately $0.5 million when compared to the same period of 2021.
+Added: An increase of $0.1 million in service charge and debit card income was offset by a decline of $0.1 million in trust and brokerage income due to the decline in the market value of assets under management during the first quarter of 2022, which was driven by the volatile stock market and the increase in interest rates during the quarter.
+Added: Net gains decreased $0.5 million when comparing the first quarter of 2022 to the first quarter of 2021.
+Added: This decrease was due to the slowing of refinance activity in the mortgage portfolio, which resulted in fewer gains on sales in 2022.
+Added: Non-GAAP, core operating expenses, exclusive of the $3.3 million in litigation settlement expense recorded in the first quarter of 2021, increased by $1.4 million when comparing the first quarter of 2022 to the first quarter of 2021.
+Added: This increase was driven by an increase in salaries and benefits of $0.9 million related in part to a reduction in deferred loan origination costs in 2021 (primarily related to PPP activities) and increased incentive pay, offset by a decline in life and health insurance related to reduced claims.
+Added: OREO expenses increased by $0.5 million due to an expense credit in the first quarter of 2021 related to gains on sales of properties.
+Added: Equipment and data processing fees also increased $0.3 million quarter over quarter.
+Added: These increases were offset by a decrease of $0.2 million in professional services and $0.1 million in telephone related expenses.
+Added: The provision for loan losses was a credit of $0.4 million for the quarter ended March 31, 2022 and an expense of $0.1 million for the quarter ended March 31, 2021.
+Added: The credit to provision expense recorded in the first quarter of 2022 was attributable to reductions in the qualitative factors, particularly related to the continued payment performance of previously modified loans that began performing in accordance with their original payment terms.
+Added: Net charge-offs of $0.2 million were recorded for the quarter ended March 31, 2022, compared to net charge offs of $42,000 for the same period of 2021.
+Added: The ratio of the ALL to loans outstanding, including PPP loan balances, was 1.29% at March 31, 2022 compared to 1.38% at December 31, 2021.
+Added: The ratio of ALL to loans outstanding, excluding PPP loan balances of $1.3 million and $7.7 million, respectively was 1.30% at March 31, 2022 and 1.39% at December 31, 2021, non-GAAP.
+Added: The effective income tax rates as a percentage of income for the three month periods ended March 31, 2022 and 2021 were 25.0% and 24.3%, respectively.
+Added: The slight increase in the tax rate for the 2022 period was primarily due to the reduction in tax exempt income as well as the reduction in tax credits related to the expiration of a low-income housing tax credit in June 2021.
+Added: A new 2021 investment in a low-income housing tax credit is expected to provide tax benefits later in 2022 and future years.
Non-GAAP Financial Measures
1 unchanged sentence
This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
−Removed: The following table presents a reconciliation of net income and basic and diluted earnings per share (as reported) to adjusted net income and adjusted basic and diluted earnings per share excluding settlement and prepayment penalty expense:
−Removed: Nine months ended September 30,
+Added: The following table presents a reconciliation of net income and basic and diluted earnings per share (as reported) to adjusted net income and adjusted basic and diluted earnings per share:
+Added: Three months ended March 31,
(in thousands, except for per share amount)
7 unchanged sentences
Adjusted basic and diluted earnings per share (non-GAAP)
−Removed: The following table presents a reconciliation of basic and diluted book value per share (as reported) to adjusted basic and diluted book value per share excluding settlement expense:
−Removed: Nine months ended September 30,
−Removed: (in thousands, except for per share amount)
−Removed: Basic book value per share
−Removed: Outstanding shares
−Removed: Basic book value per share
−Removed: Diluted book value per share
−Removed: Outstanding shares
−Removed: Diluted book value per share
+Added: Significant Ratios:
+Added: Return on Average Assets (1) - as reported
+Added: Settlement expenses, net of income tax effect
+Added: Adjusted Return on Average Assets (1) (non-GAAP)
+Added: Return on Average Equity (1) - as reported
+Added: Settlement expenses, net of income tax effect
+Added: Adjusted Return on Average Equity (1) (non-GAAP)
Net Interest Income
3 unchanged sentences
This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure.
−Removed: The tables below summarizes net interest income for the nine and three month periods ended September 30, 2021 and 2020.
+Added: The tables below summarizes net interest income for the three month periods ended March 31, 2022 and 2021.
Non-GAAP - FTE
−Removed: Nine Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
−Removed: (dollars in thousands)
−Removed: Interest income
−Removed: Interest expense
−Removed: Net interest income
−Removed: Net interest margin %
Three Months Ended
Three Months Ended
−Removed: September 30,
−Removed: September 30,
(dollars in thousands)
3 unchanged sentences
Net interest margin %
−Removed: 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 nine and three month periods ended September 30, 2021 and 2020:
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: (dollars in thousands)
−Removed: Investment Securities:
−Removed: Federal funds sold
−Removed: Interest-bearing deposits with other banks
−Removed: Other interest earning assets
−Removed: Total earning assets
−Removed: Allowance for loan losses
−Removed: Non-earning assets
−Removed: Liabilities and Shareholders’ Equity
−Removed: Interest-bearing demand deposits
−Removed: Interest-bearing money markets
−Removed: Savings deposits
−Removed: Time deposits:
−Removed: Less than $100k
−Removed: $100k or more
−Removed: Short-term borrowings
−Removed: Long-term borrowings
−Removed: Total interest-bearing liabilities
−Removed: Non-interest-bearing deposits
−Removed: Other liabilities
−Removed: Shareholders’ Equity
−Removed: Total Liabilities and Shareholders’ Equity
−Removed: Net interest income and spread
−Removed: Net interest margin
−Removed: (1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2021 and 2020.
−Removed: Non-GAAP interest income on a fully taxable equivalent was $705 and $678, respectively.
−Removed: (2) Net interest margin is calculated as net interest income divided by average earning assets.
−Removed: (3) The average yields on investments are based on amortized cost.
−Removed: Net interest income, on a non-GAAP, FTE basis, increased by $2.2 million (5.9%) during the nine months ended September 30, 2021 when compared to the nine months ended September 30, 2020 driven by a $2.7 million (36.5%) decrease in interest expense, partially offset by a decrease in interest income of $0.5 million.
−Removed: The decrease in interest expense resulted from proactive efforts to reduce the cost of funds by further reductions to rates on deposit accounts throughout 2021, the runoff of balances in the time deposits of $100,000 or more, including brokered deposits, and the expiration of empowered rates on money market accounts.
−Removed: The prepayment of the FHLB advances in the third quarter should significantly reduce interest expense in the fourth quarter and future years.
−Removed: The net interest margin, on an FTE basis, declined to 3.21% for the nine months ended September 30, 2021 compared to 3.43% for the same period of 2020.
−Removed: Excluding the average balances of PPP loans of $100.6 million and interest and fees of $4.0 million, the net interest margin for the nine months ended September 2021 was 3.07%.
−Removed: The decrease in interest income was driven by a slight increase in interest and fees on loans offset by reduced income on the investment portfolio.
−Removed: While the average balance of the investment portfolio increased by $69.9 million, bonds at higher yielding rates were called and replaced with lower yielding investments, resulting in a decrease in average yield on the investment portfolio of 106 basis points.
−Removed: The increase in the average balance of investments is due to a strategic decision in December 2020 to invest $70.0 million of excess cash into the investment portfolio.
−Removed: Significantly higher cash levels invested at an average yield on Fed Funds of 0.11% for the first nine months of 2021, compared to 0.31% for the first nine months of 2020, also negatively impacted the margin for the first nine months of 2021.
−Removed: The increase in average balance of loans of $42.7 million, driven by PPP loans and the purchase of a $20.0 million consumer loan pool during the second quarter of 2021, offset the declining yield in the portfolio.
−Removed: Interest and fees on loans increased slightly when comparing the first nine months of 2021 to the first nine months of 2020.
−Removed: The average balances of PPP loans of approximately $100.6 million generated $3.2 million of interest and fees but had a negative impact on the margin.
−Removed: The average loan yield was also negatively impacted by the low-rate environment, which resulted in loan production and loans repricing at lower rates.
−Removed: These factors resulted in a decrease of approximately 12 basis points in average loan yield when compared to the nine months ended September 30, 2020.
−Removed: The decrease in interest expense of $2.7 million, despite an increase in average interest-bearing liabilities of $84.9 million, was a direct result of a reduction in the cost of deposits of 27 basis points, a 5 basis point decrease in the cost of our short-term borrowings and a 61 basis point decrease in the cost of long-term borrowings.
−Removed: The decrease in the rate on long-term borrowings was primarily due to the restructuring of three long-term Federal Home Loan Bank advances late in the fourth quarter of 2020 that resulted in a reduced weighted average rate of 80 basis points on the $70.0 million portfolio.
−Removed: The rate on the long-term borrowings will be reduced further as the $70.0 million of FHLB advances were repaid late in the third quarter of 2021.
−Removed: These advances had a weighted rate of 1.90%.
−Removed: The average balance on our interest-bearing money market accounts increased $34.6 million, while the rate on these accounts decreased by 39 basis points.
−Removed: Average growth of $126.3 million in our non-interest-bearing accounts benefited our overall cost of deposits.
+Added: The following tables set forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the three month periods ended March 31, 2022 and 2021:
Three Months Ended
−Removed: September 30,
(dollars in thousands)
11 unchanged sentences
Time deposits
−Removed: Less than $100k
−Removed: $100k or more
Short-term borrowings
11 unchanged sentences
(3) The average yields on investments are based on amortized cost.
−Removed: Net interest income, on a non-GAAP, FTE basis, increased by $1.7 million (14.2%) for the third quarter 2021 when compared to the third quarter of 2020.
−Removed: This increase resulted from an increase in interest income of $0.7 million and a decrease in interest expense of $1.1 million.
−Removed: The increase in interest income on loans was a result of increased interest on consumer loans related to the purchase of a loan pool in the second quarter as well as an increase in the unearned fees related to the PPP forgiveness during the quarter.
−Removed: The reduction of interest expense resulted from the further reduction of deposit rates early in the third quarter and the declining balances in the higher cost CD portfolio.
−Removed: The prepayment of the FHLB advances should positively impact interest expense for the remainder of 2021 and future years.
−Removed: The weighted rate on the $70.0 million FHLB long-term borrowings was 1.90%.
−Removed: The net interest margin for the third quarter of 2021 was 3.38%, compared to 3.12% for the third quarter of 2020.
−Removed: Excluding the average balance of PPP loans of $48.5 million and interest and fees of $1.4 million, the net interest margin for the third quarter of 2021 was 3.12%.
−Removed: Participation in the PPP, with an average outstanding loan balance of $48.5 million and an interest rate of 1.0%, negatively impacted the margin for the third quarter of 2021 by 6 basis points.
−Removed: However, deferred fees of approximately $1.3 million recognized during the third quarter of 2021 positively impacted the margin by 32 basis points, with a net positive impact of 26 basis points.
−Removed: Continued elevated cash levels have also negatively impacted the margin.
−Removed: The decrease in interest expense of $1.1 million, despite an increase in average interest-bearing liabilities of $14.3 million, was a direct result of a reduction in the cost of deposits of 25 basis points, a 6 basis point decrease in the cost of our short-term borrowings and a 47 basis point decrease in the cost of long-term borrowings.
−Removed: The decrease in the rate on long-term borrowings is primarily due to the restructuring of three long-term FHLB advances late in the fourth quarter of 2020 that resulted in a reduced weighted average rate of 80 basis points on the $70.0 million portfolio.
−Removed: The rate on the long-term borrowings will be reduced further as the $70.0 million of FHLB advances were repaid late in the third quarter of 2021.
−Removed: These advances had a weighted rate of 1.90%.
−Removed: The average balance on our interest-bearing money market accounts remained stable, while the rate on these accounts decreased by 31 basis points.
−Removed: Average growth of $95.7 million in our non-interest-bearing accounts benefited our overall cost of deposits as well as the overall reduction to rates on all deposit products in the third quarter.
−Removed: 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 nine and three month periods ended September 30, 2021 and 2020:
−Removed: For the Nine months ended September 30, 2021
−Removed: compared to the Nine months ended September 30, 2020
−Removed: (in thousands and tax equivalent basis)
−Removed: Interest Income:
−Removed: Taxable Investments
−Removed: Non-taxable Investments
−Removed: Federal funds sold
−Removed: Interest-bearing deposits
−Removed: Other interest earning assets
−Removed: Total interest income
−Removed: Interest Expense:
−Removed: Interest-bearing demand deposits
−Removed: Interest-bearing money markets
−Removed: Savings deposits
−Removed: Time deposits less than $100K
−Removed: Time deposits $100K or more
−Removed: Short-term borrowings
−Removed: Long-term borrowings
−Removed: Total interest expense
−Removed: Net interest income
−Removed: For the Three months ended September 30, 2021 compared to the Three months ended September 30, 2020
+Added: The stable interest income was driven by a reduction in interest and fees on loans related to reduced fees and average balances of $33.9 million, primarily PPP loans.
+Added: This decline was offset by increased interest income on the investment portfolio driven by an increase in average balances of $109.2 million.
+Added: The decrease in interest expense was driven by further reductions in deposit rates during 2021 and reducing the cost of interest-bearing deposits by 27 basis points and a decline in average balances of $11.6 million.
+Added: The prepayment of the $70.0 million of FHLB advances in 2021 also contributed to the reduced interest expense.
+Added: The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the three month periods ended March 31, 2022 and 2021:
+Added: For the Three months ended March 31, 2022
+Added: compared to the three months ended March 31, 2021
(in thousands and tax equivalent basis)
10 unchanged sentences
Savings deposits
−Removed: Time deposits less than $100K
−Removed: Time deposits $100K or more
+Added: Time deposits
Short-term borrowings
4 unchanged sentences
Provision for Loan Losses
−Removed: The provision for loan losses was $0.1 million for the nine months ended September 30, 2021 and $5.0 million for the nine months ended September 30, 2020.
−Removed: The higher provision expense recorded in the first nine months of 2020 was driven by an increase in the qualitative factors reflecting the uncertainty of the economic environment related to the COVID-19 pandemic.
−Removed: Net recoveries of $0.4 million were recorded for the nine months ended September 30, 2021, compared to net charge offs of $1.3 million for the same period of 2020.
−Removed: The ratio of the ALL to loans outstanding, including PPP loan balances, was 1.46% at September 30, 2021 compared to 1.36% at September 30, 2020 and 1.41% at December 31, 2020.
−Removed: The ALL to loans outstanding, excluding PPP loan balances of $30.3 million and $148.9 million, was 1.49% at September 30, 2021 and 1.55% at September 30, 2020 and December 31, 2020, non-GAAP.
Specific allocations have been made for impaired 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 ALL have been adjusted based on the current economic environment and the characteristics of the loan portfolio.
−Removed: The composition of other operating income for the nine and three month periods ended September 30, 2021 and 2020 is illustrated in the following table:
−Removed: Income as % of
+Added: The composition of other operating income for the three month periods ended March 31, 2022 and 2021 is illustrated in the following table:
Income as % of
Total Other Income
−Removed: Total Other Income
−Removed: Nine Months Ended
Three Months Ended
−Removed: September 30,
−Removed: September 30,
(in thousands)
6 unchanged sentences
Other Operating Expenses
−Removed: The composition of other operating expenses for the nine and three month periods ended September 30, 2021 and 2020 is illustrated in the following table:
−Removed: Expense as % of
+Added: The composition of other operating expenses for the three month periods ended March 31, 2022 and 2021 is illustrated in the following table:
Expense as % of
Total Other Operating Expenses
−Removed: Total Other Operating Expenses
−Removed: Nine Months Ended
Three Months Ended
−Removed: September 30,
−Removed: September 30,
(in thousands)
7 unchanged sentences
Settlement expense
−Removed: FHLB prepayment penalty
+Added: Contributions
Provision for Income Taxes
4 unchanged sentences
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.
−Removed: The effective income tax rate as a percentage of income increased to 24.9% at September 30, 2021 from 22.1% at September 30, 2020 primarily due to a reduction in tax exempt income and the reduction in low income housing tax credits that expired in June 2021.
−Removed: A new investment in a low income housing tax credit will reduce the effective tax rate beginning in 2022 and future years.
FINANCIAL CONDITION
Balance Sheet Overview
−Removed: Total assets at September 30, 2021 decreased to $1.7 billion, representing a $24.9 million decrease since December 31, 2020.
−Removed: During the first nine months of 2021, cash and interest-bearing deposits in other banks decreased by $14.5 million, the investment portfolio increased by $2.4 million and gross loans decreased by $5.9 million.
−Removed: The decrease in cash was due primarily to the strategic decision to deploy $39.0 million of cash to purchase a pool of mortgage loans for the purpose of offsetting mortgage portfolio balances that have been declining due to continued refinancing activity.
−Removed: Management also used $70.0 million to prepay FHLB advances.
−Removed: Although the Bank recorded $2.4 million in penalties in connection with the FHLP prepayments, management anticipates that the resulting reduction in interest expense for the remainder of 2021 and in future years will offset the penalty and have a significant impact on the cost of funds.
−Removed: OREO balances decreased $2.7 million due to the sale of a parcel of real estate
−Removed: securing a large commercial participation loan in the first quarter of 2021 and the additional sales of undeveloped lots.
−Removed: We anticipate further reduction to OREO balances over the next quarter as we consummate additional sales contracts.
−Removed: Total liabilities decreased by $27.6 million when compared to liabilities at December 31, 2020.
−Removed: The decrease in the first nine months of 2021 was attributable to deposit growth of $22.1 million due to stimulus programs and to growth in core relationships, increased balances in short-term borrowings related to our Treasury Management product, offset by the prepayment of $70.0 million in FHLB long-term borrowings.
−Removed: Total shareholders’ equity increased slightly during the first nine months of 2021, as net income of $12.2 million was offset by the repurchase of $7.2 million (400,000 shares) of First United Corporation common stock.
+Added: Total assets at March 31, 2022 increased to $1.8 billion, representing a $30.5 million increase since December 31, 2021.
+Added: During the first quarter of 2022, cash and interest-bearing deposits in other banks decreased by $39.6 million, the investment portfolio increased by $42.2 million and gross loans increased by $27.7 million.
+Added: Management made a strategic decision to deploy excess cash balances early in the first quarter of 2022 by purchasing approximately $50.0 million in short-term treasury bonds.
+Added: OREO balances remained stable during the first quarter although there continues to be interest in parcels of real estate that previously secured a large commercial participation loan.
+Added: We anticipate further reductions to OREO balances during 2022 as we consummate additional sale contracts.
+Added: Total liabilities increased by $35.3 million when compared to liabilities at December 31, 2021.
+Added: The increase in the first quarter of 2022 was attributable to core relationship deposit growth of $38.2 million.
+Added: Balances in short-term borrowings related to our Treasury Management product increased slightly by $1.2 million.
+Added: Total shareholders’ equity decreased by $4.8 million during the quarter, as net income of $5.7 million was offset by the payment of $1.0 million in dividends and the decline of $9.6 million in accumulated other comprehensive loss related to declining market values of our investment portfolio and pension plan assets.
Loan Portfolio
1 unchanged sentence
(dollars in thousands)
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
3 unchanged sentences
Residential mortgage
−Removed: Outstanding loans of $1.2 billion at September 30, 2021 reflected a decline of $5.9 million during the first nine months of 2021, which was primarily attributable to growth in our mortgage loan portfolio due to the purchase of a $39.0 million loan pool, offset by a decline of portfolio balances.
−Removed: This loan pool consisted of individual adjustable and fixed rate residential mortgage loans.
−Removed: Core commercial loan growth was offset by PPP loan forgiveness.
−Removed: Commercial real estate (“CRE”) loans increased by $2.6 million, acquisition and development (“A&D”) loans increased by $15.3 million and commercial and industrial (“C&I”) loans decreased by $71.0 million, as growth in core portfolio loans of $12.7 million was offset by PPP loan forgiveness.
−Removed: Residential mortgage loans increased $26.7 million due to the purchase of a pool of 1-4 family residential loans, offset by the continued refinancing activity.
−Removed: Given the current low interest rate environment, customers appear to be seeking longer-term, fixed-rate loans and we continued to use the secondary market rather than hold these longer-term fixed rate mortgage loans in the portfolio.
−Removed: The consumer loan portfolio increased by $20.4 million due to the purchase of a pool of consumer loans in the second quarter of 2021 as an effort to deploy excess cash into higher yielding, short-term assets.
−Removed: Commercial loan production for the first nine months of 2021 was approximately $147.9 million, with $46.7 million originated during the third quarter, exclusive of PPP loan production.
−Removed: PPP loan production was approximately $66.1 million for the first nine months of 2021.
−Removed: At September 30, 2021, unfunded, committed commercial construction loans totaled approximately $26.6 million.
−Removed: Commercial amortization and payoffs were approximately $117.3 million through September 30, 2021, exclusive of PPP.
−Removed: Consumer mortgage loan production was approximately $89.6 million through September 30, 2021.
−Removed: The production and pipeline mix of in-house, portfolio loans and investor loans remained strong as of September 30, 2021, with those loans totaling $20.0 million, consisting of $16.0 million in portfolio loans and $4.0 million in investor loans.
−Removed: At the end of the second quarter of 2021, management implemented special promotions for residential mortgage products to shift production towards portfolio loans and utilize excess cash balances.
−Removed: Non-accrual loans totaled $7.4 million at September 30, 2021 compared to $3.3 million at December 31, 2020.
−Removed: The increase in the non-accrual balance at September 30, 2021 was due to the movement of two hospitality loans, totaling approximately $4.0 million, to non-accrual status during the first quarter of 2021.
−Removed: These loans suffered reduced cash flows due to the impact of the COVID-19 pandemic, received modifications and were classified as substandard at December 31, 2020.
−Removed: These loans have returned to their contractual payment terms but will remain on non-accrual status until they pay full contractual payments for six months.
+Added: *Includes $1.3 million of PPP loans at March 31, 2022 and $7.7 million at December 31, 2021
+Added: Outstanding loans of $1.2 billion at March 31, 2022 reflected an increase of $27.7 million during the first quarter of 2022.
+Added: Core commercial loan growth was offset slightly by PPP loan forgiveness.
+Added: Commercial real estate (:CRE”) loans increased by $16.8 million, acquisition and development (“A&D”) loans increased by $5.0 million and commercial and industrial loans increased by $14.0 million, as growth in core portfolio loans of $20.4 million was offset by $6.4 million of PPP loan forgiveness.
+Added: Residential mortgage loans decreased $5.0 million resulting from amortization of the portfolio as well as paydowns and payoffs.
+Added: The refinancing activity continued to slow in the first quarter and much of the production of residential mortgage loans was booked to the in-house portfolio.
+Added: The consumer loan portfolio decreased by $3.0 million.
+Added: Commercial loan production for the three months ended March 31, 2022 was approximately $68.1 million.
+Added: At March 31, 2022, unfunded, committed commercial construction loans totaled approximately $25.6 million.
+Added: Commercial amortization and payoffs were approximately $45.1 million through March 31, 2022, exclusive of PPP loans.
+Added: Consumer mortgage loan production for the first quarter of 2022 was approximately $20.5 million with the vast majority of this production being comprised of in-house mortgages.
+Added: The production and pipeline mix of in-house, portfolio loans and investor loans as of March 31, 2022 consisted of $13.4 million in portfolio loans and $1.0 million in investor loans.
+Added: Production levels have slowed for residential mortgages as compared to the first quarter of 2021 based on the long-term interest rate increases that have occurred during the fourth quarter of 2021 and into the first quarter of 2022.
+Added: Non-accrual loans totaled $2.3 million at March 31, 2022 compared to $2.5 million at December 31, 2021.
+Added: The slight decrease in non-accrual balances at March 31, 2022 was primarily related to $0.1 million of one commercial and industrial loan that paid off in the first quarter of 2022.
Risk Elements of Loan Portfolio
2 unchanged sentences
(dollars in thousands)
−Removed: September 30,
Non-accrual loans:
1 unchanged sentence
Acquisition and development
+Added: Commercial and industrial
Residential mortgage
1 unchanged sentence
Accruing Loans Past Due 90 days or more:
−Removed: Acquisition and development
Residential mortgage
4 unchanged sentences
Other real estate owned
+Added: Total Non-performing assets
Impaired loans without a valuation allowance
2 unchanged sentences
Valuation allowance related to impaired loans
−Removed: Performing loans considered to be impaired (including performing troubled debt restructurings, or TDRs), as defined and identified by management, amounted to $7.6 million at September 30, 2021 and $4.1 million at December 31, 2020.
+Added: Non-accrual loans to total loans (as %)
+Added: Non-performing loans to total loans (as %)
+Added: Non-performing assets to total assets (as %)
+Added: Allowance for loan losses to non-accrual loans (as %)
+Added: Allowance for loan losses to non-performing assets (as %)
+Added: Performing loans considered to be impaired (including performing troubled debt restructurings, or TDRs), as defined and identified by management, amounted to $2.9 million at March 31, 2022 and $3.0 million at December 31, 2021.
Loans are identified as impaired when, based on current information and events, management determines that we will be unable to collect all amounts due according to contractual terms.
2 unchanged sentences
Specific allocations have been made where management believes there is insufficient collateral to repay the loan balance if liquidated and there is no secondary source of repayment available.
−Removed: Loans that have been modified in reliance on Section 4013 of the CARES Act and the guidance issued thereunder are not treated as TDRs.
−Removed: Information about these loans can be found in Notes 2 and 5 to the consolidated financial statements presented in Item 1 of Part I of this report.
−Removed: The following table presents the details of impaired loans that are TDRs by class at September 30, 2021 and December 31, 2020:
−Removed: September 30, 2021
+Added: The following table presents the details of impaired loans that are TDRs by class at March 31, 2022 and December 31, 2021:
+Added: March 31, 2022
December 31, 2021
22 unchanged sentences
Total non-accrual
−Removed: The level of TDRs was $3.8 million at September 30, 2021 compared to $4.0 million at December 31, 2020, with a slight reduction due to payments made during the first nine months of 2021.
−Removed: There were no new TDRs during the first nine months of 2021.
+Added: The level of TDRs was $3.2 million at March 31, 2022 compared to $3.3 million at December 31, 2021, with a slight reduction due to payments made during the first three months of 2022.
+Added: There were no new TDRs during the first three months of 2022.
Allowance and Provision for Loan Losses
6 unchanged sentences
This estimate is computed in a manner similar to the methodology described above, adjusted for the probability of actually funding the commitment.
−Removed: The following table presents a summary of the activity in the ALL for the nine months ended September 30:
+Added: The ALL decreased to $15.3 million at March 31, 2022 compared to $16.0 million at December 31, 2021.
+Added: The ratio of net charge offs to average loans for the quarter ended March 31, 2022 was an annualized 0.08%, compared to net charge offs to average loans of 0.01% for 2021.
+Added: The decline was primarily driven by increased charge-offs on our portfolio.
+Added: Our special assets team continues to aggressively collect on charged-off loans.
+Added: The ALL at March 31, 2022 is adequate to provide for probable credit losses inherent in our loan portfolio.
+Added: Amounts that will be recorded for the provision for loan losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors.
+Added: Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the Commercial real estate loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for loan losses.
+Added: The following table presents a summary of the activity in the ALL for the three months ended March 31:
(dollars in thousands)
9 unchanged sentences
Total recoveries
−Removed: Net recoveries/(credit charge-offs)
−Removed: Provision for loan losses
+Added: Net recoveries/(losses)
+Added: Provision/(credit) for loan losses
Balance at end of period
Allowance for loan losses to gross loans outstanding (as %)
−Removed: Net recoveries/(credit charge-offs) to average loans outstanding during the period, annualized (as %)
−Removed: The ALL increased to $16.9 million at September 30, 2021 compared to $16.5 million at December 31, 2020.
−Removed: The provision for loan losses was $0.1 million for the nine months ended September 30, 2021 and $5.0 million for the nine months ended September 30, 2020.
−Removed: The higher provision expense recorded in the first nine months of 2020 was driven by an increase in the qualitative factors reflecting the uncertainty of the economic environment related to the COVID-19 pandemic.
−Removed: Net recoveries of $0.4 million were recorded for the nine months ended September 30, 2021, compared to net charge offs of $1.3 million for the same period of 2020.
−Removed: The ratio of the ALL to loans outstanding, including PPP loan balances, was 1.46% at September 30, 2021 compared to 1.36% at September 30, 2020 and 1.41% at December 31, 2020.
−Removed: The ALL to loans outstanding, excluding PPP loan balances of $30.3 million and $148.9 million, was 1.49% at September 30, 2021 and 1.55% at September 30, 2020 and December 31, 2020, non-GAAP.
−Removed: The ratio of net recoveries to average loans for the nine months ended September 30, 2021 was an annualized 0.04%, compared to net charge offs to average loans of 0.16% for the nine months ended September 30, 2020.
−Removed: The CRE portfolio did not have any charge offs or recoveries in the first nine months of 2021, compared to an annualized net recovery rate of 0.03% as of September 30, 2020.
−Removed: The A&D loans had an annualized net recovery rate of 0.01% as of September 30, 2021, compared to a net charge-off rate of 1.21% as of September 30, 2020.
−Removed: The decrease is related to a $1.10 million charge off on a non-accrual loan in 2020, which subsequently moved to OREO.
−Removed: The C&I portfolio had net recoveries to average loans of 0.06% as of September 30, 2021, compared to net charge-offs of 0.06% as of September 30, 2020.
−Removed: The residential mortgage ratios were a net charge-off rate of 0.01% as of September 30, 2021 and 2020.
−Removed: The consumer loan ratios were net charge-off rates of 0.02% and 0.59% as of September 30, 2021 and September 30, 2020, respectively.
−Removed: Our special assets team continues to aggressively collect on charged-off loans.
−Removed: Management believes that the ALL at September 30, 2021 was adequate to provide for probable credit losses inherent in our loan portfolio.
−Removed: Amounts that will be recorded for the provision for loan losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors.
−Removed: Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the Commercial real estate loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for loan losses.
+Added: Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio
+Added: Commercial real estate
+Added: Acquisition and development
+Added: Commercial and industrial
+Added: Residential mortgage
Investment Securities
−Removed: At September 30, 2021, the total amortized cost basis of the available-for-sale investment portfolio was $241.2 million, compared to a fair value of $235.6 million.
+Added: At March 31, 2022, the total amortized cost basis of the available-for-sale investment portfolio was $154.3 million, compared to a fair value of $143.6 million.
Unrealized gains and losses on securities available-for-sale are reflected in accumulated other comprehensive loss, a component of shareholders’ equity.
1 unchanged sentence
The following table presents the composition of our securities portfolio at amortized cost and fair values at the dates indicated:
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
6 unchanged sentences
Obligations of state and political subdivisions
+Added: Corporate bonds
Collateralized debt obligations
1 unchanged sentence
Securities Held to Maturity:
+Added: government agencies
Residential mortgage-backed agencies
3 unchanged sentences
Total held to maturity
−Removed: Total fair value of investment securities available-for-sale increased by $8.7 million since December 31, 2020.
−Removed: At September 30, 2021, the securities classified as available-for-sale included a net unrealized loss of $5.6 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
+Added: Total fair value of investment securities available for sale decreased by $143.2 million since December 31, 2021 due to the transfer of investments from available-for-sale to held to maturity in the first quarter 2022.
+Added: At March 31, 2022, the securities classified as available-for-sale included a net unrealized loss of $10.6 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
+Added: The Corporation reassessed classification of certain investments and effective February 1, 2022, the Corporation transferred $139.0 million of callable agencies, obligation of state and political subdivisions, and collateralized mortgage obligations from available for sale to held to maturity securities.
+Added: The transfer occurred at fair value.
+Added: The related unrealized loss of $8.4 million included in other comprehensive loss remained in other comprehensive loss, to be amortized out of other comprehensive loss with an offsetting entry to interest income as a yield adjustment over the remaining term of the securities.
+Added: No gain or loss was recorded at the time of transfer.
+Added: The transfer of these securities was completed in an effort to mitigate further decline in fair market value in a rising rate environment.
+Added: Management’s assessment of the portfolio included lower yielding bonds and the risk of extension in an up 300 basis point shock.
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 .
3 unchanged sentences
These Level 3 instruments are valued based on both observable and unobservable inputs derived from the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.
−Removed: Approximately $218.5 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $4.1 million at September 30, 2021.
+Added: Approximately $126.3 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $9.3 million at March 31, 2022.
The remaining $17.3 million of the securities available-for-sale represents the entire collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs (Level 3 assets).
1 unchanged sentence
Net unrealized losses of $0.6 million represent non-credit related OTTI charges on seven of the securities, while $0.7 million of unrealized losses relates to two securities which have had no credit related OTTI.
−Removed: The following table provides a summary of the trust preferred securities in the CDO portfolio and the credit status of these securities as of September 30, 2021:
+Added: The following table provides a summary of the trust preferred securities in the CDO portfolio and the credit status of these securities as of March 31, 2022:
Level 3 Investment Securities Available for Sale
20 unchanged sentences
However, in these cases, the terms of the securities require excess interest to be redirected from subordinate tranches as credit support, which provides additional support to our investment.
−Removed: Management systematically evaluates securities for impairment on a quarterly basis.
−Removed: Based upon application of ASC Topic 320 (Section 320-10-35), management must assess whether (a) the Corporation has the intent to sell the security and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery.
−Removed: If neither applies, then declines in the fair value of securities below their cost that are considered other-than-temporary declines are split into two components.
−Removed: The first is the loss attributable to declining credit quality.
−Removed: Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made.
−Removed: The second component consists of all other losses.
−Removed: The other losses are recognized in other comprehensive income.
−Removed: In estimating OTTI charges, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the security, (4) changes in the rating of a security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future.
−Removed: Due to the duration and the significant market value decline in the pooled trust preferred securities held in our portfolio, we performed more extensive testing on these securities for purposes of evaluating whether or not an OTTI has occurred.
−Removed: The market for these securities as of September 30, 2021 was not active and markets for similar securities were also not active.
−Removed: The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these securities trade and then by a significant decrease in the volume of trades relative to historical levels.
−Removed: The new issue market is also inactive, as no new CDOs have been issued since 2007.
−Removed: There are currently very few market participants who are willing to effect transactions in these securities.
−Removed: The market values for these securities, or any securities other than those issued or guaranteed by the U.S.
−Removed: Department of the Treasury (the “Treasury”), are very depressed relative to historical levels.
−Removed: Therefore, in the current market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issue.
−Removed: Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at September 30, 2021, (b) an income valuation
−Removed: approach technique (i.e.
−Removed: present value) that maximizes the use of relevant unobservable inputs and minimizes the use of observable inputs will be equally or more representative of fair value than a market approach, and (c) the CDO segment is appropriately classified within Level 3 of the valuation hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.
−Removed: Management uses an independent third party to prepare both the evaluations of OTTI and the fair value determinations for the CDO portfolio.
−Removed: Management does not believe that there were any material differences in the OTTI evaluations and pricing between December 31, 2020 and September 30, 2021.
−Removed: The approach used by the third party to determine fair value involved several steps, which included detailed credit and structural evaluation of each piece of collateral in each bond, projection of default, recovery and prepayment/amortization probabilities for each piece of collateral in the bond, and discounted cash flow modeling.
−Removed: The discount rate methodology used by the third party combines a baseline current market yield for comparable corporate and structured credit products with adjustments based on evaluations of the differences found in structure and risks associated with actual and projected credit performance of each CDO being valued.
−Removed: Currently, the only active and liquid trading market that exists is for stand-alone trust preferred securities, with a limited market for highly-rated CDO securities that are more senior in the capital structure than the securities in the CDO portfolio.
−Removed: Therefore, adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments.
−Removed: Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that no securities had credit-related OTTI during the first nine months of 2021.
−Removed: Additionally, there has been no change in the performing collateral, no decline in the percentage of deferrals/defaults to original collateral, and increases in collateral support for each of the positions held by the Corporation.
The following table presents the composition of our deposits at the dates indicated:
(dollars in thousands)
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
1 unchanged sentence
Interest-bearing deposits:
−Removed: Money Market:
Savings deposits
−Removed: Time deposits less than $100,000:
−Removed: Time deposits $100,000 or more:
+Added: Time deposits
Total Deposits
−Removed: Total deposits at September 30, 2021 increased by $22.1 million when compared to deposits at December 31, 2020.
−Removed: During the first nine months of 2021, non-interest-bearing deposits increased by $71.0 million, driven by retail and commercial account growth partially attributable to government stimulus programs.
+Added: Total deposits at March 31, 2022 increased by $38.2 million when compared to deposits at December 31, 2021.
+Added: During the first quarter of 2022, non-interest-bearing deposits increased by $29.3 million, driven by retail commercial account growth.
Traditional savings accounts increased by $14.8 million as we continued to see significant growth in our Prime Saver product, and total demand deposits increased by $56.4 million.
−Removed: Total money market accounts decreased by $43.0 million due primarily to management’s decision to sweep approximately $70.0 million of wealth management money market funds off balance sheet in the first quarter of 2021.
−Removed: These funds can be readily shifted back to in-house money market accounts should liquidity needs arise in the future.
−Removed: Time deposits decreased by $54.1 million, primarily in time deposits over $100,000, due to repayment of a $10.0 million brokered CD in May 2021 and as we continued to reduce pricing on single-service relationships and municipal bids.
+Added: Total money market accounts decreased by $47.3 million as some of our municipal accounts are shifting balances to state offered account products paying higher rates.
+Added: Time deposits decreased by $14.9 million as we continued to hold rates low due to our higher cash balances.
Borrowed Funds
1 unchanged sentence
(in thousands)
−Removed: September 30,
Securities sold under agreements to repurchase
Total short-term borrowings
−Removed: FHLB advances
Junior subordinated debt
Total long-term borrowings
−Removed: Total short-term borrowings increased by $23.2 million during the first nine months of 2021.
−Removed: This increase was due to increased cash balances from our existing accounts.
−Removed: Long-term borrowings decreased $70.0 million as management made the strategic decision to deploy excess cash and prepay the FHLB advances during the third quarter.
+Added: Total short-term borrowings increased by $1.2 million during the first three months of 2022.
+Added: This increase was due to increased cash balances from existing Treasury Management accounts.
Liquidity Management
18 unchanged sentences
One Way Buy CDARS/ICS funding – a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly.
−Removed: Federal Reserve PPPLF – provides funding and uses SBA PPP loans as collateral at 100% value.
−Removed: This program expired on July 31, 2021.
Management believes that we have adequate liquidity available to respond to current and anticipated liquidity demands and is not aware of any trends or demands, commitments, events or uncertainties that are likely to materially affect our ability to maintain liquidity at satisfactory levels.
11 unchanged sentences
A negative gap position would benefit us during a period of declining interest rates.
−Removed: At September 30, 2021, we were asset sensitive.
+Added: At March 31, 2022, we were asset sensitive.
Our interest rate risk management goals are:
4 unchanged sentences
● Establish interest rate risk exposure limits for fluctuation in net interest income (“NII”), net income and economic value of equity.
−Removed: In order to manage interest sensitivity risk, management formulates guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments.
+Added: 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.
15 unchanged sentences
They do not necessarily indicate the long-term prospects or economic value of the institution.
−Removed: Based on the simulation analysis performed at September 30, 2021 and December 31, 2020, management estimated the following changes in net interest income, assuming the indicated rate changes:
+Added: Based on the simulation analysis performed at March 31, 2022 and December 31, 2021, management estimated the following changes in net interest income, assuming the indicated rate changes:
(Dollars in thousands)
−Removed: September 30,
+400 basis points
18 unchanged sentences
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”.
−Removed: At September 30, 2021, the Bank had $130.0 million available through unsecured lines of credit with correspondent banks, $1.0 million available through a secured line of credit with the Fed Discount Window and approximately $189.0 million available through the FHLB.
+Added: At March 31, 2022, the Bank had $130.0 million available through unsecured lines of credit with correspondent banks, and approximately $187.5 million available through the FHLB.
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.
−Removed: In addition to operational requirements, the Bank and First United Corporation are subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators.
+Added: 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.
−Removed: Based on capital ratios at September 30, 2021, both the Bank and First United Corporation are considered to be well-capitalized.
−Removed: The following table presents our capital ratios as of the dates indicated:
−Removed: September 30,
+Added: Based on capital ratios at March 31, 2022, the Bank was considered to be well-capitalized.
+Added: The following table presents the Bank’s capital ratios as of the dates indicated:
Total Capital (to risk-weighted assets)
6 unchanged sentences
First United Bank & Trust
−Removed: The minimum capital level requirements applicable to the Company and the Bank are:
−Removed: (1) a common equity Tier 1 capital ratio of 4.5%;
−Removed: (2) a Tier 1 capital ratio of 6%;
−Removed: (3) a total capital ratio of 8%;
−Removed: and (4) a Tier 1 leverage ratio of 4%.
−Removed: The rules also establish a “capital conservation buffer” of 2.5% above the regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital.
−Removed: An institution would be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses to executive officers if its capital level falls below the buffer amount.
−Removed: These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
2 unchanged sentences
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.
−Removed: Comparing September 30, 2021 to December 31, 2020, short-term borrowings increased by $23.2 million during the first nine months of 2021.
−Removed: This increase was due to increased cash balances from our existing accounts.
−Removed: Long-term borrowings decreased $70.0 million as management made the strategic decision to deploy excess cash and prepay the FHLB advances during the third quarter.
+Added: Comparing March 31, 2022 to December 31, 2021, short-term borrowings increased by $1.2 million during the first three months of 2022.
+Added: This increase was due to increased cash balances from existing Treasury Management accounts.
Loan commitments are made to accommodate the financial needs of our customers.
4 unchanged sentences
(in thousands)
−Removed: September 30,
Residential Mortgage - home equity
2 unchanged sentences
Standby letters of credit
−Removed: The increase of $27.0 million in commitments at September 30, 2021 when compared to December 31, 2020 was due to continued demand for consumer and commercial construction funding during the first nine months of 2021.
−Removed: Management will continue to monitor these balances.
+Added: The decrease of $4.8 million in commitments at March 31, 2022 when compared to December 31, 2021 was due to utilization of funds and balances moving to outstanding balances in the loan portfolio.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.