What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-08 compared with 2023-11-09 · 232 added, 664 removed, 912 unchanged (50% of the section changed)

3 unchanged sentences

(In thousands, except share data - Unaudited)

September 30,

Cash and due from banks

2 unchanged sentences

Investment securities – available for sale (at fair value)

Investment securities – held to maturity, net of allowance for credit losses of $ 45 and $ 0 , respectively (fair value $ 176,781 at September 30, 2023 and $ 203,080 at December 31, 2022)

Investment securities – held to maturity, net of allowance for credit losses of $ 45 and $ 45 , respectively (fair value $ 152,225 at March 31, 2024 and $ 184,415 at December 31, 2023)

Restricted investment in bank stock, at cost

1 unchanged sentence

Unearned fees

Allowance for credit/loan losses

Allowance for credit losses

Premises and equipment, net

22 unchanged sentences

Authorized 25,000,000 shares;

issued and outstanding 6,715,170 shares at September 30, 2023 and 6,666,428 at December 31, 2022

issued and outstanding 6,648,645 shares at March 31, 2024 and 6,639,888 at December 31, 2023

Retained earnings

6 unchanged sentences

(In thousands, except per share data)

Nine Months Ended

September 30,

Three Months Ended

Interest income

14 unchanged sentences

Credit loss expense - loans

Credit loss expense - debt securities held to maturity

Credit loss expense - off-balance sheet credit exposures

2 unchanged sentences

Other operating income

Net gains on investments, available for sale

Net gains on investments, held to maturity

Net gains on sales of residential mortgage loans

Net gains on disposal of fixed assets

Service charges on deposit accounts

15 unchanged sentences

Contract labor

Total OREO expenses, net

Total OREO expense, net

Investor relations

10 unchanged sentences

First United Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended

September 30,

Interest income

Interest and fees on loans

Interest on investment securities

Exempt from federal income tax

Total investment income

Total interest income

Interest expense

Interest on deposits:

Interest-bearing transaction accounts

Time deposits

Total interest on Deposits

Interest on short-term borrowings

Interest on long-term borrowings

Total Interest Expense

Net Interest income

Credit loss expense/(credit) - loans

Credit loss expense - debt securities held to maturity

Credit loss (credit)/expense - off-balance sheet credit exposures

Total credit loss expense/(credit)

Net interest income after provision for credit losses

Other operating income

Net gains on investments, available for sale

Net gains on investments, held to maturity

Gains on sales of residential mortgage loans

Gains on disposal of fixed assets

Service charges on deposit accounts

Other service charges

Trust department

Debit card income

Bank owned life insurance

Brokerage commissions

Total other income

Total other operating income

Other operating expenses

Salaries and employee benefits

FDIC premiums

Data processing

Professional services

Contract labor

Total other real estate owned expenses, net

Investor relations

Contributions

Settlement expense

FHLB prepayment penalty

Total other operating expenses

Income before income tax expense

Provision for income tax expense

Basic net income per common share

Diluted net income per common share

Weighted average number of basic shares outstanding

Weighted average number of diluted shares outstanding

Dividends declared per common share

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income/ (Loss)

(In thousands)

Nine Months Ended

September 30,

Comprehensive Income/(Loss)

Other comprehensive loss, net of tax and reclassification adjustments:

Available for sale securities:

Unrealized holding losses on investments with credit related impairment

Reclassification adjustment for accretable yield realized in income

Other comprehensive loss on investments with credit related impairment

Unrealized holding losses on all other AFS investments

Unrealized holding losses on securities transferred from available for sale to held to maturity

Reclassification adjustment for gains realized in income

Other comprehensive loss on all other AFS investments

Held to Maturity Securities

Unrealized holding losses on securities transferred to held to maturity

Unrealized holding losses on HTM investments

Reclassification adjustment for gains/(losses) realized in income

Reclassification adjustment for amortization realized in income

Other comprehensive income/(loss) on HTM investments

Cash flow hedges:

Unrealized holding gains on cash flow hedges

Other comprehensive income on cash flow hedges

Pension plan liability:

Unrealized holding gains/(losses) on pension plan liability

Reclassification adjustment for amortization of unrecognized loss realized in income

Other comprehensive loss on pension plan liability

SERP liability:

Unrealized holding losses on SERP liability

Reclassification adjustment for amortization of unrealized loss realized in income

Other comprehensive (loss)/income on SERP liability

Other comprehensive losses before income tax

Income tax benefit related to other comprehensive income

Other comprehensive loss, net of tax

Comprehensive income/(loss)

See accompanying notes to the consolidated financial statements

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

1 unchanged sentence

Three Months Ended

September 30,

Comprehensive Income/(Loss)

Comprehensive Income

Other comprehensive loss, net of tax and reclassification adjustments:

3 unchanged sentences

Other comprehensive income/(loss) on investments with credit related impairment

Unrealized holding loss on all other AFS investments

Other comprehensive loss on all other AFS investments

Unrealized holding (losses)/gains on all other AFS investments

Other comprehensive (loss)/income on all other AFS investments

Held to Maturity Securities

Unrealized holding losses on HTM investments

Reclassification adjustment for gains realized in income

Unrealized holding losses on securities transferred to held to maturity

Reclassification adjustment for amortization realized in income

1 unchanged sentence

Cash flow hedges:

Unrealized holding gains on cash flow hedges

Other comprehensive income on cash flow hedges

Unrealized holding gains/(losses) on cash flow hedges

Other comprehensive income/(loss) on cash flow hedges

Pension plan liability:

Unrealized holding losses on pension plan liability

Unrealized holding gains on pension plan liability

Reclassification adjustment for amortization of unrecognized loss realized in income

Other comprehensive losses on pension plan liability

Other comprehensive gain on pension plan liability

SERP liability:

Unrealized holding losses on SERP liability

Reclassification adjustment for amortization of unrealized loss realized in income

Other comprehensive (loss)/income on SERP liability

Other comprehensive losses before income tax

Income tax benefit related to other comprehensive income

Other comprehensive loss, net of tax

Unrealized holding gains on SERP liability

Reclassification adjustment for amortization of unrealized (gain)/loss realized in income

Other comprehensive income/(loss) on SERP liability

Other comprehensive income before income tax

Income tax effect related to other comprehensive income

Other comprehensive income, net of tax

Comprehensive income

See accompanying notes to the consolidated financial statements

First United Corporation and Subsidiaries

4 unchanged sentences

Balance at January 1, 2024

Adoption of ASC 326- Financial Instruments- Credit Losses

Other comprehensive income

3 unchanged sentences

Balance at March 31, 2024

Other comprehensive loss

Stock based compensation

Common stock issued - 18,416 shares

Common stock dividend declared - $ 0.20 per share

Balance at June 30, 2023

Other comprehensive loss

Stock based compensation

Common stock issued - 5,046 shares

Common stock repurchased - 1,298 share

Common stock dividend declared - $ 0.20 per share

Balance at September 30, 2023

First United Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except per share data)

Comprehensive

1 unchanged sentence

Balance at January 1, 2023

Other comprehensive loss

Adoption of ASC 326- Financial Instruments- Credit Losses

Other comprehensive income

Stock based compensation

2 unchanged sentences

Balance at March 31, 2023

Other comprehensive loss

Stock based compensation

Common stock issued - 18,416 shares

Common stock dividend declared - $ 0.15 per share

Balance at June 30, 2022

Other comprehensive loss

Stock based compensation

Common stock issued - 4,563 shares

Common stock dividend declared- $ 0.15 per share

Balance at September 30, 2022

See accompanying notes to the consolidated financial statement

2 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Operating activities

3 unchanged sentences

Gain on sales of other real estate owned

Recoveries of other real estate owned, net

Write-downs of other real estate owned, net

Originations of loans held for sale

1 unchanged sentence

Gains from sales of loans held for sale

Gains on disposal of fixed assets

Net (accretion)/ amortization of investment securities discounts and premiums- AFS

Net accretion of investment securities discounts and premiums- AFS

Net accretion of investment securities discounts and premiums- HTM

Amortization of intangible assets

Gains on sales/calls of investment securities – AFS

Gains on calls of investment securities – HTM

Earnings on bank owned life insurance

Amortization of deferred loan costs/(fees), net

Amortization of deferred loan (fees)/costs, net

Amortization of operating lease right of use asset

Increase in accrued interest receivable and other assets

Decrease in accrued interest receivable and other assets

Deferred tax expense/(benefit)

Operating lease liability

Increase in accrued interest payable and other liabilities

Decrease in accrued interest payable and other liabilities

Net cash provided by operating activities

2 unchanged sentences

Proceeds from maturities/calls of investment securities - HTM

Proceeds from sales of investment securities - AFS

Purchases of investment securities - AFS

Purchases of investment securities - HTM

Proceeds from sales of other real estate owned

Proceeds from disposal of fixed assets

Net (increase)/decrease in restricted stock

Net decrease/(increase) in restricted stock

Net increase in loans

Purchases of premises and equipment

Net cash used in by investing activities

Net cash provided by/(used in) by investing activities

Financing activities

2 unchanged sentences

Cash dividends paid on common stock

Net (decrease)/increase in short-term borrowings

Stock repurchase

Net increase/(decrease) in short-term borrowings

Proceeds from long-term borrowings

Payments of long-term borrowings

Net cash provided by financing activities

Increase/(decrease) in cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

2 unchanged sentences

Interest paid

Non-cash investing activities:

Transfers from loans to other real estate owned

Transfers from securities available for sale to held to maturity

FIRST UNITED CORPORATION

3 unchanged sentences

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.

Certain reclassifications have been made to prior year amounts to conform with current year classifications.

These reclassifications did not have a material impact on the Corporation’s consolidated financial condition or results of operations.

Operating results for the three- and nine-month periods ended September 30, 2023, are not necessarily indicative of the results that may be expected for the full year or for any future interim period.

Operating results for the three- month period ended March 31, 2024, 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, 2023.

1 unchanged sentence

In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Certain reclassifications have been made to prior year amounts to conform with current year classifications.

These reclassifications did not have a material impact on the Corporation’s consolidated financial condition or results of operations.

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.

3 unchanged sentences

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 September 30, 2023 and through the date these consolidated financial statements were issued, for items of potential recognition or disclosure.

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2024 and through the date these consolidated financial statements were issued, for items of potential recognition or disclosure.

Newly Adopted Pronouncements in 2024

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , universally referred to as CECL.

The amendments in ASU, 2016-13 among other things, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

Many of the loss estimation techniques applied previously are still permitted, although the inputs to those techniques changed to reflect the full amount of expected credit losses.

In addition, ASU 2016-13 amends the accounting for credit losses on purchased financial assets with credit deterioration.

For periodic report filers that are smaller reporting companies, such as the Corporation, ASU 2016-13 was effective as of January 1, 2023.

As part of its process of adopting the CECL accounting method, management implemented a third party software solution and determined the appropriate loan segments, methodologies, model assumptions and qualitative components.

Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables.

Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls.

Management had a third party independent consultant review and validate our CECL model.

In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities.

The Corporation did not record any allowance for credit losses (“ACL”) on its debt securities as a result of adopting this ASU.

The ultimate impact of adopting ASU 2016-13, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, compensation of our loan portfolio, and other management judgments.

The Corporation adopted ASU 2016-13 using the modified retrospective method.

Results beginning after January 1, 2023 are presented under ASU 2016-13, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

We made the accounting policy election to not measure an ACL for accrued interest receivables for loans and securities.

Accrued interest deemed uncollectible will be written off through interest income.

The following table illustrates the day-one impact of adopting ASU 2016-13.

January 1, 2023

(Dollars in thousands)

As Reported Under ASU 2016-13

Impact of ASU 2016-13 Adoption

Allowance for credit losses on loans

Commercial real estate

Acquisition and development

Commercial and industrial

Residentail mortgage

Allowance for Credit Losses on Loans

Investment securities- available for sale (at fair value)

Investment securities- held to maturity

Total loans held for investments, net

Net deferred tax asset

Life-of-loss reserve on unfunded loan commitments

Retained earnings

In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology of CECL.

Refer to Note 5, Loans and Related Allowance for Credit Losses, for further discussion of these portfolio segments.

The adoption of ASU 2016-13 resulted in a Day 1 adjustment of $ 2.9 million to our ACL, including an increase of $ 2.0 million to the ACL for loans and $ 0.9 million to the ACL for unfunded commitments.

The Corporation did not record any ACL on its available-for-sale or held-to-maturity investments upon adoption of ASC 326.

The Corporation recorded a net decrease to retained earnings of $ 2.2 million as of January 1, 2023 for the cumulative effect of adopting ASU 2016-13.

In March 2022, FASB issued ASU No.

2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures .

ASU 2022-02, which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted ASU 2016-13.

Due to the removal of the TDR accounting model, all loan modifications were evaluated to determine if they resulted in a new loan or a continuation of the existing loan.

The amendments in ASU 2022-02 also required that entities disclose current-period gross charge-offs by year of origination for loans and leases.

The amendments in ASU 2022-02 were effective January 1, 2023.

This change did not have a material effect on our consolidated financial statements.

Refer to Note 5, Loans and Related Allowance for Credit Losses for disclosures for debtors experiencing financial difficulty and for vintage disclosures related to gross charge-offs by loan segment by year of origination.

Allowance for Credit Losses Policy

The ACL represents an amount that, in management’s judgment, is adequate to absorb expected losses on outstanding loans at the balance sheet date based on the evaluation of the size and 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 or decreased by a provision 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 is reviewed quarterly by management.

Management believes 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 losses in the loan portfolio can vary significantly from the amounts actually observed.

While management uses available information to recognize 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 condition of borrowers.

The adoption of CECL accounting did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, nonaccrual practices, assessment of modified loans, or charge-off policy.

The Corporation’s note 5 for discussion related to the Corporation’s methodology for estimating the ACL includes:

Loan Commitments and Allowance for Credit Loss on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments.

Such financial instruments are recorded when they are funded.

The Corporation records a reserve for unfunded commitments (“RUC”) on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Corporation’s Consolidated Statement of Income.

The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in the RUC on the Corporation’s Consolidated Balance Sheet.

Loan Restructurings

In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a restructured loan.

Management strives to identify borrowers in financial difficulty early and work with them to modify the loan to more affordable terms before their loan reaches nonaccrual status.

The Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reductions.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.

These concessions are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

See Note 5 for more detail related to the accounting of restructured loans.

Allowance for Credit Losses – Available-for-Sale and Held-to-Maturity Securities

The Corporation adopted Accounting Standards Codification (“ASC “) 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 available-for-sale (“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 326.

The effective interest rate on these debt securities was not changed.

previously written off are recognized in other comprehensive income (“OCI”) as of January 1, 2023 relating to improvements in cash flows expected to be collected are accreted into income over the remaining life of the asset.

Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2023 are recorded in earnings when received.

See Note 5 for additional information related to investment securities and the related allowance for credit losses on the AFS and held-to-maturity (“HTM “) portfolio.

Note 2 – Accounting Statements Issued but Not Yet Adopted

In March 2020, FASB issued ASU No.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, “Reference Rate Reform (Topic 848):

7 unchanged sentences

Deferral of the Sunset Date of Topic 848.” The amendments in ASU 2020-06 defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

An internal team of the Corporation was formed to transition loans held for investment away from LIBOR.

As of September 30, 2023, there are no loans in our loan portfolio whose variable rate is tied to the LIBOR.

The Corporation no longer offers LIBOR for any new contract as part of this transition.

The Corporation has identified all known LIBOR exposures, created a plan to address the exposures, and continues to communicate with all stakeholders to transition to alternative reference rates.

The Corporation does not anticipate that the adoption of ASU 2020-04 will have a material impact on the Corporation’s consolidated financial statements.

The Corporation had no financial instruments tied to LIBOR at March 31, 2024.

The implementation of ASU 2020-04 did not have a material impact on our financial statements.

Note 2 – Accounting Statements Issued but Not Yet Adopted

In November 2023, FASB issued ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvement to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expense and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024.

Early adoption is permitted.

ASU 2023-07 is not expected to have a significant impact on our financial statements.

In December 2023, FASB issued 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 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 2023-09 is effective for fiscal years beginning after December 15, 2024.

ASU 2023-09 is not expected to have a significant impact on our financial statements.

In March 2024, FASB issued ASU No.

2024-01, “Compensation- Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards.” ASU 2024-01 provides an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718.

ASU 2024-01 is effective for fiscal years beginning after December 15, 2024.

ASU 2024-01 is not expected to have a significant impact on our financial statements.

Note 3 – Earnings Per Common Share

1 unchanged sentence

Diluted earnings per share is derived by dividing net income available to common shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents, such as restricted stock units (“RSUs”).

There were no anti-dilutive shares outstanding at September 30, 2023 or 2022.

The following table sets forth the calculation of basic and diluted earnings per common share for the nine- and three-month periods ended September 30, 2023 and 2022:

Nine months ended September 30,

(in thousands, except for per share amount)

Basic Earnings Per Share:

Diluted Earnings Per Share:

Restricted stock units

Three months ended September 30,

There were no anti-dilutive shares outstanding at March 31, 2024 or 2023.

The following table sets forth the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2024 and 2023:

Three months ended March 31,

(in thousands, except for per share amount)

3 unchanged sentences

Note 4 – Investments

The following tables show a comparison of amortized cost and fair values of investment securities at September 30, 2023 and December 31, 2022:

The following tables show a comparison of amortized cost and fair values of investment securities at March 31, 2024 and December 31, 2023:

(in thousands)

1 unchanged sentence

Estimated Fair Value

September 30, 2023

March 31, 2024

Available for Sale:

10 unchanged sentences

Allowance for Credit Losses

September 30, 2023

March 31, 2024

Held to Maturity:

6 unchanged sentences

(in thousands)

Allowance for Credit Losses

Estimated Fair Value

December 31, 2023

9 unchanged sentences

(in thousands)

Estimated Fair Value

Allowance for Credit Losses

December 31, 2023

6 unchanged sentences

Total held to maturity

The Corporation reassessed the classification of certain investments and, effective February 1, 2022, transferred $ 139.0 million of callable agencies, obligations of state and political subdivisions, and collateralized mortgage obligations from available for sale to held to maturity securities.

The transfer occurred at fair value.

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.

No gain or loss was recorded at the time of transfer.

The following table shows the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at September 30, 2023 and December 31, 2022, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

The Corporation utilizes FASB Accounting Standards Codification (“ASC”) 326 to evaluate its available-for-sale (“AFS”) and held-to-maturity (“HTM”) debt security portfolio for expected credit losses.

For AFS debt securities in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.

If either criteria is met, the security’s amortized cost basis is written down to fair value through income.

For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is 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 an ACL is recognized in other comprehensive income, as a non-credit-related impairment.

Changes in the ACL are recorded as a provision for (or reversal of) credit losses.

Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non-credit-related impairment.

The Corporation has made the policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheets.

AFS debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.

Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status.

Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

The Corporation separately evaluates its HTM investment securities for any credit losses.

The Corporation pools like securities and calculates expected credit losses through an estimate based on a security’s credit rating, which is recognized as part of the ACL for HTM securities and is included in the balance of HTM securities held to maturity on the Consolidated Balance Sheets.

If the Corporation determines that a security indicates evidence of deteriorated credit quality, the security is individually evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis.

The Corporation recorded ACL of approximately $ 45,000 as of March 31, 2024 and December 31, 2023, related to one bond in its HTM security portfolio.

The following table shows the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at March 31, 2024 and December 31, 2023, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

Less than 12 months

1 unchanged sentence

(in thousands)

September 30, 2023

March 31, 2024

Available for Sale:

10 unchanged sentences

(in thousands)

September 30, 2023

March 31, 2024

Held to Maturity:

29 unchanged sentences

Total held to maturity

The Corporation utilizes ASC 326 to evaluate its AFS and HTM debt security portfolio for expected credit losses.

If either criteria is met, the security’s amortized cost basis is written down to fair value through income.

For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is 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 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 an ACL is recognized in other comprehensive income, as a non-credit-related impairment.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses.

Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non-credit-related impairment.

Available-for-sale debt

securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.

Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status.

Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

The Corporation separately evaluates its HTM investment securities for any credit losses.

The Corporation pools like securities and calculates expected credit losses through an estimate based on a security’s credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and is included in the balance of investment securities held to maturity on the Consolidated Balance Sheets.

As of September 30, 2023, the Corporation recorded ACL of approximately $ 45,000 related to one bond in the HTM security portfolio.

There was no ACL related to its AFS or HTM security portfolio at December 31, 2022.

The following table presents a cumulative roll-forward of the amount of non-cash credit-related impairment charges related to credit losses that have been previously recognized in earnings for the trust preferred securities held in the collateralized debt obligation (“CDO”) portfolio during the nine- and three- month periods ended September 30, 2023 and 2022 that the Corporation does not intend to sell:

Nine Months Ended

September 30,

(in thousands)

Balance of credit-related impairment at January 1

Reduction for increases in cash flows expected to be collected

Balance of credit-related impairment at September 30

Three Months Ended

September 30,

(in thousands)

Balance of credit-related impairment at July 1

Reduction for increases in cash flows expected to be collected

Balance of credit-related impairment at September 30

The amortized cost and estimated fair value of securities by contractual maturity at September 30, 2023 are shown in the following table.

The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2024 are shown in the following table.

Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2023

March 31, 2024

(in thousands)

18 unchanged sentences

Note 5 – Loans and Related Allowance for Credit Losses

The following table summarizes the primary segments of the loan portfolio at September 30, 2023 and December 31, 2022:

The following table summarizes the primary segments of the loan portfolio at March 31, 2024 and December 31, 2023:

(in thousands)

September 30, 2023

March 31, 2024

Individually evaluated for impairment

3 unchanged sentences

Collectively evaluated for impairment

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at September 30, 2023 and December 31, 2022:

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2024 and December 31, 2023:

(in thousands)

September 30, 2023

March 31, 2024

Commercial real estate:

19 unchanged sentences

Residential mortgage - home equity

Non-accrual loans that have been subject to partial charge-offs totaled $ 0.1 million at September 30, 2023 and $ 0.1 million at December 31, 2022.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 1.8

million at September 30, 2023.

There were no loans in the process of foreclosure at December 31, 2022.

As a percentage of the loan portfolio, accruing loans past due 30 days or more was 0.27 % at September 30, 2023 compared to 0.16 % at December 31, 2022.

Effective January 1, 2023, the Corporation adopted the accounting guidance in ASU 2022-02, which eliminated the recognition and measurement of TDRs.

Due to the removal of the TDR designation, the Corporation evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan.

Loan modifications to borrowers experiencing financial difficulty 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, and combinations of the above.

Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a non-accrual or restructured loan may be subject to the individually evaluated loan analysis if the commitment is $ 0.1 million or greater;

otherwise, the restructured 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 restructured loan.

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 6, Fair Value Measurements.

There were no loan modifications made to borrowers facing financial difficulties in the three- or nine-month period ending September 30, 2023.

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.

Non-accrual loans that have been subject to partial charge-offs totaled $ 0.1 million at both March 31, 2024 and December 31, 2023.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 1.8 million at both March 31, 2024 and December 31, 2023.

As a percentage of the loan portfolio, accruing loans past due 30 days or more was 0.40 % at March 31, 2024 compared to 0.24 % at December 31, 2023 and 0.17 % at March 31, 2023.

The Corporation maintains an ACL at a level that management believes will 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:

1 unchanged sentence

The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles.

The segmentation in the CECL model is different from the segmentation in the Incurred Loss model.

The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.

16 unchanged sentences

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.

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.

5 unchanged sentences

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 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 September 30, 2023 and allowance for loan loss (“ALL”) at December 31, 2022, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

The following table summarizes the primary segments of the ACL at March 31, 2024 and December 31, 2023, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

(in thousands)

September 30, 2023

March 31, 2024

Individually evaluated

9 unchanged sentences

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 table presents the amortized cost basis of collateral-dependent individually evaluated loans as of September 30, 2023.

September 30, 2023

(dollars in thousands)

Non-Accrual Loans with No Allowance

Residential mortgage

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at September 30, 2023 and December 31, 2022:

Impaired Loans with

Specific Allowance

Total Impaired Loans

The following table presents the amortized cost basis of collateral-dependent individually evaluated loans as of March 31, 2024 and December 31, 2023..

March 31, 2024

(in thousands)

Investment (1)

September 30, 2023

Other Collateral

Non-Accrual Loans with No Allowance

Commercial real estate

Non-owner-occupied

All other CRE

Acquisition and development

1-4 family residential construction

All other A&D

Commercial and industrial

Residential mortgage

Residential mortgage – term

Residential mortgage – home equity

Total impaired loans

December 31, 2023

(in thousands)

Other Collateral

Non-Accrual Loans with No Allowance

Commercial real estate

Non-owner-occupied

All other CRE

Acquisition and development

1-4 family residential construction

All other A&D

Commercial and industrial

Residential mortgage

Residential mortgage – term

Residential mortgage – home equity

Total impaired loans

(1) Recorded investment consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and cost.

The following tables present the activity in the ACL and ALL for the nine- and three-month periods ended September 30, 2023 and 2022:

Nine months ended (in thousands)

Beginning balance at January 1, 2023 prior to adoption of ASC 326

Impact of adopting ASC 326

Effective January 1, 2023, the Corporation adopted the accounting guidance in ASU 2022-02, which eliminates the recognition and measurement of a troubled debt restructuring (“TDR”).

Due to the removal of the TDR designation, the Corporation evaluates loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan.

Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contracted cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications.

Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.

A loan that is considered a 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 of 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 Basis” section of Note 6, Fair Value Measurements.

As of March 31, 2024 and 2023, there were no modified loans that were classified as individually evaluated loans.

The following tables present the activity in the ACL for the three-month periods ended March 31, 2024 and 2023:

Three months ended (in thousands)

Beginning balance at January 1, 2024

Loan charge-offs

1 unchanged sentence

Credit loss (credit)/expense

ACL balance at September 30, 2023

ALL balance at January 1, 2022

Loan Charge-offs

Recoveries collected

Loan loss expense/(credit)

ALL balance at September 30, 2022

Three months ended (in thousands)

ACL balance at July 1, 2023

ACL balance at March 31, 2024

Beginning balance at January 1, 2023 prior to adoption of ASC 326

Impact of adopting ASC 326

Loan charge-offs

Recoveries collected

Credit loss expense/(credit)

ACL balance at September 30, 2023

ALL balance at July 1, 2022

Loan loss expense/(credit)

ALL balance at September 30, 2022

Credit loss (credit)/expense

ACL balance at March 31, 2023

The Corporation’s methodology for estimating the ACL includes:

47 unchanged sentences

Total Portfolio Loans

September 30, 2023

March 31, 2024

Commercial real estate:

85 unchanged sentences

Total Portfolio Loans

September 30, 2023

March 31, 2024

Commercial real estate:

76 unchanged sentences

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.

Several sources are utilized for valuing these assets, including a contracted valuation service, Standard & Poor’s evaluations and pricing services, and other valuation matrices.

Prices or valuation techniques that require inputs that are both significant to the valuation assumptions and not readily observable in the market (i.e.

5 unchanged sentences

The fair value of investments is determined using a market approach.

As of September 30, 2023, the U.S.

As of March 31, 2024, the U.S.

Government agencies and treasuries, residential and commercial mortgage-backed securities, collateralized mortgage obligations, and state and political subdivisions bonds, excluding tax increment financing (“TIF”) bonds, 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 the Corporation has historically transacted both purchases and sales of investment securities.

The TIF bonds and CDO portfolio, which consists of pooled trust preferred securities issued by banks, thrifts, and insurance companies, are classified as Level 3 within the valuation hierarchy.

The TIF bonds and collateralized debt obligation (“CDO”) portfolio, which consists of pooled trust preferred securities issued by banks, thrifts, and insurance companies, are classified as Level 3 within the valuation hierarchy.

The CDO fair values are determined by a third party using a discounted cash flow model.

23 unchanged sentences

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 September 30, 2023 and December 31, 2022 were as follows:

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2024 and December 31, 2023 were as follows:

Fair Value Measurements

at September 30, 2023 Using

at March 31, 2024 Using

Active Markets

11 unchanged sentences

Non-recurring:

Individually evaluated loans, net

Equity Investment

16 unchanged sentences

Non-recurring:

Impaired loans, net

Individually evaluated loans, net

Equity investment

Other real estate owned

At September 30, 2023, individually evaluated loans had a net carrying amount of $ 2.3 million with no valuation allowance.

At December 31, 2022, the fair value of impaired loans with a valuation allowance or charge-off was $ 1.0 million, net of valuation allowances of $ 64,700 and charge-offs of $ 1.3 million.

During the year ended December 31, 2022, changes to the valuation allowance or additional charge off activity was recorded on loans with a net balance of approximately $ 0.4 million.

There were no transfers of assets between any of the fair value hierarchy for the nine-month periods ended September 30, 2023 or 2022.

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

Individually evaluated loans had a net carrying amount of $ 14.9 million and $ 3.0 million with no valuation allowance at March 31, 2024 and December 31, 2023, respectively.

There were no transfers of assets between any of the fair value hierarchy for the three month periods ended March 31, 2024 or 2023.

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)

Fair Value at

September 30,

Investment Securities – available for sale -CDO

1 unchanged sentence

Discount Margin

Range of mid 500 to low 600

Range of low 500 to mid 500

Non-recurring:

Individually Evaluated Loans, net

Market Comparable Properties

Marketability Discount

Equity Investment

1 unchanged sentence

Revenue Multiples

Other Real Estate Owned

Market Comparable Properties

Marketability Discount

(in thousands)

2 unchanged sentences

Discounted Cash Flow

Discount Rate

Range of low to mid

300 and low to high 400

Discount Margin

Range of low to mid 500 and low to mid 600

Non-recurring:

Impaired Loans, net

Market Comparable Properties

Marketability Discount

10.0% - 15.0%

Equity Investment

1 unchanged sentence

Revenue Multiples

Other Real Estate

Market Comparable Properties

Marketability Discount

5.0 % to 15.0 % (weighted avg 5.9 %)

(1) Range would include discounts taken since appraisal and estimated values

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 nine- and three- month periods ended September 30, 2023 and 2022:

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive loss

Ending balance September 30, 2023

Ending balance March 31, 2024

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive loss

Ending balance September 30, 2022

Fair Value Measurements

Using Significant Unobservable Inputs

(in thousands)

Investment Securities

Available for Sale

Beginning balance July 1, 2023

Total gains realized/unrealized:

Included in other comprehensive income

Ending balance September 30, 2023

Fair Value Measurements

Using Significant Unobservable Inputs

(in thousands)

Investment Securities

Available for Sale

Beginning balance July 1, 2022

Total losses realized/unrealized:

Included in other comprehensive income

Ending balance September 30, 2022

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 nine- or three-month periods ended September 30, 2023 or 2022.

Ending balance March 31, 2023

There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the three-month periods ended March 31, 2024 or 2023.

The disclosed fair values may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies.

6 unchanged sentences

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:

September 30, 2023

March 31, 2024

Fair Value Measurements

8 unchanged sentences

Restricted bank stock

Loans held for sale

Financial derivatives

17 unchanged sentences

Restricted bank stock

Loans held for sale

Financial derivative

3 unchanged sentences

Deposits - time deposits

Financial derivatives

Short-term borrowed funds

2 unchanged sentences

Note 7 – Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2022 and the three-month periods ended March 31, 2023, June 30, 2023, and September 30, 2023:

The following table presents the changes in each component of accumulated other comprehensive loss for the three-month periods ended March 31, 2024 and 2023:

(in thousands)

1 unchanged sentence

Balance - January 1, 2024

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Balance - December 31, 2022

Other comprehensive (loss)/income before reclassifications

Other comprehensive income/(loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income

Balance - March 31, 2024

Other comprehensive income/(loss) before reclassifications

Balance - January 1, 2023

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Balance - June 30, 2023

Other comprehensive

income/(loss) before

reclassifications

Amounts reclassified from

accumulated other

comprehensive loss

Balance - September 30, 2023

The following tables present the components of other comprehensive loss for the nine- and three- month periods ended September 30, 2023 and 2022:

Components of Other Comprehensive Loss

Balance - March 31, 2023

The following tables present the components of other comprehensive income for the three-month periods ended March 31, 2024 and 2023:

Components of Other Comprehensive Income

(in thousands)

For the nine months ended September 30, 2023

For the three months ended March 31, 2024

Available for sale (AFS) securities with credit related impairment:

Unrealized holding losses

Unrealized holding gains

accretable yield recognized in income

Net unrealized losses on investments with credit related impairment

Net unrealized gains on investments with credit related impairment

Available for sale securities – all other:

1 unchanged sentence

Held to maturity securities:

Unrealized holding losses on securities transferred to held to maturity

Unrealized holding gains on securities transferred to held to maturity

amortization recognized in income

6 unchanged sentences

Net pension plan liability adjustment

Unrealized net actuarial loss

Unrealized net actuarial gain

amortization of unrecognized loss

Net SERP liability adjustment

Other comprehensive loss

Components of Other Comprehensive Loss

Other comprehensive income

Components of Other Comprehensive Income

(in thousands)

For the nine months ended September 30, 2022

For the three months ended March 31, 2023

Available for sale (AFS) securities with credit related impairment:

Unrealized holding gains

accretable yield recognized in income

Net unrealized losses on investments with credit related impairment

Available for sale securities – all other:

Unrealized holding losses

Unrealized holding losses on securities transferred from available for sale to held to maturity

gains recognized in income

Net unrealized losses on all other AFS securities

Held to maturity securities:

Unrealized holding losses on securities transferred to held to maturity

gains recognized in income

amortization recognized in income

Net unrealized losses on HTM securities

Cash flow hedges:

Unrealized holding gains

Pension Plan:

Unrealized net actuarial loss

amortization of unrecognized loss

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

amortization of prior service costs

Net SERP liability adjustment

Other comprehensive loss

Components of Other Comprehensive Loss

(in thousands)

For the three months ended September 30, 2023

Available for sale (AFS) securities with credit related impairment:

Unrealized holding gains

accretable yield recognized in income

Net unrealized gains on investments with credit related impairment

Available for sale securities – all other:

Net unrealized losses on all other AFS securities

Held to maturity securities:

Unrealized holding gains

amortization recognized in income

Net unrealized gains on HTM securities

Cash flow hedges:

Unrealized holding gains

Pension Plan:

Unrealized net actuarial loss

amortization of unrecognized loss

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

Net SERP liability adjustment

Other comprehensive loss

Components of Other Comprehensive Loss

(in thousands)

For the three months ended September 30, 2022

Available for sale (AFS) securities with credit related impairment:

Unrealized holding gains

accretable yield recognized in income

Net unrealized losses on investments with credit related impairment

Available for sale securities – all other:

Unrealized holding losses

gains recognized in income

Net unrealized losses on all other AFS securities

Held to maturity securities:

Unrealized holding gains

gains recognized in income

Net unrealized gains on all other AFS securities

Held to maturity securities:

Unrealized holding gains on securities transferred to held to maturity

amortization recognized in income

1 unchanged sentence

Cash flow hedges:

Unrealized holding gains

Unrealized holding loss

Pension Plan:

Unrealized net actuarial loss

Unrealized net actuarial gain

amortization of unrecognized loss

amortization of prior service costs

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

amortization of prior service costs

Unrealized net actuarial gain

amortization of unrecognized gain

Net SERP liability adjustment

Other comprehensive loss

The following table presents the details of amounts reclassified from accumulated other comprehensive loss for the nine- and three- month periods ended September 30, 2023 and 2022:

Other comprehensive income

The following table presents the details of amounts reclassified from accumulated other comprehensive income for the three-month periods ended March 31, 2024 and 2023:

Amounts Reclassified from

Nine Months Ended

Three Months Ended

Accumulated Other Comprehensive Loss

September 30,

Affected Line Item in the Statement

1 unchanged sentence

Where Net Income is Presented

Net unrealized gains on available for sale investment securities with OTTI:

Net unrealized gains on available for sale investment securities with credit related impairment:

Accretable yield

1 unchanged sentence

Credit for income tax expense

Net unrealized gains on available for sale investment securities - all others:

Gains recognized

Provision for income tax expense

Net unrealized losses on held to maturity securities:

Interest income on taxable investment securities

Gains/(losses) recognized

Net gains/(losses)

Provision for income tax expense

4 unchanged sentences

Net SERP liability adjustment:

Amortization of unrecognized gain/(loss)

Amortization of unrecognized (loss)/gain

Other Expense

1 unchanged sentence

Total reclassifications for the period

Amounts Reclassified from

Three Months Ended

Accumulated Other Comprehensive Loss

September 30,

Affected Line Item in the Statement

(in thousands)

Where Net Income is Presented

Net unrealized gains on available for sale investment securities with OTTI:

Accretable Yield

Interest income on taxable investment securities

Provision for income tax expense

Net unrealized losses on held to maturity securities:

Interest income on taxable investment securities

Gains/(losses) recognized

Net gains/(losses)

Provision for income tax expense

Net pension plan liability adjustment:

Amortization of unrecognized loss

Other expense

Provision for income tax expense

Net SERP liability adjustment:

Amortization of unrecognized loss

Other expense

Provision for income tax expense

Total reclassifications for the period

Note 8 - Equity Compensation Plan Information

5 unchanged sentences

In May 2023, a total of 16,931 fully vested shares of common stock were issued to directors, which had a grant date fair value of $ 13.23 per share.

In May 2022, a total of 14,940 fully vested shares of common stock were issued to directors, which had a grant date fair value of $ 18.92 per share.

In January 2023, a total of 333 fully vested shares of common stock were issued to a new director, which had a grant date fair value of $ 19.36 per share.

Director stock compensation was $ 194,001 for the nine months ended September 30, 2023 and $ 196,254 for the nine months ended September 30, 2022.

Director stock compensation expense was $ 56,000 for the quarter ended September 30, 2023 and $ 70,666 for the quarter ended September 30, 2022.

During the nine- and three-month periods ended September 30, 2023, employee stock compensation expense was approximately $ 12,000 and $ 5,000 , respectively.

Employee stock compensation expense was $ 0 for both the nine- and three-month periods ended September 30, 2022.

In October 2023, a toal of 852 fully vested shares of common stock were issued to a new director which had a grant date fair value of $ 16.26 per share.

Director stock compensation expense was $ 61,937 for the three months ended March 31, 2024 and $ 75,501 for the three months ended March 31, 2023.

Employee stock compensation was $ 5,058 and $ 2,832 for the three-month periods ended March 31, 2024 and 2023, 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 "Committee") granted RSUs to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers.

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.

1 unchanged sentence

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 Committee and maximum performance represented a level potentially achievable under ideal circumstances.

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 the threshold performance level would result in each executive participant earning a payout at 50 % of his or her respective target award opportunity.

1 unchanged sentence

Actual results for any goal that falls between performance levels would be interpolated to calculate a proportionate award.

For the performance period ending December 31, 2022, the RSUs performance goals are based on earnings per share for the year ending December 31, 2022 and growth in tangible book value per share during the performance period.

For the performance period ending December 31, 2023, the RSUs performance goals are based on earnings per share for the year ending December 31, 2023 and growth in tangible book value per share during the performance period.

For the performance period ending December 31, 2024, the RSUs performance goals are based on earnings per share for the year ending December 31, 2024 and growth in tangible book value per share during the performance period.

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"

In the first quarter of 2020, RSUs were granted relating to (i) 9,791 performance-vesting shares (target level) for the performance period ending December 31, 2021 (the “2019 LTIP year”) and (ii) 10,143 performance-vesting shares and 5,070 time-vesting shares (target level) for the performance period ending December 31, 2022 (the “2020 LTIP year”).

Each RSU had a grant date fair market value of $ 12.54 per share of common stock underlying the RSU.

The time-vesting RSUs will vest ratably over a three-year period that began on March 26, 2021.

On March 9, 2022, 14,688 shares subject to RSUs granted for the 2019 LTIP year were issued at maximum performance level.

On March 8, 2023, 15,216 shares subject to RSUs granted for the 2020 LTIP year were issued at maximum performance.

On March 26, 2021, 1,690 of the 5,070 time-vesting shares were issued to participants.

On March 28, 2022, 1,688 shares of the 3,380 remaining time-vesting shares were issued to participants.

On March 26, 2023, 1,692 shares of the remaining time-vesting shares were issued to participants.

Net stock compensation expense/(credit) was $ 15,896 for the nine months ended September 30, 2023, and ($ 5,299 ) for the nine months ended September 30, 2022.

Stock compensation expense was $ 0 and ($ 37,091 ) for the third quarters of 2023 and 2022, respectively.

All compensation expense related to the 2019 LTIP year was recognized as of March 31, 2022.

All compensation expense related to the 2020 LTIP plans was recognized as of March 31, 2023.

In May 2021, RSUs relating to 7,389 performance vesting shares and 3,693 time vesting shares (target level) for plan year 2021 were granted, 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 is the three-year period ending December 31, 2023.

The performance period for the performance-vesting RSUs was the three-year period ending December 31, 2023.

On March 9, 2024, it was determined that 7,389 performance-vesting RSUs failed to vest.

The time-vesting RSUs will vest ratably over a three year period beginning on May 5, 2022.

On May 5, 2022, 1,230 shares of the 3,693 time-vesting RSUs were issued to participants.

On May 5, 2023, 1,230 shares of the remaining 2,463 time-vesting shares were issued to the participants.

Stock compensation expense was $ 49,714 for the nine-month periods ended of 2023 and 2022.

Stock compensation expense was $ 16,571 for both of the three-month periods ended September 30, 2023 and 2022.

Unrecognized compensation expense as of September 30, 2023 related to unvested units was $ 38,667 .

On May 5, 2023, 1,230 additional shares of the 3,693 time-vesting RSUs were issued to participants.

Stock compensation expense was

$ 5,524 and $ 16,571 for the three-month periods ended March 31, 2024 and 2023, respectively.

Unrecognized compensation expense as of March 31, 2024 related to unvested units was $ 1,841 .

In March 2022, RSUs relating to 8,096 performance vesting shares and 6,238 time vesting shares (target level) for plan year 2022 were granted, which had a grant date fair market value of $ 21.88 per share of common stock underlying each RSU.

1 unchanged sentence

The time-vesting RSUs will vest ratably over a three year period beginning on March 9, 2023.

On March 9, 2023, 2,079 shares of the 6,238 time-vesting

RSUs were issued to participants.

Stock compensation expense was $ 78,436 and $ 52,290 for the nine-month periods ended September 30, 2023 and 2022, respectively.

Stock compensation expense was $ 26,145 for both of the three-month periods ended September 30, 2023 and 2022.

Unrecognized compensation expense as of September 30, 2023 related to unvested units was $ 156,872 .

On March 9, 2023 2,079 shares of the 6,238 time-vesting RSUs were issued to participants.

On March 9, 2024 2,079 additional shares of the 6,238 time-vesting RSUs were issued to participants.

Stock compensation expense was $ 26,145 for each of the three-month periods ended March 31, 2024 and 2023.

Unrecognized compensation expense as of March 31, 2024 related to unvested units was $ 104,581 .

In March 2023, RSUs relating to 10,214 performance vesting shares and 7,920 time vesting shares (target level) for plan year 2023 were granted, which had a grant date fair market value of $ 18.25 per share of common stock underlying each RSU.

1 unchanged sentence

The time-vesting RSUs will vest ratably over a three year period beginning on March 15, 2024.

Stock compensation expense was $ 55,170 and $ 27,585 for the nine- and three-month periods ended September 30, 2023.

Unrecognized compensation expense as of September 30, 2023 related to unvested units was $ 275,859 .

On March 15, 2024 2,639 shares of the 7,920 time-vesting RSUs were issued to participants.

Stock compensation expense was $ 27,585 for the three month period ended March 31, 2024.

Unrecognized compensation expense as of March 31, 2024 related to unvested units was $ 220,679 .

No new RSUs were granted during the three months ended March 31, 2024.

Note 9– Derivative Financial Instruments

3 unchanged sentences

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 September 30, 2023, $ 15.0 million notional amount remains.

As of March 31, 2024, $ 15.0 million notional amount remains.

The interest rate swap creates an effective fixed interest rate of 4.6450 % 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 $ 1.1 million at both September 30, 2023 and December 31, 2022.

For the nine months ended September 30, 2023, the Corporation recorded an increase in the value of the derivatives of thousand and the related deferred tax of $ 7 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.

For the three months ended September 30, 2023, the Corporation recorded an increase in the value of the derivatives of $ 14 thousand and the related deferred tax of $3 thousand in net accumulated other comprehensive income to reflect the effective portion of cash flow hedges.

The fair value of the interest rate swap contracts was $ 0.8 million at March 31, 2024 and December 31, 2023.

For the three months ended March 31, 2024, the Corporation recorded an increase in the value of the derivatives of $ 73 thousand and the related deferred tax of $ 19 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.

ASC Subtopic 815-30 requires the net accumulated other comprehensive loss to be reclassified to earnings if the hedge becomes ineffective or is terminated.

There was no hedge ineffectiveness recorded for the nine- or three-month periods ended September 30, 2023.

There was no hedge ineffectiveness recorded for the three month period ended March 31, 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 September 30, 2023.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the nine-and three-month periods ended September 30, 2023 and 2022.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three-month periods ended March 31, 2024 and 2023.

Derivative in Cash Flow Hedging Relationships

15 unchanged sentences

Interest rate contracts:

Nine months ended:

September 30, 2023

September 30, 2022

Three months ended:

September 30, 2023

September 30, 2022

March 31, 2024

March 31, 2023

(a) Reported as interest expense

1 unchanged sentence

Note 10 – Regulatory Capital Requirements

The following table presents our capital ratios as of September 30, 2023 and December 31, 2022.

September 30,

The following table presents our capital ratios as of March 31, 2024 and December 31, 2023.

Total Capital (to risk-weighted assets)

2 unchanged sentences

Tier 1 Capital (to average assets)

As of September 30, 2023 and December 31, 2022, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

We adopted CECL effective January 1, 2023 and elected not to implement the regulatory agencies’ capital transition and instead opted to record the impact to our capital ratios immediately upon implementation.

Effective with the implementation of CECL, a $ 2.2 million adjustment, net of tax, was made to retained earnings.

The adjustment did not have a material impact to our capital ratios.

As of March 31, 2024 and December 31, 2023, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

Note 11 – Deposits

The following table summarizes deposits as of September 30, 2023 and December 31, 2022.

(dollars in thousands)

September 30, 2023

The following table summarizes deposits at March 31, 2024 and December 31, 2023.

(in thousands)

March 31, 2024

December 31, 2023

7 unchanged sentences

The following is a summary of borrowings:

(Dollars in thousands)

September 30, 2023

(in thousands)

March 31, 2024

December 31, 2023

Short-term Correspondent Bank Advance:

Securities sold under agreements to repurchase:

4 unchanged sentences

Approximate weighted average rate during the period

FHLB advances, bearing fixed interest at rates ranging from 4.53 % to 4.69 % at September 30, 2023

Junior subordinated debt, bearing variable interest rate of 8.42 % at September 30, 2023 and 7.49 % at December 31, 2022

Bank Term Funding Program, fixed rate of 4.87 % at March 31, 2024

FHLB advances, bearing fixed interest rate of 4.53 % at March 31, 2024 and rates ranging from 4.53 % to 4.69 % at December 31, 2023.

Junior subordinated debt, bearing variable interest rate of 8.34 % at March 31, 2024 and 8.39 % at December 31, 2023

Total borrowings outstanding

At September 30, 2023, the repurchase agreements were secured by $ 58.7 million in investment securities issued by government related agencies.

Short-term borrowings increased by $ 34.1 million, as the Bank borrowed $ 40.0 million from the Bank Term Funding Program of the Board of Governors of the Federal Reserve System in January 2024, which was partially offset by a decrease of $ 5.9 million in other short-term borrowings due to fluctuations in municipal customer balances in overnight investment sweep products.

At March 31, 2024, the repurchase agreements were secured by $ 52.7 million in investment securities issued by government related agencies.

A minimum of 102 % of fair value is pledged against account balances.

Long-term borrowings decreased by $ 40.0 million as a $ 40.0 million advance from the Federal Home Loan Bank matured in March 2024 and was fully repaid.

Note 13 – Segment Reporting

8 unchanged sentences

Expenses include personnel, occupancy, marketing, equipment, and other expenses.

Non-cash charges other than depreciation of fixed assets were immaterial for the nine and three months ended September 30, 2023 and 2022.

Non-cash charges other than depreciation of fixed assets were immaterial for the three months ended March 31, 2024 and 2023.

Trust and Investment Services :

2 unchanged sentences

Expenses include personnel, occupancy, marketing, equipment, and other expenses.

Non-cash charges associated with amortization of intangibles were approximately $ 156,000 for both of the nine-month periods ended September 30, 2023 and 2022 and $ 52,000 for both of the three-month periods ended September 30, 2023 and 2022.

Information for the operating segments for the nine- and three-month periods ended September 30, 2023 are presented in the following tables:

Nine Months Ended

September 30, 2023

(in thousands)

Interest income

Interest expense

Credit loss expense

Non-interest income

Non-interest expense

Income before income taxes and intercompany fees

Intercompany management fee income (expense)

Income before income taxes

Income tax expense

Nine months ended

September 30, 2022

(in thousands)

Interest income

Interest expense

Credit loss expense

Non-interest income

Non-interest expense

Income before income taxes and intercompany fees

Intercompany management fee income (expense)

Income before income taxes

Income tax expense

Non-cash charges associated with amortization of intangibles were approximately $ 52,000 for both of the three-month periods ended March 31, 2024 and 2023.

Information for the operating segments for the three month periods ended March 31, 2024 and 2023 are presented in the following tables:

Three Months Ended

September 30, 2023

March 31, 2024

(in thousands)

9 unchanged sentences

Three Months Ended

September 30, 2022

March 31, 2023

(in thousands)

1 unchanged sentence

Interest expense

Credit loss credit

Credit loss expense

Non-interest income

4 unchanged sentences

Income tax expense

Total non-fiduciary assets of the trust and investment services segment were $ 0.8 million (including $ 0.7 million in intangible assets) at September 30, 2023 and $ 0.9 million (including $ 0.8 million in intangible assets) at December 31, 2022.

Note 14 – Goodwill

ASC Topic 350, Intangibles- Goodwill and Other Intangibles provides guidance with respect to goodwill.

Under this guidance, goodwill is not amortized but shall be tested at least annually for impairment at a level of accounting referred to as a reporting unit.

The Corporation is considered the sole reporting unit.

Goodwill of a reporting unit shall be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Impairment of goodwill is the condition that exists when the carrying amount of a reporting unit that includes goodwill exceeds the fair value.

A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds fair value, limited to the total amount of goodwill allocated to that reporting unit.

An entity may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.

If after assessing the totality of events or circumstances qualitatively, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is unnecessary.

Management notes that the heightened liquidity concerns that caused the failure of three banks in the United States in 2023 has had global impacts on some macroeconomic conditions and has created an unprecedented economic environment in which the Corporation and many other financial institutions are operating.

The uncertainty has resulted in a significant decrease in the Corporation’s stock price, as well as the banking industry in general.

Based on the totality of the circumstances and the impact of the economic conditions on the stock price, an internal analysis as of September 30, 2023, was performed.

The results of the internal analysis determined there is no goodwill impairment as of September 30, 2023.

Management will continue to monitor the goodwill throughout the remainder of 2023.

Total non-fiduciary assets of the trust and investment services segment were $ 0.7 million (including $ 0.6 million in intangible assets) at both March 31, 2024 and December 31, 2023.

All other assets (including goodwill of $ 11.0 million as of both

March 31, 2024 and December 31, 2023 and other intangible assets of $ 0.4 million and $ 0.5 million as of March 31, 2024 and December 31, 2023, respectively) were held by the community banking segment.

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.

What changed 10-Q

Item 1. Financial Statements