What changed in this filing

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Item 1. Financial Statements

2024-08-07 compared with 2024-05-08 · 434 added, 146 removed, 998 unchanged (37% of the section changed)

7 unchanged sentences

Investment securities – available for sale (at fair value)

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)

Investment securities – held to maturity, net of allowance for credit losses of $ 45 at June 30, 2024 and December 31, 2023 (fair value $ 143,030 at June 30, 2024 and $ 184,415 at December 31, 2023)

Restricted investment in bank stock, at cost

26 unchanged sentences

Authorized 25,000,000 shares;

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

issued and outstanding 6,465,601 shares at June 30, 2024 and 6,639,888 at December 31, 2023

Retained earnings

6 unchanged sentences

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Interest income

14 unchanged sentences

Credit loss expense - loans

Credit loss expense - off-balance sheet credit exposures

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

Total credit loss expense

32 unchanged sentences

First United Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended

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 - loans

Credit loss credit - off-balance sheet credit exposures

Total credit loss expense/(credit)

Net interest income after provision for credit losses

Other operating income

Gains on sales of residential mortgage loans

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

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

See accompanying notes to the consolidated financial statements

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended

Six Months Ended

Comprehensive Income

1 unchanged sentence

Available for sale securities:

Unrealized holding gains/(losses) on investments with credit related impairment

Unrealized holding losses on investments with credit related impairment

Reclassification adjustment for accretable yield realized in income

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

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

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

Other comprehensive loss on investments with credit related impairment

Unrealized holding losses on all other AFS investments

Other comprehensive loss on all other AFS investments

Held to Maturity Securities

Unrealized holding losses on securities transferred to held to maturity

Unrealized holding gains on securities transferred to held to maturity

Reclassification adjustment for amortization realized in income

1 unchanged sentence

Cash flow hedges:

Unrealized holding gains/(losses) on cash flow hedges

Other comprehensive income/(loss) on cash flow hedges

Unrealized holding gains on cash flow hedges

Other comprehensive income on cash flow hedges

Pension plan liability:

1 unchanged sentence

Reclassification adjustment for amortization of unrecognized loss realized in income

Other comprehensive gain on pension plan liability

Other comprehensive income on pension plan liability

SERP liability:

2 unchanged sentences

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

Other comprehensive loss before income tax

Income tax effect related to other comprehensive loss

Other comprehensive loss, net of tax

Comprehensive income

1 unchanged sentence

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended

Comprehensive Income

Other comprehensive loss, net of tax and reclassification adjustments:

Available for sale securities:

Unrealized holding (losses)/gains on investments with credit related impairment

Reclassification adjustment for accretable yield realized in income

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

Unrealized holding losses on all other AFS investments

Other comprehensive loss on all other AFS investments

Held to Maturity Securities

Unrealized holding losses on securities transferred to held to maturity

Unrealized holding gains on HTM investments

Reclassification adjustment for amortization realized in income

Other comprehensive income on HTM investments

Cash flow hedges:

Unrealized holding (losses)/gains on cash flow hedges

Other comprehensive (loss)/income on cash flow hedges

Pension plan liability:

Unrealized holding losses on pension plan liability

Reclassification adjustment for amortization of unrecognized loss realized in income

Other comprehensive (loss)/income on pension plan liability

SERP liability:

Unrealized holding losses on SERP liability

Reclassification adjustment for amortization of unrealized loss realized in income

Other comprehensive income/(loss) on SERP liability

Other comprehensive loss before income tax

Income tax benefit related to other comprehensive income

Other comprehensive loss, net of tax

Comprehensive income

See accompanying notes to the consolidated financial statements

First United Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

8 unchanged sentences

Balance at March 31, 2024

Other comprehensive loss

Stock based compensation

Common stock issued - 18,756 shares

Common stock repurchase - 201,800 shares

Common stock dividend declared - $ 0.20 per share

Balance at June 30, 2024

First United Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except per share data)

Comprehensive

7 unchanged sentences

Balance at March 31, 2023

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

See accompanying notes to the consolidated financial statement

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

13 unchanged sentences

Amortization of operating lease right of use asset

Decrease in accrued interest receivable and other assets

Deferred tax expense/(benefit)

Decrease/(increase) in accrued interest receivable and other assets

Deferred tax (benefit)/expense

Operating lease liability

Decrease in accrued interest payable and other liabilities

(Decrease)/increase in accrued interest payable and other liabilities

Net cash provided by operating activities

8 unchanged sentences

Financing activities

Net increase in deposits

Net (decrease)/increase in deposits

Issuance of common stock

1 unchanged sentence

Net increase/(decrease) in short-term borrowings

Stock repurchase

Proceeds from long-term borrowings

Payments of long-term borrowings

Net cash provided by financing activities

Increase in cash and cash equivalents

Net cash (used in)/provided by financing activities

(Decrease)/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

See accompanying notes to the consolidated financial statements

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.

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.

Operating results for the six- and three-month periods ended June 30, 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.

8 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 March 31, 2024 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 June 30, 2024 and through the date these consolidated financial statements were issued, for items of potential recognition or disclosure.

Newly Adopted Pronouncements in 2024

10 unchanged sentences

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

The Corporation had no financial instruments tied to LIBOR at June 30, 2024.

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

20 unchanged sentences

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

There were no anti-dilutive shares outstanding at March 31, 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,

There were no anti-dilutive shares outstanding at June 30, 2024 or 2023.

The following table sets forth the calculation of basic and diluted earnings per common share for the six- and three-month periods ended June 30, 2024 and 2023:

Six months ended June 30,

(in thousands, except for per share amount)

2 unchanged sentences

Restricted stock units

Three months ended June 30,

(in thousands, except for per share amount)

Basic Earnings Per Share:

Diluted Earnings Per Share:

Restricted stock units

Note 4 – Investments

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

The following tables show a comparison of amortized cost and fair values of investment securities at June 30, 2024 and December 31, 2023:

(in thousands)

1 unchanged sentence

Estimated Fair Value

March 31, 2024

June 30, 2024

Available for Sale:

10 unchanged sentences

Allowance for Credit Losses

March 31, 2024

June 30, 2024

Held to Maturity:

29 unchanged sentences

Total held to maturity

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.

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

For 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.

3 unchanged sentences

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.

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.

3 unchanged sentences

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.

AFS debt securities are placed on non-accrual 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 non-accrual status.

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

2 unchanged sentences

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:

The Corporation recorded ACL of approximately $ 45,000 as of June 30, 2024 and December 31, 2023, related to one bond in its HTM security portfolio.

The following tables show the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at June 30, 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)

March 31, 2024

June 30, 2024

Available for Sale:

10 unchanged sentences

(in thousands)

March 31, 2024

June 30, 2024

Held to Maturity:

29 unchanged sentences

Total held to maturity

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

The amortized cost and estimated fair value of securities by contractual maturity at June 30, 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.

March 31, 2024

June 30, 2024

(in thousands)

9 unchanged sentences

Held to Maturity:

Due in one year or less

Due after one year through five years

6 unchanged sentences

Note 5 – Loans and Related Allowance for Credit Losses

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

The following table summarizes the primary segments of the loan portfolio at June 30, 2024 and December 31, 2023:

(in thousands)

March 31, 2024

June 30, 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 March 31, 2024 and December 31, 2023:

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at June 30, 2024 and December 31, 2023:

(in thousands)

March 31, 2024

June 30, 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 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.

Non-accrual loans that have been subject to partial charge-offs totaled $ 1.1 million at June 30, 2024 and $ 0.1 million at December 31, 2023.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 1.5 million at June 30, 2024 and $ 1.8 million at December 31, 2023 .

As a percentage of the loan portfolio, accruing loans past due 30 days or more was 0.26 % at June 30, 2024 compared to 0.24 % at December 31, 2023 and 0.18 % as of June 30, 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:

(i) commercial real estate, (ii) acquisition and development, (iii) commercial and industrial, (iv) residential mortgage, and (v) consumer.

(i) commercial real estate;

(ii) acquisition and development;

(iii) commercial and industrial;

(iv) residential mortgage;

and (v) consumer.

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

18 unchanged sentences

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.

Residential mortgage loans are secured by first and junior liens such as home equity lines of credit and 1-4 family residential mortgages.

The primary source of repayment for these loans is the income of the borrower.

7 unchanged sentences

The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

The following table summarizes the primary segments of the ACL at March 31, 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:

The following table summarizes the primary segments of the ACL at June 30, 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)

March 31, 2024

June 30, 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 March 31, 2024 and December 31, 2023..

March 31, 2024

The following tables present the amortized cost basis of collateral-dependent individually evaluated loans as of June 30, 2024 and December 31, 2023.

June 30, 2024

(in thousands)

10 unchanged sentences

Residential mortgage

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)

The following tables present the activity in the ACL for the six- and three-month periods ended June 30, 2024 and 2023:

Six months ended (in thousands)

Beginning balance at January 1, 2024

2 unchanged sentences

Credit loss (credit)/expense

ACL balance at March 31, 2024

ACL balance at June 30, 2024

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

3 unchanged sentences

Credit loss (credit)/expense

ACL balance at March 31, 2023

ACL balance at June 30, 2023

Three months ended (in thousands)

ACL balance at April 1, 2024

Loan charge-offs

Recoveries collected

Credit loss (credit)/expense

ACL balance at June 30, 2024

ACL balance at April 1, 2023

Loan Charge-offs

Recoveries collected

Credit loss expense/(credit)

ACL balance at June 30, 2023

The Corporation’s methodology for estimating the ACL includes:

28 unchanged sentences

The annual loan review provides the Credit Risk Committee with an independent analysis of the following:

(i) credit quality of the loan portfolio, (ii) compliance with loan policy, (iii) adequacy of documentation in credit files and (iv) validity of risk ratings.

(i) credit quality of the loan portfolio;

(ii) compliance with loan policy;

(iii) adequacy of documentation in credit files;

and (iv) validity of risk ratings.

The Corporation’s internally assigned grades are as follows:

12 unchanged sentences

Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.

The following table presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of dates presented:

The following tabls present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of dates presented:

(in thousands)

1 unchanged sentence

Total Portfolio Loans

March 31, 2024

June 30, 2024

Commercial real estate:

85 unchanged sentences

Total Portfolio Loans

March 31, 2024

June 30, 2024

Commercial real estate:

60 unchanged sentences

Total Portfolio Loans

Loan Modfications for Borrowers Experiencing Financial Difficulty

The Company evaluates all loan modifications according to the accounting guidance in ASU 2022-02 to determine if the modification results in a new loan or a continuation of the existing loan.

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

modifications.

Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows.

The Company may offer various types of modifications when restructuring a loan.

Commercial and industrial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting credit lines to term loans.

Additonal collateral, a co-borrower, or a guarantor is often requested.

Commercial mortgage and construction loans modified in a loan restructuring often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor.

Construction loans modified in a loan restructuring may also involve extending the interest-only payment period.

Loans modified in a loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan.

An allowance for loans that have been modified in a loan restructuring is measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent.

Management exercises significant judgment in developing these estimates.

Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default.

If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further loss.

The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

The following tables present the amortized cost basis as of June 30, 2024 and the financial effect of loans modified to borrowers experiencing financial difficulty during the six- and three-months ended June 30, 2024:

(in thousands)

Term Extension

Percentage of Total Loan Type

Weighted Average Term and Principal Payment Extension

Six months ended June 30, 2024

Owner-occupied commercial real estate

(in thousands)

Term Extension

Percentage of Total Loan Type

Weighted Average Term and Principal Payment Extension

Three months ended June 30, 2024

Owner-occupied commercial real estate

There were no loan modifications made to borrowers experiencing financial difficulty during the six- or three-month period ending June 30, 2023.

The Company monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default.

As of June 30, 2024, the loan that was modified in the second quarter has made all contractual payments.

If a modified loan over $ 0.1 million subsequently defaults and goes on non-accrual status, the Company individually evaluates the loan when performing its CECL estimate to calculate the ACL.

Upon determination that a modified loan (or a portion of a modified loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.

Note 6 – Fair Value of Financial Instruments

22 unchanged sentences

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

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

As of June 30, 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.

7 unchanged sentences

Individually Evaluated Loans- Individual loans with borrowers experiencing financial difficulty and with a remaining principal balance of $ 0.1 million or more are evaluated for potential specific reserves and adjusted, if a shortfall exists, to fair value less costs to sell.

Fair value is measured based on the value of the value of the underlying collateral securing the loan if repayment is expected solely from the sale of operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent.

Fair value is measured based on the value of the underlying collateral securing the loan if repayment is expected solely from the sale of operation of the collateral or present value of estimated future cash flows discounted at the loan’s contractual interest rate if the loan is not determined to be collateral dependent.

Fair value for individually evaluated loans is determined using several methods.

16 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 March 31, 2024 and December 31, 2023 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 June 30, 2024 and December 31, 2023 were as follows:

Fair Value Measurements

at March 31, 2024 Using

at June 30, 2024 Using

Active Markets

33 unchanged sentences

Other real estate owned

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:

Individually evaluated loans had a net carrying amount of $ 8.8 million and $ 3.0 million with no valuation allowance at June 30, 2024 or December 31, 2023.

There were no transfers of assets between any of the fair value hierarchy for the six-month periods ended June 30, 2024 or 2023.

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)

3 unchanged sentences

Discount Margin

Range of low 500 to mid 500

Range of mid 400 to high 400

Non-recurring:

Individually Evaluated Loans, net

Market Comparable Properties

Marketability Discount

Equity Investment

4 unchanged sentences

Marketability Discount

5.0 % to 15.0 % (weighted avg 5.9 %)

(in thousands)

13 unchanged sentences

(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 three-month periods ended March 31, 2024 and 2023:

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive loss

Ending balance March 31, 2024

Ending balance June 30, 2024

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive loss

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.

Ending balance June 30, 2023

Fair Value Measurements

Using Significant Unobservable Inputs

(in thousands)

Investment Securities

Available for Sale

Beginning balance April 1, 2024

Total losses realized/unrealized:

Included in other comprehensive loss

Ending balance June 30, 2024

Fair Value Measurements

Using Significant Unobservable Inputs

(in thousands)

Investment Securities

Available for Sale

Beginning balance April 1, 2023

Total losses realized/unrealized:

Included in other comprehensive loss

Ending balance June 30, 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 six- or three-month periods ended June 30, 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:

March 31, 2024

June 30, 2024

Fair Value Measurements

36 unchanged sentences

Note 7 – Accumulated Other Comprehensive Loss

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

The following table presents the changes in each component of accumulated other comprehensive loss for the three-month periods ended June 30 2024, March 31, June 30, 2023 and March 31,2023:

(in thousands)

4 unchanged sentences

Balance - March 31, 2024

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated other comprehensive income

Balance - June 30, 2024

Accumulated OCL, net:

Balance - January 1, 2023

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Amounts reclassified from accumulated other comprehensive income

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

Other comprehensive income/(loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Balance - June 30, 2023

The following tables present the components of other comprehensive loss for the six- and three-month periods ended June 30, 2024 and 2023:

Components of Other Comprehensive Loss

(in thousands)

For the three months ended March 31, 2024

For the six months ended June 30, 2024

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

Unrealized holding gains

Unrealized holding losses

accretable yield recognized in income

Net unrealized gains on investments with credit related impairment

Net unrealized losses on investments with credit related impairment

Available for sale securities – all other:

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Net SERP liability adjustment

Other comprehensive income

Other comprehensive loss

Components of Other Comprehensive Income

(in thousands)

For the three months ended March 31, 2023

For the six months ended June 30, 2023

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

3 unchanged sentences

Available for sale securities – all other:

Unrealized holding gains

Net unrealized gains on all other AFS securities

Unrealized holding losses

Held to maturity securities:

3 unchanged sentences

Cash flow hedges:

Unrealized holding loss

Unrealized holding gain

Pension Plan:

5 unchanged sentences

Net SERP liability adjustment

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:

Other comprehensive loss

Components of Other Comprehensive Loss

(in thousands)

For the three months ended June 30, 2024

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

Unrealized holding losses

accretable yield recognized in income

Net unrealized losses on investments with credit related impairment

Available for sale securities – all other:

Unrealized holding losses

Held to maturity securities:

Unrealized holding gains

amortization recognized in income

Net unrealized gains on HTM securities

Cash flow hedges:

Unrealized holding losses

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 June 30, 2023

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

Unrealized holding gains

accretable yield recognized in income

unrealized losses on investments with credit related impairment

Available for sale securities – all other:

Unrealized holding losses

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

The following table presents the details of amounts reclassified from accumulated other comprehensive loss for the six- and three-month periods ended June 30, 2024 and 2023:

Amounts Reclassified from

Three Months Ended

Six Months Ended

Accumulated Other Comprehensive Loss

5 unchanged sentences

Interest income on taxable investment securities

Credit for income tax expense

Provision for income tax expense

Net unrealized losses on held to maturity securities:

8 unchanged sentences

Other Expense

(Credit)/provision for income tax expense

Provision for income tax expense

Total reclassifications for the period

Amounts Reclassified from

Three Months Ended

Accumulated Other Comprehensive Loss

Affected Line Item in the Statement

(in thousands)

Where Net Income is Presented

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

Accretable yield

Interest income on taxable investment securities

Provision for income tax expense

Net unrealized losses on held to maturity securities:

Interest income on taxable investment securities

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

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In May 2024, a total of 14,325 fully vested shares of common stock were issued to directors, which had a grant date fair value of $ 21.94 per share.

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 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.

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.

In October 2023, a total 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 was $ 134,964 and $ 138,001 for the six-month periods ending June 30, 2024 and 2023, respectively.

Director stock compensation expense was $ 73,027 and $ 62,500 for the three-month periods ended June 30, 2024 and 2023, respectively.

Employee stock compensation expense was $ 5,757 and $ 7,104 for the six-month periods ended June 30, 2024 and 2023, respectively.

Employee stock compensation expense was $ 699 and $ 4,272 for the three-month periods ended June 30, 2024 and 2023, respectively.

Restricted Stock Units

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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.

Achievement of the target performance level would result in the executive participant earning the target award and achievement at or above the maximum performance level would result in the executive participant earning 150 % of the target opportunity.

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

Achievement of all target performance levels would result in the executive participant earning the target award.

Achievement at or above all maximum performance levels would result in the executive participant earning 150 % of the target opportunity.

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

1 unchanged sentence

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 was the three-year period ending December 31, 2023.

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

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

2 unchanged sentences

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 .

On May 5, 2024, the remaining 1,233 shares of the 3,693 time-vesting RSUs were issued to participants.

Stock compensation expense was $ 7,365 and $ 33,142 for the six-month periods ended June 30, 2024 and 2023, respectively.

Stock compensation expense was $ 1,841 and $ 16,571 for the three-month periods ended June 30, 2024 and 2023, respectively.

All compensation expense related to the 2021 LTIP plans was recognized as of June 30, 2024.

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.

3 unchanged sentences

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 .

Stock compensation expense was $ 55,290 for each of the six-month periods ended June 30, 2024 and 2023.

Stock compensation expense was $ 26,145 for both of the three-month periods ended June 30, 2024 and 2023.

Unrecognized compensation expense as of June 30, 2024 related to unvested RSUs was $ 78,436 .

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.

2 unchanged sentences

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.

Stock compensation expense was $ 55,170 and $ 27,585 for the six-month periods ended June 30, 2024 and 2023, respectively.

Stock compensation expense was $ 27,585 for both of the three-month periods ended June 30, 2024 and 2023.

Unrecognized compensation expense as of June 30, 2024 related to unvested RSUs was $ 193,094 .

In May 2024, RSUs relating to 8,593 performance vesting shares and 6,662 time vesting shares (target level) for plan year 2024 were granted, which had a grant date fair market value of $ 22.26 per share of common stock underlying each RSU.

The performance period for the performance-vesting RSUs is the three year period ended December 31, 2026.

The time-vesting RSUs will vest ratably over a three year period beginning on May 20, 2025.

Stock compensation expense was $ 9,438 for the six- and

three-month periods ended June 30, 2024.

Unrecognized compensation expense as of June 30, 2024 related to unvested RSUs was $ 330,330 .

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

As of June 30, 2024, $ 15.0 million notional amount remains.

The interest rate swap creates an effective fixed interest rate of 4.6550 % on the $ 15.0 million notional amount of the Corporation’s junior subordination debt until the interest rate swap’s maturity in March 2026.

The fair value of the interest rate swap contracts was $ 0.8 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.

The fair value of the interest rate swap contracts was $ 0.8 million at June 30, 2024 and December 31, 2023.

For the six- and three-month periods ended June 30, 2024, the Corporation recorded an increase in the value of the derivatives of $ 4,000 and the related deferred tax of $ 1 thousand and a decrease of $ 69,000 and the related deferred tax benefit of $ 18,000 , respectively, in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.

This compares to an increase of $ 16,000 and the related deferred tax of $ 4,000 and an increase of $ 204,000 and related deferred tax of $ 54,000 for the six- and three-months ended June 30, 2023, respectively.

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 three month period ended March 31, 2024.

There was no hedge ineffectiveness recorded for any of the the six-month periods or three-month periods ended June 30, 2024 or 2023.

The Corporation does not expect any material losses relating to these hedges to be reclassified into earnings within the next 12 months.

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of March 31, 2024.

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.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six- and three-month periods ended June 30, 2024 and 2023.

Derivative in Cash Flow Hedging Relationships

15 unchanged sentences

Interest rate contracts:

Six months ended:

June 30, 2024

June 30, 2023

Three months ended:

March 31, 2024

March 31, 2023

June 30, 2024

June 30, 2023

(a) Reported as interest expense

1 unchanged sentence

Note 10 – Regulatory Capital Requirements

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

The following table presents the Bank’s capital ratios as of June 30, 2024 and December 31, 2023.

Total Capital (to risk-weighted assets)

2 unchanged sentences

Tier 1 Capital (to average assets)

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

As of June 30, 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 at March 31, 2024 and December 31, 2023.

The following table summarizes deposits at June 30, 2024 and December 31, 2023.

(in thousands)

March 31, 2024

June 30, 2024

December 31, 2023

6 unchanged sentences

Note 12 – Borrowed Funds

The following is a summary of borrowings:

The following is a summary of borrowings at June 30, 2024 and December 31, 2023:

(in thousands)

March 31, 2024

December 31, 2023

Short-term borrowings:

Securities sold under agreements to repurchase:

4 unchanged sentences

Approximate weighted average rate during the period

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

Bank Term Funding Program, fixed rate of 4.87 % at June 30, 2024

Long-term borrowings:

FHLB advances, bearing fixed interest rate of 4.53 % at June 30, 2024 and rates ranging from 4.53 % to 4.69 % at December 31, 2023.

Junior subordinated debt, bearing variable interest rate of 8.35 % at June 30, 2024 and 8.39 % at December 31, 2023

Total borrowings outstanding

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.

Short-term borrowings increased by $ 17.1 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 approximately $ 22.0 million in other short-term borrowings to the ICS deposit product as a result of management’s strategy to release pledging of investment securities for municipalities to increase available liquidity.

At June 30, 2024, the repurchase agreements were secured by $ 34.2 million in investment securities issued by government related agencies.

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

2 unchanged sentences

Currently, the Corporation conducts business in two operating segments:

(i) Community Banking and (ii) Trust and Investment Services.

(i) Community Banking;

and (ii) Trust and Investment Services.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report.

5 unchanged sentences

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

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

Non-cash charges other than depreciation of fixed assets were immaterial for the six- and three-month periods ended June 30, 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 $ 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

March 31, 2024

Non-cash charges associated with amortization of intangibles were approximately $ 104,000 for both of the six-month periods ended June 30, 2024 and 2023 and $ 52,000 for both of the three-month periods ended June 30, 2024 and 2023.

Information for the operating segments for the six- and three-month periods ended June 30, 2024 and 2023 are presented in the following tables:

Six Months Ended

June 30, 2024

(in thousands)

8 unchanged sentences

Income tax expense

Six Months Ended

June 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

Three Months Ended

March 31, 2023

June 30, 2024

(in thousands)

8 unchanged sentences

Income tax expense

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.

Three Months Ended

June 30, 2023

(in thousands)

Interest income

Interest expense

Credit loss credit

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

Total non-fiduciary assets of the trust and investment services segment were $ 0.7 million (including $ 0.6 million in intangible assets) at both June 30, 2024 and December 31, 2023.

All other assets (including goodwill of $ 11.0 million at June 30, 2024 and December 31, 2023 and other intangible assets of $ 0.4 million and $ 0.5 million at June 30, 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