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Item 8. Financial Statements and Supplementary Data

2025-03-20 compared with 2024-03-15 · 349 added, 385 removed, 1517 unchanged (33% of the section changed)

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Notes to Consolidated Financial Statements for the years ended December 31, 2024 and 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REG ISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of First United Corporation

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.

326, Financial Instruments - Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also related to the critical audit matter communicated below.

Basis for Opinion

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Allowance for Credit Losses on Loans – Reasonable and Supportable Forecasts and Assumptions

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2023 as described in Notes 1 and 5 of the consolidated financial statements using the modified retrospective method.

See also explanatory paragraph above.

The ASU requires the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected.

Estimates of expected credit losses for loans are based on evaluation of the size of the portfolio, current risk characteristics, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience.

The Company disclosed the impact of adoption of this standard on January 1, 2023 with an increase of $2.0 million to the allowance for credit losses on loans.

The Company recorded a $2.2 million decrease to retained earnings for the cumulative effect adjustment upon adoption.

Provision expense for the year ending December 31, 2023 was $1.6 million and the allowance for credit losses as of December 31, 2023 was $17.5 million.

The allowance for credit losses (the “ACL”) is an accounting estimate of the expected credit losses in the loans held for investment portfolio over the life of an exposure (or pool of exposures).

Expected credit losses are measured on a collective (pooled) basis for financial assets with similar risk characteristics.

The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans as described in Notes 1 and 5 of the consolidated financial statements.

The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company’s methodology for estimating the allowance for credit losses on loans includes quantitative and qualitative components of the calculation.

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These forecasts are assumed to revert to the long-term average and are utilized in the model to estimate the probability of default and the loss given default, which vary over time.

Forecast and reversion periods as well as the selection and application of economic forecast models are considered assumptions applied by management .

Forecast and reversion periods as well as the application and monitoring of economic forecast models are considered assumptions applied by management.

Based on management’s review and analysis of internal, external, and model risks, management may adjust the quantitative model output with qualitative adjustments.

Management developed a qualitative framework in which maximum loss rates are established considering economic forecasts that serve as the basis for determining the reasonableness of the quantitative model’s output and necessary adjustments.

We determined that auditing the forecasts and assumptions, including the development of quantitative forecast models using the loss drivers, was a critical audit matter as it involved significant judgment by management, which led especially a high degree of auditor judgment and subjectivity and increased audit effort, including the involvement of specialists to obtain audit evidence related to the forecasts.

We determined that auditing the forecasts and assumptions, including the application and monitoring of quantitative forecast models using the loss drivers, was a critical audit matter as it involved significant judgment by management, which led especially a high degree of auditor judgment and subjectivity and increased audit effort, including the involvement of specialists to obtain audit evidence related to the forecasts.

The primary procedures performed to address this critical audit matter included the following:

● Tested the effectiveness of the Company’s controls that addressed the following:

o Development of the forecast models that are used to determine the quantitative component and used in determining the basis for qualitative adjustments.

o Application and monitoring of the forecast models that are used to determine the quantitative component and used in determining the basis for qualitative adjustments.

o Relevance and reliability of reasonable and supportable forecast data and the reasonableness of significant model assumptions input into the model.

● Use of specialists to test development of the forecast models that are used to determine the quantitative component and used in determining the basis for qualitative adjustments.

● Use of specialists to test application of the forecast models that are used to determine the quantitative component and used in determining the basis for qualitative adjustments.

● Evaluated the reasonableness of reasonable and supportable economic forecasts and the significant model assumptions, including the relevance and reliability of data used in the model.

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Other real estate owned

Other repossessed assets

Right of use assets

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Credit loss expense

Credit loss expense/(credit)- loans

Credit loss expense - loans

Credit loss expense- debt securities held to maturity

Credit loss (credit)/expense- unfunded commitments

Total credit loss expense/(credit)

Credit loss credit- unfunded commitments

Total credit loss expense

Net interest income after provision for credit losses

Other operating income

Net (losses)/gains on investments, available for sale

Net gains on investment, held to maturity

Net losses on investments, available for sale

Net gains on sales of residential mortgage loans

Net (losses)/gains on disposal of fixed assets

Net (losses)/gains

Net losses on disposal of fixed assets

Net gains/(losses)

Service charges on deposit accounts

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Contract labor

Total OREO (income)/expense, net

Total OREO expense/(income), net

Investor relations

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Available for sale securities:

Unrealized holding losses on investments with credit related impairment

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

Reclassification adjustment for gains realized in income

Other comprehensive losses on investments with credit related impairment

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

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

Reclassification adjustment for (losses)/gains realized in income

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

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

Reclassification adjustment for losses realized in income

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

Held to maturity securities:

Unrealized holding losses on securities transferred to held to maturity

Reclassification adjustment for gains realized in income

Unrealized holding gains on HTM investments

Reclassification adjustment for amortization realized in income

Other comprehensive income/(losses) on HTM investments

Other comprehensive income on HTM investments

Cash flow hedges:

Unrealized holding (losses)/gains on cash flow hedges

Other comprehensive (loss)/gain on cash flow hedges

Pension plan liability:

Unrealized holding gains on pension plan liability

Unrealized holding losses on cash flow hedges

Other comprehensive loss on cash flow hedges

Pension plan assets:

Unrealized holding gains on pension plan assets

Reclassification adjustment for amortization of unrecognized loss realized in income

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Unrealized holding gains/(losses) on SERP liability

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

Other comprehensive (losses)/gains on SERP liability

Other comprehensive income/(loss) before income tax

Income tax (credit)/expense related to other comprehensive income

Other comprehensive income/(loss), net of tax

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

Other comprehensive gains/(losses) on SERP liability

Other comprehensive income before income tax

Income tax credit related to other comprehensive income

Other comprehensive income, net of tax

Comprehensive Income

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Balance at January 1, 2023

Other comprehensive loss, net of tax

Adoption of ASC 326- Financial Instruments- Credit Losses

Other comprehensive income, net of tax

Common stock issued - 55,558 shares

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Stock based compensation

Stock repurchase - 82,098 shares

Balance at December 31, 2023

Adoption of ASC 326- Financial Instruments- Credit Losses

Other comprehensive income, net of tax

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Adjustments to reconcile net income to net cash provided by operating activities:

Provision/(credit) for credit losses

Provision for credit losses

Stock based compensation

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Gains on sales of loans held for sale

Losses/(gains) on disposal of fixed assets, net

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

Losses on disposal of fixed assets, net

Net accretion of investment securities discounts and premiums- AFS

Net accretion of investment securities discounts and premiums- HTM

Net losses on sales of investment securities – available-for-sale

Net gain on calls of investment securities – available-for-sale

Net gains on investment securities – held to maturity

Amortization of deferred loan fees

Deferred tax (benefit)/expense

Deferred tax benefit

Earnings on bank owned life insurance

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Amortization of operating lease liabilities

(Increase)/decrease in accrued interest receivable and other assets

Increase/(decrease) in accrued interest payable and other liabilities

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

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

Net cash provided by operating activities

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Proceeds from disposal of fixed assets

Net (increase)/decrease in FHLB stock

Net increase in FHLB stock

Net increase in loans

Acquisition of mortgage company

Purchases of premises and equipment

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Financing activities

Net (decrease)/increase in deposits

Net increase/(decrease) in deposits

Proceeds from issuance of common stock

Cash dividends paid on common stock

Net (decrease)/increase in short-term borrowings

Net increase/(decrease) in short-term borrowings

Stock repurchase

Proceeds from long-term borrowings

Payments on long-term borrowings

Net cash provided by financing activities

Decrease in cash and cash equivalents

Increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of the year

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Non-cash investing activities:

Transfers from loans to other repossessed assets

Transfers from loans to other real estate owned

Transfers from securities available for sale to held-to-maturity

See notes to consolidated financial statements

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The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital.

The Bank has two consumer finance company subsidiaries - OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company - and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure - First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company.

The Bank has two consumer finance company subsidiaries - OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company (together with OakFirst Loan Center, Inc., (the “OakFirst Loan Centers”) - and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure - First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company.

In addition, the Bank owns 99.9 % of the limited partnership interests in Liberty Mews Limited Partnership, a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland (“Liberty Mews”), and a 99.9 % non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland (the “MCC Fund”).

First United Corporation and its subsidiaries operate principally in four counties in Western Maryland and four counties in West Virginia.

First United Corporation and its subsidiaries operate principally in four counties in Western Maryland and three counties in West Virginia.

As used in these Notes, the terms “the Corporation”, “we”, “us”, and “our” mean First United Corporation and, unless the context clearly suggests otherwise, its consolidated subsidiaries.

Basis of Presentation

The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“GAAP”).

The financial information is presented, in all material respects, in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and with general practices for financial institutions.

All significant intercompany transactions and accounts have been eliminated.

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Most of the Corporation’s relationships are with customers located in Western Maryland and Northeastern West Virginia.

At December 31, 2023, approximately 5 %, or $ 77.1 million, of total loans were secured by real estate acquisition, construction and development projects, with $ 77.0 million performing according to their contractual terms and

$ 0.1 million considered to be individually evaluated loans based on management’s concerns about the borrowers’ ability to comply with present repayment terms.

At December 31, 2024, approximately 6 %, or $ 95.3 million, of total loans were secured by real estate

acquisition, construction and development projects, with $ 95.2 million performing according to their contractual terms and $ 0.1 million considered to be individually evaluated loans based on management’s concerns about the borrowers’ ability to comply with present repayment terms.

The $ 0.1 million in individually evaluated loans were all classified as non-accrual as of December 31, 2024.

Additionally, loans collateralized by commercial rental properties represented 21 % of the total loan portfolio as of December 31, 2024.

Note 4 discusses the types of securities in which the Corporation invests and Note 5 discusses the Corporation’s lending activities.

The investment portfolio is classified and accounted for based on the guidance of Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities .

Note 4, Investment Securities, discusses the types of securities in which the Corporation invests and Note 5, Loans and Related Allowance for Credit Loss, discusses the Corporation’s lending activities.

The investment portfolio is classified and accounted for based on the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities .

Securities bought and held principally for the purpose of selling them in the near term are classified as trading account securities and reported at fair value with unrealized gains and losses included in net gains/losses in other operating income.

Securities purchased with the intent and ability to hold the securities to maturity are classified as held-to-maturity securities and are recorded at amortized cost.

All other investment securities are classified as available-for-sale.

Securities purchased with the intent and ability to hold the securities to maturity are classified as held-to-maturity (“HTM”) securities and are recorded at amortized cost.

All other investment securities are classified as available-for-sale (“AFS”).

These securities are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions or for liquidity purposes as part of our overall asset/liability management strategy.

Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income included in the consolidated statement of comprehensive income, net of applicable income taxes.

AFS securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income included in the consolidated statement of comprehensive income, net of applicable income taxes.

The amortized cost of debt securities is adjusted for the amortization of premiums to the first call date, if applicable, or to maturity, and for the accretion of discounts to maturity, or, in the case of mortgage-backed securities, over the estimated life of the security.

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Gains and losses on the sale of securities are recorded using the specific identification method.

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 Corporation adopted ASC Topic 326 using the prospective transition approach for debt securities for which other than temporary impairment (“OTTI”) had been recognized prior to January 1, 2023, such as AFS collateralized debt obligations.

As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC Topic 326.

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

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

The Corporation utilizes ASC 326 to evaluate its AFS and 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 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.

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.

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.

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.

Restricted Investment in Bank Stock

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Loans that management has the intent to sell are reported at the lower of cost or fair value determined on an individual basis.

There were $ 0.4 million in loans held for sale at December 31, 2023.

No loans were held for sale at December 31, 2022.

There were $ 0.8 million and $ 0.4 million in loans held for sale at December 31, 2024 and December 31, 2023, respectively.

The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance.

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Only the portion of a specific allocation of the allowance for credit losses is associated with a pending event that could trigger loss in the short term is classified in the Doubtful category.

It is possible for a loan to be classified as Substandard in the internal risk rating system, but not be

individually evaluated under GAAP, due to the broader reach of “well-defined weaknesses” in the application of the Substandard definition.

It is possible for a loan to be classified as Substandard in the internal risk rating system, but not be individually evaluated under GAAP, due to the broader reach of “well-defined weaknesses” in the application of the Substandard definition.

Interest and Fees on Loans

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Allowance for Credit Losses

An allowance for credit loss (“ACL”) is mainained to absorb losses from the Corporation’s financial assets in accordance with ASC 326:

An ACL is maintained to absorb losses from the Corporation’s financial assets in accordance with ASC Topic 326:

Financial Instruments- Credit Losses .

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Held-to-Maturity Securities

The ACL on HTM securities is a contra-asset valuation account, calculated in accordance with ASC 326.

Management measures expected credit losses on HTM debt securities on a collective basis by major security type.

Management has elected not to measure an ACL for accrued interest on securities.

The estimate of expected credit losses considers historical credit loss information tha tis adjusted for current conditions and reasonable and supportable forecasts.

Management classifies the held-to-maturity portfolio into the following major security types:

securities issued by U.S.

government issues and agencies (including U.S.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Management classifies the HTM portfolio into the following major security types:

securities issued or guaranteed by U.S.

government agencies and corporations (including U.S.

treasuries, agency bonds, and U.S.

guaranteed residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized mortgage obligations), rated municipal securities, and unrated municipal securities.

Securities that are issued or explicitly or implicitely guaranteed by the U.S.

government are hghly rated by major rating agencies and have a long history of no credit losses.

Rated municipal securities are evaluated based on credit rating by major rating agencies and financial performance.

With regard to securities issued by U.S.

government agencies and corporations, it is expected that the securities will not settle at prices less than the amortized cost bases of the securities as such securities are backed by the full faith and credit of and/or guaranteed by the U.S.

Accordingly, no ACL has been recorded on these securities.

With regard to securities issued by states and political subdivisions, management considers (i) issuer bond ratings, (ii) historical loss rates for given bond ratings, and (iii) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities.

Non-rated securities are evaluated internally based on financial performance and expected future cash flows.

Available-for-Sale Securities

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 to its amortized cost basis.

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

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

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

If either criterion regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income.

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

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected rom the security are compared to the amortized cost basis of the security.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis

of the security.

Any impairment that has not been recorded through the ACL is recognized in other comprehensive income.

As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC 326.

Any impairment that has not been recorded through the ACL is recognized in OCI.

The Corporation adopted ASC Topic 326 using the prospective transition approach for debt securities for which OTTI had been recognized prior to January 1, 2023, such as AFS collateralized debt obligations.

As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC Topic 326.

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

Amounts previously written off are recognized in 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.

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

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

An ACL is maintained as a valuation account that is deducted from the Corporation’s loan porfolio’s amortized cost basis to present the net amount expected to be collected on the loans.

Loan are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed.

An ACL is maintained as a valuation account that is deducted from the Corporation’s loan portfolio’s amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Historical credit loss experience provides the basis or the estimation of expected credit losses.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental condition, such as changes in unemployment rates, property values, or other relevant factors.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $500,000 or is part of a relationship that is greater than $750,000 and (i) is either in non-accrual status or (ii) is

risk-rated Substandard and is greater than 60 days past due.

The ACL includes an estimate of credit losses for pooled loans utilizing the Discounted Cash Flow (“DCF”) method.

Reserves for pooled loans are estimated by calculating the amount by which the outstanding principal balance exceeds the current estimate of the present value of future cash flows discounted at the loan’s original effective interest rate.

The ACL also includes an estimate of credit losses related to loans that are individually evaluated, known as Individually Evaluated Loans, or IELs.

Generally, an IEL reserve is calculated as the excess of the loan’s current outstanding principal balance, or general ledger balance if the loan is non-accrual, compared to the estimated fair value of the related collateral, less cost to sell, if any.

Loans are considered to be individually evaluated when, based on current information and events, they no longer share the same risk characteristics of other loans within our portfolio.

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The method is selected on a loan-by-loan basis, with management utilizing the fair value of collateral or the discounted cash flow method for the analyses.

If the fair value of the collateral less selling costs method is utilized for collateral securing loans in the commercial segments, then an updated external appraisal is ordered on the collateral supporting the loan if the loan balance is greater than $500,000 and the existing appraisal is greater than 18 months old.

If the fair value of the collateral less selling costs method is utilized for collateral securing

loans in the commercial segments, then an updated external appraisal is ordered on the collateral supporting the loan if the loan balance is greater than $500,000 and the existing appraisal is greater than 18 months old.

If the loan balance is less than $500,000, then the estimated fair value of the collateral is determined by adjusting the existing appraisal by the appropriate percentage from an internally prepared appraisal discount grid.

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otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan.

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 5, Fair Value Measurements.

There were no loan modifications to borrowers facing financial difficulties for the year ending December 31, 2023.

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 17, Fair Value of Financial Instruments.

For a discussion with respect to loans modified to borrowers experiencing financial difficulty, refer to the “Loan Modifications for Borrowers Experiencing Financial Difficulty” section in Note 5, Loans and Related Allowance for Credit Losses.

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.

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Financial instruments include unfunded commitments 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 unfunded commitments commitments is represented by the contractual amount of those instruments.

The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded 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 unfunded commitments through a charge to provision for credit loss expense in the Corporation’s Consolidated Statement of Income.

The RUC on unfunded commitments 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.

The Corporation records an ACL on unfunded commitments through a charge to provision for credit loss expense in the Corporation’s Consolidated Statement of Income.

The ACL on unfunded commitments 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 ACL on unfunded commitments as a liability on the Corporation’s Consolidated Balance Sheet.

Loan Modifications

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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.

When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

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 modified loans.

See Note 5, Loans and Related Allowance for Credit Losses, for more detail related to the accounting of modified loans.

Premises and Equipment

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Premises and equipment are carried at cost, less accumulated depreciation.

The provision for depreciation for financial reporting has been made by using the straight-line method based on the estimated useful lives of the assets, which range from 10 to 31.5 years for buildings and 3 to 20 years for furniture and equipment.

Goodwill and Other Intangible Assets

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At December 31, 2024, other intangible assets included $ 0.4 million for the purchase of certain assets from a wealth company and $ 0.4 million for the purchase of certain assets of a mortgage company.

These assets are amortized over their estimated useful lives either on a straight-line or sum-of-the-years basis over varying periods that initially did not exceed 5 years .

These assets are amortized over their estimated useful lives either on a straight-line or sum-of-the-years basis over varying periods that initially did not exceed five years .

Bank-Owned Life Insurance (“BOLI”)

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Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell.

Changes in the valuation allowance, sales gains and losses, and revenue and expenses from holding and operating properties are all included in net expenses from other real estate owned.

Changes in the valuation allowance, sales gains and losses, and revenue and expenses from holding and operating properties are all included in total net OREO expenses.

First United Corporation and its subsidiaries file a consolidated federal income tax return.

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Under the asset and liability method, the deferred tax liability or asset is determined based on the difference between the financial statement and tax bases of assets and liabilities (temporary differences) and is measured at the enacted tax rates that will be in effect when these differences reverse.

A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

Deferred tax expense is determined by the change in the net liability or asset for deferred taxes adjusted for changes in any deferred tax asset valuation allowance, or reserve.

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The defined benefit pension plan and supplemental executive retirement plan are accounted for in accordance with ASC Topic 715, Compensation – Retirement Benefits .

Under the provisions of Topic 715, the defined benefit pension plan and the supplemental executive retirement plan are recognized as liabilities in the Consolidated Statement of Financial Condition, and unrecognized net actuarial losses, prior service costs and a net transition asset are recognized as a separate component of other comprehensive loss, net of tax.

Under the provisions of ASC Topic 715, the defined benefit pension plan and the supplemental executive retirement plan are recognized as liabilities in the Consolidated Statement of Financial Condition, and unrecognized net actuarial losses, prior service costs and a net transition asset are recognized as a separate component of other comprehensive loss, net of tax.

Actuarial gains and losses in excess of 10 percent of the greater of plan assets or the pension benefit obligation are amortized over a blend of future service of active employees and life expectancy of inactive participants.

Refer to Note 15 for a further discussion of the pension plan and supplemental executive retirement plan obligations.

Refer to Note 14, Employee Benefit Plans, for a further discussion of the pension plan and supplemental executive retirement plan obligations.

Statement of Cash Flows

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Income from the Bank’s trust department represents fees charged to customers and recognized through revenue recognition.

Refer to Note 21 for further discussion.

Refer to Note 19, Revenue Recognition, and Note 20, Segment Reporting, for further discussion.

Business Segments

The Corporation operates in two segments, as defined by ASC Topic 280, Segment Reporting :

community banking and trust and investment services.

The Corporation, both in its entirety and by its business segments, is managed and evaluated on an ongoing basis by First United Corporation’s Board of Directors and executive management.

Refer to Note 22 for further discussion.

The Corporation operates in two business segments in which separate financial information is available and evaluated regularly by the Corporation’s Chief Operating Decision Maker (“CODM”), which consists of an internal team of the Corporation’s executive directors including the Chief Executive Officer, Chief Financial Officer, and Chief Wealth Officer.

The Company’s reportable operating segments include community banking and wealth management.

The CODM regularly makes decisions regarding how to allocate resources and assesses performance based on the financial results of these segments.

Refer to Note 20, Segment Reporting, for further discussion.

Stock Repurchases

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In 2024, the Corporation repurchased 201,800 shares of common stock at a weighted average price of $ 19.99 per share.

The Corporation did no t repurchase shares of common stock during 2022.

In 2023, the Corporation repurchased 82,098 shares of common stock at a weighted average price of $ 16.79 per share.

Recent Accounting Pronouncements

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

(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 2023, 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.

Recently issued but not yet effective Accounting Pronouncements

In March 2020, FASB issued ASU No.

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

Facilitation of Reference Rate Reform on Financial Reporting.” The amendments in ASU 2020-04 provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting.

The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks.

Modified contracts that meet certain scope guidance are eligible

for relief from these modification accounting requirements in GAAP.

The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

The amendments in ASU 2020-04 are effective for all entities between March 12, 2020 and December 31, 2022.

In December 2022, FASB issued ASU No.

“Reference Rate Reform (Topic 848):

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.

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.

As of December 31, 2023, the Corporation has no financial instruments tied to LIBOR and does not anticipate that the transition related to ASU 2020-04 will have a significant impact on our financial statements.

2023-02, “Investments- Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU No.

2023-02 is intended to improve the accounting and disclosures for investment in tax credit structures.

2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures.

2023-02 became effective in 2024 and did not have a significant impact on our financial statements.

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.

Improvement to Reportable Segment Disclosures.” ASU No.

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.

2023-07 became effective for our annual financial statements in 2024 and will be effective for interim periods starting in fiscal year 2025.

See Note 20, Segment Reporting, for updated disclosures related to ASU No.

Recently issued but not yet effective Accounting Pronouncements

In December 2023, FASB issued ASU No.

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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.

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.

2023-09 is effective in 2025 and is not expected to have a significant impact on our financial statements.

In November 2024, FASB issued ASU No.

2024-03, “Income Statement- Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.” ASU No.

2024-03 requires disaggregated disclosure of income statement expenses for public business entities.

2024-03 requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption.

The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization.

Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

2024-03 is effective on a prospective basis for annual periods beginning in 2027, and interim periods within fiscal years beginning in 2028, though early adoption and retrospective application is permitted.

2024-03 is not expected to have a significant impact on our financial statements.

Earnings Per Common Share

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Failure to meet capital requirements can initiate regulatory action.

The net unrealized gain or loss on available for sale securities is included in computing regulatory capital.

The net unrealized gain or loss on AFS securities is included in computing regulatory capital.

Management believes that, as of December 31, 2024, the Corporation and Bank met all capital adequacy requirements to which they are subject.

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There are no conditions or events since that notification that management believes have changed the Bank’s category.

The following table presents First United Bank & Trust’s capital ratios for years ended December 31, 2023 and 2022:

The following table presents the Bank’s capital ratios for years ended December 31, 2024 and 2023:

For Capital Adequacy

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(in thousands)

Allowance for Credit Losses

Estimated Fair Value

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Estimated Fair Value

Allowance for Credit Losses

December 31, 2023

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Total held to maturity

Proceeds from sales and calls of available-for-sale securities and the realized gains and losses for the years ended December 31, 2023 and 2022 are as follows:

Proceeds from sales and calls of AFS securities and the realized gains and losses for the years ended December 31, 2024 and 2023 are as follows:

(in thousands)

Gross realized gains

Gross realized losses

The Corporation’s AFS security portfolio includes securities with a fair value of $ 93.3 million and $ 94.7 million, respectively, which had unrealized losses of $ 21.6 million and $ 20.8 million at December 31, 2024 and 2023, respectively.

The Corporation does not have the intent to sell these securities, and it is likely that it will not be required to sell these securities before their anticipated recoveries.

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

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Total held to maturity

As of December 31, 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.

As of December 31, 2024 and December 31, 2023, the Corporation recorded ACL of approximately $ 59,000 and $ 45,000 , respectively, related to one bond in the HTM security portfolio.

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

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Available for sale:

Due in one year or less

Due after one year through five years

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Held to Maturity:

Due in one year or less

Due after one year through five years

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Total held to maturity

At December 31, 2023 and 2022, AFS investment securities with a fair value of $ 50.5 million and $ 49.7 million, respectively, and HTM investment securities with a book value of $ 141.8 million and $ 165.9 million were pledged as permitted or required to secure public deposits, for securities sold under agreements to repurchase as required or permitted by law and as collateral for borrowing capacity.

At December 31, 2024 and 2023, AFS investment securities with a fair value of $ 71.6 million and $ 50.5 million, respectively, and HTM investment securities with a book value of $ 161.2 million and $ 141.8 million, respectively, were pledged as permitted or required to secure public deposits, for securities sold under agreements to repurchase as required or permitted by law and as collateral for borrowing capacity.

Loans and Related Allowance for Credit Losses

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In the ordinary course of business, executive officers and directors of the Corporation, including their families and companies in which certain directors are principal owners, were loan customers of the Bank.

Changes in the dollar amount of loans outstanding to officers, directors and their associates were as follows for the year ended December 31:

Changes in the dollar amount of loans outstanding to officers, directors and their affiliates were as follows for the year ended December 31:

(in thousands)

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Residential mortgage – home equity

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

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

There were no loans in the process of foreclosure 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.

Non-accrual loans that have been subject to partial charge-offs totaled $ 0.7 million at December 31, 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 $ 1.6 million at December 31, 2024 and $ 1.8 million at December 31, 2023.

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

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 5, Fair Value Measurements.

There were no loan modifications made to borrowers facing financial difficulties in the year ending December 31, 2023.

For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 17, Fair Value of Financial Instruments.

The Corporation maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Corporation’s financial instruments over the life of those instruments as of the balance sheet date.

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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.

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Operations of the individual projects as well as global cash flows of the debtors are the primary source of repayment of these loans.

The condition of the local economy is an important indicator of risk, but there are more specific risks depending on the collateral type as well as the business.

condition of the local economy is an important indicator of risk, but there are more specific risks depending on the collateral type as well as the business.

Acquisition and Development- loans include both commercial and consumer.

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These loans are also made to local municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment.

The primary repayment source for local municipalities include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority.

The primary repayment source for local municipalities includes the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority.

The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment.

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The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy debt.

Consumer- loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured.

Consumer- loans are made to individuals and may be either secured by assets other than real estate or unsecured.

This segment includes automobile loans and unsecured loans and lines of credit.

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Residential mortgage

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

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.

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

The following tables present the activity in the ACL and ALL for the years ended December 31, 2023 and 2022:

The following tables present the activity in the ACL for the years ended December 31, 2024 and 2023:

(in thousands)

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

Impact of adopting ASC 326

Beginning balance at January 1, 2024

Loan charge-offs

Recoveries collected

Credit loss (credit)/expense

Credit loss expense/(credit)

ACL balance at December 31, 2024

ALL balance at January 1, 2022

Loan loss expense/(credit)

ALL balance at December 31, 2022

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

Impact of adopting ASC 326

Loan loss (credit)/expense

ACL balance at December 31, 2023

The Corporation’s methodology for estimating the ACL includes:

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Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective.

The Corporation has elected to forecast the first four quarters of the credit loss estimate and revert on a straight-line basis as permitted in ASC 326-20-30-9.

Based on the final values in the forecast and the uncertainty of a post-pandemic recovery, management has elected to revert over eight quarters.

By reverting these modeling inputs to their historical mean and considering loan/borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the reversion period.

The ACL is based on estimates, and actual losses may vary from current estimates.

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Total Portfolio Loans

Loan Modifications for Borrowers Experiencing Financial Difficulty

The Corporation evaluates all loan modifications according to the accounting guidance in ASU No.

2022-02 to determine if the modification results in a new loan or a continuation of the existing loan.

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

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

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

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

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

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

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

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

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

Management exercises significant judgment in developing these estimates.

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

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

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

The following table presents the amortized cost basis, and the financial effect of loans modified to borrowers experiencing financial difficulty during the year ended December 31, 2024.

There were no modifications to borrowers experiencing financial difficulty during the year ended December 31, 2023.

(in thousands)

Term Extension

Percentage of Total Loan Type

Weighted Average Term and Principal Payment Extension

Year Ended December 31, 2024

Owner-occupied commercial real estate

Commercial and industrial

During 2024, we modified the term of two loans by extending their maturity dates.

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

The loans that were modified in the year ended December 31, 2024 have made all contractual payments since modification.

The loan modifications reported above did not significantly impact our determination of the allowance for credit losses on loans during 2024.

If a modified loan with an outstanding balance of $ 0.1 million or greater subsequently defaults and goes on non-accrual status, then the Corporation individually evaluates the loan when performing its CECL estimate to calculate the ACL.

Upon determination that a modified loan (or a portion of a modified loan) has subsequently been deemed

uncollectible, the loan (or portion of the loan) is charged off.

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

Other Real Estate Owned

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Rental and other income

Total OREO (income)/expense, net

Total OREO expense/(income), net

Premises and Equipment

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The Corporation recorded depreciation expense of $ 3.3 million and $ 3.8 million for the years ended December 31, 2024 and 2023, respectively.

Substantially all of the leases in which the Corporation is the lessee are comprised of real estate property for branches, ATM locations, and office equipment with terms extending through 2030.

All of the Corporation’s leases are classified as operating leases.

The present value of lease payments is reported as a lease liability and right of use asset on the Corporation’s Consolidated Statement of Financial Condition.

The following table represents the Consolidated Statements of Financial Condition classification of the Corporation’s right-of-use assets and lease liabilities.

The Corporation elected not to include short-term leases (i.e., leases with remaining terms of 12 months or less), or equipment leases that were deemed immaterial on the Consolidated Statement of Financial Condition.

(in thousands)

December 31, 2023

December 31, 2022

Lease Right-of Use Assets

Operating lease right-of-use assets

Lease Liabilities

Operating lease liabilities

In calculating the present value of the lease payments, the Corporation has utilized its incremental borrowing rate based on electing the original lease term to account for each lease component.

The following table presents the weighted-average lease term and discount rate for operating leases at December 31, 2023:

December 31, 2023

December 31, 2022

Weighted-average remaining lease term

Operating leases

Weighted-average discount rate

Operating leases

The Corporation elected, for all classes of underlying assets, to separate lease and non-lease components.

Total operating lease expense was $ 0.6 million and $ 0.5 million for the years ended December 31, 2023 and December 31, 2022, respectively.

Short-term lease expense was approximately $ 20 thousand for the year ended December 31, 2023 and 2022.

In the fourth quarter of 2023, the Bank announced the closure of four of its branches with an effective closing date of February 29, 2024.

In conjunction with the announced branch closures, the Bank recognized accelerated lease expense of approximately $ 0.1 million in 2023.

Future minimum payments for operating leases with initial or remaining terms of one year or more at December 31, 2023 were as follows:

(in thousands)

Total future minimum lease payments

Amounts representing interest

Present value of net future minimum lease payments

The following table summarizes deposits as of December 31, 2024 and 2023:

(in thousands)

December 31, 2023

December 31, 2022

Non-Interest-bearing deposits:

Interest-bearing deposits:

Money market- retail

Money market- brokered

Savings deposits

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Total Deposits

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2023 and 2022 were $ 48.8 million and $ 37.5 million, respectively.

Time deposits that met or exceeded the FDIC insurance limit of $250,000 at December 31, 2024 and 2023 totaled $ 43.7 million and $ 48.8 million, respectively.

At December 31, 2024 and 2023, $ 0.2 million and $ 0.4 million, respectively, of deposit overdrafts were re-classified as loans.

The following is a summary of the scheduled maturities of all time deposits maturing within years ended December 31:

The following is a summary of the scheduled maturities of all time deposits maturing within the following years ended December 31:

(in thousands)

Time deposits- brokered

Time deposits- retail

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Approximate weighted average rate during the year

Repurchase agreements were secured by $ 61.6 million in investment securities at December 31, 2023 and $ 74.6 million at December 31, 2022.

Overnight borrowings, weighted average interest rate of 4.50 % at December 31, 2024

Repurchase agreements were secured by investment securities with a market value of $ 22.9 million at December 31, 2024 and $ 61.6 million at December 31, 2023.

The Bank has unsecured lines of credit totaling $ 140.0 million with correspondent financial institutions and $ 86.6 million in a secured line with the Federal Reserve discount window to meet daily liquidity requirements.

At December 31, 2024, there were $ 50.0 million in outstanding secured borrowings with the Federal Reserve discount window.

At December 31, 2023, there were no borrowings under these credit facilities.

The following is a summary of long-term borrowings at December 31, 2024 and 2023 with original maturities exceeding one year:

(in thousands)

FHLB advances bearing fixed interest rates ranging from 4.53 % to 4.69 % at December 31, 2023

Junior subordinated debt

FHLB advances bearing fixed interest rates ranging from 3.84 % to 4.04 % at December 31, 2024 and 4.53 % to 4.69 % at December 31, 2023

Junior subordinated debt, bearing variable interest rate of 7.36 % at December 31, 2024 and 8.39 % at December 31, 2023

Total long-term debt

In March 2004 , Trust I and Trust II issued preferred securities with an aggregate liquidation amount of $ 30.0 million to third-party investors and issued common equity with an aggregate liquidation amount of $ 0.9 million to First United Corporation.

These Trusts used the proceeds of these offerings to purchase an equal amount of TPS Debentures, as follows:

These Trusts used the proceeds of these offerings to purchase an equal amount of junior subordinated debentures (“TPS Debentures”), as follows:

$ 20.6 million —floating rate payable quarterly based on three-month Secured Overnight Financing Rate (“SOFR”) plus 275 basis points ( 7.36 % at December 31, 2024), maturing in 2034 , became redeemable five years after issuance at First United Corporation’s option.

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Should this occur, the Corporation may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock.

The contractual maturities of the FHLB advances outstanding at December 31, 2023 are March 15, 2024 and September 13, 2024.

The contractual maturities of the FHLB advances outstanding at December 31, 2024 are $ 25.0 million on September 19, 2025 and $ 65.0 million on March 20, 2026.

The contractual maturities of the junior subordinated debt outstanding at December 31, 2024 is 2034.

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The available line of credit equaled $ 567.4 million at December 31, 2024 and $ 571.4 million at December 31, 2023.

This line of credit, which can be used for both short and long-term funding, can only be utilized to the extent of available collateral.

line of credit, which can be used for both short and long-term funding, can only be utilized to the extent of available collateral.

The line is secured by certain qualified mortgage, commercial and home equity loans as follows (in thousands):

5 unchanged sentences

borrowings and letters of credit outstanding

The Bank also has various unsecured lines of credit totaling $ 140.0 million with various financial institutions and a $ 12.2 million secured line with the Federal Reserve to meet daily liquidity requirements.Additionally, the Bank had $ 69.5 million in available in a secured line of credit with the FRB through the BTFP.

At December 31, 2023 and 2022, there were no borrowings under these credit facilities.

Available credit

Goodwill and Other Intangible Assets

The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at December 31, 2024 and 2023 in the following table:

December 31, 2023

December 31, 2022

(in thousands)

16 unchanged sentences

Balance - January 1, 2023

Other comprehensive income/(loss) before reclassifications

Other comprehensive (loss)/income before reclassifications

Amounts reclassified from accumulated

1 unchanged sentence

Balance - December 31, 2023

Other comprehensive (loss)/income before reclassifications

Other comprehensive income/(loss) before reclassifications

Amounts reclassified from accumulated

1 unchanged sentence

Balance - December 31, 2024

The following tables present the components of other comprehensive (loss)/income for the years ended December 31, 2023 and 2022:

The following tables present the components of other comprehensive income for the years ended December 31, 2024 and 2023:

Components of Other Comprehensive Income

3 unchanged sentences

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

Unrealized holding losses

Unrealized holding gains

accretable yield recognized in income

1 unchanged sentence

Available for sale securities – all other:

Unrealized holding gains

losses recognized in income

Net unrealized gains on all other AFS securities

Unrealized holding losses

Net unrealized losses on all other AFS securities

Held to maturity securities:

8 unchanged sentences

amortization of unrecognized loss

Net pension plan liability adjustment

Unrealized net actuarial loss

Net pension plan asset adjustment

Unrealized net actuarial gain

amortization of unrecognized loss

1 unchanged sentence

Other comprehensive income

Components of Other Comprehensive Loss

Components of Other Comprehensive Income

(in thousands)

6 unchanged sentences

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

Unrealized holding gains

losses recognized in income

Net unrealized gains 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

Net unrealized gains on HTM securities

Cash flow hedges:

Unrealized holding gains

Net unrealized gains on cash flow hedges

Unrealized holding losses

Net unrealized losses on cash flow hedges

Pension Plan:

1 unchanged sentence

amortization of unrecognized loss

Net pension plan liability adjustment

Unrealized net actuarial gain

amortization of unrecognized loss

Net pension plan asset adjustment

Unrealized net actuarial loss

amortization of unrecognized gain

Net SERP liability adjustment

Other comprehensive loss

Other comprehensive income

The following tables present the details of accumulated other comprehensive loss components for the years ended December 31, 2024 and 2023:

Details of Accumulated Other Comprehensive Income Components

Details of Accumulated Other Comprehensive Loss Components

Amount Reclassified from Accumulated Other Comprehensive Loss

2 unchanged sentences

Where Net Income is Presented

Net unrealized losses on investment securities with credit related impairment:

Net unrealized gains on investment securities with credit related impairment:

Accretable Yield

Interest income on taxable investment securities

Provision for income tax expense

Net unrealized losses on available for sale

investment securities - all other:

Loss on sales

Provision for income tax expense

Net unrealized gains on held to maturity

Credit for income tax expense

Net unrealized losses on held to maturity

investment securities:

1 unchanged sentence

Provision for income tax expense

Net pension plan liability adjustment:

Net pension plan asset adjustment:

Amortization of unrecognized loss

11 unchanged sentences

Where Net Income is Presented

Net unrealized losses on investment securities with credit related impairment:

Net unrealized gains on investment securities with credit related impairment:

Accretable Yield

Interest income on taxable investment securities

Provision for income tax expense

Net unrealized gains on available for sale

Credit for income tax expense

Net unrealized losses on available for sale

investment securities - all other:

Gains on sales

Losses on sales

Provision for income tax expense

Net unrealized gains on held to maturity

Net unrealized losses on held to maturity

investment securities:

Interest income on taxable investment securities

Gains recognized

Provision for income tax expense

Net pension plan liability adjustment:

Other expense

Net pension plan asset adjustment:

Amortization of unrecognized loss

Other expense

Provision for income tax expense

Net SERP liability adjustment:

Other expense

Amortization of unrecognized loss

Amortization of unrecognized gain

Other expense

Provision for income tax expense

Total reclassifications for the period

2 unchanged sentences

Current Tax expense:

Deferred tax (benefit)/expense:

Deferred tax benefit:

Income tax expense for the year

39 unchanged sentences

Also, with few exceptions, the Corporation is no longer subject to state income tax examinations for tax years before 2021.

Management has identified no uncertain tax positions at December 31, 2024.

Any interest and penalties on income tax assessments or income tax refunds are recognized in the Consolidated Statements of Income as a components of interest expense (income) and other operating expense.

6 unchanged sentences

The cost is recognized in expense over the period in which an employee is required to provide service in exchange for the award (the vesting period).

Pursuant to First United Corporation’s director compensation policy, each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $ 15,000 to be paid, at the director’s election, in cash or additional shares of common stock.

Pursuant to our director compensation policy, each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $ 15,000 to be paid, at the director’s election, in cash or additional shares of common stock.

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

4 unchanged sentences

Employee stock compensation was $ 54,226 and $ 33,279 for the years ended December 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.

Restricted Stock Units (“RSUs”)

executive officers.

An RSU contemplates the issuance of shares of common stock of First United Corporation if and when the RSU vests.

5 unchanged sentences

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.

For the performance period ending December 31, 2025, the RSUs performance goals are based on earnings per share for the year ended December 31, 2025 and growth in tangible book value per share during the performance period.

For each of the performance periods ending December 31, 2023 through December 31, 2025, the RSUs performance goals are based on earnings per share and growth in tangible book value.

For the performance periods ending December 31, 2026, the RSUs performance goals are based on return on average equity and growth in tangible book value.

To receive any shares under an RSU, a grantee must be employed by the Corporation or one of its subsidiaries on the applicable vesting date, except that a grantee whose employment terminates prior to such vesting date due to death, disability or retirement will be entitled to a pro-rated portion of the shares subject to the RSUs, assuming that, in the case of performance-vesting RSUs, the performance goals had been met at their "target" levels.

7 unchanged sentences

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

Stock compensation expense was $ 15,896 for the year ended December 31, 2023, and $ 73,816 for the year ended December 31, 2022.

Stock compensation expense was $ 15,896 for the year ended December 31, 2023.

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

2 unchanged sentences

The performance period for the performance-vesting RSUs is 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.

1 unchanged sentence

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

Net stock compensation (credit)/expense was ($ 51,555 ) and $ 66,285 for the years ended December 2023 and 2022.

Unrecognized compensation expense as of December 31, 2023 related to unvested units was $ 7,365 .

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

Net stock compensation expense/(credit) was $ 7,365 and ($ 51,555 ) for the years ended December 2024 and 2023.

All compensation expense related to the 2021 LTIP plans were 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.

2 unchanged sentences

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

Stock compensation expense was $ 104,580 and $ 78,436

for the years ended December 31, 2023 and 2022, respectively.

In the third quarter of 2024, it was projected that the performance-vesting shares will fail to vest;

therefore, the stock compensation expense was adjusted accordingly.

compensation (credit)/expense was ($ 57,849 ) and $ 104,580 for the years ended December 31, 2024 and 2023, respectively.

Unrecognized compensation expense as of December 31, 2024 related to unvested units was $ 11,379 .

2 unchanged sentences

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

Stock compensation expense was $ 82,755 for the year ended Decmber 31, 2023.

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

Stock compensation expense was $ 110,340 and $ 82,755 for the years ended December 31, 2024 and 2023, respectively.

Unrecognized compensation expense as of December 31, 2024 related to unvested units was $ 137,924 .

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 ending December 31, 2026.

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

Stock Compensation expense was $ 66,066 for the year ended December 31, 2024.

Unrecognized compensation expense as of December 31, 2024 related to unvested units was $ 273,702 .

Employee Benefit Plans

15 unchanged sentences

(iii) Separation from Service due to a Disability (as defined in the Contribution Agreement);

(iv) with respect to a particular award of Employer Contribution Credits, the participant’s completion of two consecutive Years of Service (as defined in the Contribution Agreement) immediately following the Plan Year for which such award was made;

(iv) with respect to a particular award of Employer Contribution Credits, the participant’s

completion of two consecutive Years of Service (as defined in the Contribution Agreement) immediately following the Plan Year for which such award was made;

or (v) death.

Notwithstanding the foregoing, however, a participant will lose entitlement to the amount maintained in his or her Employer Account in the event employment is terminated for Cause (as defined in the Contribution Agreement).

In addition, the Contribution Agreement conditions entitlement to the amounts held in the Employer Account on the participant (a) refraining from engaging in Competitive Employment (as defined in the Contribution Agreement) for three years following his or her Separation from Service, (b) refraining from injurious disclosure of confidential information concerning the Corporation, and (c) remaining available, at the First United Corporation’s reasonable request, to provide at least six hours of transition services per month for 12 months following

his or her Separation from Service (except in the case of death or Disability), except that only item (b) will apply in the event of a Separation from Service following a Change of Control and subsequent Triggering Event.

In January 2022, the Board of Directors approved discretionary contributions to three participants totaling $ 103,689 .

1 unchanged sentence

In January 2023, the Board of Directors approved discretionary contributions to three participants totaling $ 108,184 .

The Corporation recorded $ 51,844 of related compensation expense for both 2023 and 2022 related to these contributions.

The Corporation recorded $ 54,092 of related compensation expense for both 2024 and 2023.

In January 2024, the Board of Directors approved discretionary contributions to three participants totaling $ 114,958 .

23 unchanged sentences

Expected return on assets

Amortization of recognized loss

Amortization of recognized loss/(gain)

Net pension (income)/expense in employee benefits

77 unchanged sentences

Additionally, First United Corporation accrued a non-elective employer contribution during 2024 for all employees other than employees who participate in the Defined Benefit SERP and Defined Contribution SERP and those employees meeting the age plus service requirement in the Pension Plan equal to 4.0 % of each employee’s salary, and 0.5 % of each employee’s salary hired before January 1, 2010, which will be paid in the first quarter of 2025.

The employee must be a plan participant and be actively employed on the last day of the plan year to share in the discretionary profit sharing contribution, except in the case of death, disability, or retirement of the participant.

Expense charged to operations for the 401(k) Plan was $ 1.4 million in 2023 and $ 1.3 million in 2022.

Federal Reserve Requirements

The Bank is required to maintain cash reserves with the Federal Reserve Bank of Richmond based on specified deposit liabilities.

Effective March 26, 2020, the FRB reduced reserve requirement ratios to 0 %.

This action eliminated reserve requirements for all depository institutions.

The employee must be a plan participant and be actively employed on the last day of the plan year to share in the

discretionary profit sharing contribution, except in the case of death, disability, or retirement of the participant.

Expense charged to operations for the 401(k) Plan was $ 1.4 million in 2024 and 2023.

Contractual Obligations, Commitments and Contingent Liabilities

27 unchanged sentences

The Corporation measures fair values based on the fair value hierarchy established in ASC Paragraph 820-10-35-37.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or

liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of inputs that may be used to measure fair value under the hierarchy are as follows:

63 unchanged sentences

Non-recurring:

Individually evaluated loans

Equity investment

7 unchanged sentences

Discount Rate

Range of low to mid 500 and low to mid 600

Range of low to mid 300 and low 500

Non-recurring:

Individually Evaluated Loans

Market Comparable Properties

Marketability Discount

Equity Investments

13 unchanged sentences

Non-recurring:

Individually Evaluated Loans

Market Comparable Properties

Marketability Discount

10.0 % to 15.0 %

Equity Investment

4 unchanged sentences

Marketability Discount

5.0 % to 15.0 %

(weighted avg 5.9 %)

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

4 unchanged sentences

Beginning balance January 1, 2024

Total gains/(losses) realized/unrealized:

Total gains realized/unrealized:

Included in other comprehensive income

4 unchanged sentences

Beginning balance January 1, 2023

Total gains/(losses) realized/unrealized:

Total losses realized/unrealized:

Included in other comprehensive income

42 unchanged sentences

Deposits – time deposits

Financial derivative

Short-term borrowed funds

17 unchanged sentences

(in thousands)

Amount of (loss)/gain recognized in OCI on derivative (effective portion)

Amount of loss recognized in OCI on derivative (effective portion)

Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) (1)

44 unchanged sentences

Segment Reporting

Currently, the Corporation conducts business in two operating segments:

(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.

The Corporation is managed under an organizational structure that conducts business in two primary operating segments:

(i) Community Banking and (ii) Wealth Management.

The Corporation is primarily managed based on the line of business structure.

In that regard, the Corporation provides the same lines of business, which have the same product and service offerings, have similar types and classes of customers and utilize similar service delivery methods across our entire geographic footprint.

Pricing guidelines for products and services are across all regions.

Community Banking and Trust and Investment Services are delineated by the products and services that each segment offers.

Business activity for the operating segments are as follows:

3 unchanged sentences

Major revenue sources include net interest income, gains on sales of mortgage loans, and service charges on deposit accounts.

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

Non-cash charges other than depreciation of fixed assets were immaterial for the years ended December 31, 2023 and 2022.

Trust and Investment Services :

The Trust and Investment Services segment is conducted through the Bank and offers corporate trustee services, trust and estate administration, IRA administration and custody services.

Revenues for this segment is generated from administration, service and custody fees, as well as management fees that are derived from Assets Under Management.

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

Non-cash charges associated with amortization of intangibles were approximately $ 208,000 for the years ending December 31, 2023 and 2022.

Expenses include salaries and employee benefits, occupancy, data processing, FDIC premiums, marketing, equipment, and other expenses.

Wealth Management :

The Wealth Management segment is conducted through the Bank and offers corporate trustee services, trust and estate administration, IRA administration and custody services.

Revenues for this segment is generated from administration, service and custody fees, brokerage commissions, and management fees that are derived from Assets Under Management.

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

The accounting policies of each reportable segment are the same as those of our consolidated entity except that expenses for consolidated back-office operations and general overhead-type expenses such as executive administration, accounting, information technology and human resources are recorded in the Community Banking segment and reimbursed by the Wealth Management segment through a monthly management fee based on estimated uses of those services.

An internal team of the Corporation’s executive directors including the Chief Executive Officer, Chief Financial Officer, and Chief Wealth Officer serve as the Corporation’s CODM.

The CODM reviews actual net income verses budgeted net income to assess segment performance on a monthly basis and to make decisions about allocating capital and personnel to the segments.

Financial results by operating segment, including significant expense categories provided to the CODM are detailed below.

Certain prior period amounts have been reclassified to conform to the current presentation.

The Trust and Investment Services segment excludes off-balance-sheet assets under management with a total fair value of $ 1.7 billion and $ 1.5 billion at December 31, 2024 and 2023, respectively.

Information for the operating segments for the years ended December 31, 2024 and 2023 are presented in the following tables:

3 unchanged sentences

Interest expense

Net interest income

Credit loss expense

Non-interest income

Non-interest expense

Net interest income after credit loss expense

Other operating income:

Net gains on sales of residential mortgages

Service charges on deposit accounts

Other service charges

Trust department income

Debit card income

Brokerage commissions

Other segment income (1)

Total other operating income

Other operating expenses:

Salaries and employee benefits

Equipment and occupancy

Data processing

FDIC premiums

Other segment expenses (2)

Total operating expenses

Income before income taxes and intercompany fees

2 unchanged sentences

Income tax expense

Significant noncash items

Credit loss expense

Amortization of intangible assets

(1) Other segment income includes net gains/(losses) on disposals of fixed assets, bank owned life insurance income, and miscellaneous income.

(2) Other segment expenses include professional services, contract labor, line rentals, investor relations, contributions, net OREO expense/(income), and miscellaneous expenses.

December 31, 2023

2 unchanged sentences

Interest expense

Loan loss credit

Non-interest income

Non-interest expense

Net interest income

Credit loss expense

Net interest income after credit loss expense

Other operating income:

Net losses on investments, available for sale

Net gains on sales of residential mortgages

Service charges on deposit accounts

Other service charges

Trust department income

Debit card income

Brokerage commissions

Total other operating income

Other operating expenses:

Salaries and employee benefits

Equipment and occupancy

Data processing

FDIC premiums

Total operating expenses

Income before income taxes and intercompany fees

2 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 December 31, 2023 and $ 0.9 million (including $ 0.8 million in intangible assets) at December 31, 2022.

All other assets (including goodwill of $ 11.0 million as of December 31 2023 and 2022 and other intangible assets of $ 0.5 million and $ 0.6 million as of December 31, 2023 and 2022, respectively) were held by the community banking segment.

Significant noncash items

Credit loss expense

Amortization of intangible assets

(1) Other segment income includes net gains/(losses) on disposals of fixed assets, bank owned life insurance income, and miscellaneous income.

(2) Other segment expenses include professional services, contract labor, line rentals, investor relations, contributions, net OREO expense/(income), and miscellaneous expenses.

Parent Company Only Financial Information

25 unchanged sentences

Unrealized losses on AFS securities, net of tax

Unrealized (losses)/gains on cash flow hedges, net of tax

Other comprehensive (loss)/income, net of tax

Unrealized losses on cash flow hedges, net of tax

Other comprehensive loss, net of tax

Comprehensive income

8 unchanged sentences

Net cash provided by operating activities

Investing Activities

Proceeds from principal paydowns on AFS securities

Net cash provided by investing activities

Financing Activities

3 unchanged sentences

Net cash used in financing activities

Increase in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

2 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data