FIRST UNITED CORP/MD/ 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of First United Corporation and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, as well as the audited consolidated financial statements and related notes included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024. Unless the context clearly suggests otherwise, references in this report to “us”, “we”, “our”, and “the Corporation” are to First United Corporation and its consolidated subsidiaries. ​ 41 Table of Contents FORWARD-LOOKING STATEMENTS This report contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but are statements about management’s beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objectives. These statements are evidenced by terms such as "anticipate," "estimate," "should," “will”, "expect," "believe," "intend," and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. The beliefs, plans and objectives on which forward-looking statements are based involve risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports that First United Corporation files with the Securities and Exchange Commission entitled "Risk Factors". FIRST UNITED CORPORATION First United Corporation is a Maryland corporation chartered in 1985 and a financial holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended, that elected financial holding company status in 2021. The Corporation’s primary business is serving as the parent company of First United Bank & Trust, a Maryland trust company (the “Bank”), First United Statutory Trust I (“Trust I”) and First United Statutory Trust II (“Trust II” and together with Trust I, “the Trusts”), both Connecticut statutory business trusts. The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital. The Bank has two consumer finance company subsidiaries- OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company – and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure – First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company. In addition, the Bank owns 99.9% of the limited partnership interests in Liberty Mews Limited Partnership, a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland, and a 99.9% non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland. At March 31, 2025, the Corporation’s total assets were $2.0 billion, net loans were $1.5 billion, and deposits were $1.6 billion. Shareholders’ equity at March 31, 2025 was $183.7 million. We maintain an Internet site at www.mybank.com on which we make available, free of charge, First United Corporation’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC. RESULTS OF OPERATIONS Overview Consolidated net income was $5.8 million for the first quarter of 2025. This compares to $3.7 million for the first quarter of 2024. Basic net income was $0.90 per share and diluted net income was $0.89 per share for the first quarter of 2025, compared to basic and diluted net income of $0.56 per share for the first quarter of 2024. ​ The $2.1 million increase in quarterly net income when compared to the first quarter of 2024 was primarily driven by a $2.2 million increase in net interest income, a $0.3 million decrease in provision for credit loss, stable non-interest income, and a decrease in non-interest expense of $0.3 million, partially offset by an increase in income tax expense of $0.7 million. Comparing the first quarter of 2025 to the same period of 2024, interest and fees on loans increased by $2.5 million resulting from new loans booked at higher rates, the repricing of adjustable-rate loans, and growth in our loan portfolio. Interest expense remained stable when comparing year-over-year quarterly expense as reductions in the rate environment offset the increased funding. ​ Other operating income, including net gains, for the first quarter of 2025 was stable when compared to the same period of 2024. Wealth management income increased by $0.1 million due to increased market values and growth in new and existing customer relationships. This was offset by a decrease in brokerage commissions due to slower annuity sales comparing these quarters. 42 Table of Contents ​ Operating expenses decreased by $0.3 million in the first quarter of 2025 when compared to the first quarter of 2024. The decrease was largely driven by a $0.6 million decrease in equipment and occupancy expense due to the accelerated depreciation expenses recognized in the first quarter of 2024 in conjunction with the branch closures in February 2024. This decrease was partially offset by a $0.2 million increase in salaries and benefits primarily driven by increases in incentive pay and life and health insurance expenses due to increased claims. Additionally, data processing expenses increased by $0.2 million in the first quarter of 2025 when compared to the first quarter of 2024, partially offset by a decrease in other miscellaneous expenses of $0.1 million due primarily to reduced net periodic pension costs and check fraud related costs. ​ Net Interest Income Net interest income is our largest source of operating revenue. Net interest income is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to a fully taxable equivalent (“FTE”) basis to facilitate performance comparisons between taxable and tax-exempt assets by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate. This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure. The tables below summarize net interest income for the three-month periods ended March 31, 2025 and 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-GAAP GAAP ​ ​ ​ ​ Three Months Ended Three Months Ended ​ ​ ​ ​ March 31, March 31, ​ (in thousands) ​ 2025 2024 2025 2024 Interest income ​ $ 24,111 ​ $ 21,955 ​ $ 24,062 ​ $ 21,898 ​ Interest expense ​ ​ 8,046 ​ ​ 8,086 ​ ​ 8,046 ​ ​ 8,086 ​ Net interest income ​ $ 16,065 ​ $ 13,869 ​ $ 16,016 ​ $ 13,812 ​ Net interest margin % ​ ​ 3.56 % ​ 3.12 % ​ 3.55 % ​ 3.10 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 43 Table of Contents The following tables set forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the three-month periods ended March 31, 2025 and 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ ​ ​ 2025 ​ 2024 ​ ​ ​ Average ​ ​ ​ Average ​ Average ​ ​ ​ Average ​ (in thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ $ 1,483,151 ​ $ 21,768 ​ 5.95 % $ 1,407,886 ​ $ 19,234 ​ 5.49 % Investment Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ ​ 284,303 ​ ​ 1,763 ​ 2.51 % ​ 294,526 ​ ​ 1,744 ​ 2.38 % Non taxable ​ ​ 6,524 ​ ​ 81 ​ 5.04 % ​ 7,806 ​ ​ 94 ​ 4.84 % Total ​ ​ 290,827 ​ ​ 1,844 ​ 2.57 % ​ 302,332 ​ ​ 1,838 ​ 2.45 % Federal funds sold ​ ​ 41,750 ​ ​ 384 ​ 3.73 % ​ 63,843 ​ ​ 758 ​ 4.78 % Interest-bearing deposits with other banks ​ ​ 8,488 ​ ​ 15 ​ 0.72 % ​ 8,787 ​ ​ 31 ​ 1.42 % Other interest earning assets ​ ​ 5,774 ​ ​ 100 ​ 7.02 % ​ 5,107 ​ ​ 94 ​ 7.40 % Total earning assets ​ ​ 1,829,990 ​ ​ 24,111 ​ 5.34 % ​ 1,787,955 ​ ​ 21,955 ​ 4.94 % Allowance for loan losses ​ ​ (18,413) ​ ​ ​ ​ ​ ​ ​ (17,696) ​ ​ ​ ​ ​ ​ Non-earning assets ​ ​ 165,125 ​ ​ ​ ​ ​ ​ ​ 188,425 ​ ​ ​ ​ ​ ​ Total Assets ​ $ 1,976,702 ​ ​ ​ ​ ​ ​ $ 1,958,684 ​ ​ ​ ​ ​ ​ Liabilities and Shareholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ $ 373,903 ​ $ 1,652 ​ 1.79 % $ 348,998 ​ $ 1,441 ​ 1.66 % Interest-bearing money markets - retail ​ ​ 464,151 ​ ​ 3,547 ​ 3.10 % ​ 322,965 ​ ​ 3,260 ​ 4.06 % Interest-bearing money markets - brokered ​ ​ 134 ​ ​ 1 ​ 3.03 % ​ — ​ ​ — ​ — % Savings deposits ​ ​ 171,517 ​ ​ 43 ​ 0.10 % ​ 189,572 ​ ​ 48 ​ 0.10 % Time deposits - retail ​ ​ 144,519 ​ ​ 1,055 ​ 2.96 % ​ 157,678 ​ ​ 1,118 ​ 2.85 % Time deposits - brokered ​ ​ 36,041 ​ ​ 385 ​ 4.33 % ​ 30,000 ​ ​ 399 ​ 5.35 % Total ​ ​ 1,190,265 ​ ​ 6,683 ​ 2.28 % ​ 1,049,213 ​ ​ 6,266 ​ 2.42 % Short-term borrowings ​ ​ 23,053 ​ ​ 20 ​ 0.35 % ​ 73,351 ​ ​ 461 ​ 2.53 % Long-term borrowings ​ ​ 120,929 ​ ​ 1,343 ​ 4.50 % ​ 103,017 ​ ​ 1,359 ​ 5.31 % Total interest-bearing liabilities ​ ​ 1,334,247 ​ ​ 8,046 ​ 2.45 % ​ 1,225,581 ​ ​ 8,086 ​ 2.65 % Non-interest-bearing deposits ​ ​ 427,518 ​ ​ ​ ​ ​ ​ ​ 534,412 ​ ​ ​ ​ ​ ​ Other liabilities ​ ​ 31,474 ​ ​ ​ ​ ​ ​ ​ 34,747 ​ ​ ​ ​ ​ ​ Shareholders’ Equity ​ ​ 183,463 ​ ​ ​ ​ ​ ​ ​ 163,944 ​ ​ ​ ​ ​ ​ Total Liabilities and Shareholders’ Equity ​ $ 1,976,702 ​ ​ ​ ​ ​ ​ $ 1,958,684 ​ ​ ​ ​ ​ ​ Net interest income and spread ​ ​ ​ ​ $ 16,065 ​ 2.89 % ​ ​ ​ $ 13,869 ​ 2.29 % Net interest margin ​ ​ ​ ​ ​ ​ ​ 3.56 % ​ ​ ​ ​ ​ ​ 3.12 % ​ (1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2025 and 2024. Non-GAAP interest income on a fully taxable equivalent for the three-month periods ended March 31, 2025 and 2024 was $49 and $57, respectively. (2) Net interest margin is calculated as net interest income divided by average earning assets. (3) The average yields on investments are based on amortized cost. Net interest income, on a non-GAAP, FTE basis, increased by $2.2 million for the first quarter of 2025 when compared to the first quarter of 2024. This increase was driven by an increase of $2.2 million in interest income. Interest income on loans increased by $2.5 million due to the increase of 46 basis points in overall yield on the loan portfolio as new loans were booked at higher rates during 2024, upward repricing of adjustable-rate loans, and an increase in average balances of $75.3 million. Interest income on Federal funds sold decreased by $0.4 million due to a decrease of 105 basis points in average rates and a decrease of $22.1 million in average balances. Interest expense in the first quarter of 2025 was stable when compared to the first quarter of 2024. Interest expense paid on deposits increased by $0.4 million due to a $141.1 million increase in average balances, partially offset by a decrease of 12 basis points on the rate paid. Interest paid on short-term borrowings decreased by $0.4 million for the first 44 Table of Contents quarter of 2025 when compared to the same period of 2024 due to the repayment of the $40.0 million from the Bank Term Funding Program late in the third quarter of 2024. ​ The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the three-month periods ended March 31, 2025 and 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended March 31, 2025 ​ ​ compared to the three months ended March 31, 2024 (in thousands and tax equivalent basis) Volume Rate Net Interest Income: ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ $ 4,132 ​ $ (1,598) ​ $ 2,534 Taxable Investments ​ ​ (243) ​ ​ 262 ​ ​ 19 Non-taxable Investments ​ ​ (62) ​ ​ 49 ​ ​ (13) Federal funds sold ​ ​ (1,056) ​ ​ 682 ​ ​ (374) Interest-bearing deposits ​ ​ (4) ​ ​ (12) ​ ​ (16) Other interest earning assets ​ ​ 49 ​ ​ (43) ​ ​ 6 Total interest income ​ ​ 2,816 ​ ​ (660) ​ ​ 2,156 Interest Expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing demand deposits ​ ​ 413 ​ ​ (202) ​ ​ 211 Interest-bearing money markets- retail ​ ​ 5,732 ​ ​ (5,445) ​ ​ 287 Interest-bearing money markets- brokered ​ ​ 134 ​ ​ (133) ​ ​ 1 Savings deposits ​ ​ (18) ​ ​ 13 ​ ​ (5) Time deposits - retail ​ ​ (375) ​ ​ 312 ​ ​ (63) Time deposits - brokered ​ ​ 323 ​ ​ (337) ​ ​ (14) Short-term borrowings ​ ​ (1,273) ​ ​ 832 ​ ​ (441) Long-term borrowings ​ ​ 951 ​ ​ (967) ​ ​ (16) Total interest expense ​ ​ 5,887 ​ ​ (5,927) ​ ​ (40) Net interest income ​ $ (3,071) ​ $ 5,267 ​ $ 2,196 (1) The change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for Credit Losses Specific allocations have been made for loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the estimated allowance for credit losses (“ACL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio. For the first three months of 2025 and 2024, net provision expense was $0.7 million and $0.9 million, respectively. The decreased provision expense recorded in the first quarter of 2025 when compared to the same period in 2024 was primarily related to the $12.1 million in commercial loan balances moved to non-accrual in the first quarter of 2024. ​ ​ 45 Table of Contents Other Income The composition of other operating income for the three-month periods ended March 31, 2025 and 2024 is illustrated in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income as % of ​ ​ Total Other Income ​ ​ Three Months Ended ​ ​ March 31, (in thousands) 2025 2024 Service charges on deposit accounts ​ $ 547 12% ​ $ 556 12% Other service charges ​ ​ 206 ​ 4% ​ ​ 215 ​ 4% Trust department ​ ​ 2,323 ​ 48% ​ ​ 2,188 ​ 46% Debit card income ​ ​ 921 ​ 19% ​ ​ 932 ​ 19% Bank owned life insurance ​ ​ 341 ​ 7% ​ ​ 326 ​ 7% Brokerage commissions ​ ​ 421 ​ 9% ​ ​ 495 ​ 10% Other income ​ ​ 63 ​ 1% ​ ​ 81 ​ 2% ​ ​ $ 4,822 ​ 100% ​ $ 4,793 ​ 100% ​ Other Operating Expenses The composition of other operating expenses for the three-month periods ended March 31, 2025 and 2024 is illustrated in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expense as % of ​ ​ Total Other Operating Expenses ​ ​ Three Months Ended ​ ​ March 31, (in thousands) 2025 2024 Salaries and employee benefits ​ $ 7,331 58% ​ $ 7,157 56% FDIC premiums ​ ​ 245 ​ 2% ​ ​ 269 ​ 2% Equipment ​ ​ 578 ​ 5% ​ ​ 923 ​ 7% Occupancy expense of premises ​ ​ 689 ​ 5% ​ ​ 954 ​ 8% Data processing expense ​ ​ 1,503 ​ 12% ​ ​ 1,318 ​ 10% Marketing expense ​ ​ 238 ​ 2% ​ ​ 134 ​ 1% Professional services ​ ​ 476 ​ 4% ​ ​ 486 ​ 4% Contract labor ​ ​ 163 ​ 1% ​ ​ 183 ​ 1% Telephone ​ ​ 98 ​ 1% ​ ​ 109 ​ 1% Other real estate owned ​ ​ 92 ​ 1% ​ ​ 86 ​ 1% Investor relations ​ ​ 62 ​ 1% ​ ​ 53 ​ 0% Contributions ​ ​ 56 ​ 0% ​ ​ 50 ​ 0% Other ​ ​ 1,045 ​ 8% ​ ​ 1,159 ​ 9% ​ ​ $ 12,576 ​ 100% ​ $ 12,881 ​ 100% ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for Income Taxes In reporting interim financial information, income tax provisions should be determined under the procedures set forth in Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 740, Income Taxes (Section 740-270-30). This guidance provides that at the end of each interim period, an entity should make its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined should be used in providing for income taxes on a current year-to-date basis. The effective tax rate should reflect anticipated investment tax credits, capital gains rates, and other available tax planning alternatives. In arriving at this effective tax rate, however, no effect should be included for the tax related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect in reports for the interim period or for the fiscal year. 46 Table of Contents The effective income tax rates as a percentage of income for the three-month periods ended March 31, 2025 and March 31, 2024 were 24.6% and 23.9%, respectively. ​ GAAP and Non-GAAP Financial Measures The following tables sets forth certain selected financial data for the periods ended March 31, 2025 and 2024 under GAAP (as reported) and non-GAAP. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP in the United States. The Corporation’s management believes that the presentation of non-GAAP financial measures provides investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP. While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP. ​ The following table presents a reconciliation of net income and diluted earnings per share (as reported) to adjusted net income and adjusted diluted earnings per share: ​ ​ ​ ​ ​ ​ ​ Three months ended March 31, (in thousands, except for per share amount) 2025 ​ 2024 Per Share Data ​ ​ ​ ​ ​ Basic net income per common share $ 0.90 ​ $ 0.56 Basic net income per common share - non-GAAP $ 0.90 ​ $ 0.62 Diluted net income per common share $ 0.89 ​ $ 0.56 Diluted net income per common share - non-GAAP $ 0.89 ​ $ 0.62 Basic book value per common share $ 28.40 ​ $ 24.89 Diluted book value per common share $ 28.42 ​ $ 24.86 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income - as reported $ 5,806 ​ $ 3,698 Adjustments: ​ ​ ​ ​ ​ Accelerated depreciation expenses ​ — ​ ​ 562 Income tax effect of adjustments ​ — ​ ​ (137) Adjusted net income (non-GAAP) $ 5,806 ​ $ 4,123 ​ ​ ​ ​ ​ ​ Diluted earnings per share - as reported $ 0.89 ​ $ 0.56 Adjustments: ​ ​ ​ ​ ​ Accelerated depreciation expenses ​ — ​ ​ 0.08 Income tax effect of adjustments ​ — ​ ​ (0.02) Adjusted diluted earnings per share (non-GAAP) $ 0.89 ​ $ 0.62 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant Ratios: Three months ended March 31, ​ ​ 2025 ​ ​ 2024 Return on Average Assets - as reported ​ 1.19% ​ ​ 0.76% Accelerated depreciation expenses ​ - ​ ​ 0.03% Income tax effect of adjustments ​ - ​ ​ (0.01%) Adjusted Return on Average Assets (non-GAAP) ​ 1.19% ​ ​ 0.78% ​ ​ ​ ​ ​ ​ Return on Average Equity - as reported ​ 12.83% ​ ​ 9.07% Accelerated depreciation expenses ​ - ​ ​ 0.34% Income tax effect of adjustments ​ - ​ ​ (0.08%) Adjusted Return on Average Equity (non-GAAP) ​ 12.83% ​ ​ 9.33% 47 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ FINANCIAL CONDITION Balance Sheet Overview Total assets at March 31, 2025 were $2.0 billion, representing a $6.7 million increase since December 31, 2024. During the first quarter of 2025, cash and interest-bearing deposits in other banks increased by $6.1 million. The investment portfolio increased by $5.2 million as bonds were purchased to gain yield before long-term rates decline. Gross loans decreased slightly by $0.9 million. While loan production was modest during the quarter, amortization and payoffs exceeded growth levels. Pension assets decreased by $1.8 million due to decreased market values. ​ Total liabilities at March 31, 2025 were $1.8 billion, representing a $2.3 million increase since December 31, 2024. Total deposits increased by $48.7 million when compared to December 31, 2024 related primarily to the $50.0 million in new brokered deposits that were obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024. Savings and money market accounts increased by $18.7 million and retail time deposits increased by $2.2 million. Interest-bearing demand deposits, primarily our ICS product, decreased by $17.9 million and non-interest-bearing deposits decreased by $4.3 million due primarily to seasonal fluctuations in municipal deposit accounts and increased spending by businesses and consumers related to inflation, respectively. Short-term borrowings decreased by $45.1 million primarily due to the repayment of $50.0 million in overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product. ​ Loan Portfolio The following table presents the composition of our loan portfolio at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2025 December 31, 2024 Commercial real estate ​ $ 532,764 36% ​ $ 526,364 36% Acquisition and development ​ ​ 94,063 ​ 6% ​ ​ 95,314 ​ 6% Commercial and industrial ​ ​ 282,370 ​ 19% ​ ​ 287,534 ​ 19% Residential mortgage ​ ​ 520,072 ​ 36% ​ ​ 518,815 ​ 35% Consumer ​ ​ 50,600 ​ 3% ​ ​ 52,766 ​ 4% Total Loans ​ $ 1,479,869 ​ 100% ​ $ 1,480,793 ​ 100% ​ ​ Outstanding loans of $1.5 billion at March 31, 2025 reflected a $0.9 million decrease since December 31, 2024. Since December 31, 2024, commercial real estate loans increased by $6.4 million, acquisition and development loans decreased by $1.2 million, commercial and industrial loans decreased by $5.2 million, residential mortgage loans increased by $1.3 million, and consumer loans decreased by $2.2 million. ​ New commercial loan production for the three months ended March 31, 2025 was approximately $36.1 million. The pipeline of commercial loans as of March 31, 2025 was $56.0 million. Commercial amortization and payoffs were approximately $35.0 million through March 31, 2025, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio. ​ New consumer mortgage loan production for the first quarter of 2025 was approximately $11.4 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of March 31, 2025 was $10.9 million. ​ Non-accrual loans totaled $4.0 million at March 31, 2025 compared to $4.9 million at December 31, 2024. The decrease in non-accrual balances at March 31, 2025 was related to principal reductions. ​ ​ 48 Table of Contents The following table presents loans in our commercial real estate portfolio by industry type at March 31, 2025. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Non-owner-occupied ​ Owner-occupied ​ Multi-family ​ Total Accommodations and food services ​ $ 70,613 ​ $ 5,437 ​ $ — ​ $ 76,050 Administration and support, waste management, and remediation services ​ ​ — ​ ​ 1,397 ​ ​ — ​ ​ 1,397 Agriculture, forestry, fishing and hunting ​ ​ — ​ ​ 1,360 ​ ​ — ​ ​ 1,360 Arts, entertainment and recreation ​ ​ — ​ ​ 4,364 ​ ​ — ​ ​ 4,364 Construction ​ ​ 2,019 ​ ​ 5,641 ​ ​ 2 ​ ​ 7,662 Educational services ​ ​ — ​ ​ 851 ​ ​ — ​ ​ 851 Finance and insurance ​ ​ — ​ ​ 106 ​ ​ — ​ ​ 106 Health care and social assistance ​ ​ 6,407 ​ ​ 14,119 ​ ​ — ​ ​ 20,526 Manufacturing ​ ​ — ​ ​ 12,996 ​ ​ — ​ ​ 12,996 Other services (except public services) ​ ​ — ​ ​ 19,722 ​ ​ 305 ​ ​ 20,027 Professional, scientific and technical services ​ ​ — ​ ​ 1,884 ​ ​ — ​ ​ 1,884 Public administration ​ ​ 1,415 ​ ​ 927 ​ ​ — ​ ​ 2,342 Commercial rental properties ​ ​ 3,761 ​ ​ 3,520 ​ ​ 339 ​ ​ 7,620 Residential rental properties ​ ​ 177,742 ​ ​ 84,970 ​ ​ — ​ ​ 262,712 Student rental properties ​ ​ 1,940 ​ ​ 528 ​ ​ 17,490 ​ ​ 19,958 Mixed use rental properties ​ ​ 188 ​ ​ 120 ​ ​ 25,371 ​ ​ 25,679 Storage units ​ ​ 40,406 ​ ​ — ​ ​ — ​ ​ 40,406 Real estate rental and leasing- other ​ ​ — ​ ​ — ​ ​ 2,659 ​ ​ 2,659 Retail trade ​ ​ 77 ​ ​ 3,090 ​ ​ — ​ ​ 3,167 Transportation and warehousing ​ ​ — ​ ​ 452 ​ ​ — ​ ​ 452 Wholesale trade ​ ​ — ​ ​ 20,546 ​ ​ — ​ ​ 20,546 Total ​ $ 304,568 ​ $ 182,030 ​ $ 46,166 ​ $ 532,764 ​ ​ Our loan portfolio does not consist of any loans secured by office buildings located in major metropolitan areas or that are over four stories or any retail properties rented to major big box retail tenants. There have been no significant changes in our commercial real estate concentrations since December 31, 2024. ​ 49 Table of Contents Risk Elements of Loan Portfolio The following table presents the risk elements of our loan portfolio at the dates indicated. Management is not aware of any potential problem loans other than those listed in this table or discussed below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2025 % of Applicable Portfolio December 31, 2024 % of Applicable Portfolio Non-accrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ 79 ​ 0.01% ​ $ 656 ​ 0.12% Acquisition and development ​ ​ 39 ​ 0.04% ​ ​ 82 ​ 0.09% Commercial and industrial ​ ​ 1,839 ​ 0.65% ​ ​ 1,838 ​ 0.00% Residential mortgage ​ ​ 1,956 ​ 0.38% ​ ​ 2,181 ​ 0.42% Consumer ​ ​ 113 ​ 0.22% ​ ​ 174 ​ 0.33% Total non-accrual loans ​ $ 4,026 ​ 0.27% ​ $ 4,931 ​ 0.33% Accruing Loans Past Due 90 days or more: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ $ — ​ ​ ​ $ 317 ​ ​ Residential mortgage ​ ​ 233 ​ ​ ​ ​ 573 ​ ​ Consumer ​ ​ — ​ ​ ​ ​ 28 ​ ​ Total loans past due 90 days or more ​ $ 233 ​ ​ ​ $ 918 ​ ​ Total non-accrual and accruing loans past due 90 days or more ​ $ 4,259 ​ ​ ​ $ 5,849 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Repossessed assets ​ ​ 2,802 ​ ​ ​ ​ 2,802 ​ ​ Other real estate owned ​ $ 3,062 ​ ​ ​ $ 3,062 ​ ​ Total Non-performing assets ​ $ 10,123 ​ ​ ​ $ 11,713 ​ ​ Individually evaluated loans without a valuation allowance ​ $ 3,432 ​ ​ ​ $ 4,432 ​ ​ Total individually evaluated loans ​ $ 3,432 ​ ​ ​ $ 4,432 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-accrual loans to total loans (as %) ​ ​ 0.27% ​ ​ ​ ​ 0.33% ​ ​ Non-performing loans to total loans (as %) ​ ​ 0.29% ​ ​ ​ ​ 0.39% ​ ​ Non-performing assets to total assets (as %) ​ ​ 0.51% ​ ​ ​ ​ 0.59% ​ ​ Allowance for credit losses to non-accrual loans (as %) ​ ​ 458.69% ​ ​ ​ ​ 368.49% ​ ​ Allowance for credit losses to non-performing assets (as %) ​ ​ 182.43% ​ ​ ​ ​ 155.13% ​ ​ ​ ​ 50 Table of Contents ​ Allowance for Credit Losses The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense. Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management. Management believes that it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial conditions of borrowers. The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes. Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. For the period ended March 31, 2025 the range of outcomes would produce a 16% reduction or a 63% increase in reserves based on the best-case and worst-case scenarios, respectively. The following table presents a summary of the activity in the ACL for the three-month periods ended March 31, 2025 and 2024: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2025 2024 Balance, January 1 ​ $ 18,170 ​ $ 17,480 ​ Charge-offs: ​ ​ ​ ​ ​ ​ ​ Acquisition and development ​ ​ (3) ​ ​ — ​ Commercial and industrial ​ ​ (355) ​ ​ (112) ​ Consumer ​ ​ (184) ​ ​ (506) ​ Total charge-offs ​ ​ (542) ​ ​ (618) ​ Recoveries: ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ — ​ ​ 37 ​ Acquisition and development ​ ​ 64 ​ ​ 3 ​ Commercial and industrial ​ ​ 2 ​ ​ 31 ​ Residential mortgage ​ ​ 16 ​ ​ 18 ​ Consumer ​ ​ 100 ​ ​ 70 ​ Total recoveries ​ ​ 182 ​ ​ 159 ​ Net losses ​ ​ (360) ​ ​ (459) ​ Credit loss expense ​ ​ 657 ​ ​ 961 ​ Balance at end of period ​ $ 18,467 ​ $ 17,982 ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses to gross loans outstanding (as %) ​ ​ 1.25 % ​ 1.27 % ​ 51 Table of Contents ​ ​ ​ ​ ​ ​ ​ Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio ​ ​ ​ ​ ​ ​ ​ ​ ​ 2025 ​ 2024 Commercial real estate ​ ​ 0.00% ​ ​ 0.03% Acquisition and development ​ ​ 0.26% ​ ​ 0.01% Commercial and industrial ​ ​ (0.50)% ​ ​ (0.12)% Residential mortgage ​ ​ 0.01% ​ ​ 0.01% Consumer ​ ​ (0.65)% ​ ​ (2.89)% Total ​ ​ (0.10)% ​ ​ (0.13)% ​ Investment Securities At March 31, 2025, the total amortized cost basis of the available-for-sale investment portfolio was $119.8 million compared to a fair value of $100.0 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $174.2 million compared to a fair value of $146.8 million. The following table presents the composition of our securities portfolio at amortized cost and fair values at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2025 ​ December 31, 2024 ​ ​ Amortized ​ Fair Value ​ FV as % ​ Amortized ​ Fair Value ​ FV as % (in thousands) Cost (FV) of Total Cost (FV) of Total Available for Sale Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. treasuries ​ $ 3,862 ​ $ 4,013 ​ 4% ​ $ — ​ $ — ​ — U.S. government agencies ​ ​ 7,000 ​ ​ 6,219 ​ 6% ​ ​ 7,000 ​ ​ 6,115 ​ 6% Residential mortgage-backed agencies ​ ​ 24,050 ​ ​ 20,217 ​ 20% ​ ​ 24,621 ​ ​ 20,196 ​ 21% Commercial mortgage-backed agencies ​ ​ 36,943 ​ ​ 28,925 ​ 29% ​ ​ 37,205 ​ ​ 28,634 ​ 30% Collateralized mortgage obligations ​ ​ 20,706 ​ ​ 17,763 ​ 18% ​ ​ 21,069 ​ ​ 17,726 ​ 19% Obligations of state and political subdivisions ​ ​ 7,543 ​ ​ 7,258 ​ 7% ​ ​ 6,533 ​ ​ 6,209 ​ 7% Corporate bonds ​ ​ 1,000 ​ ​ 906 ​ 1% ​ ​ 1,000 ​ ​ 896 ​ 1% Collateralized debt obligations ​ ​ 18,707 ​ ​ 14,697 ​ 15% ​ ​ 18,686 ​ ​ 14,718 ​ 16% Total available for sale ​ $ 119,811 ​ $ 99,998 ​ 100% ​ $ 116,114 ​ $ 94,494 ​ 100% Held to Maturity Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 68,374 ​ $ 58,891 ​ 40% ​ $ 68,301 ​ $ 57,109 ​ 39% Residential mortgage-backed agencies ​ ​ 31,539 ​ ​ 28,513 ​ 19% ​ ​ 32,171 ​ ​ 28,611 ​ 20% Commercial mortgage-backed agencies ​ ​ 21,089 ​ ​ 15,648 ​ 11% ​ ​ 21,134 ​ ​ 15,340 ​ 11% Collateralized mortgage obligations ​ ​ 48,696 ​ ​ 39,791 ​ 27% ​ ​ 49,439 ​ ​ 39,715 ​ 27% Obligations of state and political subdivisions ​ ​ 4,505 ​ ​ 3,928 ​ 3% ​ ​ 4,511 ​ ​ 3,985 ​ 3% Total held to maturity ​ $ 174,203 ​ $ 146,771 ​ 100% ​ $ 175,556 ​ $ 144,760 ​ 100% ​ Total fair value of investment securities available for sale increased by $5.5 million since December 31, 2024 as cash flow from the portfolio was reinvested into securities at higher yields and to maintain balances for liquidity. At March 31, 2025, the securities classified as available-for-sale included a net unrealized loss of $19.8 million, which represents the difference between the fair value and amortized cost of securities in the portfolio. Total amortized cost of securities held to maturity decreased by $1.4 million since December 31, 2024 due primarily to principal paydowns of the portfolio. As discussed in Note 6 to the consolidated financial statements presented elsewhere in this report, the Corporation measures fair market values based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures . The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 3 prices or valuation techniques require inputs that are both significant to the valuation assumptions and are not readily observable in the market (i.e., supported with little 52 Table of Contents or no market activity). These Level 3 instruments are valued based on both observable and unobservable inputs derived from the best available data, some of which is internally developed, and considers risk premiums that a market participant would require. Approximately $85.3 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $15.8 million at March 31, 2025. The remaining $14.7 million of the available-for-sale securities represents the entire collateralized debt obligation portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $4.0 million in net unrealized losses associated with this portfolio relates to nine pooled trust preferred securities that comprise the collateralized debt obligation portfolio. Deposits The following table presents the composition of our deposits at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2025 December 31, 2024 ​ ​ ​ Balance ​ Percent ​ ​ Balance ​ Percent Non-interest-bearing demand deposits ​ $ 422,415 26% ​ $ 426,737 ​ 27% Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand ​ ​ 368,945 ​ 23% ​ ​ 386,803 ​ 25% Money market- retail ​ ​ 465,504 ​ 29% ​ ​ 447,149 ​ 28% Money market- brokered ​ ​ 2 ​ 0% ​ ​ 1 ​ 0% Savings deposits ​ ​ 171,354 ​ 10% ​ ​ 170,972 ​ 11% Time deposits- retail ​ ​ 145,354 ​ 9% ​ ​ 143,167 ​ 9% Time deposits- brokered ​ ​ 50,000 ​ 3% ​ ​ — ​ — Total Deposits ​ $ 1,623,574 ​ 100% ​ $ 1,574,829 ​ 100% ​ Total deposits at March 31, 2025 increased by $48.7 million when compared to December 31, 2024 driven by the purchase of $50.0 million in brokered certificates of deposit with an average interest rate of 4.24% to fully repay the $50.0 million in overnight borrowings that were outstanding at December 31, 2024. Savings and money market accounts increased by $18.7 million due primarily to the expansion of current and new relationships throughout the first three months of 2025. Non-interest-bearing checking deposits decreased by $4.3 million and interest-bearing checking deposits decreased by $17.9 million due to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers related to inflation. Retail time deposits increased by $2.2 million since December 31, 2024. ​ The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of March 31, 2025 and December 31, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2025 ​ ​ December 31, 2024 (in thousands) ​ ​ Balance ​ Percent ​ ​ Balance ​ Percent Insured deposits ​ $ 1,230,373 ​ 76% ​ $ 1,192,182 ​ 76% Uninsured and fully collateralized deposits ​ ​ 83,365 ​ 5% ​ ​ 77,369 ​ 5% Uninsured and uncollateralized deposits ​ ​ 309,836 ​ 19% ​ ​ 305,278 ​ 19% ​ ​ $ 1,623,574 ​ 100% ​ $ 1,574,829 ​ 100% ​ ​ ​ 53 Table of Contents The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of March 31, 2025 and December 31, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2025 ​ ​ December 31, 2024 (in thousands) ​ ​ Balance ​ Percent ​ ​ Balance ​ Percent Retail deposits ​ $ 795,181 ​ 49% ​ $ 798,664 ​ 51% Business deposits ​ ​ 828,393 ​ 51% ​ ​ 776,165 ​ 49% ​ ​ $ 1,623,574 ​ 100% ​ $ 1,574,829 ​ 100% ​ Borrowed Funds The following table presents the composition of our borrowings at the dates indicated: ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2025 December 31, 2024 Overnight borrowings from Federal Reserve Discount Window ​ $ — ​ $ 50,000 Securities sold under agreements to repurchase ​ ​ 20,342 ​ ​ 15,409 Total short-term borrowings ​ $ 20,342 ​ $ 65,409 FHLB advances ​ ​ 90,000 ​ ​ 90,000 Junior subordinated debt ​ ​ 30,929 ​ ​ 30,929 Total long-term borrowings ​ $ 120,929 ​ $ 120,929 ​ Short-term borrowings decreased by $45.1 million as a result of the purchase of a $50.0 million brokered CD to fully repay the overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product. There were no changes in long-term borrowings when comparing March 31, 2025 to December 31, 2024. ​ Liquidity Management Liquidity is a financial institution’s capability to meet customer demands for deposit withdrawals while funding all credit-worthy loans. The factors that determine the institution’s liquidity are: ● Reliability and stability of core deposits; ● Cash flow structure and pledging status of investments; and ● Potential for unexpected loan demand. We actively manage our liquidity position through meetings of a sub-committee of executive management, which looks forward 12 months at 30-day intervals. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. Monthly reviews by management and quarterly reviews by the Asset and Liability Committee under prescribed policies and procedures are designed to ensure that we will maintain adequate levels of available funds. It is our policy to manage our affairs so that liquidity needs are fully satisfied through normal Bank operations. That is, the Bank will manage its liquidity to minimize the need to make unplanned sales of assets or to borrow funds under emergency conditions. The Bank will use funding sources where the interest cost is relatively insensitive to market changes in the short run (periods of one year or less) to satisfy operating cash needs. The remaining normal funding will come from interest-sensitive liabilities, either deposits or borrowed funds. When the marginal cost of needed wholesale funding is lower than the cost of raising this funding in the retail markets, the Corporation may supplement retail funding with external funding sources such as: ● Unsecured Fed Funds lines of credit with upstream correspondent banks (M&T Bank, Atlantic Community Bankers Bank, Community Bankers Bank, PNC Financial Services, Pacific Coast Banker’s Bank and Zions Bancorp). ● Secured advances with the FHLB of Atlanta, which are collateralized by eligible one-to-four family residential mortgage loans, home equity lines of credit, commercial real estate loans. Cash and various securities may also be pledged as collateral. 54 Table of Contents ● Secured line of credit with the Federal Reserve Discount Window for use in borrowing funds up to 90 days, using eligible investment securities as collateral. ● Brokered deposits, including CDs and money market funds, provide a method to generate deposits quickly. These deposits are strictly rate driven but often provide the most cost-effective means of funding growth. ● One Way Buy CDARS/ICS funding – a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly. ​ The following table presents sources of liquidity available to the Corporation as of March 31, 2025. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ ​ Total Availability ​ ​ Amount Used ​ ​ Net Availability Internal Sources ​ ​ ​ ​ ​ ​ ​ ​ ​ Excess cash ​ $ 62,422 ​ $ - ​ $ 62,422 Unpledged securities ​ ​ 31,036 ​ ​ - ​ ​ 31,036 External Sources ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal Reserve (discount window) ​ ​ 87,275 ​ ​ - ​ ​ 87,275 Correspondent unsecured lines of credit ​ ​ 140,000 ​ ​ - ​ ​ 140,000 FHLB ​ ​ 334,100 ​ ​ 96,214 ​ ​ 237,886 ​ ​ $ 654,833 ​ $ 96,214 ​ $ 558,619 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements. ​ Market Risk and Interest Sensitivity Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities that we engage in, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on our liabilities. Interest rate sensitivity refers to the degree that earnings will be impacted by changes in the prevailing level of interest rates. Interest rate risk arises from mismatches in the repricing or maturity characteristics between interest-bearing assets and liabilities. Management seeks to minimize fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates. Management uses interest sensitivity gap analysis and simulation models to measure and manage these risks. The interest rate sensitivity gap analysis assigns each interest-earning asset and interest-bearing liability to a time frame reflecting its next repricing or maturity date. The differences between total interest-sensitive assets and liabilities at each time interval represent the interest sensitivity gap for that interval. A positive gap generally indicates that rising interest rates during a given interval will increase net interest income, as more assets than liabilities will reprice. A negative gap position would benefit us during a period of declining interest rates. At March 31, 2025, we were asset sensitive. Our interest rate risk management goals are: ● Ensure that the Board of Directors and senior management will provide effective oversight and ensure that risks are adequately identified, measured, monitored and controlled; ● Enable dynamic measurement and management of interest rate risk; ● Select strategies that optimize our ability to meet our long-range financial goals while maintaining interest rate risk within policy limits established by the Board of Directors; ● Use both income and market value oriented techniques to select strategies that optimize the relationship between risk and return; and ● Establish interest rate risk exposure limits for fluctuation in net interest income (“NII”), net income and economic value of equity. To manage interest sensitivity risk, management formulates guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These guidelines are based on management’s outlook regarding future 55 Table of Contents interest rate movements, the state of the regional and national economy, and other financial and business risk factors. Management uses computer simulations to measure the effect on net interest income of various interest rate scenarios. Key assumptions used in the computer simulations include cash flows and maturities of interest rate sensitive assets and liabilities, changes in asset volumes and pricing, and management’s capital plans. This modeling reflects interest rate changes and the related impact on net interest income over specified periods. We evaluate the effect of a change in interest rates of +/-100 basis points to +/-400 basis points on both NII and Net Portfolio Value (“NPV”) / Economic Value of Equity (“EVE”). We concentrate on NII rather than net income as long as NII remains the significant contributor to net income. NII modeling allows management to view how changes in interest rates will affect the spread between the yield paid on assets and the cost of deposits and borrowed funds. Unlike traditional Gap modeling, NII modeling takes into account the different degree to which installments in the same repricing period will adjust to a change in interest rates. It also allows the use of different assumptions in a falling versus a rising rate environment. The period considered by the NII modeling is the next eight quarters. NPV / EVE modeling focuses on the change in the market value of equity. NPV / EVE is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, NPV / EVE modeling takes a longer-term view of interest rate risk. This complements the shorter-term view of the NII modeling. Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution. ​ 56 Table of Contents Based on the simulation analysis performed at March 31, 2025 and December 31, 2024, management estimated the following changes in net interest income, assuming the indicated rate changes: ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2025 ​ December 31, 2024 +400 basis points ​ $ 10,677 ​ $ 5,722 +300 basis points ​ $ 8,785 ​ $ 5,300 +200 basis points ​ $ 6,402 ​ $ 4,253 +100 basis points ​ $ 3,462 ​ $ 2,391 -100 basis points ​ $ (3,764) ​ $ (2,851) -200 basis points ​ $ (7,194) ​ $ (5,424) -300 basis points ​ $ (10,809) ​ $ (8,080) -400 basis points ​ $ (14,968) ​ $ (11,151) ​ ​ Due to the current rate environment and changes to prepayment speeds, the Corporation became slightly more asset sensitive as compared to December 31, 2024. All changes in net interest income from our simulation analysis remains within our policy limits. This estimate is based on assumptions that may be affected by unforeseeable changes in the general interest rate environment and any number of unforeseeable factors. Rates on different assets and liabilities within a single maturity category adjust to changes in interest rates to varying degrees and over varying periods of time. The relationships between lending rates and rates paid on purchased funds are not constant over time. Management can respond to current or anticipated market conditions by lengthening or shortening the Bank’s sensitivity through loan repricings or changing its funding mix. The rate of growth in interest-free sources of funds will influence the level of interest-sensitive funding sources. In addition, the absolute level of interest rates will affect the volume of earning assets and funding sources. As a result of these limitations, the interest-sensitive gap is only one factor to be considered in estimating the net interest margin. Management believes that no material changes in our market risks, our procedures used to evaluate and mitigate those risks, or our actual or simulated sensitivity positions have occurred since December 31, 2024. Our NII simulation analysis as of December 31, 2024 is included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024 under the heading “Market Risk and Interest Sensitivity. Impact of Inflation – Our assets and liabilities are primarily monetary in nature, and as such, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During inflationary periods, monetary assets lose value in terms of purchasing power and monetary liabilities have corresponding purchasing power gains. The concept of purchasing power is not an adequate indicator of the impact of inflation on financial institutions because it does not incorporate changes in our earnings. Capital Resources We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdrawal demands of the Bank’s customers, and satisfy our other monetary obligations. To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified above under the heading “Liquidity Management”. In addition to operational requirements, the Bank is subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit. ​ 57 Table of Contents The following table presents the Bank’s capital ratios as of the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2025 December 31, 2024 Required for Capital Adequacy Purposes Required to be Well Capitalized Total Capital (to risk-weighted assets) ​ 14.83 % 14.59 % 8.00 % 10.00 % Tier 1 Capital (to risk-weighted assets) ​ 13.58 % 13.35 % 6.00 % 8.00 % Common Equity Tier 1 Capital (to risk-weighted assets) ​ 13.58 % 13.35 % 4.50 % 6.50 % Tier 1 Capital (to average assets) ​ 10.76 % 10.70 % 4.00 % 5.00 % ​ As of both March 31, 2025 and December 31, 2024, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action. ​ Contractual Obligations, Commitments and Off-Balance Sheet Arrangements Contractual Obligations The Corporation enters into contractual obligations in the normal course of business. Among these obligations are Federal Home Loan Bank advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing March 31, 2025 to December 31, 2024, short-term borrowings decreased by $45.1 million primarily due to the repayment of $50.0 million in overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product. Commitments Loan commitments are made to accommodate the financial needs of our customers. Letters of credit commit us to make payments on behalf of customers when certain specified future events occur. The credit risks inherent in loan commitments and letters of credit are essentially the same as those involved in extending loans to customers, and these arrangements are subject to our normal credit policies. We are not a party to any other off-balance sheet arrangements. Commitments to extend credit in the form of consumer, commercial and business at the dates indicated were as follows: ​ ​ ​ ​ ​ ​ ​ (in thousands) March 31, 2025 December 31, 2024 Residential mortgage - home equity ​ $ 70,386 ​ $ 70,894 Residential mortgage - construction ​ ​ 10,996 ​ ​ 13,138 Commercial ​ ​ 162,727 ​ ​ 163,079 Consumer - personal credit lines ​ ​ 4,307 ​ ​ 4,224 Standby letters of credit ​ ​ 16,363 ​ ​ 16,522 Total ​ $ 264,779 ​ $ 267,857 ​ The decrease of $3.1 million in commitments at March 31, 2025 when compared to December 31, 2024 was due to businesses and consumers utilizing construction funding. These balances shifted to loans outstanding. For the three-month periods ended March 31, 2025 and 2024, net credit loss expense for off-balance sheet exposures was a credit of approximately $1,000 and a credit of approximately $15,000, respectively. Item 3. Quantitative and Qualitative Disclosures about Market Risk First United Corporation is a “smaller reporting company” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended, and, accordingly, is not required to include the information required by this item. 58 Table of Contents