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th

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

        For quarterly period ended March 31, 2024

    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

        For the transition period from _______________ to ________________

Commission file number 0-14237

First United Corporation

(Exact name of registrant as specified in its charter)

Maryland

    

52-1380770

(State or other jurisdiction of
incorporation or organization)

(I. R. S. Employer Identification No.)

 

19 South Second Street, Oakland, Maryland

21550-0009

(Address of principal executive offices)

(Zip Code)

(800) 470-4356

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbols

    

Name of each exchange on which registered

Common Stock

FUNC

Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated filer

Accelerated Filer 

Non-Accelerated filer

Smaller Reporting Company 

Emerging Growth Company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:   6,648,645 shares of common stock, par value $0.01 per share, as of April 30, 2024.

INDEX TO QUARTERLY REPORT

FIRST UNITED CORPORATION

Page

PART I. FINANCIAL INFORMATION

3

Item 1.

Financial Statements (unaudited)

3

Consolidated Statements of Financial Condition – March 31, 2024 and December 31, 2023

3

Consolidated Statements of Operations – for the three months ended March 31, 2024 and 2023

4

Consolidated Statements of Comprehensive Income – for the three months ended March 31, 2024 and 2023

5

Consolidated Statements of Changes in Shareholders’ Equity – for the three months ended March 31, 2024 and 2023

6

Consolidated Statements of Cash Flows – for the three months ended March 31, 2024 and 2023

7

Notes to Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

39

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

57

Item 4.

Controls and Procedures

58

PART II. OTHER INFORMATION

59

Item 1.

Legal Proceedings

59

Item 1A.

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

SIGNATURES

61

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

First United Corporation and Subsidiaries

Consolidated Statements of Financial Condition

(In thousands, except share data - Unaudited)

    

March 31,
2024

    

December 31,
2023

Assets

Cash and due from banks

$

85,578

$

48,343

Interest bearing deposits in banks

1,354

1,410

Cash and cash equivalents

86,932

49,753

Investment securities – available for sale (at fair value)

95,580

97,169

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

183,136

214,297

Restricted investment in bank stock, at cost

3,390

5,250

Loans held for sale

175

443

Loans

1,412,327

1,406,667

Unearned fees

(314)

(340)

Allowance for credit losses

(17,982)

(17,480)

Net loans

1,394,031

1,388,847

Premises and equipment, net

30,268

31,459

Goodwill and other intangibles

12,021

12,103

Bank owned life insurance

47,933

47,607

Deferred tax assets

10,736

11,133

Other real estate owned, net

4,402

4,493

Right of use assets

1,299

1,367

Pension asset

13,022

11,208

Accrued interest receivable

7,762

7,487

Other assets

22,266

23,244

Total Assets

$

1,912,953

$

1,905,860

Liabilities and Shareholders’ Equity

Liabilities:

Non-interest bearing deposits

$

422,759

$

427,670

Interest bearing deposits

1,140,694

1,123,307

Total deposits

1,563,453

1,550,977

Short-term borrowings

79,494

45,418

Long-term borrowings

70,929

110,929

Operating lease liability

1,484

1,556

SERP deferred compensation

9,859

9,777

Allowance for credit losses on off-balance sheet credit exposures

858

873

Accrued interest payable

919

612

Other liabilities

19,147

22,515

Dividends payable

1,329

1,330

Total Liabilities

1,747,472

1,743,987

Shareholders’ Equity:

Common Stock – par value $0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,648,645 shares at March 31, 2024 and 6,639,888 at December 31, 2023

66

66

Surplus

23,865

23,734

Retained earnings

176,272

173,900

Accumulated other comprehensive loss

(34,722)

(35,827)

Total Shareholders’ Equity

165,481

161,873

Total Liabilities and Shareholders’ Equity

$

1,912,953

$

1,905,860

See accompanying notes to the consolidated financial statements

3

First United Corporation and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended

March 31,

    

2024

    

2023

(Unaudited)

Interest income

Interest and fees on loans

$

19,218

$

15,444

Interest on investment securities

Taxable

1,744

1,768

Exempt from federal income tax

53

270

Total investment income

1,797

2,038

Other

883

347

Total interest income

21,898

17,829

Interest expense

Interest on deposits:

Savings

48

79

Interest-bearing transaction accounts

4,701

2,186

Time deposits

1,517

413

Total interest on Deposits

6,266

2,678

Interest on short-term borrowings

461

31

Interest on long-term borrowings

1,359

602

Total Interest Expense

8,086

3,311

Net Interest income

13,812

14,518

Credit loss expense - loans

961

414

Credit loss expense - off-balance sheet credit exposures

(15)

129

Total credit loss expense

946

543

Net interest income after provision for credit losses

12,866

13,975

Other operating income

Net gains on sales of residential mortgage loans

82

54

Net gains

82

54

Other Income

Service charges on deposit accounts

556

516

Other service charges

215

232

Trust department

2,188

1,970

Debit card income

932

955

Bank owned life insurance

326

305

Brokerage commissions

495

297

Other

81

64

Total other income

4,793

4,339

Total other operating income

4,875

4,393

Other operating expenses

Salaries and employee benefits

7,157

7,296

FDIC premiums

269

193

Equipment expense

923

780

Occupancy expense of premises

954

785

Data processing expense

1,318

1,306

Marketing expense

134

120

Professional services

486

494

Contract labor

183

134

Telephone

109

110

Total OREO expense, net

86

124

Investor relations

53

83

Contributions

50

64

Other

1,159

1,149

Total other operating expenses

12,881

12,638

Income before income tax expense

4,860

5,730

Provision for income tax expense

1,162

1,355

Net Income

$

3,698

$

4,375

Basic net income per share

$

0.56

$

0.66

Diluted net income per share

$

0.56

$

0.65

Weighted average number of basic shares outstanding

6,642

6,675

Weighted average number of diluted shares outstanding

6,655

6,697

Dividends declared per common share

$

0.20

$

0.20

See accompanying notes to the consolidated financial statements

4

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended

March 31,

2024

2023

Comprehensive Income

(Unaudited)

Net Income

$

3,698

$

4,375

Other comprehensive loss, net of tax and reclassification adjustments:

Available for sale securities:

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

$

210

$

(1,606)

Reclassification adjustment for accretable yield realized in income

50

50

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

160

(1,656)

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

$

(623)

$

1,340

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

(623)

1,340

Held to Maturity Securities

Unrealized holding losses on securities transferred to held to maturity

$

$

Reclassification adjustment for amortization realized in income

(160)

(181)

Other comprehensive income on HTM investments

160

181

Cash flow hedges:

Unrealized holding gains/(losses) on cash flow hedges

$

73

$

(188)

Other comprehensive income/(loss) on cash flow hedges

73

(188)

Pension plan liability:

Unrealized holding gains on pension plan liability

$

1,489

$

168

Reclassification adjustment for amortization of unrecognized loss realized in income

(203)

(250)

Other comprehensive gain on pension plan liability

1,692

418

SERP liability:

Unrealized holding gains on SERP liability

$

$

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

(39)

2

Other comprehensive income/(loss) on SERP liability

39

(2)

Other comprehensive income before income tax

1,501

93

Income tax effect related to other comprehensive income

(396)

(24)

Other comprehensive income, net of tax

1,105

69

Comprehensive income

$

4,803

$

4,444

See accompanying notes to the consolidated financial statements

5

First United Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

(In thousands, except per share data)

    

Common
Stock

    

Surplus

    

Retained
Earnings

    

Accumulated
Other
Comprehensive
Loss

    

Total
Shareholders'
Equity

Balance at January 1, 2024

$

66

$

23,734

$

173,900

$

(35,827)

$

161,873

Net income

3,698

3,698

Other comprehensive income

1,105

1,105

Stock based compensation

57

57

Common stock issued - 8,757 shares

74

74

Common stock dividend declared - $0.20 per share

(1,326)

(1,326)

Balance at March 31, 2024

$

66

$

23,865

$

176,272

$

(34,722)

$

165,481

    

Common
Stock

    

Surplus

    

Retained
Earnings

    

Accumulated
Other
Comprehensive
Loss

    

Total
Shareholders'
Equity

Balance at January 1, 2023

$

67

$

24,409

$

166,343

$

(39,026)

$

151,793

Adoption of ASC 326- Financial Instruments- Credit Losses

(2,155)

(2,155)

Net income

4,375

4,375

Other comprehensive income

69

69

Stock based compensation

56

56

Common stock issued - 22,282 shares

64

64

Common stock dividend declared - $0.20 per share

(1,334)

(1,334)

Balance at March 31, 2023

$

67

$

24,529

$

167,229

$

(38,957)

$

152,868

See accompanying notes to the consolidated financial statement

6

First United Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended

March 31,

    

2024

    

2023

(Unaudited)

Operating activities

Net income

$

3,698

$

4,375

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

Provision for credit losses

946

543

Depreciation

1,256

853

Stock based compensation

57

56

Gain on sales of other real estate owned

(23)

(36)

Write-downs of other real estate owned, net

32

Originations of loans held for sale

(1,707)

(552)

Proceeds from sales of loans held for sale

2,057

422

Gains from sales of loans held for sale

(82)

(54)

Net accretion of investment securities discounts and premiums- AFS

(22)

(15)

Net accretion of investment securities discounts and premiums- HTM

(178)

(200)

Amortization of intangible assets

82

83

Earnings on bank owned life insurance

(326)

(306)

Amortization of deferred loan (fees)/costs, net

(44)

12

Amortization of operating lease right of use asset

68

82

Decrease in accrued interest receivable and other assets

387

542

Deferred tax expense/(benefit)

397

(934)

Operating lease liability

(72)

(93)

Decrease in accrued interest payable and other liabilities

(2,906)

(1,300)

Net cash provided by operating activities

3,588

3,510

Investing activities

Proceeds from maturities/calls of investment securities - AFS

1,145

1,609

Proceeds from maturities/calls of investment securities - HTM

31,339

2,776

Proceeds from sales of other real estate owned

114

139

Net decrease/(increase) in restricted stock

1,860

(3,463)

Net increase in loans

(6,101)

(9,761)

Purchases of premises and equipment

(65)

(112)

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

28,292

(8,812)

Financing activities

Net increase in deposits

12,476

20,552

Issuance of common stock

74

64

Cash dividends paid on common stock

(1,327)

(1,199)

Net increase/(decrease) in short-term borrowings

34,076

(12,535)

Proceeds from long-term borrowings

80,000

Payments of long-term borrowings

(40,000)

Net cash provided by financing activities

5,299

86,882

Increase in cash and cash equivalents

37,179

81,580

Cash and cash equivalents at beginning of the year

49,753

74,315

Cash and cash equivalents at end of period

$

86,932

$

155,895

Supplemental information

Interest paid

$

7,779

$

2,989

Taxes paid

$

70

$

90

7

FIRST UNITED CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – 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”).  First United Corporation has prepared these unaudited condensed consolidated financial statements in accordance with GAAP for interim financial information, rules of the Securities and Exchange Commission that permit reduced disclosure for interim periods, and Article 8 of Regulation S-X.  Operating results for the three- month period ended March 31, 2024, are not necessarily indicative of the results that may be expected for the full year or for any future interim period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2023.

In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of financial statements.  In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates.

Certain reclassifications have been made to prior year amounts to conform with current year classifications.  These reclassifications did not have a material impact on the Corporation’s consolidated financial condition or results of operations.  

In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements. 

Principles of Consolidation

The consolidated financial statements include the accounts of First United Corporation, First United Bank & Trust (the “Bank”), First United Statutory Trust I, First United Statutory Trust II, OakFirst Loan Center, LLC, OakFirst Loan Center, Inc., First OREO Trust and FUBT OREO I, LLC. All significant inter-company accounts and transactions have been eliminated.

As used in these notes, the terms “the Corporation” “we”, “us”, and “our” refer to First United Corporation and, unless the context clearly requires otherwise, its consolidated subsidiaries.

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

Newly Adopted Pronouncements in 2024

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. 2022-06: “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.

8

The Corporation has identified all known LIBOR exposures, created a plan to address the exposures, and continues to communicate with all stakeholders to transition to alternative reference rates.  The Corporation had no financial instruments tied to LIBOR at March 31, 2024.   The implementation of ASU 2020-04 did not have a material impact on our financial statements.

Note 2 – Accounting Statements Issued but Not Yet Adopted

In November 2023, FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280):  Improvement to Reportable Segment Disclosures.”  ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expense and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.  ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024.  Early adoption is permitted.  ASU 2023-07 is not expected to have a significant impact on our financial statements.

In December 2023, FASB issued ASU No. 2023-09, “Income Taxes (Topic 740):  Improvements to Income Tax Disclosures.”  ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about Federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.  ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by Federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things.  ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. ASU 2023-09 is not expected to have a significant impact on our financial statements.

In March 2024, FASB issued ASU No. 2024-01, “Compensation- Stock Compensation (Topic 718):  Scope Application of Profits Interest and Similar Awards.”  ASU 2024-01 provides an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718.   ASU 2024-01 is effective for fiscal years beginning after December 15, 2024.   ASU 2024-01 is not expected to have a significant impact on our financial statements.

Note 3 – Earnings Per Common Share

Basic earnings per common share is derived by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents. Diluted earnings per share is derived by dividing net income available to common shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents, such as restricted stock units (“RSUs”). There were no anti-dilutive shares outstanding at March 31, 2024 or 2023.

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

Three months ended March 31,

2024

2023

    

    

Average

    

Per Share

    

    

Average

    

Per Share

(in thousands, except for per share amount)

Income

Shares

Amount

Income

Shares

Amount

Basic Earnings Per Share:

Net income

$

3,698

6,642

$

0.56

$

4,375

6,675

$

0.66

Diluted Earnings Per Share:

Restricted stock units

13

22

R