UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the fiscal year ended
or
For the transition period from _____to _____
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(Exact name of registrant as specified in its charter)
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer ◻ | | 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 standards provided pursuant to Section 13(a) of the Exchange Act. ◻
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the registrant’s outstanding voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $
The number of shares of the registrant’s common stock outstanding as of February 27, 2026:
Documents Incorporated by Reference
Portions of the registrant’s definitive proxy statement for the 2026 Annual Meeting of Shareholders to be filed with the SEC pursuant to Regulation 14A are incorporated by reference into Part III of this Annual Report on Form 10-K.
First United Corporation
Table of Contents
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As used in this annual report, the terms “the Corporation”, “we”, “us”, and “our” mean First United Corporation and unless the context clearly suggests otherwise, its consolidated subsidiaries.
FORWARD LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Such statements include projections, predictions, expectations or statements as to beliefs or future events or results or refer to other matters that are not historical facts. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking statements contained in this annual report are based on various factors and were derived using numerous assumptions. In some cases, you can identify these forward-looking statements by words like “may”, “will”, “should”, “expect”, “plan”, “anticipate”, “intend”, “believe”, “estimate”, “predict”, “potential”, or “continue” or the negative of those words and other comparable words. You should be aware that those statements reflect only our predictions. If known or unknown risks or uncertainties should materialize, or if underlying assumptions should prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind when reading this annual report and not place undue reliance on these forward-looking statements. Factors that might cause such differences include, but are not limited to:
| ● | market, economic, operational, liquidity, credit, and interest rate risks associated with our business; |
| ● | changes in market rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; |
| ● | our liquidity requirements could be adversely affected by changes in our assets and liabilities; |
| ● | the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; |
| ● | competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; |
| ● | the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (“FASB”), the Securities and Exchange Commission (the “SEC”), and other regulatory agencies; |
| ● | the effect of fiscal and governmental policies of the United States federal government; and |
| ● | the effect of any epidemic. |
You should also consider carefully the risk factors discussed in Item 1A of Part I of this annual report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. The risks discussed in this annual report are factors that, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider such disclosures to be a complete discussion of all potential risks or uncertainties.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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PART I
ITEM 1. BUSINESS
General
First United Corporation is a Maryland corporation chartered in 1985 and a bank holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) 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 (together with OakFirst Loan Center, Inc., the “OakFirst Loan Centers”) - and one subsidiary that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure - First OREO Trust, a Maryland statutory trust. 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 and Mineral County, West Virginia.
At December 31, 2025, we had total assets of $2.1 billion, net loans of $1.5 billion and deposits of $1.7 billion. Shareholders’ equity at December 31, 2025 was $203.6 million.
The Corporation maintains an Internet website at www.mybank.com on which it makes available, free of charge, its 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.
Banking Products and Services
The Bank operates 23 banking offices, one customer service center and 30 Automated Teller Machines (“ATMs”) in Allegany County, Frederick County, Garrett County, and Washington County in Maryland, and in Mineral County, Berkeley County and Monongalia County in West Virginia. The Bank is an independent community bank providing a complete range of retail and commercial banking services to businesses and individuals in its market areas. Services offered are essentially the same as those offered by the regional institutions that compete with the Bank and include checking, savings, money market deposit accounts, and certificates of deposit, business loans, personal loans, mortgage loans, lines of credit, and consumer-oriented retirement accounts including individual retirement accounts (“IRAs”) and employee benefit accounts. In addition, the Bank provides full brokerage services through a networking arrangement with Cetera Investment Services, LLC, a full-service broker-dealer. The Bank also provides safe deposit and night depository facilities, insurance products and trust services. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to applicable limits.
Lending Activities
Our lending activities are conducted through the Bank. Since 2010, the Bank has not originated any new loans through the OakFirst Loan Centers and their sole activity is servicing existing loans.
The Bank’s commercial loans are primarily secured by real estate, commercial equipment, vehicles or other assets of the borrower. Repayment is often dependent on the successful business operations of the borrower and may be affected by adverse conditions in the local economy or real estate market. The financial condition and cash flow of commercial borrowers is therefore carefully analyzed during the loan approval process and continues to be monitored throughout the duration of the loan by obtaining business financial statements, personal financial statements and income tax returns. The
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frequency of this ongoing analysis depends upon the size and complexity of the credit and collateral that secures the loan. It is also the Bank’s general policy to obtain personal guarantees from the principals of the commercial loan borrowers.
Commercial real estate loans are primarily those secured by land for residential and commercial development, agricultural purpose properties, service industry buildings such as restaurants, hotels and motels, retail buildings and general-purpose business space. The Bank attempts to mitigate the risks associated with these loans through low loan to value ratio standards, thorough financial analyses, and management’s knowledge of the local economy in which the Bank lends.
The risk of loss associated with commercial real estate construction lending is controlled through conservative underwriting procedures such as loan to value ratios of 80% or less, obtaining additional collateral when prudent, analysis of cash flows, and closely monitoring construction projects to control disbursement of funds on loans.
The Bank’s residential mortgage portfolio is distributed between variable and fixed rate loans. Some loans are booked at fixed rates to meet the Bank’s requirements under the federal Community Reinvestment Act (the “CRA”) or to complement our asset liability mix. Other fixed rate residential mortgage loans are originated in a brokering capacity on behalf of other financial institutions, for which the Bank receives a fee. As with any consumer loan, repayment is dependent on the borrower’s continuing financial stability, which can be adversely impacted by factors such as job loss, divorce, illness, or personal bankruptcy. Residential mortgage loans exceeding an internal loan-to-value ratio require private mortgage insurance. Title insurance protecting the Bank’s lien priority, as well as fire and casualty insurance, is also required.
Home equity lines of credit, included within the residential mortgage portfolio, are secured by the borrower’s home and can be drawn on at the discretion of the borrower. These lines of credit are at variable interest rates.
The Bank also provides residential real estate construction loans to builders and individuals for single family dwellings. Residential construction loans are usually granted based upon “as completed” appraisals and are secured by the property under construction. Site inspections are performed to determine pre-specified stages of completion before loan proceeds are disbursed. These loans typically have maturities of six to twelve months and may have a fixed or variable rate. Permanent financing for individuals offered by the Bank includes fixed and variable rate loans with five, seven or ten-year adjustable-rate mortgages.
A variety of other consumer loans are also offered to customers, including indirect and direct auto loans, student loans, and other secured and unsecured lines of credit and term loans.
An allowance for credit losses (“ACL”) is maintained to provide for losses over the life of the portfolio from our lending activities. A complete discussion of the factors considered in determination of the ACL is included in Item 7 of Part II of this report.
Deposit Activities
The Bank offers a full array of deposit products including checking, savings and money market accounts, regular and IRA certificates of deposit, and Health Savings accounts. The Bank also offers the Certificate of Deposit Account Registry Service®, or CDARS®, and the IntraFi Cash Service®, or ICS®, programs to municipalities, businesses, and consumers through which the Bank provides access to multi-million-dollar certificates of deposit, savings and demand deposits, respectively. Both programs are fully FDIC-insured. In addition, we offer our commercial customers packages which include Treasury Management, Cash Sweep and various checking opportunities.
Information about our income from and assets related to our banking business may be found in the Consolidated Statements of Financial Condition and the Consolidated Statements of Income and the related notes thereto included in Item 8 of Part II of this annual report.
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Wealth Management
The Bank’s wealth department offers a full range of trust services, including personal trust, investment agency accounts, charitable trusts, retirement accounts including IRA roll-overs, 401(k) accounts and defined benefit plans, estate administration and estate planning.
At December 31, 2025 and 2024, the total market value of assets under the supervision of the Bank’s wealth department was approximately $1.8 billion and $1.7 billion, respectively. Wealth management income, which includes trust department income and brokerage commissions, for these years may be found in the Consolidated Statements of Income under the heading “Other operating income”, which is contained in Item 8 of Part II of this annual report.
COMPETITION
The banking business, in all of its phases, is highly competitive. Within our market areas, we compete with commercial banks, (including local banks and branches or affiliates of other larger banks), savings and loan associations and credit unions for loans and deposits, with consumer finance companies for loans, and with other financial institutions and other providers of financial services for various types of products and services, including trust services. There is also competition for commercial and retail banking business from banks and financial institutions located outside our market areas and on the internet.
The primary factors in competing for deposits are interest rates, personalized services, the quality and range of financial services, technology, convenience of office locations and office hours. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services and personalized services.
To compete with other financial services providers, we rely principally upon local promotional activities, personal relationships established by officers, directors and employees with customers, and specialized services tailored to meet customers’ needs. In those instances in which we are unable to accommodate customers’ needs, we attempt to arrange for those services to be provided by other financial services providers with which we have a relationship.
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The following tables set forth deposit data for the Maryland and West Virginia Counties in which the Bank maintains offices as of June 30, 2025, the most recent date for which comparative information is available.
Offices | Deposits | Market | |||||
| (in Market) | | (in thousands) | | Share | ||
Allegany County, Maryland: | |||||||
First United Bank & Trust | 2 | $ | 275,647 | 33.20% | |||
Manufacturers and Traders Trust Company | 5 | 249,590 | 30.06% | ||||
Truist Bank | 3 | 203,848 | 24.55% | ||||
Dollar Bank, Federal Savings Bank | 2 | 62,282 | 7.50% | ||||
Somerset Trust Company | 2 | 38,847 | 4.69% | ||||
Source: FDIC Deposit Market Share Report | |||||||
Frederick County, Maryland: | |||||||
PNC Bank, National Association | 11 | $ | 1,701,349 | 26.67% | |||
Truist Bank | 10 | 1,032,491 | 16.18% | ||||
Bank Of America, National Association | 4 | 797,010 | 12.48% | ||||
Manufacturers and Traders Trust Company | 6 | 495,713 | 7.77% | ||||
Atlantic Union Bank | 3 | 426,561 | 6.69% | ||||
Woodsboro Bank | 5 | 424,941 | 6.66% | ||||
Middletown Valley Bank | 4 | 398,451 | 6.25% | ||||
Capital One, National Association | 2 | 308,789 | 4.84% | ||||
ACNB Bank | 4 | 253,267 | 3.97% | ||||
First United Bank & Trust | 3 | 217,757 | 3.41% | ||||
Wells Fargo Bank, National Association | 1 | 174,151 | 2.73% | ||||
WesBanco Bank, Inc. | 1 | 53,454 | 0.84% | ||||
JP Morgan Chase Bank, National Association | 1 | 37,516 | 0.59% | ||||
Fulton Bank, National Association | 1 | 36,972 | 0.58% | ||||
Presidential Bank, FSB | 1 | 17,629 | 0.28% | ||||
Woodforest National Bank | 1 | 3,596 | 0.06% | ||||
Source: FDIC Deposit Market Share Report | |||||||
Garrett County, Maryland: | |||||||
First United Bank & Trust | 5 | $ | 536,545 | 64.60% | |||
Manufacturers and Traders Trust Company | 2 | 115,481 | 13.90% | ||||
Clear Mountain Bank | 1 | 79,825 | 9.61% | ||||
Truist Bank | 1 | 65,189 | 7.85% | ||||
Somerset Trust Company | 1 | 26,270 | 3.16% | ||||
Miners & Merchants Bank | 1 | 7,298 | 0.88% | ||||
Source: FDIC Deposit Market Share Report | |||||||
Washington County, Maryland: | |||||||
Fulton Bank, National Association | 4 | $ | 629,938 | 19.22% | |||
Manufacturers and Traders Trust Company | 9 | 584,752 | 17.85% | ||||
Truist Bank | 5 | 547,188 | 16.70% | ||||
Middletown Valley Bank | 3 | 530,872 | 16.20% | ||||
PNC Bank, National Association | 3 | 358,910 | 10.96% | ||||
CNB Bank, Inc. | 4 | 169,572 | 5.18% | ||||
First United Bank & Trust | 4 | 162,309 | 4.95% | ||||
United Bank | 2 | 137,218 | 4.19% | ||||
Orrstown Bank | 1 | 73,219 | 2.24% | ||||
Bank of Charles Town | 1 | 28,353 | 0.87% | ||||
Farmers and Merchants Trust Company of Chambersburg | 1 | 25,581 | 0.78% | ||||
Ameriserv Financial Bank | 1 | 22,170 | 0.68% | ||||
Jefferson Security Bank | 1 | 5,891 | 0.18% | ||||
Source: FDIC Deposit Market Share Report | |||||||
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Berkeley County, West Virginia: | |||||||
United Bank | 4 | $ | 591,186 | 29.08% | |||
Truist Bank | | 3 | | 384,505 | | 18.92% | |
City National Bank of West Virginia | 4 | 262,191 | 12.90% | ||||
Burke & Herbert Bank & Trust Company | 3 | 182,491 | 8.98% | ||||
Jefferson Security Bank | 2 | 167,286 | 8.22% | ||||
First United Bank & Trust | 3 | 166,206 | 8.18% | ||||
CNB Bank, Inc. | 3 | 147,482 | 7.26% | ||||
Bank of Charles Town | 2 | 126,368 | 6.22% | ||||
Woodforest National Bank | 1 | 4,810 | 0.24% | ||||
Source: FDIC Deposit Market Share Report | |||||||
Mineral County, West Virginia: | |||||||
First United Bank & Trust | 2 | $ | 140,090 | 38.60% | |||
Manufacturers and Traders Trust Company | 2 | 84,345 | 23.24% | ||||
Truist Bank | 1 | 72,469 | 19.97% | ||||
The Grant County Bank | 1 | 47,380 | 13.06% | ||||
FNB Bank, Inc. | 1 | 18,622 | 5.13% | ||||
Source: FDIC Deposit Market Share Report | |||||||
Monongalia County, West Virginia: | |||||||
United Bank | 6 | $ | 1,568,631 | 30.71% | |||
MVB Bank, Inc. | 2 | 1,449,309 | 28.38% | ||||
The Huntington National Bank | 6 | 630,752 | 12.35% | ||||
Clear Mountain Bank | 3 | 386,978 | 7.58% | ||||
Truist Bank | 3 | 327,436 | 6.41% | ||||
PNC Bank, National Association | 2 | 233,452 | 4.57% | ||||
WesBanco Bank, Inc. | 3 | 232,051 | 4.54% | ||||
First United Bank & Trust | 3 | 125,005 | 2.45% | ||||
Citizens Bank of Morgantown, Inc. | 1 | 42,295 | 0.83% | ||||
Burke & Herbert Bank & Trust Company | 1 | 39,211 | 0.77% | ||||
First Exchange Bank | 2 | 37,326 | 0.73% | ||||
JP Morgan Chase Bank, National Association | 1 | 31,636 | 0.62% | ||||
City National Bank of West Virginia | 1 | 3,253 | 0.06% | ||||
Source: FDIC Deposit Market Share Report |
For further information about competition in our market areas, see the Risk Factor entitled “We operate in a competitive environment, and our inability to effectively compete could adversely and materially impact our financial condition and results of operations” in Item 1A of Part I of this annual report.
SUPERVISION AND REGULATION
The following is a summary of the material regulations and policies applicable to the Corporation and its subsidiaries and is not intended to be a comprehensive discussion. Changes in applicable laws and regulations may have a material effect on our business.
General
The Corporation is registered with the FRB as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”) and, as such, is subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the FRB. As a publicly-traded company whose common stock, par value $0.01 per share (the “Common Stock”), is registered under Section 12(b) of the Securities Exchange Act of 1934,
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as amended (the “Exchange Act”), and listed on The NASDAQ Global Select Market, the Corporation is also subject to regulation and supervision by the SEC and The NASDAQ Stock Market, LLC (“NASDAQ”).
The Bank is a Maryland trust company subject to the banking laws of Maryland and to regulation by the Maryland Department of Labor’s Office of Financial Regulation (the “Maryland OFR”), who is required by statute to make at least one examination in each calendar year (or at 18-month intervals if the Maryland OFR determines that an examination is unnecessary in a particular calendar year). The Bank also has offices in West Virginia, and the operations of these offices are subject to various West Virginia laws. As a member of the FDIC, the Bank is also subject to certain provisions of federal laws and regulations regarding deposit insurance and activities of insured state-chartered banks, including those that require examination by the FDIC. In addition to the foregoing, there are a myriad of other federal and state laws and regulations that affect, or govern the business of banking, including consumer lending, deposit-taking, and trust operations.
All non-bank subsidiaries of the Corporation are subject to examination by the FRB, and, as affiliates of the Bank, are subject to examination by the FDIC and the Maryland OFR. In addition, OakFirst Loan Center, Inc. is subject to licensing and regulation by the West Virginia Division of Banking, and OakFirst Loan Center, LLC is subject to licensing and regulation by the Maryland OFR.
Regulation of Bank Holding Companies
The Corporation and its affiliates are subject to the provisions of Section 23A and Section 23B of the Federal Reserve Act. Section 23A limits the amount of loans or extensions of credit to, and investments in, the Corporation and its non-bank affiliates by the Bank. Section 23B requires that transactions between the Bank and the Corporation and its non-bank affiliates be on terms and under circumstances that are substantially the same as with non-affiliates.
Under FRB policy, the Corporation is expected to act as a source of strength to the Bank, and the FRB may charge the Corporation with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. This support may be required at times when the bank holding company may not have the resources to provide the support. Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require the bank holding company to guarantee the bank’s capital restoration plan. In addition, if the FRB believes that a bank holding company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the FRB could require the bank holding company to terminate the activities, liquidate the assets or divest the affiliates. The regulators may require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank holding company or its stockholders. Because the Corporation is a bank holding company, it is viewed as a source of financial and managerial strength for any controlled depository institutions, like the Bank.
In addition, under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”), depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-insured depository institution in danger of default. Accordingly, in the event that any insured subsidiary of the Corporation causes a loss to the FDIC, other insured subsidiaries of the Corporation could be required to compensate the FDIC by reimbursing it for the estimated amount of such loss. Such cross guaranty liabilities generally are superior in priority to obligations of a financial institution to its shareholders and obligations to other affiliates.
Regulation of Financial Holding Companies
In 2021, the Corporation elected to become a financial holding company, which allows it to engage in certain activities, and own shares or control of certain entities, that are in addition to those permissible for an entity that is a bank holding company only. The provisions of the BHC Act relating to financial holding companies and the regulations promulgated thereunder require the Bank to remain “well capitalized” and “well managed”. The capital requirement is discussed below under the heading, “Prompt Corrective Action”. The Bank will be considered to be well managed so
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long as it achieves a CAMEL composite rating of at least “2” as a result of its most recent examination and at least a “satisfactory” management rating (if such rating is given). If the Bank were to fail to meet either of these requirements, then the Corporation would be required to enter into an agreement with the FRB that would address the remediation of the condition that led to the failure. During the term of that agreement, which is typically 180 days but can be extended at the discretion of the FRB, the Corporation would be prohibited from commencing any additional activity or acquiring control or shares of any company that would otherwise be permissible for a financial holding company under Section 4(k) of the BHC Act. If the Corporation were to fail to correct that condition by the expiration of the agreement’s term, then the FRB could order the Corporation to divest its ownership of the Bank or, alternatively, terminate all financial holding company activities. For so long as the Corporation remains a financial holding company, the Bank must also maintain a Satisfactory or better rating under the CRA. During any period that the Bank fails to satisfy this requirement, the Corporation is prohibited from commencing any additional activity or acquiring control or shares of any company that would otherwise be permissible for a financial holding company under Section 4(k) of the BHC Act. The Bank currently satisfies all of the foregoing conditions.
Federal Banking Regulation
Federal banking regulators, such as the FRB and the FDIC, may prohibit the institutions over which they have supervisory authority from engaging in activities or investments that the agencies believe are unsafe or unsound banking practices. Federal banking regulators have extensive enforcement authority over the institutions they regulate to prohibit or correct activities that violate law, regulation or a regulatory agreement or which are deemed to be unsafe or unsound practices. Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or additions to restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.
The Bank is subject to certain restrictions on extensions of credit to executive officers, directors, and principal shareholders or any related interest of such persons, which generally require that such credit extensions be made on substantially the same terms as those available to persons who are not related to the Bank and not involve more than the normal risk of repayment. Other laws tie the maximum amount that may be loaned to any one customer and its related interests to capital levels.
As part of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”), each federal banking regulator adopted non-capital safety and soundness standards for institutions under its authority. These standards include internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. An institution that fails to meet those standards may be required by the agency to develop a plan acceptable to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. We believe that the Bank meets substantially all standards that have been adopted. FDICIA also imposes capital standards on insured depository institutions.
The CRA requires the FDIC, in connection with its examination of financial institutions within its jurisdiction, to evaluate the record of those financial institutions in meeting the credit needs of their communities, including low- and moderate-income neighborhoods, consistent with principles of safe and sound banking practices. These factors are also considered by all regulatory agencies in evaluating mergers, acquisitions and applications to open a branch or facility. As of the date of its most recent examination report, the Bank had a CRA rating of “Satisfactory”.
The Bank is also subject to a variety of other laws and regulations with respect to the operation of its business, including, but not limited to, the TILA/RESPA Integrated Disclosure rule (“TRID”), Truth in Lending Act, the Real Estate Settlement Procedures Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Electronic Funds Transfer Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, Expedited Funds Availability (Regulation CC), Reserve Requirements (Regulation D), Privacy of Consumer Information (Regulation P), Margin Stock Loans (Regulation U), the Right To Financial Privacy Act, the Flood
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Disaster Protection Act, the Homeowners Protection Act, the Servicemembers Civil Relief Act, the Telephone Consumer Protection Act, the CAN-SPAM Act, the Children’s Online Privacy Protection Act, Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) and Office of Foreign Assets Control (“OFAC”).
Capital Requirements
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 below under the heading “Liquidity Management”. 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.
In addition to operational requirements, the Bank and the Corporation are 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.
Regulators may require higher capital ratios when warranted by the particular circumstances or risk profile of a given banking organization. In the current regulatory environment, banking organizations must stay well-capitalized in order to receive favorable regulatory treatment on acquisition and other expansion activities and favorable risk-based deposit insurance assessments. Our capital policy establishes guidelines meeting these regulatory requirements and takes into consideration current or anticipated risks as well as potential future growth opportunities.
In July 2019, the federal banking agencies adopted a final rule that simplifies compliance with certain aspects of the capital rules. A majority of the simplifications apply solely to banking organizations that are not subject to the advanced approaches capital rule. The rule simplified the application of regulatory capital treatment for mortgage servicing assets, certain deferred tax assets arising from temporary differences, investments in the capital of unconsolidated financial institutions, and capital issued by a consolidated subsidiary of a banking organization and held by third parties (minority interest). In addition, the rule revised the treatment of certain acquisition, development, or construction exposures.
As of December 31, 2025, we were in compliance with the applicable requirements.
Additional information about our capital ratios is contained in “Consolidated Balance Sheet Review” section of Item 7 of Part II of this annual report under the heading “Capital Resources”.
Prompt Corrective Action
The Federal Deposit Insurance Act (“FDI Act”) requires, among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. The FDI Act includes the following five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital measures and certain other factors, as established by regulation. The relevant capital measures are the total capital ratio, the Tier 1 capital ratio and the leverage ratio.
A bank will be (i) “well capitalized” if the institution has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, a Common Equity Tier 1 (“CET1”) ratio of 6.5% or greater, and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure, (ii) “adequately capitalized” if the institution has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, a CET1 ratio of 4.5% or greater, and is not “well capitalized”, (iii) “undercapitalized” if the institution has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less
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than 4.0%, or a CET1 ratio of less than 4.5%, (iv) “significantly undercapitalized” if the institution has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a CET1 ratio of less than 3.0%, and (v) “critically undercapitalized” if the institution’s tangible equity is equal to or less than 2.0% of average quarterly tangible assets. An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. A bank’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the bank’s overall financial condition or prospects for other purposes.
The FDI Act generally prohibits a depository institution from making any capital distributions (including payment of a dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be “undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. The agencies may not accept such a plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee that the institution will comply with such capital restoration plan. The bank holding company must also provide appropriate assurances of performance. The aggregate liability of the parent holding company is limited to the lesser of (i) an amount equal to 5.0% of the depository institution’s total assets at the time it became undercapitalized and (ii) the amount which is necessary (or would have been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” institutions are subject to the appointment of a receiver or conservator.
The appropriate federal banking agency may, under certain circumstances, reclassify a well-capitalized insured depository institution as adequately capitalized. The FDI Act provides that an institution may be reclassified if the appropriate federal banking agency determines (after notice and opportunity for hearing) that the institution is in an unsafe or unsound condition or deems the institution to be engaging in an unsafe or unsound practice.
The appropriate agency is also permitted to require an adequately capitalized or undercapitalized institution to comply with the supervisory provisions as if the institution were in the next lower category (but not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory information other than the capital levels of the institution.
As of December 31, 2025, the Bank was “well capitalized” based on the aforementioned ratios.
Liquidity Requirements
Historically, the regulation and monitoring of bank liquidity has been addressed as a supervisory matter, without required formulaic measures. The Basel III Capital Rules require banks to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity measures historically applied by banks and regulators for management and supervisory purposes, going forward would be required by regulation. One test, referred to as the liquidity coverage ratio, is designed to ensure that the banking entity maintains an adequate level of unencumbered high-quality liquid assets equal to the entity’s expected net cash outflow for a 30-day time horizon (or, if greater, 25% of its expected total cash outflow) under an acute liquidity stress scenario. The other test, referred to as the net stable funding ratio, is designed to promote more medium- and long-term funding of the assets and activities of banking entities over a one-year time horizon. These requirements will incent banking entities to increase their holdings of securities issued by the U.S. Department of the Treasury (the “Treasury”) and other sovereign debt as a component of assets and increase the use of long-term debt as a funding source.
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Deposit Insurance
The Bank is a member of the FDIC and pays an insurance premium to the FDIC based upon its assessable deposits on a quarterly basis. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government.
The deposit insurance limit set by law is currently $250,000. The coverage limit is per depositor, per insured depository institution for each account ownership category.
The Federal Deposit Insurance Reform Act of 2005, which created the Deposit Insurance Fund (“DIF”), gave the FDIC greater latitude in setting the assessment rates for insured depository institutions which could be used to impose minimum assessments. The FDIC has the flexibility to adopt actual rates that are higher or lower than the total base assessment rates adopted without notice and comment, if certain conditions are met.
In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF as a result of bank failures that year and the FDIC’s use of the systemic risk exception to cover certain deposits that were otherwise uninsured. In June 2024, due to the increased estimate of losses, the FDIC announced that it projects that the special assessment will be collected for an additional two quarters beyond the initial eight-quarter collection period at a lower rate. In December 2025, based upon the first six quarterly collections of the special assessment and anticipated collections for the seventh quarterly special assessment, the FDIC issued an interim final rule to amend the collection of the special assessment to reduce the eighth quarter special assessment and removed the special assessment for the two additional quarters was removed. The special estimate was based on estimated uninsured deposits at December 31, 2022 (excluding the first $5.0 billion). The Bank was exempt from this special assessment as its total uninsured deposits were below $5.0 billion.
The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. It is also authorized to terminate a depository bank’s deposit insurance upon a finding by the FDIC that the bank’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency. The termination of deposit insurance for our bank subsidiary would have a material adverse effect on our earnings, operations and financial condition.
Bank Secrecy Act/Anti-Money Laundering
The Bank Secrecy Act (“BSA”), which is intended to require financial institutions to develop policies, procedures, and practices to prevent and deter money laundering, mandates that every national bank have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA.
The program must, at a minimum: (i) provide for a system of internal controls to assure ongoing compliance; (ii) provide for independent testing for compliance; (iii) designate an individual responsible for coordinating and monitoring day-to-day compliance; and (iv) provide training for appropriate personnel. In addition, state-chartered banks are required to adopt a customer identification program as part of its BSA compliance program. State-chartered banks are also required to file Suspicious Activity Reports when they detect certain known or suspected violations of federal law or suspicious transactions related to a money laundering activity or a violation of the BSA.
In addition to complying with the BSA, the Bank is subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”). The USA Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the United States’ financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money. The USA Patriot Act mandates that financial service companies implement additional policies and procedures and take heightened measures designed to address any or all of the following matters: customer identification programs,
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money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, currency crimes, and cooperation between financial institutions and law enforcement authorities.
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was enacted in July 2010 and significantly restructured the financial regulatory regime in the United States. Although the Dodd-Frank Act’s provisions that have received the most public attention generally have been those applying to or more likely to affect larger institutions such as banks and bank holding companies with total consolidated assets of $50 billion or more, it contains numerous other provisions that affect all financial institutions, including the Bank. The Dodd-Frank Act established the Consumer Financial Protection Bureau (the “CFPB”), discussed below, and contains a wide variety of provisions affecting the regulation of depository institutions, including fair lending, fair debt collection practices, mortgage loan origination and servicing obligations, bankruptcy, military service member protections, use of credit reports, privacy matters, and disclosure of credit terms and correction of billing errors. Local, state and national regulatory and enforcement agencies continue efforts to address perceived problems within the mortgage lending and credit card industries through broad or targeted legislative or regulatory initiatives aimed at lenders’ operations in consumer lending markets. There continues to be a significant amount of legislative and regulatory activity, nationally, locally and at the state level, designed to limit certain lending practices while mandating certain servicing procedures. Federal bankruptcy and state debtor relief and collection laws, as well as the Servicemembers Civil Relief Act affect the ability of banks, including the Bank, to collect outstanding balances.
Moreover, the Dodd-Frank Act permits states to adopt stricter consumer protection laws and states’ attorneys general may enforce consumer protection rules issued by the CFPB. U.S. financial regulatory agencies have increasingly used a general consumer protection statute to address unethical or otherwise bad business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with the “unfair or deceptive acts or practices” (“UDAP”) law. However, the UDAP provisions have been expanded under the Dodd-Frank Act to apply to “unfair, deceptive or abusive acts or practices”, which has been delegated to the CFPB for supervision.
The Dodd-Frank Act has increased, and will likely continue to increase, our regulatory compliance burdens and costs and may restrict the financial products and services that we offer to our customers in the future.
Mortgage Lending and Servicing
The Bank’s mortgage lending and servicing activities are subject to various laws and regulations that are enforced by the federal banking regulators and the CFPB, such as the Truth in Lending Act, the Real Estate Settlement Procedures Act, and various rules adopted thereunder, including those relating to consumer disclosures, appraisal requirements, mortgage originator compensation, prohibitions on mandatory arbitration provisions under certain circumstances, and the obligation to credit payments and provide payoff statements within certain time periods and provide certain notices prior to interest rate and payment adjustments.
The Bank is required to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Qualified mortgages that are not “higher-priced” are afforded a safe harbor presumption of compliance with the ability to repay rules, while qualified mortgages that are “higher-priced” garner a rebuttable presumption of compliance with the ability to repay rules. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or a term exceeding 30 years, where the lender determines that the borrower has the ability to repay, and where the borrower’s points and fees do not exceed 3% of the total loan amount. “Higher-priced” mortgages must have escrow accounts for taxes and insurance and similar recurring expenses.
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Consumer Lending – Military Lending Act
The Military Lending Act (the “MLA”) and the rules adopted by the Department of Defense (“DOD”) thereunder cover virtually all consumer loan and credit card products (except for loans secured by residential real property and certain purchase-money motor vehicle/personal property secured transactions). Lenders must provide specific written and oral disclosures concerning the protections of the MLA to active-duty members of the military and dependents of active-duty members of the military (“covered borrowers”). The DOD’s rules impose a 36% “Military Annual Percentage Rate” cap that includes costs associated with credit insurance premiums, fees for ancillary products, finance charges associated with the transactions, and application and participation charges. In addition, loan terms cannot include (i) a mandatory arbitration provision, (ii) a waiver of consumer protection laws, (iii) mandatory allotments from military benefits, or (iv) a prepayment penalty. The revised rule also prohibits “roll-over” or refinances of the same loan unless the new loan provides more favorable terms for the covered borrower. Lenders may verify covered borrower status using a DOD database or information provided by credit bureaus.
Federal Securities Laws and NASDAQ Rules
The Common Stock is registered with the SEC under Section 12(b) of the Exchange Act and shares of the Common Stock are listed on the NASDAQ Global Select Market. The Corporation is subject to information reporting requirements, proxy solicitation requirements, insider trading restrictions and other requirements of the Exchange Act, including the requirements imposed under the federal Sarbanes-Oxley Act of 2002, and rules adopted by NASDAQ. Among other things, loans to and other transactions with insiders are subject to restrictions and heightened disclosure, directors and certain committees of the Board must satisfy certain independence requirements, the Corporation must comply with certain enhanced corporate governance requirements, and various issuances of securities by the Corporation require shareholder approval.
Governmental Monetary and Credit Policies and Economic Controls
The earnings and growth of the banking industry and ultimately of the Bank are affected by the monetary and credit policies of governmental authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures. Among the instruments of monetary policy used by the FRB to implement these objectives are open market operations in U.S. Government securities, changes in the federal funds rate, changes in the discount rate of member bank borrowings, and changes in reserve requirements against member bank deposits. These means are used in varying combinations to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid on deposits. The monetary policies of the FRB authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future. In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the FRB, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or their effect on our businesses and earnings.
EMPLOYEES
At December 31, 2025, we employed 343 individuals, of whom 315 were full-time employees.
ITEM 1A. RISK FACTORS
The significant risks and uncertainties related to us, our business and our securities of which we are aware are discussed below. Investors and shareholders should carefully consider these risks and uncertainties before making investment decisions with respect to the Corporation’s securities. Any of these factors could materially and adversely affect our business, financial condition, operating results and prospects and could negatively impact the market price of the Corporation’s securities. If any of these risks materialize, the holders of the Corporation’s securities could lose all or part of their investments in the Corporation. Additional risks and uncertainties that we do not yet know of, or that we
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currently think are immaterial, may also impair our business operations. Investors and shareholders should also consider the other information contained in this annual report, including our financial statements and the related notes, before making investment decisions with respect to the Corporation’s securities.
Risks Relating to First United Corporation and its Affiliates
First United Corporation’s future success depends on the successful growth of its subsidiaries.
The Corporation’s primary business activity for the foreseeable future will be to act as the holding company of the Bank and its other direct and indirect subsidiaries. Therefore, the Corporation’s future profitability will depend on the success and growth of these subsidiaries.
The Bank’s funding sources may prove insufficient to replace deposits and support our future growth.
The Bank relies on customer deposits, advances from the FHLB, lines of credit at other financial institutions, the Federal Reserve Discount Window, and brokered funds to fund our operations. Although the Bank has historically been able to replace maturing deposits and advances if desired, no assurance can be given that the Bank would be able to replace such funds in the future if our financial condition or the financial condition of the FHLB or market conditions were to change. Our financial flexibility could be severely constrained and/or our cost of funds could increase if we are unable to maintain our access to funding or if financing necessary to accommodate future growth is not available at favorable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, then our revenues may not increase proportionately to cover our costs. In that case, our profitability would be adversely affected.
We may need to raise capital in the future, and such capital may not be available when needed or at all.
We may need to raise capital in the future to provide it with sufficient capital resources and liquidity to meet our commitments and business needs including complying with new regulatory capital rules, particularly if our asset quality or earnings were to deteriorate significantly. Our ability to raise capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial condition. Economic conditions and the loss of confidence in financial institutions may limit access to certain customary sources of capital and increase our cost of raising capital. No assurance can be given that such capital will be available on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of depositors, investors or counterparties participating in the capital markets may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms as and when needed could have a materially adverse effect on our business, financial condition and results of operations.
Our inability to generate liquidity in a timely manner may adversely impact our ability to satisfy obligations associated with our financing, our operations and other components of our business.
Timely access to liquidity is essential to our business, and being able to meet obligations as they come due and pay deposits when they are withdrawn is critical to ongoing operations. If we are unable to meet our payment obligations on a daily basis, we may be subject to being placed into receivership, regardless of our capital levels. Our primary sources of liquidity consist of cash and cash balances due from correspondent banks, excess reserves at the Federal Reserve, loan repayments, federal funds sold and other short-term investments, maturities and monetization of investment securities, cash provided by operating activities and new core deposits into the Bank. Our ability to obtain or liquidate these primary sources of liquidity may be impacted by adverse economic conditions resulting from dynamic, complex, and other foreseen and unforeseen inter-related factors and events in the economic environment. If we were to rely on sales proceeds from the sale of investment securities within our portfolio in order to satisfy our obligations, we may be adversely impacted by our ability to transact and settle such sales. Sales of investment securities in an unrealized loss position would negatively affect our earnings and regulatory capital. In addition, in order to monetize our held-to-maturity (“HTM”) securities, we
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expect to rely on pledging those securities for secured funding, and our liquidity may be impaired if we are unable to timely pledge those or any other securities due to lack of available funding, operational impediments or otherwise. Our industry is susceptible to the negative impact of limited access to short-term and/or long-term sources of funds, which could result in a liquidity shortfall and/or impact our liquidity coverage ratio and could have an adverse effect on our operations, financial condition and earnings.
Our inability to access sources of financing at terms that are favorable to us may result in an adverse effect on our business, financial condition, and results of operations.
Our liquidity could be adversely affected by any inability to access the debt or equity capital markets, liquidity or volatility in those capital markets, the decrease in value of eligible collateral or increased collateral requirements (including as a result of credit concerns for short-term borrowings), changes to our relationships with our funding providers based on real or perceived changes in our risk profile, prolonged federal government shutdowns or changes in regulations. Additionally, our liquidity may be negatively impacted by the unwillingness or inability of the Federal Reserve to act as a lender of last resort.
Our ability to raise additional financing depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities and on our financial condition and performance. Accordingly, we may be unable to raise additional financing if needed or on acceptable terms.
The value of real estate collateral may fluctuate significantly resulting in an under-collateralized loan portfolio.
The market value of real estate, particularly real estate held for investment, can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. If the value of the real estate serving as collateral for the Corporation’s loan portfolio were to decline materially, a significant part of the Corporation’s loan portfolio could become under-collateralized. If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then, in the event of foreclosure, we may not be able to realize the amount of collateral that we anticipated at the time of originating the loan. This could have a material adverse effect on the Corporation’s provision for credit losses and the Corporation’s operating results and financial condition.
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The Corporation is subject to lending risk, and the impacts of interest rate changes could adversely impact the Corporation.
There are inherent risks associated with the Corporation’s lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic conditions in the markets where the Corporation operates. Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans.
Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies. Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing the loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment in the markets where we operate and the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by a decline in economic growth both in the United States and internationally, declines in business activity or investor or business confidence, limitations on the availability of or increases to the cost of credit and capital, increases in inflation or interest rates, high unemployment, natural disasters, trade policies and tariffs, or a combination of these factors. Current economic conditions are being heavily impacted by recent inflationary conditions and higher interest rates, the effects of which may impact our profitability by negatively impacting our fixed costs and expenses. Economic and inflationary pressure on consumers and uncertainty regarding economic improvement could result in changes in consumer and business spending, borrowing, and savings habits. Such conditions could have a material adverse effect on the credit quality of our loans and our business, financial condition, and results of operations.
A substantial portion of the Corporation’s loan portfolio is comprised of residential and commercial real estate loans. The Corporation’s concentration of real estate loans may subject the Corporation to additional risk, as fluctuations in market value of collateral and difficulty monitoring income-producing property serving as a source of repayment and collateral. Any of these or other risks relating to real estate loans could adversely affect the collection by the Corporation of the outstanding loan balances.
Interest rates and other economic conditions will impact our results of operations.
Our net income depends primarily upon our net interest income. Net interest income is the difference between interest income earned on loans, investments and other interest-earning assets and the interest expense incurred on deposits and borrowed funds. The level of net interest income is primarily a function of the average balance of our interest-earning assets, the average balance of our interest-bearing liabilities, and the spread between the yield on such assets and the cost of such liabilities. These factors are influenced by both the pricing and mix of our interest-earning assets and our interest-bearing liabilities which, in turn, are impacted by such external factors as the local economy, competition for loans and deposits, the monetary policy of the Federal Open Market Committee of the FRB, and market interest rates.
Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience gaps in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest-earning assets, or vice versa. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could reduce our net interest income. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, deflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets.
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We also attempt to manage risk from changes in market interest rates, in part, by controlling the mix of interest rate sensitive assets and interest rate sensitive liabilities. However, interest rate risk management techniques are not exact. A rapid increase or decrease in interest rates could adversely affect our results of operations and financial performance.
The majority of our business is concentrated in Maryland and West Virginia, much of which involves real estate lending, so a decline in the real estate and credit markets could materially and adversely impact our financial condition and results of operations.
Most of the Bank’s loans are made to borrowers located in Maryland and West Virginia and many of these loans, including construction and land development loans, are secured by real estate. Accordingly, a decline in local economic conditions would likely have an adverse impact on our financial condition and results of operations, and the impact on us would likely be greater than the impact felt by larger financial institutions whose loan portfolios are geographically diverse. We cannot guarantee that any risk management practices we implement to address our geographic and loan concentrations will be effective to prevent losses relating to our loan portfolio.
The Bank’s concentrations of commercial real estate loans could subject it to increased regulatory scrutiny and directives, which could force us to preserve or raise capital and/or limit future commercial lending activities.
The federal banking regulators believe that institutions that have particularly high concentrations of commercial real estate loans within their lending portfolios face a heightened risk of financial difficulties in the event of adverse changes in the economy and commercial real estate markets. Accordingly, through published guidance, these regulators have directed institutions whose concentrations exceed certain percentages of capital to implement heightened risk management practices appropriate to their concentration risk. The guidance provides that banking regulators may require such institutions to reduce their concentrations and/or maintain higher capital ratios than institutions with lower concentrations in commercial real estate. At December 31, 2025, our commercial real estate concentrations were below the heightened risk management thresholds set forth in this guidance.
The Bank may experience loan losses in excess of its allowance for credit losses, which would reduce our earnings.
The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loans being made, the creditworthiness of the borrowers over the term of the loans and, in the case of collateralized loans, the value and marketability of the collateral for the loans. Management of the Bank maintains an ACL based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides the ACL based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered questionable. If management’s assumptions and judgments prove to be incorrect and the ACL is inadequate to absorb future losses, or if the bank regulatory authorities require us to increase the ACL as a part of its examination process, our earnings and capital could be significantly and adversely affected. Although management continually monitors our loan portfolio and makes determinations with respect to the ACL, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to our non-performing or performing loans. Material additions to the ACL could result in a material decrease in our net income and capital; and could have a material adverse effect on our financial condition.
We depend on the accuracy and completeness of information about customers and counterparties, and inaccurate, incomplete or misleading information provided to us by these persons could cause us to suffer losses.
In deciding whether to extend credit or enter into other transactions, we rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit
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reports or other financial information could have a material adverse impact on our business, financial condition and results of operations.
Our accounting estimates and risk management processes rely on analytical and forecasting models, the inadequacy of which could have a material adverse effect on our financial condition and/or results of operations.
The processes we use to estimate our ACL and to measure the fair value of financial instruments, as well as the processes used to estimate the effects of changing interest rates and other market measures on our financial condition and results of operations, depends upon the use of analytical and forecasting models. These models reflect assumptions that may not be accurate, particularly in times of market stress or other unforeseen circumstances. Even if these assumptions are adequate, the models may prove to be inadequate or inaccurate because of other flaws in their design or their implementation, including flaws caused by failures in controls, data management, human error or from the reliance on technology. If the models we use for interest rate risk and asset-liability management are inadequate, we may incur increased or unexpected losses upon changes in market interest rates or other market measures. If the models we use for estimating our expected credit losses are inadequate, the ACL may not be sufficient to support future charge-offs. If the models we use to measure the fair value of financial instruments are inadequate, the fair value of such financial instruments may fluctuate unexpectedly or may not accurately reflect what we could realize upon sale or settlement of such financial instruments. Any such failure in our analytical or forecasting models could have a material adverse effect on our business, financial condition and results of operations.
The Bank’s lending activities subject the Bank to the risk of environmental liabilities.
A significant portion of the Bank’s loan portfolio is secured by real property. During the ordinary course of business, the Bank may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Bank may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Bank to incur substantial expenses and may materially reduce the affected property’s value or limit the Bank’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Bank’s exposure to environmental liability. Although the Bank has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
Our investment securities are subject to market risk and credit risk that may have an adverse impact on our financial condition and results of operation.
At December 31, 2025, investment securities in our investment portfolio having a cost basis of $123.9 million and a market value of $107.1 million were classified as available-for-sale pursuant to FASB Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities, relating to accounting for investments. Topic 320 requires that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in shareholders’ equity (net of tax) as accumulated other comprehensive loss. There can be no assurance that future market performance of our investment portfolio will enable us to realize income from sales of securities. Shareholders’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments. Moreover, there can be no assurance that the market value of our investment portfolio will not decline, causing a corresponding decline in shareholders’ equity.
Several factors could affect the market value of our investment portfolio. These include, but are not limited to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation and the slope of the interest rate yield curve (the yield curve refers to the differences between shorter-term and longer-term interest rates; a positively sloped yield curve means shorter-term rates are lower than longer-term rates). Also, the passage of time will affect the market values of our investment securities, in that the closer they are
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to maturing, the closer the market price should be to par value. These and other factors may impact specific categories of the portfolio differently, and management cannot predict the effect these factors may have on any specific category.
Our investment securities portfolio as a whole is exposed to credit risk associated with rating agency downgrades and defaults of the issuers of those securities. We measure expected credit losses on our investment portfolio through our current expected credit loss (“CECL”) estimate. Increases to the provision for credit losses would have a negative impact on our results of operations and regulatory capital ratios. Additionally, an insufficient CECL provision may result in additional losses that would have an adverse impact on our results of operations. The investment portfolio’s performance, including the existence of unrealized and unrecognized losses in the portfolio, also may create reputational risk for us, particularly in conjunction with the conditions of the banking industry generally, that could result in deposit outflows or reduced access to funding, or negatively impact our ability to attract and retain prospective customers.
Impairment of goodwill and other intangible assets or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.
Under current accounting standards, goodwill and other intangible assets are subject to impairment tests on at least an annual basis or more frequently if a triggering event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. A decline in the price of the shares of Common Stock or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release. In the event that we conclude that all or a portion of our goodwill and other intangible assets may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital. At December 31, 2025, we had recorded goodwill and other intangible assets of $11.4 million, representing approximately 5.6% of shareholders’ equity.
At December 31, 2025, our net deferred tax assets were valued at $8.7 million. Included in that total is $2.6 million of state net operating loss carryforwards (“NOLs”) associated with separate company tax filings of the Corporation, which we do not expect to use and, thus, we have established a $2.6 million valuation allowance. A deferred tax asset is reduced by a valuation allowance if, based on the weight of the evidence available, both negative and positive, including the recent trend of quarterly earnings, the Corporation determines that it is more likely than not that some portion or all of the total deferred tax asset will not be realized. Moreover, our ability to utilize our net operating loss carryforwards to offset future taxable income may be significantly limited if we experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code of 1986, as amended (“the Code”). If an ownership change were to occur, the limitations imposed by Section 382 of the Code could result in a portion of our net operating loss carryforwards expiring unused, thereby impairing their value. Section 382’s provisions are complex, and we cannot predict any circumstances surrounding the future ownership of the Common Stock. Accordingly, we cannot provide any assurance that we will not experience an ownership change in the future.
The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.
Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our financial condition and results of operations.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships, and we routinely execute transactions with counterparties in the financial industry. Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems.
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In addition to the risk that occurrence of such events could adversely impact our ability to engage in routine funding transactions, they could also lead to losses or defaults by us or by other institutions, either of which could have a material adverse effect on our business, results of operations and financial condition.
Increases in FDIC insurance premiums may have a material adverse effect on our results of operations.
In general, we are unable to control the amount of premiums that are required to be paid for FDIC insurance. In October 2022, the FDIC finalized a rule to increase the assessment rate by two basis points beginning in the first quarter of 2023. The increase in the assessment rate for banks is intended to increase the Deposit Insurance Fund (“DIF)” reserve ratio to 1.35%. In early March 2023, the FDIC was appointed receiver for two banks, in each case due primarily to liquidity concerns at those institutions. Promptly following these events, the federal banking regulators announced that the FDIC will use funds from the DIF to ensure that all depositors of the two failed institutions are made whole, at no cost to taxpayers. In November 2023, the FDIC issued a final rule to implement a special assessment to recover losses to the DIF as a result of bank failures that year and the FDIC’s use of the systemic risk exception to cover certain deposits that were otherwise uninsured. In June 2024, due to the increased estimate of losses, the FDIC announced that it projects that the special assessment will be collected for an additional two quarters beyond the initial eight-quarter collection period at a lower rate. The special estimate was based on estimated uninsured deposits at December 31, 2022 (excluding the first $5.0 billion). The Bank was exempt from this special assessment as its total uninsured deposits were below $5.0 billion; however, future increases or required repayments in FDIC insurance premiums may materially adversely affect our results of operations.
We operate in a competitive environment, and our inability to effectively compete could adversely and materially impact our financial condition and results of operations.
We operate in a competitive environment, competing for loans, deposits, and customers with commercial banks, savings associations and other financial entities. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market and mutual funds and other investment alternatives. Competition for loans comes primarily from other commercial banks, savings associations, mortgage banking firms, credit unions and other financial intermediaries. Competition for other products, such as securities products, comes from other banks, securities and brokerage companies, and other non-bank financial service providers in our market area. Many of these competitors are much larger in terms of total assets and capitalization, have greater access to capital markets, and/or offer a broader range of financial services than those that we offer. In addition, banks with a larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the needs of larger customers.
In addition, changes to the banking laws over the last several years have facilitated interstate branching, merger and expanded activities by banks and holding companies. For example, the federal Gramm-Leach-Bliley Act (the “GLB Act”) revised the BHC Act and repealed the affiliation provisions of the Glass-Steagall Act of 1933, which, taken together, limited the securities and other non-banking activities of any company that controls an FDIC insured financial institution. As a result, the ability of financial institutions to branch across state lines and the ability of these institutions to engage in previously-prohibited activities are now accepted elements of competition in the banking industry. These changes may bring us into competition with more and a wider array of institutions, which may reduce our ability to attract or retain customers. Management cannot predict the extent to which we will face such additional competition or the degree to which such competition will impact our financial conditions or results of operations.
The banking industry is heavily regulated; significant regulatory changes could adversely affect our operations.
Our operations will be impacted by current and future legislation and by the policies established from time to time by various federal and state regulatory authorities. The Corporation is subject to supervision by the FRB. The Bank is subject to supervision and periodic examination by the Maryland Office of Financial Regulation, the West Virginia Division of Banking, and the FDIC. Banking regulations, designed primarily for the safety of depositors, may limit a financial institution’s growth and the return to its investors by restricting such activities as the payment of dividends,
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mergers with or acquisitions by other institutions, investments, loans and interest rates, interest rates paid on deposits, expansion of branch offices, and the offering of securities or trust services. The Corporation and the Bank are also subject to capitalization guidelines established by federal law and could be subject to enforcement actions to the extent that either is found by regulatory examiners to be undercapitalized. It is not possible to predict what changes, if any, will be made to existing federal and state legislation and regulations or the effect that such changes may have on our future business and earnings prospects. Management also cannot predict the nature or the extent of the effect on our business and earnings of future fiscal or monetary policies, economic controls, or new federal or state legislation. Further, the cost of compliance with regulatory requirements may adversely affect our ability to operate profitably.
The Consumer Financial Protection Bureau may continue to reshape the consumer financial laws through rulemaking and enforcement of the prohibitions against unfair, deceptive and abusive business practices. Compliance with any such change may impact our business operations.
The Consumer Financial Protection Bureau (“CFPB”) has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. The CFPB has also been directed to adopt rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The concept of what may be considered to be an “abusive” practice is fluid and can change based on politically-appointed leadership at the CFPB. We have been required to dedicate significant personnel resources to address the compliance burdens imposed by the CFBP’s adoption of various rules, and the adoption of additional rules in the future would likely require us to dedicate even more resources.
Compliance with ever-evolving federal and state laws relating to the handling of information about individuals involves significant expenditure and resources, and any failure by us or our vendors to comply may result in significant liability, negative publicity, and/or an erosion of trust, which could materially adversely affect our business, results of operations, and financial condition.
We are subject to a number of U.S. federal, state, local and foreign laws and regulations relating to consumer privacy and data protection. Under privacy protection provisions of the GLBA and its implementing regulations and guidance, we are limited in our ability to disclose certain non-public information about consumers to nonaffiliated third parties. The GLBA regulates, among other things, the use of certain information about individuals (“non-public personal information”) in the context of the provision of financial services, including by banks and other financial institutions. The GLBA includes both a “Privacy Rule”, which imposes obligations on financial institutions relating to the use or disclosure of non-public personal information, and a “Safeguards Rule”, which imposes obligations on financial institutions and, indirectly, their service providers to implement and maintain physical, administrative and technological measures to protect the security of non-public personal financial information. Any failure to comply with the GLBA could result in substantial financial penalties and significant reputational harm. Multiple states have recently enacted, or are expected to enact, stringent privacy laws, not all of which exempt financial institutions categorically. Many other states are currently reviewing or proposing the need for greater regulation of the collection, sharing, use and other processing of information related to individuals for marketing purposes or otherwise, and there remains increased interest at the federal level as well. Further, to comply with the varying state laws around data breaches, we must maintain adequate security measures, which require significant investments in resources and ongoing attention.
Additionally, laws, regulations, and standards covering marketing, advertising, and other activities conducted by telephone, email, mobile devices, and the internet are or may become applicable to our business, such as the Telephone Consumer Protection Act, the CAN-SPAM Act, and similar state consumer protection and communication privacy laws. We occasionally make telephone calls and/or send SMS text messages to customers. The actual or perceived improper calling of customer phones and/or sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws such as the Telephone Consumer Protection Act. Numerous class-action suits under federal and state laws have been filed in recent years against companies who conduct telemarketing and/or SMS texting programs, with many resulting in multi-million-dollar settlements to the plaintiffs. Any future such litigation against us could be costly and time-consuming to defend. In particular, the Telephone Consumer Protection Act imposes significant
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restrictions on the ability to make telephone calls or send text messages to mobile telephone numbers without the prior consent of the person being contacted. Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain, or our outreach practices are not adequate or violate applicable law. This may in the future result in civil claims against us. Claims that we have violated the Telephone Consumer Protection Act could be costly to litigate, whether or not they have merit, and could expose us to substantial statutory damages or costly settlements.
We also send marketing messages via email and are subject to the CAN-SPAM Act. The CAN-SPAM Act imposes certain obligations regarding the content of emails and providing opt-outs (with the corresponding requirement to honor such opt-outs promptly). While we strive to ensure that all of our marketing communications comply with the requirements set forth in the CAN-SPAM Act, any violations could result in the FTC seeking civil penalties against us.
Moreover, we are considered a “user” of consumer reports provided by consumer reporting agencies under the Fair Credit Reporting Act (“FCRA”), as amended by the Fair and Accurate Credit Transactions Act. FCRA regulates and protects consumer information collected by consumer reporting agencies and imposes specific obligations on “users” of consumer reports. Such obligations may include restricting the sharing of information contained in a consumer report, notifying consumers when such reports are used to make an adverse decision, and, in the context of completing employee background checks, providing a notice containing certain disclosures to the consumer and obtaining their consent.
Bank regulators and other regulations, including the Basel III Capital Rules, may require higher capital levels, impacting our ability to pay dividends or repurchase our stock.
The capital standards to which we are subject, including the standards created by the Basel III Capital Rules, may materially limit our ability to use our capital resources and/or could require us to raise additional capital by issuing additional shares of Common Stock or other equity securities. In addition, we could experience increases in deposits and assets as a result of other depository institutions’ difficulties or failures, which would increase the capital that we are required to maintain to support such growth. The issuance of additional equity securities to fund our capital needs could dilute existing stockholders.
A material weakness in our disclosure or internal controls could have an adverse effect on us.
The Corporation is required by the Sarbanes-Oxley Act of 2002 to establish and maintain disclosure controls and procedures and internal control over financial reporting. These control systems are intended to provide reasonable assurance that material information relating to the Corporation is made known to our management and reported as required by the Exchange Act, to provide reasonable assurance regarding the reliability and preparation of our financial statements, and to provide reasonable assurance that fraud and other unauthorized uses of our assets are detected and prevented. We may not be able to maintain controls and procedures that are effective at the reasonable assurance level. If that were to happen, our ability to provide timely and accurate information about the Corporation, including financial information, to investors could be compromised and our results of operations could be harmed. Moreover, if the Corporation or its independent registered public accounting firm were to identify a material weakness in any of those control systems, our reputation could be harmed and investors could lose confidence in us, which could cause the market price of the Corporation’s stock to decline and/or limit the trading market for the shares of the Common Stock.
We may not be able to keep pace with developments in technology.
We use various technologies in conducting our businesses, including telecommunication, data processing, computers, automation, internet-based banking, and debit cards. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. Our future success depends, in part, on our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology driven products and services or be successful in marketing these products and services to our customers.
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In addition, our implementation of certain new technologies, such as those related to artificial intelligence, automation and algorithms, in our business processes may have unintended consequences due to their limitations or our failure to use them effectively. In addition, cloud technologies are also critical to the operation of our systems, and our reliance on cloud technologies is growing. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations.
Our operational or communications systems or infrastructure may fail or may be the subject of a breach or cyber-attack that, if successful, could adversely affect our business or disrupt business continuity.
Our business depends heavily on the use of computer systems, the Internet and other means of electronic communication and recordkeeping to process, record, and monitor client transactions and to communicate with clients and other institutions on a continuous basis. As client, industry, public, and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns, whether as a result of events beyond our control or otherwise.
Our business, financial, accounting, data processing, or other operating systems and facilities may stop operating properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially beyond our control. For example, there could be sudden increases in client transaction volume; electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes, floods, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; occurrences of employee error, fraud, theft, or malfeasance; disruptions caused by technology implementation, including hardware deployment and software updates; and, as described below, cyber-attacks.
Although we have business continuity plans and other safeguards in place, our operations and communications may be adversely affected by significant and widespread disruption to our systems and infrastructure that support our businesses, clients, and teammates. While we continue to evolve and modify our business continuity plans, there can be no assurance in an escalating threat environment that they will be effective in avoiding disruption and business impacts. Our insurance may not be adequate to compensate us for all resulting losses, and the cost to obtain adequate coverage may increase for us or the industry.
Security risks for financial institutions such as ours have dramatically increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication, resources, and activities of hackers, terrorists, activists, industrial spies, insider bad actors, organized crime, and other external parties, including nation state actors. In addition, to access our products and services, clients may use devices and/or software that are beyond our control environment, which may provide additional avenues for attackers to gain access to confidential information. Although we have information security procedures and controls in place, our technologies, systems, networks, and clients' devices and software may become the target of cyber-attacks, information security breaches, business email compromise, or information theft that could result in the unauthorized release, gathering, monitoring, misuse, loss, change, or destruction of our or our clients' or teammates' confidential, proprietary, or other information (including personal identifying information of individuals), or otherwise disrupt our or our clients' or our third parties' business operations. U.S. financial institutions and financial service companies have reported breaches in the security of their websites or other systems, including attempts to shut down access to their networks and/or systems in an attempt to extract compensation from them to regain control. Financial institutions, including the Bank, have experienced distributed denial-of-service attacks, a sophisticated and targeted attack intended to disable or degrade internet service or to sabotage systems.
We and others in our industry are regularly the subject of attempts by attackers to gain unauthorized access to our networks, systems, and data, or to obtain, change, or destroy confidential data (including personal identifying information of individuals) through a variety of means, including computer viruses, malware, business email compromise, and phishing. These attacks may result in unauthorized individuals obtaining access to our confidential information or that of our clients or teammates, or otherwise accessing, compromising, damaging, or disrupting our systems or infrastructure.
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We are continuously developing and enhancing our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage, or unauthorized access. This continued development and enhancement will require us to expend additional resources, including resources to investigate and remediate any information security vulnerabilities that may be detected. Despite our ongoing investments in security resources, talent, and business practices, we are unable to assure that any security measures will be effective.
If our systems and infrastructure were to be breached, compromised, damaged, or disrupted, or if we were to experience a loss of our confidential information or that of our clients or teammates, we could be subject to serious negative consequences, including disruption of our operations, damage to our reputation, a loss of trust in us on the part of our clients, vendors or other counterparties, client or teammate attrition, reimbursement or other costs, increased compliance costs, significant litigation exposure and legal liability, or regulatory fines, penalties or intervention. Any of these could materially and adversely affect our results of operations, our financial condition, and/or our share price.
A disruption, breach, or failure in the operational systems or infrastructure of our third-party vendors or other service providers, including as a result of cyber-attacks, could adversely affect our business.
Third parties perform significant operational services on our behalf. These third parties with whom we do business or that facilitate our business activities, including exchanges, clearing houses, central clearing counterparties, financial intermediaries, or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. In particular, operating our business requires us to provide access to client, teammate, and other sensitive Company information to our contractors, consultants, and other third parties and authorized entities. Controls and oversight mechanisms are in place that are designed to limit access to this information and protect it from unauthorized disclosure, theft, and disruption. However, control systems and policies pertaining to system access are subject to errors in design, oversight failure, software failure, human error, intentional subversion, or other compromise resulting in theft, error, loss, or inappropriate use of information or systems to commit fraud, cause embarrassment to us or our executives or to gain competitive advantage. In addition, regulators expect financial institutions to be responsible for all aspects of their performance, including aspects which they delegate to third parties. If a disruption, breach, or failure in the system or infrastructure of any third party with whom we do business occurred, then our business may be materially and adversely affected in a manner similar to if our own systems or infrastructure had been compromised. As has been the case in other major system events in the U.S., our systems and infrastructure may also be attacked, compromised, or damaged as a result of, or as the intended target of, any disruption, breach, or failure in the systems or infrastructure of any third party with whom we do business.
We may be subject to claims and the costs of defensive actions, and such claims and costs could materially and adversely impact our financial condition and results of operations.
Our customers may sue us for losses due to alleged breaches of fiduciary duties, errors and omissions of employees, officers and agents, incomplete documentation, our failure to comply with applicable laws and regulations, or many other reasons. Also, our employees may knowingly or unknowingly violate laws and regulations. Management may not be aware of any violations until after their occurrence. This lack of knowledge may not insulate us from liability. Claims and legal actions will result in legal expenses and could subject us to liabilities that may reduce our profitability and hurt our financial condition.
The loss of key personnel could disrupt our operations and result in reduced earnings.
Our growth and profitability will depend upon our ability to attract and retain skilled managerial, marketing and technical personnel. Competition for qualified personnel in the financial services industry is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. Our current executive officers provide valuable services based on their many years of experience and in-depth knowledge of the banking industry and the market areas we serve. Due to the intense competition for financial professionals, these key personnel would be difficult to
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replace, and an unexpected loss of their services could result in a disruption to the continuity of operations and a possible reduction in earnings.
We are a community banking organization and our ability to maintain our reputation is critical to the success of our business.
We are a community banking organization, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our current market and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers and associates. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and, therefore, our operating results may be materially adversely affected.
We could be adversely affected by risks associated with future acquisitions and expansions.
Although our core growth strategy is focused around organic growth, we may from time to time consider acquisition and expansion opportunities involving a bank or other entity operating in the financial services industry. We cannot predict if or when we will engage in such a strategic transaction, or the nature or terms of any such transaction. To the extent that we grow through an acquisition, we cannot assure investors that we will be able to adequately and profitably manage that growth or that an acquired business will be integrated into our existing businesses as efficiently or as timely as we may anticipate. Acquiring another business would generally involve risks commonly associated with acquisitions, including:
| ● | increased capital needs; |
| ● | increased and new regulatory and compliance requirements; |
| ● | implementation or remediation of controls, procedures and policies with respect to the acquired business; |
| ● | diversion of management time and focus from operation of our then-existing business to acquisition-integration challenges; |
| ● | coordination of product, sales, marketing and program and systems management functions; |
| ● | transition of the acquired business’s users and customers onto our systems; |
| ● | retention of employees from the acquired business; |
| ● | integration of employees from the acquired business into our organization; |
| ● | integration of the acquired business’s accounting, information management, human resources and other administrative systems and operations with ours; |
| ● | potential liability for activities of the acquired business prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; |
| ● | potential increased litigation or other claims in connection with the acquired business, including claims brought by regulators, terminated employees, customers, former stockholders, vendors, or other third parties; and |
| ● | potential goodwill impairment. |
Our failure to execute our acquisition strategy could adversely affect our business, results of operations, financial condition and future prospects risks of unknown or contingent liabilities.
New lines of business, products or services may subject us to additional risks.
From time to time, we implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we
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invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business, new product or service and/or new technology could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business, new products or services and/or new technologies could have a material adverse effect on our business, financial condition and results of operations.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our sustainability practices may impose additional costs on us or expose us to new or additional risks.
Many companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their sustainability practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased sustainability-related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of sustainability oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Due to divergent stakeholder views on these matters, we are at increased risk that any action, or lack thereof, concerning these matters will be perceived negatively by some stakeholders, which could negatively affect our business and reputation.
Risks Relating to First United Corporation’s Securities
The shares of Common Stock are not insured.
The shares of the Common Stock are not deposits and are not insured against loss by the FDIC or any other governmental or private agency.
The shares of Common Stock are not heavily traded.
Shares of the Common Stock are listed on the NASDAQ Global Select Market but are not heavily traded. Securities that are not heavily traded can be more volatile than stock trading in an active public market. Factors such as our financial results, the introduction of new products and services by us or our competitors, changes in the financial estimates by securities analysts, market conditions within the banking industry, the general state of the securities market, general economic condition, and investor speculation as to our future plans and strategies could have a significant impact on the market price and trading volume of the shares of Common Stock. Likewise, events that are unrelated to the Corporation but that affect the equity markets generally, such as national or international health crises, wars, political instability, the loss of investor or depositor confidence due to the failure of one or more financial institutions, and similar factors, could also have a significant impact on the market price and trading volume of the shares of Common Stock. Management cannot predict the extent to which an active public market for shares of Common Stock will develop or be sustained in the future. Accordingly, shareholders may not be able to sell their shares at the volumes, prices, or times that they desire.
Significant sales of shares of Common Stock, or the perception that significant sales may occur in the future, could adversely affect the market price of shares of Common Stock.
The sale of a substantial number of shares of the Common Stock could adversely affect the market price of such shares. The availability of shares for future sale could adversely affect the prevailing market price of shares of Common Stock and could cause the market price of such shares to remain low for a substantial amount of time. In addition, the Corporation may grant equity awards under its equity compensation plans from time to time in effect, including fully-
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vested shares of Common Stock. It is possible that if a significant percentage of such available shares were attempted to be sold within a short period of time, the market for the shares would be adversely affected. Management cannot predict whether the market for shares of Common Stock could absorb a large number of attempted sales in a short period of time, regardless of the price at which they might be offered. Even if a substantial number of sales do not occur within a short period of time, the mere existence of this “market overhang” could have a negative impact on the market for the common stock and our ability to raise capital in the future.
The Corporation’s ability to pay dividends on the common stock is subject to the terms of the outstanding TPS Debentures, which prohibit the Corporation from paying dividends during an interest deferral period.
In March 2004, the Corporation issued approximately $30.9 million, in the aggregate, of junior subordinated debentures (“TPS Debentures”) to the Trusts in connection with the Trusts’ sales to third party investors of $30.0 million, in the aggregate, in mandatorily redeemable preferred capital securities. The terms of the TPS Debentures require the Corporation to make quarterly payments of interest to the Trusts, as the holders of the TPS Debentures, although the Corporation has the right to defer payments of interest for up to 20 consecutive quarterly periods, and the Corporation has exercised this deferral right in the past. An election to defer interest payments does not constitute an event of default under the terms of the TPS Debentures. The terms of the TPS Debentures prohibit the Corporation from declaring or paying any dividends or making other distributions on, or from repurchasing, redeeming or otherwise acquiring, any shares of its capital securities, including the common stock, if the Corporation elects to defer quarterly interest payments under the TPS Debentures. In addition, a deferral election will require the Trusts to likewise defer the payment of quarterly dividends on their related trust preferred securities.
Applicable banking and Maryland laws impose additional restrictions on the ability of the Corporation and the Bank to pay dividends and make other distributions on their capital securities, and, in any event, the payment of dividends is at the discretion of the boards of directors of the Corporation and the Bank.
In the past, the Corporation has funded dividends on its capital securities using cash received from the Bank, and this will likely be the case for the foreseeable future. No assurance can be given that the Bank will be able to pay dividends to the Corporation for these purposes at times and/or in amounts requested by the Corporation. Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. Under Maryland law, a state-chartered commercial bank may pay dividends only out of undivided profits or, with the prior approval of the Maryland Commissioner, from surplus in excess of 100% of required capital stock. If, however, the surplus of a Maryland bank is less than 100% of its required capital stock, cash dividends may not be paid in excess of 90% of net earnings. In addition to these specific restrictions, bank regulatory agencies have the ability to prohibit proposed dividends by a financial institution which would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice. Banks that are considered “troubled institution” are prohibited by federal law from paying dividends altogether. Notwithstanding the foregoing, shareholders must understand that the declaration and payment of dividends and the amounts thereof are at the discretion of the Corporation’s Board of Directors. Thus, even at times when the Corporation is not prohibited from paying cash dividends on its capital securities, neither the payment of such dividends nor the amounts thereof can be guaranteed.
The Corporation’s charter and bylaws and Maryland law may discourage a corporate takeover.
The Corporation’s charter and its bylaws (the “Bylaws”) contain certain provisions designed to enhance the ability of the Corporation’s Board of Directors to deal with attempts to acquire control of the Corporation. First, the Board of Directors is a declassified board structure. Each director serves for a one-year term, and no director may be removed except for cause, and then only by the affirmative vote of either a majority of the entire Board of Directors or a majority of the outstanding voting stock. Second, the Board has the authority to classify and reclassify unissued shares of stock of any class or series of stock by setting, fixing, eliminating, or altering in any one or more respects the preferences, rights, voting powers, restrictions and qualifications of, dividends on, and redemption, conversion, exchange, and other rights of, such securities. The Board could use this authority, along with its authority to authorize the issuance of securities of any class or series, to issue shares having terms favorable to management or to a person or persons affiliated with or otherwise
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friendly to management. In addition, the Bylaws require any shareholder who desires to nominate a director to abide by strict notice requirements.
Maryland laws include provisions that could discourage a sale or takeover of the Corporation. The Maryland Business Combination Act generally prohibits, subject to certain limited exceptions, corporations from being involved in any “business combination” (defined as a variety of transactions, including a merger, consolidation, share exchange, asset transfer or issuance or reclassification of equity securities) with any “interested shareholder” for a period of five years following the most recent date on which the interested shareholder became an interested shareholder. An interested shareholder is defined generally as a person who is the beneficial owner of 10% or more of the voting power of the outstanding voting stock of the corporation after the date on which the corporation had 100 or more beneficial owners of its stock or who is an affiliate or associate of the corporation and was the beneficial owner, directly or indirectly, of 10% percent or more of the voting power of the then outstanding stock of the corporation at any time within the two-year period immediately prior to the date in question and after the date on which the corporation had 100 or more beneficial owners of its stock. The Maryland Control Share Acquisition Act applies to acquisitions of “control shares”, which, subject to certain exceptions, are shares the acquisition of which entitle the holder, directly or indirectly, to exercise or direct the exercise of the voting power of shares of stock of the corporation in the election of directors within any of the following ranges of voting power: one-tenth or more, but less than one-third of all voting power; one-third or more, but less than a majority of all voting power or a majority or more of all voting power. Control shares have limited voting rights. Maryland banking laws provide that the Maryland Commissioner must approve certain acquisitions of the common stock of the Corporation and/or the Bank, and these laws impose penalties on persons who effect such acquisitions without approval, including a five-year voting prohibition.
Although these provisions do not preclude a sale or takeover, they may have the effect of discouraging, delaying or deferring a sale, tender offer, or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the common stock. Such provisions will also render the removal of the Board of Directors and of management more difficult and, therefore, may serve to perpetuate current management. These provisions could potentially adversely affect the market prices of the Corporation’s securities.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Risk Management Strategy
Our objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse our systems or information. The structure of our information security program is designed around the Cyber Risk Institute’s cybersecurity profile designed specifically for the financial services industry, regulatory guidance, and other industry standards. In addition, we leverage certain industry and government associations, third-party benchmarking, audits, and threat intelligence feeds to facilitate and promote program effectiveness. Our Information Security Officer, along with key members of our risk management committee, regularly collaborate with peer banks, industry groups, and policymakers to discuss cybersecurity trends and issues and identify best practices. The
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information security program is periodically reviewed by such personnel with the goal of addressing changing threats and conditions.
We employ an in-depth, layered, defensive strategy that embraces a “never trust, always verify” philosophy when designing new products, services, and technology. We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We also employe a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected advanced persistent threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for employees, preparedness simulations and tabletop exercises, and recovery and resilience tests.
We maintain an Incident Response Plan that provides a documented framework for responding to actual or potential cybersecurity incidents, including timely notification of and escalation to the appropriate Board-approved management committees, as discussed further below, and the Risk and Compliance Committee of our board of directors. The Incident Response Plan is coordinated through the Chief Operating Officer and key members of management are embedded into the Plan by its design. The Incident Response Plan facilitates coordination across multiple parts of our organization and is evaluated at least annually.
Notwithstanding our defensive measures and processes, the threat posed by cyber-attacks is severe. Our internal systems, processes, and controls are designed to mitigate loss from cyber-attacks and, while we have experienced cybersecurity incidents in the past, to date, risks from
Governance
Our
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The
ITEM 2. PROPERTIES
The headquarters of the Corporation and the Bank occupies approximately 29,000 square feet at 19 South Second Street, Oakland, Maryland, and a 30,000 square feet operations center located at 12892 Garrett Highway, Oakland Maryland. These premises are owned by the Corporation. The Bank owns 20 of its banking offices and leases three. Total rent expense on the leased offices and properties was $0.4 million in 2025.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Shares of the Corporation’s common stock are listed on the NASDAQ Global Select Market under the symbol “FUNC”. As of February 27, 2026, issued and outstanding shares of Common Stock were held by 1,247 shareholders of record.
The ability of the Corporation to declare dividends is limited by federal banking laws and Maryland corporation laws. Subject to these and the terms of its other securities, including the TPS Debentures, the payment of dividends on the shares of common stock and the amounts thereof are at the discretion of the Corporation’s board of directors. Cash dividends are typically declared on a quarterly basis. When paid, dividends to shareholders are dependent on the ability of the Corporation’s subsidiaries, especially the Bank, to declare dividends to the Corporation. Like the Corporation, the Bank’s ability to declare and pay dividends is subject to limitations imposed by federal and Maryland banking and Maryland corporation laws. A complete discussion of these and other dividend restrictions is contained in Item 1A of Part I of this annual report under the heading “Risks Relating to First United Corporation’s Securities” and in Note 3 to the Consolidated Financial Statements, both of which are incorporated herein by reference. Accordingly, there can be no assurance that dividends will be declared on the shares of common stock in any future fiscal quarter.
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The Corporation’s Board of Directors periodically evaluates the Corporation’s dividend policy, both internally and in consultation with the FRB.
Issuer Repurchases
Neither First United Corporation nor any of its affiliated purchasers (as defined in Rule 10b-18 promulgated under the Exchange Act) purchased any shares of Common Stock during the three-month period ended December 31, 2025.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto for the years ended December 31, 2025 and 2024, which are included in Item 8 of Part II of this annual report.
Overview
First United Corporation is a financial holding company that, through the Bank and its non-bank subsidiaries, provides an array of financial products and services primarily to customers in four Western Maryland counties and three Northeastern West Virginia counties. Its principal operating subsidiary is the Bank, which consists of a community banking network of 23 branch offices located throughout its market areas. Our primary sources of revenue are interest income earned from our loan and investment securities portfolios and fees earned from financial services provided to customers.
For the years ended December 31, 2025 and 2024, net income was $24.5 million and $20.6 million, respectively, on a generally accepted accounting principles (“GAAP”) basis. Net income for the year ended December 31, 2025 was inclusive of a $1.3 million write-down, net of tax, on other real estate owned (“OREO”) property, a $0.2 million loss, net of tax, on disposal of fixed assets, and a $0.1 million gain, net of tax, on sale of available-for-sale (“AFS”) investment securities and adjusted net income was $25.8 million on a non-GAAP basis. Net income for the year ended December 31, 2024 was inclusive of a $0.4 million increase in expenses, net of tax, related to announced branch closures and adjusted net income was $21.0 million on a non-GAAP basis.
The provision for credit losses on loans was $2.3 million for the year ended December 31, 2025 and $2.9 million for the year ended December 31, 2024. Net charge-offs of $1.0 million were recorded for the year ended December 31, 2025, compared to $2.2 million for 2024. The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 compared to 1.23% at December 31, 2024.
Net interest income, on a non-GAAP, fully-taxable equivalent (“FTE”) basis, increased by $8.1 million in 2025 when compared to 2024. Interest income increased by $8.8 million, which was partially offset by a $0.7 million increase in interest expense. The net interest margin was 3.67% and 3.38% for the years ending December 31, 2025 and 2024, respectively. Management continues to place a strong focus on margin management as we move into 2026. Higher cash levels at December 31, 2025 should allow us to repay outstanding debt and brokered deposits at their maturities.
Other operating income, including net gains on sales of mortgage loans, sales of investment securities and disposal of fixed assets, increased by approximately $0.7 million when compared to 2024. This increase was attributable to a $0.7 million increase in wealth management income, driven by improving market conditions, increased annuity sales, and growth in new and existing customer relationships. Net gains, service charge income and debit card income were stable when comparing the year ended December 31, 2025 to the same period of 2024.
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Other operating expenses increased by $3.8 million when compared to the year ended December 31, 2024. Salaries and employee benefits increased by $1.3 million related to normal merit increases effective April 1, 2025, increased salary expense as a result of increased staffing levels as we enhanced our sales team in Morgantown, WV, increases in incentives, and 401(k) expenses, offset by reduced life and health insurance costs related to reduced claims in 2025. Net OREO expenses increased by $2.0 million related to the fair value write-down of one OREO property. The write-down was attributable to a legacy participation loan, originated in 2013, that was taken into OREO several years ago. The property is serviced by another lender and, following the cancellation of a previous contract, the Company made the decision, alongside other participants, to entertain a new letter of intent and to mark the property based on the new fair value. Data processing expenses increased by $0.5 million due primarily to increased software agreements, and professional services expenses increased by $0.5 million driven by increased audit fees. These increases were partially offset by a $0.5 million decrease in occupancy and equipment expenses related to accelerated depreciation expense related to branch closures that were recognized in the first quarter of 2024.
Outstanding gross loans of $1.5 billion at December 31, 2025 reflected growth of $40.9 million in 2025. Since December 31, 2024, commercial real estate loans increased by $44.4 million, acquisition and development loans decreased by $5.0 million as construction projects were completed and rolled into permanent financing, commercial and industrial loans decreased by $10.5 million, residential mortgage loans increased by $18.1 million, and consumer loans decreased by $6.1 million as production continued to be outpaced by amortization. Commercial growth was offset during 2025 by unusually high payoffs as a result of clients utilizing cash to repay or consolidate debt.
Total deposits at December 31, 2025 increased by $160.3 million when compared to December 31, 2024. In January 2025, $50.0 million in brokered time deposits with an average interest rate of 4.24% were obtained to fund the repayment of $50.0 million in overnight borrowings that were outstanding on December 31, 2024. Savings and money market accounts increased by $70.2 million due primarily to the expansion of current and new relationships throughout 2025. Non-interest-bearing checking deposits increased by $26.3 million due primarily to seasonal fluctuations of deposit balances of two commercial customers in the healthcare sector, and interest-bearing checking deposits increased by $6.0 million as we experienced seasonal fluctuations in municipal and commercial account balances. Retail time deposits increased by $7.8 million since December 31, 2024. We repaid a $25.0 million brokered time deposit at its maturity in January 2026.
Estimates and Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. (See Note 1 to the Consolidated Financial Statements.) On an on-going basis, management evaluates estimates and bases those estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Corporation identifies the following critical accounting policies may affect our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements.
Allowance for Credit Losses- Loans
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.
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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 year ended December 31, 2025, the range of outcomes would produce a 10.54% reduction or a 48.15% increase in reserves based on the best-case and worst-case scenarios, respectively.
The ACL is also discussed below in Item 7 under the heading “Allowance for Credit Losses” and in Note 5 to the Consolidated Financial Statements.
Liquidity Sources
As of December 31, 2025, we had approximately $140.0 million in unsecured lines of credit with our correspondent banks, $83.9 million available through a secured line of credit with the Federal Reserve Discount Window, and approximately $261.6 million of secured borrowings with the FHLB. Additionally, we have access to the brokered money market and certificates of deposit markets.
Capital
The Bank’s capital ratios are strong, and the Bank is considered to be well-capitalized by applicable regulatory measures.
Adoption of New Accounting Standards and Effects of New Accounting Pronouncements
Note 1 to the Consolidated Financial Statements discusses new accounting pronouncements that, when adopted, could affect our future consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME REVIEW
Net Interest Income
Net interest income is our largest source of operating revenue and 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 an 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 it is not materially different than the corresponding GAAP disclosure.
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The table below summarizes net interest income for 2025 and 2024.
GAAP | Non-GAAP - FTE | |||||||||||
(in thousands) | | 2025 | | 2024 | | 2025 | | 2024 | ||||
Interest income | $ | 100,848 | $ | 91,993 | $ | 101,066 | $ | 92,222 | ||||
Interest expense | 32,735 | 32,015 | 32,735 | 32,015 | ||||||||
Net interest income | $ | 68,113 | $ | 59,978 | $ | 68,331 | $ | 60,207 | ||||
Net interest margin % | 3.66% | 3.36% | 3.67% | 3.38% | ||||||||
Net interest income, on a non-GAAP, FTE basis, increased by $8.1 million (13.5%) during the year ended December 31, 2025 when compared to the year ended December 31, 2024, driven by a $8.8 million (9.6%) increase in interest income, which was partially offset by an increase in interest expense of $0.7 million (2.2%). The net interest margin, on an FTE basis, increased to 3.67% for the year ended December 31, 2025 from 3.38% for the year ended December 31, 2024.
Comparing the year ended December 31, 2025 with the year ended December 31, 2024, interest income increased by $8.8 million driven by an increase of $8.6 million on interest and fees on loans, as average loan balances increased by $68.8 million and the overall yield increased by 31 basis points in correlation with upward repricing of adjustable-rate loans. Interest income on the investment portfolio increased by $0.5 million as a result of reinvesting the cashflow back into the portfolio in an effort to increase the overall yield in the current rate environment.
Interest expense increased by $0.7 million as a result of a $1.7 million increase in interest on deposits, as the average deposit balances increased by $90.0 million, driven by a $70.9 million increase in retail money market average balances and $30.9 million increase in average brokered time deposits, partially offset by decreases in average savings balances of $14.8 million. The overall rate paid on deposits decreased by 3 basis points. Interest expense on short-term borrowings decreased by $1.4 million due to the Bank’s utilization of the BTFP program in 2024 and subsequent repayment of the balances due under that program late in the third quarter of 2024. Long-term borrowing costs increased by $0.4 million as a result of an increase of $21.6 million in FHLB average balances due to borrowings obtained in the third quarter of 2024 and subsequent repayment of a $25.0 million advance at its maturity in September 2025, partially offset by a decrease in rate paid of 60 basis points.
As shown below, the composition of total interest income between 2025 and 2024 remained relatively stable.
% of Total Interest Income | ||||
| 2025 | | 2024 | |
Interest and fees on loans | 90% | 89% | ||
Interest on investment securities | 7% | 8% | ||
Other | 3% | 3% | ||
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The following table sets forth the average balances, net interest income and expense, and average yields and rates for our interest-earning assets and interest-bearing liabilities for 2025 and 2024:
Distribution of Assets, Liabilities and Shareholders’ Equity
Interest Rates and Interest Differential – Tax Equivalent Basis
For the Years Ended December 31 | |||||||||||||||||
2025 | 2024 | ||||||||||||||||
(in thousands) | | Average | | Interest | | Average | | Average | | Interest | | Average | | ||||
Assets | |||||||||||||||||
Loans | $ | 1,496,125 | $ | 90,374 | 6.04 | % | $ | 1,427,351 | $ | 81,819 | 5.73 | % | |||||
Investment Securities: |
| ||||||||||||||||
Taxable | 284,659 | 7,210 | 2.53 | % | 285,661 | 6,760 | 2.37 | % | |||||||||
Non taxable | 7,246 | 390 | 5.38 | % | 7,538 | 375 | 4.97 | % | |||||||||
Total | 291,905 | 7,600 | 2.60 | % | 293,199 | 7,135 | 2.43 | % | |||||||||
Federal funds sold | 62,744 | 2,623 | 4.18 | % | 55,117 | 2,874 | 5.21 | % | |||||||||
Interest-bearing deposits with other banks | 6,152 | 89 | 1.45 | % | 2,009 | 91 | 4.53 | % | |||||||||
Other interest earning assets | 5,467 | 380 | 6.95 | % | 4,565 | 303 | 6.64 | % | |||||||||
Total earning assets | 1,862,393 | 101,066 | 5.43 | % | 1,782,241 | 92,222 | 5.17 | % | |||||||||
Allowance for credit losses | (18,963) | (18,064) | |||||||||||||||
Non-earning assets | 178,572 | 182,548 | |||||||||||||||
Total Assets | $ | 2,022,002 | $ | 1,946,725 | |||||||||||||
Liabilities and Shareholders’ Equity | |||||||||||||||||
Interest-bearing demand deposits | $ | 370,516 | $ | 6,355 | 1.72 | % | $ | 368,725 | $ | 6,288 | 1.71 | % | |||||
Interest-bearing money markets- retail | 484,238 | 14,694 | 3.03 | % | 413,353 | 14,287 | 3.46 | % | |||||||||
Interest-bearing money markets- brokered | 281 | 7 | 2.49 | % | 55 | 3 | 5.45 | % | |||||||||
Savings deposits | 165,625 | 172 | 0.10 | % | 180,393 | 183 | 0.10 | % | |||||||||
Time deposits - Retail | 148,214 | 4,299 | 2.90 | % | 147,193 | 4,226 | 2.87 | % | |||||||||
Time deposits - Brokered | 46,558 | 1,997 | 4.29 | % | 15,697 | 841 | 5.36 | % | |||||||||
Total deposits | 1,215,432 | 27,524 | 2.26 | % | 1,125,416 | 25,828 | 2.29 | % | |||||||||
Short-term borrowings | 20,810 | 75 | 0.36 | % | 58,444 | 1,477 | 2.53 | % | |||||||||
Long-term borrowings | 113,806 | 5,136 | 4.51 | % | 92,213 | 4,710 | 5.11 | % | |||||||||
Total interest-bearing | 1,350,048 | 32,735 | 2.42 | % | 1,276,073 | 32,015 | 2.51 | % | |||||||||
Non-interest-bearing deposits | 447,553 | 468,137 | |||||||||||||||
Other liabilities | 31,400 | 33,326 | |||||||||||||||
Shareholders’ Equity | 193,001 | 169,189 | |||||||||||||||
Total Liabilities and Shareholders’ Equity | $ | 2,022,002 | $ | 1,946,725 | |||||||||||||
Net interest income and spread | $ | 68,331 | 3.01 | % | $ | 60,207 | 2.66 | % | |||||||||
Net interest margin | 3.67 | % | 3.38 | % | |||||||||||||
Notes:
| (1) | The above table reflects the average rates earned or paid stated on an FTE basis assuming a tax rate of 21% for 2025 and 2024. Non-GAAP interest income on an FTE basis for the years ended December 31, 2025 and 2024 were $218 and $229, respectively. |
| (2) | Average balances are presented on a daily average basis. |
| (3) | The average balances of non-accrual loans for the years ended December 31, 2025 and 2024, which were reported in the average loan balances for these years, were $3,640 and $8,471, respectively. |
| (4) | Net interest margin is calculated as net interest income divided by average earning assets. |
| (5) | The average yields on investments are based on amortized cost. |
The following table sets forth an analysis of volume and rate changes in interest income and interest expense of our average interest-earning assets and average interest-bearing liabilities for 2025 and 2024. This table distinguishes between the changes related to average outstanding balances (changes in volume created by holding the interest rate constant) and the changes related to average interest rates (changes in interest income or expense attributed to average rates created by holding the outstanding balance constant).
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Interest Variance Analysis (1)
2025 Compared to 2024 | |||||||||
(in thousands and tax equivalent basis) | | Volume | | Rate | | Net | |||
Interest Income: | |||||||||
Loans | $ | 3,941 | $ | 4,614 | $ | 8,555 | |||
Taxable investments | (24) | 474 | 450 | ||||||
Non-taxable investments | (15) | 30 | 15 | ||||||
Federal funds sold | 397 | (648) | (251) | ||||||
Interest-bearing deposits | 188 | (190) | (2) | ||||||
Other interest earning assets | 60 | 17 | 77 | ||||||
Total interest income | 4,547 | 4,297 | 8,844 | ||||||
Interest Expense: | |||||||||
Interest-bearing demand deposits | 31 | 36 | 67 | ||||||
Interest-bearing money markets- retail | 2,453 | (2,046) | 407 | ||||||
Interest-bearing money markets- brokered | 12 | (8) | 4 | ||||||
Savings deposits | (15) | 4 | (11) | ||||||
Time deposits - retail | 29 | 44 | 73 | ||||||
Time deposits - brokered | 1,654 | (498) | 1,156 | ||||||
Short-term borrowings | (952) | (450) | (1,402) | ||||||
Long-term borrowings | 1,103 | (677) | 426 | ||||||
Total interest expense | 4,315 | (3,595) | 720 | ||||||
Net interest income | $ | 232 | $ | 7,892 | $ | 8,124 | |||
Note:
| (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
The provision for credit losses for loans was $2.3 million for the year ended December 31, 2025 and $2.9 million for the year ended December 31, 2024. Net charge-offs of $1.0 million were recorded for the year ended December 31, 2025 compared to net charge-offs of $2.2 million for 2024. The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 compared to 1.23% at December 31, 2024. The ACL reflects a level commensurate with the risk inherent in our loan portfolio.
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Other Operating Income
The following table shows the major components of other operating income for the past two years, exclusive of net gains, and the percentage changes during these years:
(in thousands) | | 2025 | | 2024 | | % Change | ||
Service charges on deposit accounts | $ | 2,255 | $ | 2,220 | 1.58% | |||
Other service charges | 845 | 887 | (4.74)% | |||||
Trust department income | 9,824 | 9,094 | 8.03% | |||||
Debit card income | 4,057 | 4,065 | (0.20)% | |||||
Bank owned life insurance | 1,408 | 1,345 | 4.68% | |||||
Brokerage commissions | 1,445 | 1,449 | (0.28)% | |||||
Other income | 332 | 351 | (5.41)% | |||||
Total other operating income | $ | 20,166 | $ | 19,411 | 3.89% | |||
Other operating income, exclusive of gains, increased by $0.8 million for the year ended December 31, 2025 when compared to the same period of 2024. The increase was primarily a result of an increase of $0.7 million in wealth management income due to increased market values of assets under management, increased annuity sales and growth in new and existing customer relationships.
Net gains of $0.4 million were reported for the years ended December 31, 2025 and 2024, as a $0.1 million increase in gains from the sales of residential mortgages and a $0.1 million increase in net gains on sales of investment securities was offset by a $0.2 million loss on the disposal of fixed assets.
The following table shows the components of net gains for the years ended December 31, 2025 and 2024.
(in thousands) | | 2025 | | 2024 | ||
Net gains: | ||||||
Available-for-sale securities: | ||||||
Realized gains from sales and calls | $ | 203 | $ | — | ||
Realized losses from sales and calls | (106) | — | ||||
Gains on sale of loans held for sale | 533 | 414 | ||||
Losses on disposal of fixed assets | (228) | — | ||||
Net gains | $ | 402 | $ | 414 | ||
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Other Operating Expense
The following table compares the major components of other operating expense for 2025 and 2024:
(in thousands) | | 2025 | | 2024 | | % Change | ||
Salaries and employee benefits | $ | 29,347 | $ | 28,029 | 4.70% | |||
FDIC premiums | 1,051 | 1,070 | (1.78)% | |||||
Equipment | 2,217 | 2,675 | (17.12)% | |||||
Occupancy | 2,860 | 2,878 | (0.63)% | |||||
Data processing | 6,243 | 5,761 | 8.37% | |||||
Marketing | 904 | 674 | 34.12% | |||||
Professional services | 2,449 | 1,948 | 25.72% | |||||
Contract labor | 634 | 597 | 6.20% | |||||
Line rentals | 380 | 408 | (6.86)% | |||||
Total OREO expenses, net | 2,235 | 271 | 724.72% | |||||
Investor relations | 306 | 293 | 4.44% | |||||
Contributions | 344 | 234 | 47.01% | |||||
Other expenses | 4,435 | 4,802 | (7.64)% | |||||
Total other operating expense | $ | 53,405 | $ | 49,640 | 7.58% | |||
For the year ended December 31, 2025, non-interest expense increased by $3.8 million when compared to the year ended December 31, 2024. Salaries and employee benefits increased by $1.3 million related to normal merit increases effective April 1, 2025, increased salary expense as a result of increased staffing levels as we enhanced our sales team in Morgantown, WV, increases in incentives, and 401(k) expenses, offset by reduced life and health insurance costs related to reduced claims in 2025. Net OREO expenses increased by $2.0 million due to the previously mentioned fair value write-down and expenses recorded in the fourth quarter of 2025. Data processing expenses increased by $0.5 million due primarily to increased software agreements, and professional services expenses increased by $0.5 million driven by increased audit fees. These increases were partially offset by a $0.5 million decrease in occupancy and equipment expenses related to accelerated depreciation expense related to branch closures that were recognized in the first quarter of 2024.
Applicable Income Taxes
We recognized a tax expense of $8.0 million in 2025 compared to a tax expense of $6.7 million in 2024. See the discussion under “Income Taxes” in Note 12 to the Consolidated Financial Statements presented elsewhere in this annual report for a detailed analysis of our deferred tax assets and liabilities. Our effective income tax rate as a percentage of income for the years ended December 31, 2025 and December 31, 2024 was 24.6% and 24.5%, respectively. The increase in the tax rate for the 2025 period was primarily related to changes in allocations of state income tax expense.
At December 31, 2025, the Corporation had Maryland Net Operating Losses (“NOLs”) of $34.9 million for which a deferred tax asset of $2.3 million has been recorded. There was also a Maryland state interest expense carryforward of $4.4 million, for which a deferred tax asset of $0.3 million has been recorded. There has been and continues to be a full valuation allowance on these NOLs and interest expense deferred tax assets, based on management’s belief that it is more likely than not that these NOLs will not be realized prior to the expiration of their carry-forward periods because the Corporation will not generate sufficient taxable income in the future to fully utilize the NOLs. The valuation allowance was $2.6 million at both December 31, 2025 and 2024.
We have concluded that no valuation allowance is deemed necessary for our remaining federal and state deferred tax assets at December 31, 2025, as it is more likely than not that they will be realized based on the expected reversal of deferred tax liabilities, the generation of future income sufficient to realize the deferred tax assets as they reverse, and the ability to implement tax planning strategies to prevent the expiration of any carry-forward periods.
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GAAP and Non-GAAP Measures
The following tables sets forth certain selected financial data for the years ended December 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 non-GAAP financial measures exclude net gains on the sale of investment securities, losses on disposal of fixed assets and a write-down of OREO in 2025 and accelerated depreciation and lease termination expenses related to the branch closures in 2024.
For the year ended | |||||||
December 31, | |||||||
| 2025 | | 2024 |
| |||
Per Share Data | |||||||
Basic net income per share - as reported | $ | 3.78 | $ | 3.15 | |||
Basic net income per share - non-GAAP | 3.98 | 3.21 | |||||
Diluted net income per share - as reported | $ | 3.77 | $ | 3.15 | |||
Diluted net income per share - non-GAAP | 3.97 | 3.21 | |||||
Significant Ratios: | |||||||
Return on Average Assets - as reported | 1.21 | % | 1.06 | % | |||
Loss on write-down of OREO property | 0.08 | — | |||||
Loss on disposal of fixed assets | 0.02 | — | |||||
Net gains on sale of investment securities | (0.01) | — | |||||
Accelerated depreciation and lease termination expenses | — | 0.03 | |||||
Income tax effect of adjustments | (0.02) | (0.01) | |||||
Adjusted Return on Average Assets (non-GAAP) | 1.28 | % | 1.08 | % | |||
Return on Average Equity - as reported | 12.70 | % | 12.16 | % | |||
Loss on write-down of OREO property | 0.85 | — | |||||
Loss on disposal of fixed assets | 0.12 | — | |||||
Net gains on sale of investment securities | (0.05) | — | |||||
Accelerated depreciation and lease termination expenses | — | 0.34 | |||||
Income tax effect of adjustments | (0.23) | (0.08) | |||||
Adjusted Return on Average Equity (non-GAAP) | 13.39 | % | 12.42 | % | |||
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| Year Ended | |||||
(in thousands, except for per share amount) | 2025 | | 2024 | |||
Net income - as reported | $ | 24,515 | $ | 20,569 | ||
Adjustments: | ||||||
Loss on write-down of OREO property | 1,635 | — | ||||
Loss on disposal of fixed assets | 228 | — | ||||
Net gains on sale of investment securities | (97) | — | ||||
Accelerated depreciation and lease termination expenses | — | 562 | ||||
Income tax effect of adjustments | (435) | (137) | ||||
Adjusted net income (non-GAAP) | $ | 25,846 | $ | 20,994 | ||
Diluted earnings per share - as reported | $ | 3.77 | $ | 3.15 | ||
Adjustments: | ||||||
Loss on write-down of OREO property | 0.25 | — | ||||
Loss on disposal of fixed assets | 0.03 | — | ||||
Net gains on sale of investment securities | (0.01) | — | ||||
Accelerated depreciation and lease termination expenses | — | 0.08 | ||||
Income tax effect of adjustments | (0.07) | (0.02) | ||||
Diluted earnings per share (non-GAAP) | $ | 3.97 | $ | 3.21 | ||
CONSOLIDATED BALANCE SHEET REVIEW
Overview
Total assets at December 31, 2025 were $2.1 billion, representing a $114.4 million increase since December 31, 2024. During the year, the investment portfolio increased by $9.5 million as bonds were purchased to lock in yield in anticipation of potential declines in long-term rates. Gross loans increased by $40.9 million as new production during the year was mitigated by amortization and unusually high payoffs in the commercial portfolio. These payoffs were a result of sales of businesses of approximately $10.5 million and approximately $33.5 million related to refinancings and balance sheet restructurings. Other assets, including deferred taxes, premises and equipment, bank owned life insurance, pension assets, accrued trust income receivable, and accrued interest receivable, increased by $13.6 million.
Total liabilities at December 31, 2025 were $1.9 billion, representing a $90.1 million increase since December 31, 2024. Total deposits increased by $160.3 million when compared to December 31, 2024. Brokered time deposits increased by $50.0 million as new brokered time deposits were obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024. In addition, savings and money market accounts increased by $70.2 million, retail time deposits increased by $7.8 million, and non-interest-bearing deposits increased by $26.3 million. Interest-bearing demand deposits, primarily our IntraFi Cash Service product, increased by $6.0 million due primarily to seasonal fluctuations in municipal deposit accounts. Short-term borrowings decreased by $47.7 million due to the purchase of the brokered time deposit mentioned above, which was partially offset by increases in the overnight investment sweep product. Long-term borrowings decreased by $25.0 million due to the repayment of a matured $25.0 million FHLB borrowing in September 2025.
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As indicated below, the total interest-earning asset mix remained relatively constant at December 31, 2025 when compared to December 31, 2024. The mix for each year is illustrated below.
Year End Percentage | ||||
| 2025 | | 2024 | |
Cash and cash equivalents | 6% | 4% | ||
Net loans | 72% | 74% | ||
Investments | 13% | 14% | ||
The year-end total liability mix has remained stable during the two-year period as illustrated below.
Year End Percentage | ||||
| 2025 | | 2024 | |
Total deposits | 92% | 88% | ||
Total borrowings | 6% | 10% | ||
Loan Portfolio
The Bank is actively engaged in originating loans to customers primarily in Allegany County, Frederick County, Garrett County, and Washington County in Maryland, and in Berkeley County, Mineral County, and Monongalia County, in West Virginia; and the surrounding regions of Maryland, West Virginia, Virginia and Pennsylvania. We have policies and procedures designed to mitigate credit risk and to maintain the quality of our loan portfolio. These policies include underwriting standards for new credits as well as continuous monitoring and reporting policies for asset quality and the adequacy of the ACL. These policies, coupled with ongoing training efforts, have provided effective checks and balances for the risk associated with the lending process. Lending authority is based on the type of the loan, and the experience of the lending officer.
Commercial loans are collateralized primarily by real estate and, to a lesser extent, equipment and vehicles. Unsecured commercial loans represent an insignificant portion of total commercial loans. Residential mortgage loans are collateralized by the related property. Generally, a residential mortgage loan exceeding a specified internal loan-to-value ratio requires private mortgage insurance. Installment loans are typically collateralized, with loan-to-value ratios which are established based on the financial condition of the borrower. We also have made unsecured consumer loans to qualified borrowers meeting our underwriting standards. Additional information about our loans and underwriting policies can be found in Item 1 of Part I of this annual report under the heading “Banking Products and Services”.
The following table sets forth the composition of our loan portfolio. Historically, our policy has been to make the majority of our loan commitments in our market areas. We had no foreign loans in our portfolio as of December 31 for any of the years presented.
Summary of Loan Portfolio
The following table presents the composition of our loan portfolio as of December 31 for the past two years:
(in millions) | | 2025 | | 2024 | ||
Commercial real estate | $ | 570.8 | $ | 526.4 | ||
Acquisition and development | 90.3 | 95.3 | ||||
Commercial and industrial | 277.0 | 287.5 | ||||
Residential mortgage | 536.9 | 518.8 | ||||
Consumer | 46.7 | 52.8 | ||||
Total Loans | $ | 1,521.7 | $ | 1,480.8 | ||
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Outstanding gross loans of $1.5 billion at December 31, 2025 reflected growth of $40.9 million in 2025. Since December 31, 2024, commercial real estate loans increased by $44.4 million, acquisition and development loans decreased by $5.0 million as construction projects were completed and rolled into permanent financing, commercial and industrial loans decreased by $10.5 million, residential mortgage loans increased by $18.1 million, and consumer loans decreased by $6.1 million as production continued to be outpaced by amortization. Commercial growth was offset during 2025 by unusually high payoffs as a result of clients utilizing cash to repay or consolidate debt.
New commercial loan production for the year ended December 31, 2025 was approximately $247.0 million, which compares to $189.5 million for the year ended December 31, 2024. The commercial pipeline continued to be strong at December 31, 2025 at $61.0 million, and unfunded, commercial construction loans totaled approximately $46.5 million. Commercial amortization and payoffs were approximately $170.5 million for the year ended December 31, 2025.
New residential mortgage loan production for year ended December 31, 2025 was approximately $76.7 million, with most of this production comprised of in-house loans. The pipeline of in-house, portfolio loans at December 31, 2025 was $4.5 million. Unfunded commitments related to residential construction loans totaled $14.5 million at December 31, 2025.
The following table presents loans in our commercial real estate portfolio by industry type at December 31, 2025.
(in thousands) | Non-owner-occupied | Owner-occupied | Multi-family | Total | |||||||
Accommodations and food services | $ | 68,125 | $ | 5,277 | $ | - | $ | 73,402 | |||
Administration and support, waste management, and remediation services | - | 1,421 | - | 1,421 | |||||||
Agriculture, forestry, fishing and hunting | - | 3,133 | - | 3,133 | |||||||
Arts, entertainment and recreation | - | 4,169 | - | 4,169 | |||||||
Construction | 1,971 | 6,056 | - | 8,027 | |||||||
Educational services | - | 784 | - | 784 | |||||||
Finance and insurance | 8,530 | 104 | - | 8,634 | |||||||
Health care and social assistance | 11,522 | 21,694 | - | 33,216 | |||||||
Manufacturing | - | 14,017 | - | 14,017 | |||||||
Mining, Quarrying, and Oil & Gas Extraction | - | 378 | 378 | ||||||||
Other services (except public services) | - | 19,787 | 296 | 20,083 | |||||||
Professional, scientific and technical services | - | 1,528 | - | 1,528 | |||||||
Public administration | 1,343 | 584 | - | 1,927 | |||||||
Commercial rental properties | 184,653 | 79,963 | - | 264,616 | |||||||
Residential rental properties | 182 | 112 | 23,297 | 23,591 | |||||||
Student rental properties | - | - | 2,270 | 2,270 | |||||||
Mixed use rental properties | 2,401 | 765 | 19,244 | 22,410 | |||||||
Storage units | 45,305 | - | - | 45,305 | |||||||
Real estate rental and leasing- other | 10,582 | 5,015 | - | 15,597 | |||||||
Retail trade | 69 | 2,698 | - | 2,767 | |||||||
Transportation and warehousing | - | 431 | - | 431 | |||||||
Wholesale trade | - | 23,102 | - | 23,102 | |||||||
Total | $ | 334,683 | $ | 191,018 | $ | 45,107 | $ | 570,808 | |||
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.
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The following table sets forth the maturities, based upon contractual dates, for selected loan categories as of December 31, 2025:
Maturities of Loan Portfolio at December 31, 2025
Fixed Rate Loans
(in thousands) | | Maturing | | Maturing After | | Maturing | Maturing After Fifteen Years | | Total | ||||||
Commercial real estate | $ | 78,941 | $ | 333,296 | $ | 23,585 | $ | — | $ | 435,822 | |||||
Acquisition and development | 32,216 | 19,538 | 1 | — | 51,755 | ||||||||||
Commercial and industrial | 30,054 | 101,585 | 31,381 | — | 163,020 | ||||||||||
Residential mortgage | 11,618 | 26,502 | 23,958 | 95,955 | 158,033 | ||||||||||
Consumer | 2,075 | 26,943 | 7,232 | 1,093 | 37,343 | ||||||||||
Total Loans | $ | 154,904 | $ | 507,864 | $ | 86,157 | $ | 97,048 | $ | 845,973 | |||||
Variable Rate Loans
(in thousands) | Maturing | | Maturing After | | Maturing | Maturing After Fifteen Years | | Total | |||||||
Commercial real estate | $ | 18,870 | $ | 47,046 | $ | 33,131 | $ | 35,939 | $ | 134,986 | |||||
Acquisition and development | 19,719 | 6,295 | 6,651 | 5,852 | 38,517 | ||||||||||
Commercial and industrial | 61,335 | 41,646 | 10,112 | 921 | 114,014 | ||||||||||
Residential mortgage | 2,029 | 2,852 | 22,334 | 351,664 | 378,879 | ||||||||||
Consumer | 4,017 | — | 813 | 4,505 | 9,335 | ||||||||||
Total Loans | $ | 105,970 | $ | 97,839 | $ | 73,041 | $ | 398,881 | $ | 675,731 | |||||
Management monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a required payment is past due. A loan is considered to be past due when a scheduled payment has not been received for 30 days past its contractual due date. For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection. Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
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The following sets forth the amounts of non-accrual, past-due and modified loans for the past two years:
Risk Elements of Loan Portfolio
At December 31, | ||||||
(in thousands) | | 2025 | | 2024 | ||
Non-accrual loans: | ||||||
Commercial real estate | $ | 695 | $ | 656 | ||
Acquisition and development | — | 82 | ||||
Commercial and industrial | 1,068 | 1,838 | ||||
Residential mortgage | 2,394 | 2,181 | ||||
Consumer | 35 | 174 | ||||
Total non-accrual loans | $ | 4,192 | $ | 4,931 | ||
Accruing Loans Past Due 90 days or more: | ||||||
Commercial real estate | $ | — | $ | 317 | ||
Residential mortgage | 432 | 573 | ||||
Consumer | 45 | 28 | ||||
Total accruing loans past due 90 days or more | $ | 477 | $ | 918 | ||
Total non-accrual and past due 90 days or more | $ | 4,669 | $ | 5,849 | ||
Other repossessed assets | 2,802 | 2,802 | ||||
Other real estate owned | 1,083 | 3,062 | ||||
Total non-performing assets | $ | 8,554 | $ | 11,713 | ||
Non-accrual loans to total loans (as %) | 0.28% | 0.33% | ||||
Non-performing loans to total loans (as %) | 0.31% | 0.39% | ||||
Non-performing assets to total assets (as %) | 0.41% | 0.59% | ||||
Allowance for credit losses to non-accrual loans (as %) | 464.46% | 368.49% | ||||
Allowance for credit losses to non-performing assets (as %) | 227.61% | 155.13% | ||||
Modified Loans: | ||||||
Performing | $ | 246 | $ | 1,006 | ||
Total modified loans | $ | 246 | $ | 1,006 | ||
Individually evaluated loans without a valuation allowance | $ | 3,522 | $ | 4,432 | ||
Individually evaluated loans with a valuation allowance | 16,164 | — | ||||
Total individually evaluated loans | $ | 19,686 | $ | 4,432 | ||
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Accruing loans past due 30 days or more was 0.32% at both December 31, 2025 and 2024. Non-accrual loans totaled $4.2 million at December 31, 2025 compared to $4.9 million at December 31, 2024. The decrease in non-accrual balances at December 31, 2025 was due to principal paydowns and the charge-off of $0.6 million related to a non-accrual commercial and industrial relationship that was recorded during the second half of 2025.
Individually evaluated loans totaled $19.6 million at December 31, 2025 and $4.4 million at December 31, 2024. This increase primarily relates to one credit relationship in our commercial and industrial portfolio that is in the automotive dealership industry. While the credit was not past-due or non-accrual, it was not meeting the contractual terms of the loan agreement; therefore, management felt it was prudent to designate the credit as individually evaluated at December 31, 2025. A $0.4 million specific reserve within the ACL was calculated against the credit using discounted cash flows at December 31, 2025.
The following table sets forth the percent applicable by portfolio for non-accrual loans for the past two years:
Non-Accrual Loans as a % of Applicable Portfolio
| 2025 | | 2024 | |||
Commercial real estate | 0.1% | 0.1% | ||||
Acquisition and development | 0.0% | 0.1% | ||||
Commercial and industrial | 0.4% | 0.6% | ||||
Residential mortgage | 0.4% | 0.4% | ||||
Consumer | 0.1% | 0.3% | ||||
We would have recognized $0.4 million and $0.8 million in interest income for the years ended December 31, 2025 and 2024, respectively, had our non-accrual loans been current and performing in accordance with their terms. During 2025 and 2024, we recognized, on a cash basis, $0.1 million and $0.2 million, respectively, of interest income on non-accrual loans that paid off.
Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the above. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows.
A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $100,000 or greater; 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. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Individually evaluated loans” section in Note 17, Fair Value of Financial Instruments.
From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers may be in the form of a principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.
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The below table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the years ended December 31, 2025 and 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below:
(in thousands) | Term Extension | Percentage of Total Loan Type | Weighted Average Term and Principal Payment Extension | |
December 31, 2025 | ||||
Commercial and industrial | $ | 246 | 0.09% | 18 months |
Total | $ | 246 | ||
December 31, 2024 | ||||
Owner-occupied commercial real estate | $ | 884 | 0.38% | 12 months |
Commercial and industrial | 122 | 0.04% | 60 months | |
Total | $ | 1,006 | ||
All loans presented in the table above were performing in accordance with their modified terms at December 31, 2025 and 2024.
Allowance for Credit Losses
Effective January 1, 2023, we adopted the accounting guidance in FASB’s 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. 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 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 highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.
Management believes that it uses relevant information available to make determination 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 condition 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
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and known risks in the portfolio. Management enhances its calculation with the use of Moody’s economic forecast data to provide additional support to substantiate its ACL.
The ACL was $19.5 million at December 31, 2025 compared to $18.2 million at December 31, 2024. The provision for credit losses on loans was $2.3 million for the year ended December 31, 2025 compared to $2.9 million for the year ended December 31, 2024. The provision expense recorded in 2025 was primarily related to charge-offs recorded in our commercial and industrial portfolio and growth in our loan portfolio. Net charge-offs of $1.0 million and $2.2 million were recorded for the years ended December 31, 2025 and 2024, respectively. The ratio of the ACL to loans outstanding was 1.28% at December 31, 2025 and 1.23% at December 31, 2024.
The ratio of net charge offs to average loans was 0.07% for the year ended December 31, 2025 and 0.16% for the year ended December 31, 2024. The commercial and industrial portfolio had net charge offs of 0.33% and 0.50% for the years ended December 31, 2025 and 2024, respectively, due primarily to charge offs on one non-accrual commercial relationship. The acquisition and development portfolio had net recoveries of 0.33% and 0.06% for the years ended December 31, 2025 and 2024, respectively. This shift in the acquisition and development portfolio was due primarily to recoveries recognized in 2025 related to one relationship previously charged off in 2016 as additional collateral was brought into OREO in the third quarter of 2025. The decrease in net charge offs in consumer loans in 2025 was primarily driven by approximately $0.3 million in charge offs of demand deposit balances during the first quarter of 2024. Details of the ratios, by loan type, are shown below. Our special assets team continues to actively collect on charged-off loans, resulting in overall low net charge-off ratios.
Management believes that the ACL at December 31, 2025 is adequate to provide for losses over the life of the loan portfolio. Amounts that will be recorded for the provision for credit losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors. Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the commercial real estate loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for credit losses.
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The following table presents a summary of the activity in the ACL by major loan category for the past two years.
Analysis of Activity in the Allowance for Credit Losses
For the Years Ended December 31, | ||||||
(in thousands) | | 2025 | | 2024 | ||
Balance, January 1 | $ | 18,170 | $ | 17,480 | ||
Charge-offs: | ||||||
Acquisition and development | (9) | — | ||||
Commercial and industrial | (1,011) | (1,610) | ||||
Residential mortgage | (15) | (45) | ||||
Consumer | (715) | (1,369) | ||||
Total charge-offs | (1,750) | (3,024) | ||||
Recoveries: | ||||||
Commercial real estate | — | 82 | ||||
Acquisition and development | 316 | 52 | ||||
Commercial and industrial | 73 | 212 | ||||
Residential mortgage | 41 | 75 | ||||
Consumer | 275 | 364 | ||||
Total recoveries | 705 | 785 | ||||
Net credit losses | (1,045) | (2,239) | ||||
Provision for credit losses | 2,345 | 2,929 | ||||
Balance at end of period | $ | 19,470 | $ | 18,170 | ||
Allowance for credit losses to total loans (as %) | 1.28% | 1.23% | ||||
Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio | ||||||
| 2025 | | 2024 | |||
Commercial real estate | 0.0% | 0.0% | ||||
Acquisition and development | 0.3% | 0.1% | ||||
Commercial and industrial | (0.3%) | (0.5%) | ||||
Residential mortgage | 0.0% | 0.0% | ||||
Consumer | (0.9%) | (1.9%) | ||||
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The following presents management’s allocation of the ACL by major loan category in comparison to that loan category’s percentage of total loans. Changes in the allocation over time reflect changes in the composition of the loan portfolio risk profile and refinements to the methodology of determining the ACL. Specific allocations in any particular category may be reallocated in the future as needed to reflect current conditions. Accordingly, the entire ACL is considered available to absorb losses in any category.
Allocation of the Allowance for Credit Losses
For the Years Ended December 31, | ||||||||||
(in thousands) | | Amount of Allowance Allocated | | Total Loans | | Percent of Loans in Each Category to Total Loans | | Ratio of Allowance Allocated to Loans in Each Category | ||
December 31, 2025 | ||||||||||
Commercial real estate | $ | 4,644 | $ | 570,808 | 37.5% | 0.81% | ||||
Acquisition and development | 1,278 | 90,272 | 5.9% | 1.42% | ||||||
Commercial and industrial | 4,473 | 277,034 | 18.2% | 1.61% | ||||||
Residential mortgage | 8,272 | 536,912 | 35.3% | 1.54% | ||||||
Consumer | 803 | 46,678 | 3.1% | 1.72% | ||||||
Total | $ | 19,470 | $ | 1,521,704 | 100.0% | 1.28% | ||||
December 31, 2024 | ||||||||||
Commercial real estate | $ | 5272 | $ | 526,364 | 35.5% | 1.00% | ||||
Acquisition and development | 909 | 95,314 | 6.5% | 0.95% | ||||||
Commercial and industrial | 4205 | 287,534 | 19.4% | 1.46% | ||||||
Residential mortgage | 7010 | 518,815 | 35.0% | 1.35% | ||||||
Consumer | 774 | 52,766 | 3.6% | 1.47% | ||||||
Total | $ | 18,170 | $ | 1,480,793 | 100.0% | 1.23% | ||||
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Investment Securities
The following table sets forth the composition of our investment securities portfolio by major category as of the indicated dates:
At December 31, | ||||||||||||||||
2025 | 2024 | |||||||||||||||
(in thousands) | | Amortized | | Fair | FV As | | Amortized | | Fair | | FV As | |||||
Securities Available-for-Sale: | ||||||||||||||||
U.S. government agencies | $ | 2,000 | $ | 1,404 | 1% | $ | 7,000 | $ | 6,115 | 6% | ||||||
Residential mortgage-backed agencies | 25,891 | 22,855 | 21% | 24,621 | 20,196 | 21% | ||||||||||
Commercial mortgage-backed agencies | 37,805 | 30,068 | 28% | 37,205 | 28,634 | 30% | ||||||||||
Collateralized mortgage obligations | 29,795 | 27,390 | 26% | 21,069 | 17,726 | 19% | ||||||||||
Obligations of states and political subdivisions | 8,557 | 8,525 | 8% | 6,533 | 6,209 | 7% | ||||||||||
Corporate bonds | 1,000 | 907 | 1% | 1,000 | 896 | 1% | ||||||||||
Collateralized debt obligations | 18,802 | 15,995 | 15% | 18,686 | 14,718 | 16% | ||||||||||
Total available for sale | $ | 123,850 | $ | 107,144 | 100% | $ | 116,114 | $ | 94,494 | 100% | ||||||
Securities Held to Maturity: | ||||||||||||||||
U.S. government agencies | $ | 68,595 | $ | 60,874 | 41% | $ | 68,301 | $ | 57,109 | 39% | ||||||
Residential mortgage-backed agencies | 32,084 | 29,748 | 20% | 32,171 | 28,611 | 20% | ||||||||||
Commercial mortgage-backed agencies | 20,947 | 15,767 | 10% | 21,134 | 15,340 | 11% | ||||||||||
Collateralized mortgage obligations | 45,447 | 38,391 | 26% | 49,439 | 39,715 | 27% | ||||||||||
Obligations of states and political subdivisions | 4,390 | 4,109 | 3% | 4,511 | 3,985 | 3% | ||||||||||
Total held to maturity | $ | 171,463 | $ | 148,889 | 100% | $ | 175,556 | $ | 144,760 | 100% | ||||||
The total fair value of AFS securities was $107.1 million and the book value of HTM securities totaled $171.5 million at December 31, 2025, representing an increase of $12.7 million and a decrease of $4.1 million, respectively, since December 31, 2024. New investment purchases in the amount of $24.6 million were made during 2025 to enhance the overall yield of the portfolio. Management intends to hold the portfolio relatively stable in 2026 by reinvesting cashflows back into the portfolio to enhance the overall yield of the portfolio. The investment portfolio is primarily utilized for liquidity purposes, management of interest sensitivity and collateralization needs.
As discussed in Note 17 to the Consolidated Financial Statements presented elsewhere in this report, we measure fair market values based on the fair value hierarchy established in FASB’s Accounting Standards Codification 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 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 $91.1 million of the AFS portfolio was valued using Level 2 pricing and had net unrealized losses of $13.9 million at December 31, 2025. The remaining $16.0 million of the AFS securities represents the collateralized debt obligation (“CDO”) portfolio, which was valued using significant unobservable inputs, or Level 3 pricing. The $2.8
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million in net unrealized losses associated with the CDO portfolio relates to nine pooled trust preferred securities. There have been no changes to the ratings or payment status of the CDO portfolio in 2025.
The following table sets forth the contractual or estimated maturities of the components of our investment securities portfolio as of December 31, 2025 and the weighted average yields on a tax-equivalent basis.
Investment Security Maturities, Yields, and Fair Values at December 31, 2025
(in thousands) | | 1 Year | | 5 Years | | Over | | Total | ||||
Securities Available-for-Sale: | ||||||||||||
U.S. government agencies | $ | — | $ | — | $ | 1,404 | $ | 1,404 | ||||
Residential mortgage-backed agencies | — | — | 22,855 | 22,855 | ||||||||
Commercial mortgage-backed agencies | — | — | 30,068 | 30,068 | ||||||||
Collateralized mortgage obligations | — | — | 27,390 | 27,390 | ||||||||
Obligations of states and political subdivisions | 250 | 4,418 | 3,857 | 8,525 | ||||||||
Corporate bonds | — | 907 | — | 907 | ||||||||
Collateralized debt obligations | — | 9,426 | 6,569 | 15,995 | ||||||||
Total available for sale | $ | 250 | $ | 14,751 | $ | 92,143 | $ | 107,144 | ||||
Percentage of total | 0.23% | 13.77% | 86.00% | 100.00% | ||||||||
Weighted average yield | 3.62% | 13.74% | 3.22% | 4.67% | ||||||||
Held to Maturity: | ||||||||||||
U.S. government agencies | $ | 16,640 | $ | 38,402 | $ | 5,832 | $ | 60,874 | ||||
Residential mortgage-backed agencies | — | 1,220 | 28,528 | 29,748 | ||||||||
Commercial mortgage-backed agencies | — | 7,360 | 8,407 | 15,767 | ||||||||
Collateralized mortgage obligations | — | — | 38,391 | 38,391 | ||||||||
Obligations of states and political subdivisions | — | 1,745 | 2,364 | 4,109 | ||||||||
Total held to maturity | $ | 16,640 | $ | 48,727 | $ | 83,522 | $ | 148,889 | ||||
Percentage of total | 11.17% | 32.73% | 56.10% | 100.00% | ||||||||
Weighted average yield | 2.53% | 2.60% | 2.94% | 2.78% | ||||||||
The weighted average yield was calculated using historical cost balances and does not give effect to changes in fair value.
Deposits
The following table sets forth the deposit balances by major category for December 31, 2025 and 2024:
Deposit Balances
2025 | 2024 | |||||||||||
(in thousands) | | Actual Balance | | Percent | | Actual Balance | | Percent | ||||
Non-interest-bearing demand deposits | $ | 453,036 | 26% | $ | 426,737 | 27% | ||||||
Interest-bearing deposits: | ||||||||||||
Demand | 392,823 | 23% | 386,803 | 25% | ||||||||
Money market- retail | 529,870 | 30% | 447,149 | 28% | ||||||||
Money market- brokered | 1 | 0% | 1 | 0% | ||||||||
Savings deposits | 158,461 | 9% | 170,972 | 11% | ||||||||
Time deposits - retail | 150,958 |
| 9% | 143,167 |
| 9% | ||||||
Time deposits - brokered | 50,000 | 3% | — | — | ||||||||
Total Deposits | $ | 1,735,149 | 100% | $ | 1,574,829 | 100% | ||||||
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Total deposits at December 31, 2025 increased by $160.3 million when compared to December 31, 2024. In January 2025, $50.0 million in brokered time deposits with an average interest rate of 4.24% were obtained to fund the repayment of $50.0 million in overnight borrowings that were outstanding on December 31, 2024. Savings and money market accounts increased by $70.2 million due primarily to the expansion of current and new relationships throughout 2025. Non-interest-bearing checking deposits increased by $26.3 million due primarily to seasonal fluctuations of deposit balances of two commercial customers in the healthcare sector, and interest-bearing checking deposits increased by $6.0 million as we experienced seasonal fluctuations in municipal and commercial account balances. Retail time deposits increased by $7.8 million since December 31, 2024. We repaid a $25.0 million brokered time deposit at its maturity in January 2026.
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 December 31, 2025 and December 31, 2024.
2025 | 2024 | |||||||||
(in thousands) | Balance | Percent | Balance | Percent | ||||||
Insured deposits | $ | 1,341,185 | 77% | $ | 1,255,893 | 80% | ||||
Uninsured but collateralized deposits | 101,925 | 6% | 77,369 | 5% | ||||||
Uninsured and uncollateralized deposits | 292,039 | 17% | 241,567 | 15% | ||||||
$ | 1,735,149 | 100% | $ | 1,574,829 | 100% | |||||
The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of December 31, 2025 and December 31, 2024.
2025 | 2024 | |||||||||
(in thousands) | Balance | Percent | Balance | Percent | ||||||
Retail deposits | $ | 807,443 | 47% | $ | 798,664 | 51% | ||||
Business deposits | 927,706 | 53% | 776,165 | 49% | ||||||
$ | 1,735,149 | 100% | $ | 1,574,829 | 100% | |||||
Borrowed Funds
The following shows the composition of our borrowings at December 31:
(in thousands) | | 2025 | | 2024 | ||
Overnight borrowings at Federal Reserve Discount Window | $ | — | $ | 50,000 | ||
Securities sold under agreements to repurchase | 17,661 | 15,409 | ||||
Total short-term borrowings | $ | 17,661 | $ | 65,409 | ||
Long-term FHLB advances | $ | 65,000 | $ | 90,000 | ||
Junior subordinated debentures | 30,929 | 30,929 | ||||
Total long-term borrowings | $ | 95,929 | $ | 120,929 | ||
Total borrowings | $ | 113,590 | $ | 186,338 | ||
Average balance (from Table 1) | $ | 134,616 | $ | 150,657 | ||
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The following is a summary of short-term borrowings at December 31 with original maturities of less than one year:
(in thousands) | | 2025 | | 2024 | ||
Overnight borrowings, weighted average interest rate of 4.50% at December 31, 2024 | $ | — | $ | 50,000 | ||
Securities sold under agreements to repurchase: | ||||||
Outstanding at end of year | $ | 17,661 | $ | 15,409 | ||
Weighted average interest rate at year end | 0.22% | 0.24% | ||||
Maximum amount outstanding as of any month end | $ | 26,756 | $ | 44,415 | ||
Average amount outstanding | 19,565 | 29,085 | ||||
Approximate weighted average rate during the year | 0.22% | 0.26% | ||||
Short-term borrowings decreased by $47.7 million as a result of the purchase of $50.0 million brokered time deposits to repay the overnight borrowings, which was partially offset by increases in the overnight investment sweep product. Long-term borrowings decreased by $25.0 million due to the repayment of a matured $25.0 million FHLB borrowing in September 2025.
Management will continue to closely monitor interest rates within the context of its overall asset-liability management process. See the discussion under the heading “Interest Rate Sensitivity” in this Item 7 for further information on this topic.
See “Liquidity Sources” above for discussion on additional borrowing capacity available to us at December 31, 2025. See Note 9 to the Consolidated Financial Statements presented elsewhere in this annual report for further details about our borrowings and additional borrowing capacity, which is incorporated herein by reference.
Off-Balance Sheet Arrangements
In the normal course of business, to meet the financing needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, lines of credit, and standby letters of credit. Our exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of the instruments. 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 use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. We generally require collateral or other security to support the financial instruments with credit risk. The amount of collateral or other security is determined based on management’s credit evaluation of the counterparty. We evaluate each customer’s creditworthiness on a case-by-case basis.
Loan commitments and letters of credit totaled $270.0 million and $16.4 million, respectively, at December 31, 2025. Management does not believe that any of the foregoing arrangements have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. We are not a party to any other off-balance sheet arrangements. See Note 16 to the Consolidated Financial Statements presented elsewhere in this annual report for additional information on these arrangements.
Capital Resources
We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdraw 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 below under the heading “Liquidity Management”. 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.
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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. Detailed information about these capital regulations and their requirements is set forth in the “Supervision and Regulation” section of Item 1 of Part I of this annual report under the heading “Capital Requirements”.
At December 31, 2025, the Bank’s total risk-based capital ratio was 15.19%, which was well above the regulatory minimum of 8%. The total risk-based capital ratios of the Bank at December 31, 2024 was 14.59%.
At December 31, 2025, the most recent notification from the regulators categorizes the Bank as “well capitalized” under the regulatory framework for prompt corrective action. See Note 3 to the Consolidated Financial Statements presented elsewhere in this annual report for additional information regarding regulatory capital ratios.
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. |
| ● | 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. |
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The following table presents sources of liquidity available to the Corporation as of December 31, 2025.
(in thousands) | Total Availability | Amount Used | Net Availability | ||||||
Internal Sources | |||||||||
Excess cash | $ | 116,512 | $ | - | $ | 116,512 | |||
Unpledged securities | 25,356 | - | 25,356 | ||||||
External Sources | |||||||||
Federal Reserve (discount window) | 83,897 | - | 83,897 | ||||||
Correspondent unsecured lines of credit | 140,000 | - | 140,000 | ||||||
FHLB | 335,473 | 73,921 | 261,552 | ||||||
$ | 701,238 | $ | 73,921 | $ | 627,317 | ||||
We have adequate liquidity available to respond to current and anticipated liquidity demands and are not aware of any trends or demands, commitments, events or uncertainties that are likely to materially affect our ability to maintain liquidity at satisfactory levels.
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 December 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. |
In order 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 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
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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 -400 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 earned 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.
Based on the simulation analysis performed at December 31, 2025 and 2024, management estimated the following changes in net interest income, assuming the indicated rate changes:
(in thousands) | | 2025 | | 2024 | ||
+400 basis points | $ | 5,866 | $ | 5,722 | ||
+300 basis points | $ | 5,578 | $ | 5,300 | ||
+200 basis points | $ | 4,511 | $ | 4,253 | ||
+100 basis points | $ | 2,557 | $ | 2,391 | ||
-100 basis points | $ | (3,192) | $ | (2,851) | ||
-200 basis points | $ | (6,365) | $ | (5,424) | ||
-300 basis points | $ | (9,569) | $ | (8,080) | ||
-400 basis points | $ | (13,657) | $ | (11,151) | ||
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.
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.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Corporation is not required to provide the information contemplated by this item. See Item 7 of Part II of this report under the heading “Market Risk and Interest Sensitivity” for a discussion of the Corporation’s primary market risk.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of First United Corporation
Oakland, Maryland
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of First United Corporation (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses on Loans – Reasonable and Supportable Forecasts and Assumptions
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. The quantitative analysis includes using a discounted cash flow (DCF) model for determining the allowance for credit losses. Management leverages economic projections from a third-party source for its forecasts over the forecast period. Economic forecast models include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product (“loss drivers”). 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 application and monitoring of economic forecast models are considered assumptions applied by management. Based on management’s review and
61
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 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 | 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 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. |
/s/
We have served as the Company's auditor since 2021.
March 10, 2026
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First United Corporation and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except per share amounts)
December 31, | ||||||
| 2025 | | 2024 | |||
Assets | ||||||
Cash and due from banks | $ | | $ | | ||
Interest bearing deposits in banks | | | ||||
Cash and cash equivalents | | | ||||
Investment securities – available-for-sale (at fair value) | | | ||||
Investment securities – held to maturity, net of allowance for credit losses of $ | | | ||||
Equity investments not held for trading with readily determinable fair values | | — | ||||
Restricted investment in bank stock, at cost | | | ||||
Loans held for sale (at lower of cost or fair value) | | | ||||
Loans | | | ||||
Unearned fees | ( | ( | ||||
Allowance for credit losses | ( | ( | ||||
Net loans | | | ||||
Premises and equipment, net | | | ||||
Goodwill and other intangibles | | | ||||
Bank owned life insurance | | | ||||
Deferred tax assets | | | ||||
Other real estate owned | | | ||||
Other repossessed assets | | | ||||
Right of use assets | | | ||||
Pension asset | | | ||||
Accrued interest receivable | | | ||||
Trust receivable | | — | ||||
Other assets | | | ||||
Total Assets | $ | | $ | | ||
Liabilities and Shareholders’ Equity | ||||||
Liabilities: | ||||||
Non-interest bearing deposits | $ | | $ | | ||
Interest bearing deposits | | | ||||
Total deposits | | | ||||
Short-term borrowings | | | ||||
Long-term borrowings | | | ||||
Operating lease liability | | | ||||
SERP deferred compensation | | | ||||
Allowance for credit losses on unfunded commitments | | | ||||
Accrued interest payable | | | ||||
Other liabilities | | | ||||
Dividends payable | | | ||||
Total Liabilities | | | ||||
Shareholders’ Equity: | ||||||
Common Stock – par value $ | | | ||||
Surplus | | | ||||
Retained earnings | | | ||||
Accumulated other comprehensive loss | ( | ( | ||||
Total Shareholders’ Equity | | | ||||
Total Liabilities and Shareholders’ Equity | $ | | $ | | ||
See notes to consolidated financial statement
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First United Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Year Ended | ||||||
December 31, | ||||||
| 2025 | | 2024 | |||
Interest income | ||||||
Interest and fees on loans | $ | | $ | | ||
Interest on investment securities | ||||||
Taxable | | | ||||
Exempt from federal income tax | | | ||||
Total investment income | | | ||||
Other | | | ||||
Total interest income | | | ||||
Interest expense | ||||||
Interest on deposits | | | ||||
Interest on short-term borrowings | | | ||||
Interest on long-term borrowings | | | ||||
Total interest expense | | | ||||
Net interest income | | | ||||
Credit loss expense | ||||||
Credit loss expense - loans | | | ||||
Credit loss expense- debt securities held to maturity | | | ||||
Credit loss expense/(credit)- unfunded commitments | | ( | ||||
Total credit loss expense | | | ||||
Net interest income after provision for credit losses | | | ||||
Other operating income | ||||||
Net gains on investments, available for sale | | — | ||||
Net gains on sales of residential mortgage loans | | | ||||
Net losses on disposal of fixed assets | ( | — | ||||
Net gains | | | ||||
Service charges on deposit accounts | | | ||||
Other service charges | | | ||||
Trust department | | | ||||
Debit card income | | | ||||
Bank owned life insurance | | | ||||
Brokerage commissions | | | ||||
Other | | | ||||
Total other income | | | ||||
Total other operating income | | | ||||
Other operating expenses | ||||||
Salaries and employee benefits | | | ||||
FDIC premiums | | | ||||
Equipment | | | ||||
Occupancy | | | ||||
Data processing | | | ||||
Marketing | | | ||||
Professional services | | | ||||
Contract labor | | | ||||
Line rentals | | | ||||
Total OREO expense, net | | | ||||
Investor relations | | | ||||
Contributions | | | ||||
Other | | | ||||
Total other operating expenses | | | ||||
Income before income tax expense | $ | | $ | | ||
Provision for income tax expense | | | ||||
Net Income | $ | | $ | | ||
Basic net income per share | $ | | $ | | ||
Diluted net income per share | $ | | $ | | ||
Weighted average number of basic shares outstanding | | | ||||
Weighted average number of diluted shares outstanding | | | ||||
See notes to consolidated financial statements
64
First United Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended | ||||||
December 31, | ||||||
Comprehensive Income | | 2025 | | 2024 | ||
Net Income | $ | | $ | | ||
Other comprehensive income, net of tax and reclassification adjustments | ||||||
Available for sale securities: | ||||||
Unrealized holding gains/(losses) on investments with credit related impairment | | ( | ||||
Reclassification adjustment for accretable yield realized in income | | | ||||
Other comprehensive income/(loss) on investments with credit related impairment | | ( | ||||
Unrealized holding gains/(losses) on all other AFS investments | | ( | ||||
Less: gains recognized in income | | — | ||||
Other comprehensive income/(loss) on all other AFS investments | | ( | ||||
Held to maturity securities: | ||||||
Unrealized holding losses on HTM investments | — | — | ||||
Reclassification adjustment for amortization realized in income | ( | ( | ||||
Other comprehensive income on HTM investments | | | ||||
Cash flow hedges: | ||||||
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 | ( | ( | ||||
Other comprehensive income on pension plan liability | | | ||||
SERP liability: | ||||||
Unrealized holding (losses)/gains on SERP liability | ( | | ||||
Reclassification adjustment for amortization of unrecognized loss realized in income | — | ( | ||||
Other comprehensive (loss)/gain on SERP liability | ( | | ||||
Other comprehensive income before income tax | | | ||||
Income tax expense related to other comprehensive income | ( | ( | ||||
Other comprehensive income, net of tax | | | ||||
Comprehensive Income | $ | | $ | | ||
See notes to consolidated financial statements
65
First United Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders’ Equity
(In thousands, except number of shares)
| Common | | Surplus | | Retained | | Accumulated | | Total | ||||||
Balance at January 1, 2024 | $ | | | | ( | | |||||||||
Net income | | | |||||||||||||
Other comprehensive income, net of tax | | | |||||||||||||
Common stock issued - | | | |||||||||||||
Common stock dividend declared - $ | ( | ( | |||||||||||||
Stock based compensation | | | |||||||||||||
Stock repurchase - | ( | ( | ( | ||||||||||||
Balance at December 31, 2024 | | | | ( | | ||||||||||
Net income | | | |||||||||||||
Other comprehensive income, net of tax | | | |||||||||||||
Common stock issued- | | | |||||||||||||
Common stock dividend declared - $ | ( | ( | |||||||||||||
Stock based compensation | | | |||||||||||||
Balance at December 31, 2025 | $ | | $ | | $ | | $ | ( | $ | | |||||
See notes to consolidated financial statements
66
First United Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year Ended | ||||||
December 31, | ||||||
| 2025 | | 2024 | |||
Operating activities | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
| ||||
Provision for credit losses | | | ||||
Depreciation | | | ||||
Stock based compensation | | | ||||
Amortization of intangible assets | | | ||||
Gains on sales of other real estate owned, net | ( | ( | ||||
Write-downs of other real estate owned | | — | ||||
Origination of loans held for sale | ( | ( | ||||
Proceeds from sales of loans held for sale | | | ||||
Gains on sales of loans held for sale | ( | ( | ||||
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 gains on sales of investment securities – available-for-sale | ( | — | ||||
Amortization of deferred loan fees | ( | ( | ||||
Deferred tax benefit | ( | ( | ||||
Earnings on bank owned life insurance | ( | ( | ||||
Amortization of operating lease right of use assets | | | ||||
Amortization of operating lease liabilities | ( | ( | ||||
(Increase)/decrease in accrued interest receivable and other assets | ( | | ||||
Increase/(decrease) in accrued interest payable and other liabilities | | ( | ||||
Net cash provided by operating activities | | | ||||
Investing activities | ||||||
Proceeds from maturities/calls of investment securities available-for-sale | | | ||||
Proceeds from maturities/calls of investment securities held-to-maturity | | | ||||
Proceeds from sales of investment securities available-for-sale | | — | ||||
Purchases of investment securities available-for-sale | ( | ( | ||||
Purchases of investment securities held-to-maturity | ( | ( | ||||
Purchases of equity securities with readily determinable fair market values | ( | — | ||||
Proceeds from sales of other real estate owned | | | ||||
Net decrease/(increase) in FHLB stock | | ( | ||||
Net increase in loans | ( | ( | ||||
Purchases of premises and equipment | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Financing activities | ||||||
Net increase in deposits | | | ||||
Proceeds from issuance of common stock | | | ||||
Cash dividends paid on common stock | ( | ( | ||||
Net (decrease)/increase in short-term borrowings | ( | | ||||
Stock repurchase | — | ( | ||||
Proceeds from long-term borrowings | — | | ||||
Payments on long-term borrowings | ( | ( | ||||
Net cash provided by financing activities | | | ||||
Increase in cash and cash equivalents | | | ||||
Cash and cash equivalents at beginning of the year | | | ||||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental information | ||||||
Interest paid | $ | | $ | | ||
Taxes paid | $ | | $ | | ||
Non-cash investing activities: | ||||||
Transfers from loans to other repossessed assets | $ | — | $ | | ||
Transfers from loans to other real estate owned | $ | | $ | | ||
Transfers from bank premises and equipment to other assets | $ | | $ | — | ||
See notes to consolidated financial statements
67
First United Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Business
First United Corporation is a Maryland corporation chartered in 1985 and a bank holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) 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
First United Corporation and its subsidiaries operate principally in
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 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. Certain reclassifications have been made to prior year amounts to conform with current year classifications. In the opinion of management, all adjustments (all of which are normal recurring in nature) that are necessary for a fair statement are reflected in the consolidated financial statements.
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.
Principles of Consolidation
The consolidated financial statements of the Corporation include the accounts of First United Corporation, the Bank, the OakFirst Loan Centers and First OREO Trust. All significant inter-company accounts and transactions have been eliminated.
Significant Concentrations of Credit Risk
Most of the Corporation’s relationships are with customers located in Western Maryland and Northeastern West Virginia. At December 31, 2025, approximately
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acquisition, construction and development projects, with $
At December 31, 2025, approximately
Investments
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 (“HTM”) securities and are recorded at amortized cost. All other investment securities are classified as 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. 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. Such amortization and accretion is included in interest income from investments. Interest and dividends are included in interest income from investments. Gains and losses on the sale of securities are recorded using the specific identification method.
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. 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. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2023 are recorded in earnings when received.
Restricted Investment in Bank Stock
The Corporation owns non-marketable equity securities in a combination of the Federal Home Loan Bank of Atlanta (“FHLB”), Atlantic Community Bankers Bank and Community Banker’s Bank. These securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.
The Corporation recognizes dividend income on a cash basis. For the years ended December 31, 2025 and December 31, 2024, dividends of $
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or full repayment by the borrower are reported at their unpaid principal balance outstanding, adjusted for any deferred fees or costs pertaining to origination. Loans that management has the intent to sell are reported at the lower of cost or fair value
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determined on an individual basis. There were $
The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The commercial real estate (“CRE”) loan segment is further disaggregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include loans secured by farmland, multifamily structures and owner-occupied commercial structures. The acquisition and development (“A&D”) loan segment is further disaggregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. All other A&D loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures. These loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the A&D loan. The commercial and industrial (“C&I”) loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens. The consumer loan segment consists primarily of installment loans (direct and indirect), student loans and overdraft lines of credit connected with customer deposit accounts.
Management uses a 10-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. 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.
Interest and Fees on Loans
Interest on loans (other than those on non-accrual status) is recognized based upon the principal amount outstanding. Loan fees in excess of the costs incurred to originate the loan are recognized as income over the life of the loan utilizing either the interest method or the straight-line method, depending on the type of loan. Generally, fees on loans with a specified maturity date, such as residential mortgages, are recognized using the interest method. Loan fees for lines of credit are recognized using the straight-line method.
A loan is considered to be past due when a payment has not been received for 30 days past its contractual due date. For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may be classified as nonaccrual if repayment in full of principal and/or interest is unlikely. Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Generally, consumer installment loans are not placed on non-accrual status but are charged off after they are 120 days contractually past due. Loans other than consumer installment loans are charged-off based on an evaluation of the facts and circumstances of each individual loan.
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Allowance for Credit Losses
An allowance for credit losses (the “ACL”) is maintained to absorb losses from the Corporation’s financial assets in accordance with ASC Topic 326: Financial Instruments- Credit Losses.
Allowance for Credit Losses Policy
The ACL represents an amount that, in management’s judgment, is adequate to absorb expected losses on outstanding securities, loans, and loan commitments at the balance sheet date based on the evaluation of the size and current risk characteristics of the portfolios, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense.
Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness is reviewed quarterly by management.
Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize losses, future additions to the ACL may be necessary based on changes in the securities, loans, and loan commitments comprising the portfolios, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers.
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 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. 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. government. 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 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. 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
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exists, the present value of cash flows expected to be collected from the security are 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 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 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.
Loans
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 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.
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 (“IEL”). 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. 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. Factors considered by management in evaluating loans include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Bank does not separately evaluate individual consumer and residential mortgage loans, unless such loans are part of larger relationship that is individually evaluated; otherwise, loans in these segments are considered individually evaluated when they are classified as non-accrual.
Once the determination has been made that a loan is an IEL, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral less selling costs. 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
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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. This grid considers the age of a third-party appraisal and the geographic region where the collateral is located in order to discount an appraisal. The discount rates in the appraisal discount grid are updated at least annually to reflect the most current knowledge that management has available, including the results of current appraisals. If there is a delay in receiving an updated appraisal or if the appraisal is found to be deficient in our internal appraisal review process and re-ordered, the Bank continues to use a discount factor from the appraisal discount grid based on the collateral location and current appraisal age in order to determine the estimated fair value. If the general market conditions in that geographic market have changed considerably, the property has deteriorated or perhaps lost an income stream, or a recent appraisal for a similar property indicates a significant change, then management may adjust the fair value indicated by the existing appraisal until a new appraisal is obtained. A specific allocation of the ACL is recorded if there is any deficiency in collateral value determined by comparing the estimated fair value to the recorded investment of the loan. When updated appraisals are received and reviewed, adjustments are made to the specific allocation as needed.
A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $
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.
Loan Commitments and Allowance for Credit Loss on Unfunded Commitments
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 is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
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 statement of financial condition.
Loan Modifications
In situations where, for economic or legal reasons related to a borrower experiencing financial difficulty, management may make a loan modification to the borrower that it would not otherwise consider, and the related loan is classified as a modified loan. Management strives to identify borrowers in financial difficulty early and work with them to modify the loan to more affordable terms before their loan reaches nonaccrual status. The Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reductions. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL. These concessions are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. See Note 5, Loans and Related Allowance for Credit Losses, for more detail related to the accounting of modified loans.
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Premises and Equipment
Land is carried at cost. 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
Goodwill and Other Intangible Assets
Goodwill represents the excess purchase price paid over the fair value of the net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Impairment testing requires that the fair value of each of the Corporation’s reporting units be compared to the carrying amount of the reporting unit’s net assets, including goodwill. If the fair values of the reporting units exceed their book values, no write-down of recorded goodwill is required. If the fair value of a reporting unit is less than book value, an expense may be required to write-down the related goodwill to the proper carrying value. Any impairment would be realized through a reduction of goodwill or the intangible and an offsetting charge to non-interest expense. Annually, the Corporation performs an impairment test of goodwill as of December 31 of each year. During the year, any triggering event that occurs may affect goodwill and could require an impairment assessment. Determining the fair value of a reporting unit requires the Corporation to use a degree of subjectivity. The Corporation's annual impairment test of goodwill and other intangible assets did not identify any impairment.
Accounting guidance provides the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.
Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. Other intangible assets have finite lives and are reviewed for impairment annually. At December 31, 2025, other intangible assets included $
Bank-Owned Life Insurance (“BOLI”)
BOLI policies are recorded at their cash surrender values. Changes in the cash surrender values are recorded as other operating income.
Other Real Estate Owned (“OREO”)
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less the cost to sell at the date of foreclosure, with any losses charged to the ACL, establishing a new cost basis. 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 total net OREO expenses.
Income Taxes
First United Corporation and its subsidiaries file a consolidated federal income tax return. Income taxes are accounted for using the asset and liability method. 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
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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. This reserve was based on the portion of the tax asset for which it is more likely than not that a tax benefit will not be realized by the Corporation.
A tax provision is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examinations for tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
State corporate income tax returns are filed annually. Federal and state returns may be selected for examination by the Internal Revenue Service and the states where we file, subject to statutes of limitations. At any given point in time, the Corporation may have several years of filed tax returns that may be selected for examination or review by taxing authorities.
Interest and penalties on income taxes are recognized as a component of income tax expense.
Defined Benefit Plans
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 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 14, Employee Benefit Plans, for a further discussion of the pension plan and supplemental executive retirement plan obligations.
Statement of Cash Flows
Cash and cash equivalents are defined as cash and due from banks and interest-bearing deposits in banks in the Consolidated Statements of Cash Flows. Cash flows are reported for customer loan and deposit transactions and interest-bearing deposits in banks.
Trust Assets and Income
Assets held in an agency or fiduciary capacity are not the Bank’s assets and, accordingly, are not included in the Consolidated Statements of Financial Condition. Income from the Bank’s trust department represents fees charged to customers and recognized through revenue recognition. Refer to Note 19, Revenue Recognition, and Note 20, Segment Reporting, for further discussion.
Business Segments
The Corporation operates in
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Stock Repurchases
Under the Maryland General Corporation Law, shares of capital stock that are repurchased are cancelled and treated as authorized but unissued shares. When a share of capital stock is repurchased, the payment of the repurchase price reduces stated capital by the par value of that share (currently, $
Recent Accounting Pronouncements
Newly Adopted Pronouncements in 2025
In December 2023, FASB issued Accounting Standards Update (“ASU”) No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU No. 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 No. 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 No. 2023-09 became effective for our financial statements in 2025 and will be effective for interim periods starting in fiscal year 2026. We elected to apply this standard on a retroactive basis. See Note 12, Income Taxes, for updated disclosures related to ASU No. 2023-09.
Recently issued but not yet effective Accounting Pronouncements
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. ASU No. 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. ASU No. 2024-03 is effective on a prospective basis for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, though early adoption and retrospective application is permitted. ASU No. 2024-03 is not expected to have a material impact on our financial statements.
In July 2025, FASB issued ASU No. 2025-05, “Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.” ASU No. 2025-05 provides all entities with a practical expedient in developing reasonable and supportable forecasts as part of estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. ASU No. 2025-05 is effective on a prospective basis or annual periods beginning after December 15, 2025, though early adoption and retroactive application is permitted. ASU No. 2025-05 is not expected to have a material impact on our financial statements.
In September 2025, FASB issued ASU No. 2025-06, “Intangibles- Goodwill and Other Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” ASU No. 2025-06 applies to all entities subject to internal-use software guidance in Subtopic 350-40 and website development costs in accordance with Subtopic 350-50. The amendments in ASU No.2025-06 remove all reference to prescriptive and sequential software development stages. Therefore, an entity is required to start capitalizing software costs when both the following occur: 1) management has authorized and committed to funding the software project and 2) it is probable that the project will be completed and the software will be used to perform the function intended. ASU No. 2025-06 is effective on a prospective basis on annual periods beginning after December 15, 2027, though early adoption and retroactive application is permitted. ASU No. 2025-06 is not expected to have a material impact on our financial statements.
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In November 2025, FASB issued ASU No. 2025-08, “Financial Instruments- Credit Losses (topic 326): Purchased Loans.” ASU No. 2025-08 expands the scope of the “gross-up” method, formerly applicable only to purchased credit-deteriorated (“PCD”) assets, to include acquired non-PCD loans that meet certain criteria, now referred to as “purchased seasoned loans”. Under this model, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized cost basis, thereby eliminating the day-one credit-loss expense previously required for non-PCD assets. PSLs are defined as non-PCD loans acquired either (i) through a business combination, or (ii) purchased more than 90 days after origination when the acquirer was not involved in origination. ASU No. 2025-08 is effective on a prospective basis on annual periods beginning after December 15, 2026, though early adoption and retroactive application is permitted. ASU No. 2025-08 is not expected to have a material impact on our financial statements.
In November 2025, FASB issued ASU No. 2025-09, “Derivatives and Hedging (topic 815): Hedge Accounting Improvements.” ASU No. 2025-09 amends ASC Topic 815 to align hedge accounting more closely with an entity’s economic risk management practices. Key amendments include (i) to allow designating a variable price component of a nonfinancial forecasted purchase or sale as the hedged risk, (ii) to allow grouping individual forecasted transactions with similar (not identical) risk exposures, (iii) a new model for hedging forecasted interest on a variable-rate debt, enabling changes in index or tenor without dedesignation, subject to simplifying assumptions, and (iv) additional clarifications related to hedge accounting of nonfinancial components, net written options, and dual-hedge strategies. ASU No. 2025-09 is effective on a prospective basis on annual periods beginning after December 15, 2026, though early adoption and retroactive application is permitted. ASU No. 2025-09 is not expected to have a material impact on our financial statements.
In November 2025, FASB issued ASU No. 2025-11, “Interim reporting (topic 270): Narrow Scope Improvements.” ASU No. 2025-11 clarifies and enhances guidance under ASC Topic 270 on interim financial reporting by (i) clarifying the scope of ASC 270 such that it now explicitly applies only to entities that issue complete interim financial statements and related notes under U.S. GAAP, (ii) establishing clear guidance on the form of interim statements and notes, incorporating a comprehensive list of required interim disclosures drawn from across the ASC, and (iii) introducing a requirement to disclose material events and changes occurring after the end of the last annual period that could impact interim results. ASU No. 2025-11 is effective on a prospective basis on annual periods beginning after December 15, 2027, though early adoption and retroactive application is permitted. ASU No. 2025-11 is not expected to have a material impact on our financial statements.
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2. Earnings Per Share
Basic earnings per share is derived by dividing net income 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 by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents. There were
The following table sets forth the calculation of basic and diluted earnings per share for the years ended December 31, 2025 and 2024:
2025 | 2024 | |||||||||||||||
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 | $ | | | $ | | $ | | | $ | | ||||||
Diluted Earnings Per Share: | ||||||||||||||||
Restricted stock units | | | ||||||||||||||
Net income | $ | | | $ | | $ | | | $ | | ||||||
3. Regulatory Capital Requirements
Banks and holding companies are subject to regulatory capital requirements administered by Federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on AFS securities is included in computing regulatory capital. Management believes that, as of December 31, 2025, the Bank met all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2025, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.
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The following table presents the Bank’s capital ratios for years ended December 31, 2025 and 2024:
Actual | For Capital Adequacy | To Be Well Capitalized | |||||||||||||
(in thousands) | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio | |||
December 31, 2025 | |||||||||||||||
Total Capital (to risk-weighted assets) | | | | ||||||||||||
Tier 1 Capital (to risk-weighted assets) | | | | ||||||||||||
Common Equity Tier 1 Capital (to risk-weighted assets) | | | | ||||||||||||
Tier 1 Capital (to average assets) | | | | ||||||||||||
Actual | For Capital Adequacy | To Be Well Capitalized | |||||||||||||
(in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||
December 31, 2024 | |||||||||||||||
Total Capital (to risk-weighted assets) | | | | ||||||||||||
Tier 1 Capital (to risk-weighted assets) | | | | ||||||||||||
Common Equity Tier 1 Capital (to risk-weighted assets) | | | | ||||||||||||
Tier 1 Capital (to average assets) | | | | ||||||||||||
Federal and state banking regulations place certain restrictions on the amount of dividends paid and loans or advances made by the Bank to First United Corporation. The total amount of dividends that may be paid at any date is generally limited to the retained earnings of the Bank, and loans or advances are limited to
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4. Investment Securities
The following table shows a comparison of amortized cost and fair values of investment securities at December 31, 2025 and 2024:
(in thousands) | | Amortized | | Gross | | Gross | | Allowance for Credit Losses | | Estimated Fair Value | |||||
December 31, 2025 | |||||||||||||||
Available for Sale: | |||||||||||||||
U.S. government agencies | $ | | $ | — | $ | | $ | | $ | | |||||
Residential mortgage-backed agencies | | | | | | ||||||||||
Commercial mortgage-backed agencies | | | | | | ||||||||||
Collateralized mortgage obligations | | | | | | ||||||||||
Obligations of states and political subdivisions | | | | | | ||||||||||
Corporate bonds | | — | | | | ||||||||||
Collateralized debt obligations | | — | | | | ||||||||||
Total available for sale | $ | | $ | | $ | | $ | | $ | | |||||
(in thousands) | | Amortized | | Gross | | Gross | | Estimated Fair Value | | Allowance for Credit Losses | |||||
December 31, 2025 | |||||||||||||||
Held to Maturity: | |||||||||||||||
U.S. government agencies | $ | | $ | — | $ | | $ | | $ | — | |||||
Residential mortgage-backed agencies | | | | | — | ||||||||||
Commercial mortgage-backed agencies | | — | | | — | ||||||||||
Collateralized mortgage obligations | | — | | | — | ||||||||||
Obligations of states and political subdivisions | | | | | | ||||||||||
Total held to maturity | $ | | $ | | $ | | $ | | $ | | |||||
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(in thousands) | | Amortized | | Gross | | Gross | | Allowance for Credit Losses | | Estimated Fair Value | |||||
December 31, 2024 | |||||||||||||||
Available for Sale: | |||||||||||||||
U.S. government agencies | $ | | $ | | $ | | $ | | $ | | |||||
Residential mortgage-backed agencies | | | | | | | |||||||||
Commercial mortgage-backed agencies | | | | | | ||||||||||
Collateralized mortgage obligations | | | | | | ||||||||||
Obligations of states and political subdivisions | | | | | | ||||||||||
Corporate bonds | | | | | | ||||||||||
Collateralized debt obligations | | | | | | ||||||||||
Total available for sale | $ | | $ | | $ | | $ | | $ | | |||||
(in thousands) | | Amortized | | Gross | | Gross | | Estimated Fair Value | | Allowance for Credit Losses | |||||
December 31, 2024 | |||||||||||||||
Held to Maturity: | |||||||||||||||
U.S. government agencies | $ | | $ | | $ | | $ | | $ | | |||||
Residential mortgage-backed agencies | | | | | | ||||||||||
Commercial mortgage-backed agencies | | | | | | ||||||||||
Collateralized mortgage obligations | | | | | | ||||||||||
Obligations of states and political subdivisions | | | | | | ||||||||||
Total held to maturity | $ | | $ | | $ | | $ | | $ | | |||||
Proceeds from sales and calls of AFS securities and the realized gains and losses for the years ended December 31, 2025 and 2024 are as follows:
(in thousands) | | 2025 | | 2024 | ||
Proceeds | $ | | $ | | ||
Gross realized gains | | | ||||
Gross realized losses | ( | | ||||
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The Corporation’s AFS security portfolio includes securities with a fair value of $
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, 2025 and 2024:
Less than 12 months | 12 months or more | |||||||||||||||
(in thousands) | | Fair | | Unrealized | | Number of | | Fair | | Unrealized | | Number of | ||||
December 31, 2025 | ||||||||||||||||
Available for Sale: | ||||||||||||||||
U.S. government agencies | $ | — | $ | — | — | $ | | $ | | | ||||||
Residential mortgage-backed agencies | — | — | — | | | | ||||||||||
Commercial mortgage-backed agencies | — | — | — | | | | ||||||||||
Collateralized mortgage obligations | | | | | | | ||||||||||
Obligations of states and political subdivisions | — | — | — | | | | ||||||||||
Corporate Bonds | — | — | — | | | | ||||||||||
Collateralized debt obligations | — | — | — | | | | ||||||||||
Total available for sale | $ | | $ | | | $ | | $ | | | ||||||
Less than 12 months | 12 months or more | |||||||||||||||
(in thousands) | | Fair | | Unrecognized | | Number of | | Fair | | Unrecognized | | Number of | ||||
December 31, 2025 | ||||||||||||||||
Held to Maturity: | ||||||||||||||||
U.S. government agencies | $ | — | $ | — | — | $ | | $ | | | ||||||
Residential mortgage-backed agencies | — | — | — | | | | ||||||||||
Commercial mortgage-backed agencies | — | — | — | | | | ||||||||||
Collateralized mortgage obligations | — | — | — | | | | ||||||||||
Obligations of states and political subdivisions | — | — | — | | | | ||||||||||
Total held to maturity | $ | — | $ | — | — | $ | | $ | | | ||||||
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Less than 12 months | 12 months or more | |||||||||||||||
(in thousands) | | Fair | | Unrealized | | Number of | | Fair | | Unrealized | | Number of | ||||
December 31, 2024 | ||||||||||||||||
Available for Sale: | ||||||||||||||||
U.S. government agencies | $ | — | $ | — | — | $ | | $ | | | ||||||
Residential mortgage-backed agencies | | | | | | | ||||||||||
Commercial mortgage-backed agencies | | | | | | | ||||||||||
Collateralized mortgage obligations | | | | | | | ||||||||||
Obligations of states and political subdivisions | | | | | | | ||||||||||
Corporate Bonds | — | — | — | | | | ||||||||||
Collateralized debt obligations | — | — | — | | | | ||||||||||
Total available for sale | $ | | $ | | | $ | | $ | | | ||||||
Less than 12 months | 12 months or more | |||||||||||||||
(in thousands) | | Fair | | Unrecognized | | Number of | | Fair | | Unrecognized | | Number of | ||||
December 31, 2024 | ||||||||||||||||
Held to Maturity: | ||||||||||||||||
U.S. government agencies | $ | — | $ | — | — | $ | | $ | | | ||||||
Residential mortgage-backed agencies | | | | | | | ||||||||||
Commercial mortgage-backed agencies | — | — | — | | | | ||||||||||
Collateralized mortgage obligations | — | — | — | | | | ||||||||||
Obligations of states and political subdivisions | — | — | — | | | | ||||||||||
Total held to maturity | $ | | $ | | | $ | | $ | | | ||||||
At December 31, 2025 and December 31, 2024, the Corporation recorded ACL of approximately $
The amortized cost and estimated fair value of securities by contractual maturity at December 31, 2025 are shown in the following table. Actual maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
(in thousands) | | Amortized | | Fair | ||
Contractual Maturity | ||||||
Available for sale: | ||||||
Due after one year through five years | $ | | $ | | ||
Due after five years through ten years | | | ||||
Due after ten years | | | ||||
| | |||||
Residential mortgage-backed agencies | | | ||||
Commercial mortgage-backed agencies | | | ||||
Collateralized mortgage obligations | | | ||||
Total available for sale | $ | | $ | | ||
Held to Maturity: | ||||||
Due after one year through five years | $ | | $ | | ||
Due after five years through ten years | | | ||||
Due after ten years | | | ||||
| | |||||
Residential mortgage-backed agencies | | | ||||
Commercial mortgage-backed agencies | | | ||||
Collateralized mortgage obligations | | | ||||
Total held to maturity | $ | | $ | | ||
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At December 31, 2025 and 2024, AFS investment securities with a fair value of $
5. Loans and Related Allowance for Credit Losses
The following table summarizes the primary segments of the loan portfolio as of December 31, 2025 and December 31, 2024:
(in thousands) | | Commercial | | Acquisition | | Commercial | | Residential | | Consumer | | Total | ||||||
December 31, 2025 | ||||||||||||||||||
Individually evaluated for impairment | $ | | $ | — | $ | | $ | | $ | — | $ | | ||||||
Collectively evaluated for impairment | | | | | | | ||||||||||||
Total loans | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
December 31, 2024 | ||||||||||||||||||
Individually evaluated for impairment | $ | | $ | — | $ | | $ | | $ | — | $ | | ||||||
Collectively evaluated for impairment | | | | | | | ||||||||||||
Total loans | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
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 affiliates were as follows for the year ended December 31:
(in thousands) | | 2025 | |
Balance at January 1 | $ | | |
Loans or advances | | ||
Repayments | ( | ||
Balance at December 31 | $ | | |
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.
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The following table presents the classes of the loan portfolio at December 31, 2025 and December 31, 2024, summarized by the aging categories of performing loans and non-accrual loans.
(in thousands) | | Current | | 30-59 Day | | 60-89 Days | | 90 Days+ | | Total | | Non- | | Total Loans | |||||||
December 31, 2025 | |||||||||||||||||||||
Commercial real estate | |||||||||||||||||||||
Non owner-occupied | $ | | $ | — | $ | — | $ | — | $ | — | $ | | $ | | |||||||
All other CRE | | | | — | | | | ||||||||||||||
Acquisition and development | |||||||||||||||||||||
1-4 family residential construction | | — | — | — | — | — | | ||||||||||||||
All other A&D | | — | — | — | — | — | | ||||||||||||||
Commercial and industrial | | | | — | | | | ||||||||||||||
Residential mortgage | |||||||||||||||||||||
Residential mortgage - term | | | | | | | | ||||||||||||||
Residential mortgage – home equity | | | | | | | | ||||||||||||||
Consumer | | | | | | | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
December 31, 2024 | |||||||||||||||||||||
Commercial real estate | |||||||||||||||||||||
Non owner-occupied | $ | | $ | — | $ | — | $ | — | $ | — | $ | — | $ | | |||||||
All other CRE | | | — | | | | | ||||||||||||||
Acquisition and development | |||||||||||||||||||||
1-4 family residential construction | | — | — | — | — | — | | ||||||||||||||
All other A&D | | — | | — | | | | ||||||||||||||
Commercial and industrial | | — | | — | | | | ||||||||||||||
Residential mortgage | |||||||||||||||||||||
Residential mortgage - term | | | | | | | | ||||||||||||||
Residential mortgage – home equity | | | | | | | | ||||||||||||||
Consumer | | | | | | | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Non-accrual loans that have been subject to partial charge-offs totaled $
A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $
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. The Corporation develops and documents a systematic ACL methodology based on the following portfolio segments: (i) commercial real estate, (ii) acquisition and development, (iii) commercial and industrial, (iv) residential mortgage, and (v) consumer. The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.
Commercial Real Estate- loans are secured by commercial purpose real estate, including both owner-occupied properties and properties obtained for investment purposes, such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary source of repayment of these loans. The
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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. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for supply of the property being constructed.
Commercial and Industrial- loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. 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 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. The ability of each municipality to increase taxes and fees to offset service requirements give this type of loan a very low risk profile in the continuum of the Corporation’s loan portfolio.
Residential Mortgage- loans are secured by first and second liens such as home equity lines of credit and 1-4 family residential mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. 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 real estate or unsecured. This segment includes automobile loans and unsecured loans and lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.
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The following tables present the amortized cost basis of loans on a nonaccrual status and loans past due 90 days or more that are still accruing as of December 31, 2025 and 2024:
(in thousands) | | Nonaccrual Loans With No Allowance for Credit Loss | | Total Non-Accrual Loans | | Loans Past due 90+ Days Still Accruing | |||
December 31, 2025 | |||||||||
Commercial real estate | |||||||||
Non owner-occupied | $ | | $ | | $ | — | |||
All other CRE | | | — | ||||||
Commercial and industrial | | | — | ||||||
Residential mortgage | |||||||||
Residential mortgage - term | | | | ||||||
Residential mortgage – home equity | | | | ||||||
Consumer | | | | ||||||
Total | $ | | $ | | $ | | |||
(in thousands) | | Nonaccrual Loans With No Allowance for Credit Loss | | Total Non-Accrual Loans | | Loans Past due 90+ Days Still Accruing | |||
December 31, 2024 | |||||||||
Commercial real estate | |||||||||
All other CRE | $ | | $ | | $ | | |||
Acquisition and development | |||||||||
All other A&D | | | — | ||||||
Commercial and industrial | | | — | ||||||
Residential mortgage | |||||||||
Residential mortgage - term | | | | ||||||
Residential mortgage – home equity | | | | ||||||
Consumer | | | | ||||||
Total | $ | | $ | | $ | | |||
The following table presents the amortized cost basis of collateral-dependent individually evaluated loans as of December 31, 2025 and 2024:
December 31, 2025 | |||||||||
(in thousands) | | Real Estate | Other Collateral | Non-Accrual Loans with No Allowance | |||||
Commercial real estate | $ | | $ | — | $ | | |||
Commercial and industrial | — | | | ||||||
Residential mortgage | | — | | ||||||
Total Loans | $ | | $ | | $ | | |||
December 31, 2024 | |||||||||
(in thousands) | | Real Estate | Other Collateral | Non-Accrual Loans with No Allowance | |||||
Commercial real estate | $ | | $ | — | $ | | |||
Commercial and industrial | — | | | ||||||
Residential mortgage | | — | | ||||||
Total Loans | $ | | $ | | $ | | |||
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The following tables present the activity in the ACL for the years ended December 31, 2025 and 2024:
(in thousands) | Commercial | | Acquisition | | Commercial | | Residential | | Consumer | | Total | |||||||
Beginning balance at January 1, 2025 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Loan charge-offs | — | ( | ( | ( | ( | ( | ||||||||||||
Recoveries collected | — | | | | | | ||||||||||||
Credit loss (credit)/expense | ( | | | | | | ||||||||||||
ACL balance at December 31, 2025 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Beginning balance at January 1, 2024 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
Loan charge-offs | — | — | ( | ( | ( | ( | ||||||||||||
Recoveries collected | — | | | | | | ||||||||||||
Credit loss expense/(credit) | | ( | | | | | ||||||||||||
ACL balance at December 31, 2024 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||
The Corporation’s methodology for estimating the ACL includes:
Segmentation. The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles.
Specific Analysis. A specific reserve analysis is applied to certain individually evaluated loans. These loans are evaluated quarterly using one of three methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral less selling costs. 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. A charge-off is recognized when the loss is quantifiable. Individually evaluated loans not specifically analyzed reside in the quantitative analysis.
Quantitative Analysis. The Corporation has elected to use discounted cash flows. Economic forecasts include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product. 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 is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumption related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values.
The Corporation has elected to forecast out the first four quarters of the credit loss estimate and revert this forecast to long-term historical averages on a straight-line basis over eight quarters. By reverting these modeling inputs to their historical average 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.
Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. Management reviews the peaks and troughs of the model’s calibrations, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary. This process challenges unexpected variability resulting from outputs beyond the model’s calibrations that appear to be unreasonable. Management also enhances the calculation through the use of Moody’s economic forecast data in its calculation. Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective.
The ACL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the
88
consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date.
Credit Quality Indicators:
The Corporation’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to pass grade until a loan migrates to past due status.
The Corporation has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: (i) credit quality of the loan portfolio, (ii) compliance with loan policy, (iii) adequacy of documentation in credit files and (iv) validity of risk ratings.
The Corporation’s internally assigned grades are as follows:
Pass- The Corporation uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality.
Special Mention- Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.
Substandard- Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful- Assets with all weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
Loss- Assets considered of such little value that their continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.
89
The following tables present loan balances by year of origination and internally assigned risk ratings for our portfolio segments as of dates presented:
Total | ||||||||||||||||||||||||
2020 and | Portfolio | |||||||||||||||||||||||
(in thousands) | | 2025 | | 2024 | | 2023 | | 2022 | | 2021 | | Prior | | Revolving | | Loans | ||||||||
December 31, 2025 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Non-owner-occupied | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | | — | — | | — | | ||||||||||||||||
Total non-owner occupied | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
All other CRE | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | | — | — | | ||||||||||||||||
Substandard | — | | — | — | | | | | ||||||||||||||||
Total all other CRE | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
Acquisition and development: | ||||||||||||||||||||||||
1-4 family residential construction | ||||||||||||||||||||||||
Pass | | | | — | — | — | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | — | — | — | — | — | — | ||||||||||||||||
Total acquisition and development | | | | — | — | — | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
All other A&D | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | | — | — | — | — | — | — | | ||||||||||||||||
Total all other A&D | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | | — | | ||||||||||||||||
Commercial and industrial: | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | | | | | — | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total commercial and industrial | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | | | — | | ||||||||||||||||
Residential mortgage: | ||||||||||||||||||||||||
Residential mortgage - term | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | — | | | | | | ||||||||||||||||
Total residential mortgage - term | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
Residential mortgage - home equity | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | — | — | — | | | | ||||||||||||||||
Total residential mortgage - home equity | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | | — | — | — | — | | ||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total consumer | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | | | | | | | — | | ||||||||||||||||
Total Portfolio Loans | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | | | | | — | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Portfolio Loans | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Current YTD Period: | ||||||||||||||||||||||||
Current period gross charge-offs | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | ||||||||
90
Total | ||||||||||||||||||||||||
2019 and | Portfolio | |||||||||||||||||||||||
(in thousands) | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving | | Loans | ||||||||
December 31, 2024 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Non-owner-occupied | ||||||||||||||||||||||||
Pass | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Special Mention | — | — | — | — | | — | — | | ||||||||||||||||
Substandard | — | — | — | — | — | | — | | ||||||||||||||||
Total non-owner occupied | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
All other CRE | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | | — | — | | ||||||||||||||||
Substandard | | — | — | | — | | | | ||||||||||||||||
Total all other CRE | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
Acquisition and development: | ||||||||||||||||||||||||
1-4 family residential construction | ||||||||||||||||||||||||
Pass | | | — | — | — | — | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | — | — | — | — | — | — | ||||||||||||||||
Total acquisition and development | | | — | — | — | — | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
All other A&D | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | — | — | — | | — | | ||||||||||||||||
Total all other A&D | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | — | — | — | ||||||||||||||||
Commercial and industrial: | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | | | | — | | — | | | ||||||||||||||||
Substandard | | — | | | | | | | ||||||||||||||||
Total commercial and industrial | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | | — | | | | | — | | ||||||||||||||||
Residential mortgage: | ||||||||||||||||||||||||
Residential mortgage - term | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | | | — | — | — | | ||||||||||||||||
Substandard | — | — | | | — | | | | ||||||||||||||||
Total residential mortgage - term | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | — | — | — | | — | | ||||||||||||||||
Residential mortgage - home equity | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | — | — | — | — | | | | | ||||||||||||||||
Total residential mortgage - home equity | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | — | — | | — | — | — | — | | ||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | — | — | — | — | — | — | — | — | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total consumer | | | | | | | | | ||||||||||||||||
Current period gross charge-offs | | | | | | | — | | ||||||||||||||||
Total Portfolio Loans | ||||||||||||||||||||||||
Pass | | | | | | | | | ||||||||||||||||
Special Mention | | | | | | — | | | ||||||||||||||||
Substandard | | | | | | | | | ||||||||||||||||
Total Portfolio Loans | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Current YTD Period: | ||||||||||||||||||||||||
Current period gross charge-offs | $ | | $ | | $ | | $ | | $ | | $ | | $ | — | $ | | ||||||||
91
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past.
The following tables present loan balances by year of origination segregated by performing and non-performing loans for the periods presented:
2020 and | Portfolio | |||||||||||||||||||||||
(in thousands) | | 2025 | | 2024 | | 2023 | | 2022 | | 2021 | | Prior | | Revolving | | Loans | ||||||||
December 31, 2025 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Non-owner-occupied | ||||||||||||||||||||||||
Performing | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Nonperforming | — | — | | — | — | — | — | | ||||||||||||||||
Total non-owner occupied | | | | | | | | | ||||||||||||||||
All other CRE | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | — | — | | — | | ||||||||||||||||
Total all other CRE | | | | | | | | | ||||||||||||||||
Acquisition and development: | ||||||||||||||||||||||||
1-4 family residential construction | ||||||||||||||||||||||||
Performing | | | | — | — | — | | | ||||||||||||||||
Nonperforming | — | — | — | — | — | — | — | — | ||||||||||||||||
Total acquisition and development | | | | — | — | — | | | ||||||||||||||||
All other A&D | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | — | — | — | — | — | ||||||||||||||||
Total all other A&D | | | | | | | | | ||||||||||||||||
Commercial and industrial: | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | | | — | — | | ||||||||||||||||
Total commercial and industrial | | | | | | | | | ||||||||||||||||
Residential mortgage: | ||||||||||||||||||||||||
Residential mortgage - term | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | — | | | — | | ||||||||||||||||
Total residential mortgage - term | | | | | | | | | ||||||||||||||||
Residential mortgage - home equity | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | — | — | — | | | ||||||||||||||||
Total residential mortgage - home equity | | | | | | | | | ||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | | | | — | | — | | ||||||||||||||||
Total consumer | | | | | | | | | ||||||||||||||||
Total Portfolio Loans | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | | | | | | | | ||||||||||||||||
Total Portfolio Loans | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
92
Total | ||||||||||||||||||||||||
2019 and | Portfolio | |||||||||||||||||||||||
(in thousands) | | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Revolving | | Loans | ||||||||
December 31, 2024 | ||||||||||||||||||||||||
Commercial real estate: | ||||||||||||||||||||||||
Non-owner-occupied | ||||||||||||||||||||||||
Performing | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Nonperforming | — | — | — | — | — | — | — | — | ||||||||||||||||
Total non-owner occupied | | | | | | | | | ||||||||||||||||
All other CRE | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | | — | | — | | ||||||||||||||||
Total all other CRE | | | | | | | | | ||||||||||||||||
Acquisition and development: | ||||||||||||||||||||||||
1-4 family residential construction | ||||||||||||||||||||||||
Performing | | | — | — | — | — | | | ||||||||||||||||
Nonperforming | — | — | — | — | — | — | — | — | ||||||||||||||||
Total acquisition and development | | | — | — | — | — | | | ||||||||||||||||
All other A&D | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | — | — | | — | | ||||||||||||||||
Total all other A&D | | | | | | | | | ||||||||||||||||
Commercial and industrial: | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | | | — | — | — | | ||||||||||||||||
Total commercial and industrial | | | | | | | | | ||||||||||||||||
Residential mortgage: | ||||||||||||||||||||||||
Residential mortgage - term | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | | — | | | | ||||||||||||||||
Total residential mortgage - term | | | | | | | | | ||||||||||||||||
Residential mortgage - home equity | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | — | — | — | | — | | | ||||||||||||||||
Total residential mortgage - home equity | | | | | | | | | ||||||||||||||||
Consumer: | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | | | — | — | | — | | ||||||||||||||||
Total consumer | | | | | | | | | ||||||||||||||||
Total Portfolio Loans | ||||||||||||||||||||||||
Performing | | | | | | | | | ||||||||||||||||
Nonperforming | — | | | | | | | | ||||||||||||||||
Total Portfolio Loans | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
93
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 for the years ended December 31, 2025 and 2024.
(in thousands) | Term Extension | Percentage of Total Loan Type | Weighted Average Term and Principal Payment Extension | ||
Year Ended December 31, 2025 | |||||
Commercial and industrial | $ | | |||
Total | $ | | |||
Year Ended December 31, 2024 | |||||
Owner-occupied commercial real estate | $ | | |||
Commercial and industrial | | ||||
Total | $ | | |||
During 2025, we modified the term of
94
If a modified loan with an outstanding balance of $
6. Other Real Estate Owned
The following table presents the components of OREO, net of related valuation allowance, as of December 31, 2025 and 2024:
(in thousands) | | 2025 | | 2024 | ||
Acquisition and development | $ | | $ | | ||
Residential mortgage | — | | ||||
Total OREO | $ | | $ | | ||
The following table presents the activity in the OREO valuation allowance for the years ended December 31, 2025 and 2024:
(in thousands) | | 2025 | | 2024 | ||
Balance January 1 | $ | | $ | | ||
Fair value write-downs, net | | |||||
Sales of OREO | ( | ( | ||||
Balance December 31 | $ | | $ | | ||
The following table presents the components of OREO expenses, net, for the years ended December 31, 2025 and 2024:
(in thousands) | | 2025 | | 2024 | ||
Gains on real estate, net | $ | ( | $ | ( | ||
Fair value write-down | | — | ||||
Expenses, net | | | ||||
Rental and other income | ( | ( | ||||
Total OREO expense, net | $ | | $ | | ||
7. Premises and Equipment
The following table presents the components of premises and equipment at December 31, 2025 and 2024:
(in thousands) | | 2025 | | 2024 | ||
Land | $ | | $ | | ||
Land improvements | | | ||||
Premises | | | ||||
Furniture and equipment | | | ||||
| | |||||
Less accumulated depreciation | ( | ( | ||||
Total | $ | | $ | | ||
95
During the year ended December 31, 2025, the Corporation entered into a contract to sell
The Corporation recorded depreciation expense of $
8. Deposits
The following table summarizes deposits as of December 31, 2025 and 2024:
(in thousands) | | 2025 | | 2024 | ||||||
Balance | Percent | Balance | Percent | |||||||
Non-Interest-bearing deposits: | $ | | | $ | | | ||||
Interest-bearing deposits: | ||||||||||
Demand | | | ||||||||
Money market- retail | | | ||||||||
Money market- brokered | | | ||||||||
Savings deposits | | | ||||||||
Time deposits- retail | | | ||||||||
Time deposits- brokered | | — | — | |||||||
Total Deposits | $ | | $ | | ||||||
Time deposits that met or exceeded the FDIC insurance limit of $250,000 at December 31, 2025 and 2024 totaled $
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 | |||
2026 | $ | | $ | | |
2027 | — | | |||
2028 | — | | |||
2029 | — | | |||
2030 | — | | |||
Total | $ | | $ | | |
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 deposit customers of the Bank. At December 31, 2025, executive officers and directors had approximately $
96
9. Borrowed Funds
The following is a summary of short-term borrowings at December 31, 2025 and 2024 with original maturities of less than one year:
(in thousands) | | 2025 | | 2024 | ||
Securities sold under agreements to repurchase: | ||||||
Outstanding at end of year | $ | | $ | | ||
Weighted average interest rate at year end | ||||||
Maximum amount outstanding as of any month end | $ | | $ | | ||
Average amount outstanding | $ | | $ | | ||
Approximate weighted average rate during the year | ||||||
Overnight borrowings, weighted average interest rate of | $ | — | $ | | ||
Repurchase agreements were secured by investment securities with a market value of $
The Bank has unsecured lines of credit totaling $
The following is a summary of long-term borrowings at December 31, 2025 and 2024 with original maturities exceeding one year:
(in thousands) | | 2025 | | 2024 | ||
FHLB advances bearing fixed interest rates of | $ | | $ | | ||
Junior subordinated debt, bearing variable interest rate of | $ | | $ | | ||
Total long-term debt | $ | | $ | | ||
In
$
$
The TPS Debentures issued to each of the Trusts represent the sole assets of that Trust, and payments of the TPS Debentures by First United Corporation are the only sources of cash flow for the Trust. First United Corporation has the right, without triggering a default, to defer interest on all of the TPS Debentures for up to
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At December 31, 2025, the contractual maturity of the outstanding $
The Bank has a borrowing capacity agreement with the FHLB in an amount equal to
1-4 family mortgage loans | | $ | |
Commercial loans | | ||
Multi-family loans | | ||
Home equity loans | | ||
Total available borrowing capacity | $ | | |
Less: borrowings and letters of credit outstanding | ( | ||
Available credit | $ | |
10. Goodwill and Other Intangible Assets
The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at December 31, 2025 and 2024 in the following table:
2025 | 2024 | |||||||||||||||||||
(in thousands) | Gross | Accumulated Amortization | Net | Weighted Average Remaining Life | Gross | Accumulated Amortization | Net | Weighted Average Remaining Life | ||||||||||||
Amortizing intangible assets: | ||||||||||||||||||||
Intangible assets associated with purchase of wealth portfolio | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Intangible assets associated with acquisition of mortgage company | | | | | | | ||||||||||||||
Total Other intangibles | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Goodwill | $ | | $ | | $ | | $ | | ||||||||||||
The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31:
(in thousands) | | Amount | |
2026 | $ | | |
2027 | | ||
Total amortizing intangible assets | $ | | |
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11. Accumulated Other Comprehensive Loss (“AOCL”)
The following table presents the changes in each component of AOCL for the years ended December 31, 2025 and 2024:
(in thousands) | | Investment | | Investment | | Investment | | Cash Flow | | Pension | | SERP | | Total | |||||||
Accumulated OCL, net: | |||||||||||||||||||||
Balance - January 1, 2024 | $ | ( | $ | ( | $ | ( | $ | | $ | ( | $ | ( | $ | ( | |||||||
Other comprehensive income/(loss) before reclassifications | ( | ( | — | ( | | | | ||||||||||||||
Amounts reclassified from accumulated | ( | — | | — | | | | ||||||||||||||
Balance - December 31, 2024 | $ | ( | $ | ( | $ | ( | $ | | $ | ( | $ | | $ | ( | |||||||
Other comprehensive income/(loss) before reclassifications | | | — | ( | | ( | | ||||||||||||||
Amounts reclassified from accumulated | ( | ( | | — | | — | | ||||||||||||||
Balance - December 31, 2025 | $ | ( | $ | ( | $ | ( | $ | | $ | ( | $ | ( | $ | ( | |||||||
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The following tables present the components of other comprehensive income for the years ended December 31, 2025 and 2024:
Components of Other Comprehensive Income | | Before Tax | | Tax (Expense) | | Net | |||
For the year ended December 31, 2025 | |||||||||
Available for sale (AFS) securities with credit-related impairment | |||||||||
Unrealized holding gains | $ | | $ | ( | $ | | |||
Less: accretable yield recognized in income | | ( | | ||||||
Net unrealized gains on investments with credit-related impairment | | ( | | ||||||
Available for sale securities – all other: | |||||||||
Unrealized holding gains | | ( | | ||||||
Less: gains 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 | — | — | — | ||||||
Less: amortization recognized in income | ( | | ( | ||||||
Net unrealized gains on HTM securities | | ( | | ||||||
Cash flow hedges: | |||||||||
Unrealized holding losses | ( | | ( | ||||||
Net unrealized losses on cash flow hedges | ( | | ( | ||||||
Pension Plan: | |||||||||
Unrealized net actuarial gain | | ( | | ||||||
Less: amortization of unrecognized loss | ( | | ( | ||||||
Net pension plan asset adjustment | | ( | | ||||||
SERP: | |||||||||
Unrealized net actuarial loss | ( | | ( | ||||||
Net SERP liability adjustment | ( | | ( | ||||||
Other comprehensive income | $ | | $ | ( | $ | | |||
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Components of Other Comprehensive Income | | Before Tax | | Tax Benefit (Expense) | | Net | |||
For the year ended December 31, 2024 | |||||||||
Available for sale (AFS) securities with credit related impairment: | |||||||||
Unrealized holding losses | $ | ( | $ | | $ | ( | |||
Less: accretable yield recognized in income | | ( | | ||||||
Net unrealized losses on investments with credit-related impairment | ( | | ( | ||||||
Available for sale securities – all other: | |||||||||
Unrealized holding losses | ( | | ( | ||||||
Net unrealized losses on all other AFS securities | ( | | ( | ||||||
Held to maturity securities: | |||||||||
Unrealized holding losses on securities transferred to held to maturity | — | — | — | ||||||
Less: amortization recognized in income | ( | | ( | ||||||
Net unrealized gains on HTM securities | | ( | | ||||||
Cash flow hedges: | |||||||||
Unrealized holding losses | ( | | ( | ||||||
Net unrealized losses on cash flow hedges | ( | | ( | ||||||
Pension Plan: | |||||||||
Unrealized net actuarial gain | | ( | | ||||||
Less: amortization of unrecognized loss | ( | | ( | ||||||
Net pension plan asset adjustment | | ( | | ||||||
SERP: | |||||||||
Unrealized net actuarial gain | | ( | | ||||||
Less: amortization of unrecognized loss | ( | | ( | ||||||
Net SERP liability adjustment | | ( | | ||||||
Other comprehensive income | $ | | $ | ( | $ | | |||
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The following tables present the details of accumulated other comprehensive loss components for the years ended December 31, 2025 and 2024:
Details of Accumulated Other Comprehensive Loss Components | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in the Statement | |||
(in thousands) | | 2025 | | Where Net Income is Presented | |
Net unrealized gains on investment securities with credit related impairment: | |||||
Accretable Yield | $ | | Interest income on taxable investment securities | ||
Taxes | ( | Provision for income tax expense | |||
$ | | Net of tax | |||
Net unrealized gains on available for sale | |||||
Gains on sales | $ | | Net gains | ||
Taxes | ( | Provision for income tax expense | |||
$ | | Net of tax | |||
Net unrealized losses on held to maturity | |||||
Amortization | $ | ( | Interest income on taxable investment securities | ||
Taxes | | Credit for income tax expense | |||
$ | ( | Net of tax | |||
Net pension plan asset adjustment: | |||||
Amortization of unrecognized loss | $ | ( | Other expense | ||
Taxes | | Credit for income tax expense | |||
$ | ( | Net of tax | |||
Total reclassifications for the period | $ | ( | Net of tax | ||
Details of Accumulated Other Comprehensive Loss Components | Amount Reclassified from Accumulated Other Comprehensive Loss | Affected Line Item in the Statement | |||
(in thousands) | | 2024 | | Where Net Income is Presented | |
Net unrealized gains on investment securities with credit related impairment: | |||||
Accretable Yield | $ | | Interest income on taxable investment securities | ||
Taxes | ( | Provision for income tax expense | |||
$ | | Net of tax | |||
Net unrealized losses on held to maturity | |||||
Amortization | $ | ( | Interest income on taxable investment securities | ||
Taxes | | Credit for income tax expense | |||
$ | ( | Net of tax | |||
Net pension plan asset adjustment: | |||||
Amortization of unrecognized loss | $ | ( | Other expense | ||
Taxes | | Credit for income tax expense | |||
$ | ( | Net of tax | |||
Net SERP liability adjustment: | |||||
Amortization of unrecognized loss | $ | ( | Other expense | ||
Taxes | | Credit for income tax expense | |||
$ | ( | Net of tax | |||
Total reclassifications for the period | $ | ( | Net of tax | ||
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12. Income Taxes
The provision for income taxes from continuing operations consists of the following for the years ended December 31, 2025 and 2024:
(in thousands) | | 2025 | | 2024 | ||
Current Tax expense: | ||||||
Federal | $ | | $ | | ||
State | | | ||||
$ | | $ | | |||
Deferred tax benefit: | ||||||
Federal | $ | ( | $ | ( | ||
State | ( | ( | ||||
$ | ( | $ | ( | |||
Provision for income tax expense for the year | $ | | $ | | ||
The reconciliation between the statutory federal income tax rate and effective income tax rate for the years ended December 31, 2025 and 2024 is as follows:
(in thousands) | 2025 | 2024 | ||||||||
Amount | Percent | Amount | Percent | |||||||
$ | | $ | | |||||||
State and local income taxes, net of Federal income tax effect (1) | | | ||||||||
Tax credits: | ||||||||||
Low-income housing tax credits ("LIHTC") | ( | ( | ( | ( | ||||||
Non-taxable or nondeductible items | ||||||||||
Bank owned life insurance | ( | ( | ( | ( | ||||||
Other | ( | ( | ( | ( | ||||||
Other adjustments: | ||||||||||
LIHTC investment, net amortization and tax benefit | | | ||||||||
Other | ( | ( | | |||||||
Total | $ | | $ | | ||||||
| (1) | Maryland state taxes made up the majority (greater than 50 percent) of the tax effect in this category in both 2025 and 2024. |
The effective tax rate differs from the United States Federal statutory rate primarily due to tax credits, state and local taxes, and non-taxable and non-deductible items. The Corporation operates exclusively in the United States and had no foreign income, foreign income tax expense, or foreign income taxes paid for the years ended December 31, 2025 and 2024.
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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Corporation’s temporary differences as of December 31, 2025 and 2024 are as follows:
(in thousands) | | 2025 | | 2024 | ||
Deferred tax assets: | ||||||
Allowance for credit losses | $ | | $ | | ||
Deferred fees | | | ||||
Deferred compensation | | | ||||
Federal and state tax loss carry forwards | | | ||||
Low-income housing tax credits | | | ||||
Unrealized loss on investment securities | | | ||||
SERP | | | ||||
Depreciation | | | ||||
Lease liability | | | ||||
Other than temporary impairment on investment securities | | | ||||
Other real estate owned | | | ||||
Other | | | ||||
Total deferred tax assets | | | ||||
Valuation allowance | ( | ( | ||||
Total deferred tax assets less valuation allowance | | | ||||
Deferred tax liabilities: | ||||||
Goodwill and other intangibles | ( | ( | ||||
Lease right-of-use asset | ( | ( | ||||
Pension | ( | ( | ||||
Derivative contract | ( | ( | ||||
Other | ( | ( | ||||
Total deferred tax liabilities | ( | ( | ||||
Net deferred tax assets | $ | | $ | | ||
In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income of the appropriate character (for example, ordinary income or capital gain) within the carry-back or carry-forward period available under the tax law during the periods in which temporary differences are deductible. The Corporation has considered future market growth, forecasted earnings, future taxable income, and feasible and permissible tax planning strategies in determining whether it will be able to realize the deferred tax asset. If the Corporation were to determine that it will not be able to realize a portion of its net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the net deferred tax asset would be charged to earnings in the period such determination was made. Conversely, if the Corporation were to make a determination that it is more likely than not that the deferred tax assets for which there is a valuation allowance will be realized, the related valuation allowance would be reduced, and a benefit would be recorded.
At December 31, 2025, the Corporation had Maryland net operating losses (“NOLs”) and other MD carryforwards of $
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Income taxes paid in the years ended December 31, 2025 and 2024 were as follows:
(in thousands) | 2025 | 2024 | ||||
Federal | $ | | $ | | ||
State and local | ||||||
Maryland | | | ||||
West Virginia | | | ||||
Other | | | ||||
Total taxes paid | $ | | $ | | ||
For the years ended December 31, 2025 and 2024, the only state jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid were Maryland and West Virginia.
The Corporation and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states jurisdictions. The 2022-2024 tax years remain open under the standard statute of limitations. Also, with few exceptions, the Corporation is no longer subject to state income tax examinations for tax years before 2022. Management has identified no uncertain tax positions at December 31, 2025.
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. There were
13. Equity Compensation Plans
At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation Plan (the “Equity Plan”) which authorizes the issuance of up to
The Corporation complies with the provisions of ASC Topic 718, Compensation- Stock Compensation, in measuring and disclosing stock compensation cost. The measurement objective in ASC Paragraph 718-10-30-6 requires public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. 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 our director compensation policy, each director receives an annual retainer of
Upon completion of 12 consecutive months of employment, all full-time employees of The Bank are eligible to receive
Restricted Stock Units (“RSUs”)
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”)
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granted RSUs to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers. An RSU contemplates the issuance of shares of common stock of First United Corporation if and when the RSU vests.
The RSUs granted to each of the foregoing officers consist of (i) a performance vesting award for a
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.
In May 2021, RSUs relating to
In March 2022, RSUs relating to
In March 2023, RSUs relating to
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years ended December 31, 2025 and 2024. Unrecognized compensation expense as of December 31, 2025 related to unvested units was $
In May 2024, RSUs relating to
In February 2025, RSUs relating to
14. Employee Benefit Plans
First United Corporation sponsors a noncontributory defined benefit Pension Plan (the “Pension Plan”) covering the employees who were hired prior to the freeze and others who were grandfathered into the Pension Plan. The benefits are based on years of service and the employees’ compensation during the last five years of employment.
During 2001, the Bank established an unfunded Defined Benefit Supplemental Executive Retirement Plan (“Defined Benefit SERP”). The Defined Benefit SERP is available only to a select group of management or highly compensated employees to provide supplemental retirement benefits in excess of limits imposed on qualified plans by federal tax law.
The benefit obligation activity for both the Pension Plan and Defined Benefit SERP was calculated using an actuarial measurement date of January 1. Plan assets and the benefit obligations were calculated using an actuarial measurement date of December 31.
On January 9, 2015, First United Corporation and members of management who do not participate in the Defined Benefit SERP entered into participation agreements under the Deferred Compensation Plan, each styled as a Defined Contribution SERP Agreement (the “Contribution Agreement”). Pursuant to each Contribution Agreement, First United Corporation agreed, for each Plan Year (as defined in the Deferred Compensation Plan) in which it determines that it has been profitable (as defined in the Contribution Agreement), to make a discretionary contribution to the participant’s Employer Account in an amount equal to
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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 2023, the Board of Directors approved discretionary contributions to
The following tables summarize benefit obligation and funded status, plan asset activity, components of net pension cost, and weighted average assumptions for the Pension Plan and the Defined Benefit SERP:
Pension | Defined Benefit SERP | |||||||||||
(in thousands) | | 2025 | | 2024 | | 2025 | | 2024 | ||||
Change in Benefit Obligation | ||||||||||||
Obligation at the beginning of the year | $ | | $ | | $ | | $ | | ||||
Service cost | | | | | ||||||||
Interest cost | | | | | ||||||||
Change in discount rate and mortality assumptions | | ( | ||||||||||
Actuarial losses/(gains) | ( | | | ( | ||||||||
Benefits paid | ( | ( | ( | ( | ||||||||
Obligation at the end of the year | | | | | ||||||||
Change in Plan Assets | ||||||||||||
Fair value at the beginning of the year | | | ||||||||||
Actual return on plan assets | | | ||||||||||
Employer contribution | — | — | | | ||||||||
Benefits paid | ( | ( | ( | ( | ||||||||
Fair value at the end of the year | | | ||||||||||
Funded/(Unfunded) Status | $ | | $ | | $ | ( | $ | ( | ||||
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Pension | Defined Benefit SERP | |||||||||||
(in thousands) | | 2025 | | 2024 | | 2025 | | 2024 | ||||
Components of Net Pension Cost | ||||||||||||
Service cost | $ | | $ | | $ | | $ | | ||||
Interest cost | | | | | ||||||||
Expected return on assets | ( | ( | — | — | ||||||||
Amortization of recognized loss | | | — | | ||||||||
Net (income)/expense in employee benefits | $ | ( | $ | ( | $ | | $ | | ||||
Weighted Average Assumptions used to determine benefit obligations: | ||||||||||||
Discount rate for benefit obligations | ||||||||||||
Discount rate for net pension cost | — | — | ||||||||||
Expected long-term return on assets | — | — | ||||||||||
Rate of compensation increase | ||||||||||||
The accumulated benefit obligation for the Pension Plan was $
The investment assets of a defined benefit plan are managed with the goal of providing for retiree distributions while also supporting long-term plan obligations with a moderate level of portfolio risk. To address the variability over time of both risk and return, the plan investment strategy entails a dynamic approach to asset allocation, providing for normalized targets for major asset classes, with the ability to tactically adjust within the following specified ranges around those targets.
Asset class | | Normalized | | Range |
Cash | ||||
Fixed Income | ||||
Equities |
Decisions regarding tactical adjustments within the above noted ranges for asset classes are based on a top-down review of factors expected to have material impact on the risk and reward dynamics of the portfolio as a whole. Such factors include, but are not limited to, the following:
| ● | Anticipated domestic and international economic growth as a whole; |
| ● | The position of the economy within its longer term economic cycle; and |
| ● | The expected impact of economic vitality, cycle positioning, financial market risks, industry/demographic trends and political forces on the various market sectors and investment styles. |
With respect to individual company securities, additional company specific matters are considered, which could include management track record and guidance, future earnings expectations, current relative price expectations and the impact of identified risks on expected performance, among others. A core equity position of large cap stocks will be maintained, with more aggressive or volatile sectors meaningfully represented in the asset mix in pursuit of higher returns.
Strategic and specific investment decisions are guided by an in-house investment committee as well as a number of outside institutional resources that provide economic, industry and company data and analytics. It is management’s intent to give the Pension Plan’s investment managers flexibility with respect to investment decisions and their timing within the overall guidelines. However, certain investments require specific review and approval by management. Management is also informed of anticipated changes in nonproprietary investment managers, significant modifications of any previously approved investment, or the anticipated use of derivatives to execute investment strategies.
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Portfolio risk is managed in large part by a focus on diversification across multiple levels as well as an emphasis on financial strength. For example, current investment policies restrict initial investments in debt securities to be rated investment grade at the time of purchase. Also, with the exception of the highest rated securities (e.g., U.S. Treasury or government-backed agency securities), no more than 10% of the portfolio may be invested in a single entity’s securities. As a result of the previously noted approaches to controlling portfolio risk, any concentrations of risk would be associated with general systemic risks faced by industry sectors or the portfolio as a whole.
Assets in the Pension Plan are valued by the Corporation’s accounting system provider who utilizes a third-party pricing service. Valuation data is based on actual market data for stocks and mutual funds (Level 1) and matrix pricing for bonds (Level 2). Cash and cash equivalents are also considered Level 1 within the fair value hierarchy.
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At December 31, 2025 and 2024, the value of Pension Plan investments was as follows:
December 31, 2025 | Fair Value Hierarchy | ||||||||||
(in thousands) | | Assets at | | % of | | Level 1 | | Level 2 | |||
Cash and cash equivalents | $ | | $ | | $ | — | |||||
Fixed income securities: | |||||||||||
U.S. Government and Agencies | | — | | ||||||||
Taxable municipal bonds and notes | | — | | ||||||||
Corporate bonds and notes | | — | | ||||||||
Preferred stock | | — | | ||||||||
Fixed income mutual funds | | | — | ||||||||
Total fixed income | | | | ||||||||
Equities: | |||||||||||
Large Cap | | | — | ||||||||
Mid Cap | | | — | ||||||||
Small Cap | | | — | ||||||||
International | | | — | ||||||||
Total equities | | | — | ||||||||
Total market value | $ | | $ | | $ | | |||||
Note: The Large cap equities includes | |||||||||||
December 31, 2024 | Fair Value Hierarchy | ||||||||||
(in thousands) | | Assets at | | % of | | Level 1 | | Level 2 | |||
Cash and cash equivalents | $ | | $ | | $ | — | |||||
Fixed income securities: | |||||||||||
U.S. Government and Agencies | | — | | ||||||||
Taxable municipal bonds and notes | | — | | ||||||||
Corporate bonds and notes | | — | | ||||||||
Preferred stock | | — | | ||||||||
Fixed income mutual funds | | | — | ||||||||
Total fixed income | | | | ||||||||
Equities: | |||||||||||
Large Cap | | | — | ||||||||
Mid Cap | | | — | ||||||||
Small Cap | | | — | ||||||||
International | | | — | ||||||||
Total equities | | | — | ||||||||
Total market value | $ | | $ | | $ | | |||||
As of December 31, 2025, the
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Estimated cash flows related to expected future benefit payments from the Pension Plan and Defined Benefit SERP are as follows:
(in thousands) | | Pension | | Defined | ||
2026 | $ | | $ | | ||
2027 | | | ||||
2028 | | | ||||
2029 | | | ||||
2030 | | | ||||
2031-2035 | | | ||||
First United Corporation made
The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost during the next fiscal year are as follows:
(in thousands) | | Pension | | Defined | ||
Net actuarial loss | $ | | $ | — | ||
$ | | $ | — | |||
15. 401(k) Profit Sharing Plan
In furtherance of First United Corporation’s belief that every employee should have the ability to accrue retirement benefits, it adopted the 401(k) Profit Sharing Plan, which is available to all employees, including executive officers. Employees are automatically entered in the plan on the first of the month following completion of 30 days of service to First United Corporation and/or its subsidiaries. Employees have the opportunity to opt out of participation or change their deferral amounts under the plan at any time. In addition to contributions by participants, the plan contemplates employer matching and the potential of discretionary contributions to the accounts of participants. First United Corporation believes that matching contributions encourage employees to participate and thereby plan for their post-retirement financial future. Beginning with the 2008 plan year, First United Corporation enhanced the match formula to
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16. Contractual Obligations, Commitments and Contingent Liabilities
Contractual Obligations
The Corporation enters into contractual obligations in the normal course of business. Among these obligations are brokered and retail time deposits, FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices, and for data processing and telecommunications equipment. At December 31, 2025, no large capital obligations are anticipated.
Commitments
Loan commitments are made to accommodate the financial needs of our customers. Loan commitments have credit risk essentially the same as that involved in extending loans to customers and are subject to normal credit policies. Commitments to extend credit generally have fixed expiration dates, may require payment of a fee, and contain cancellation clauses in the event of an adverse change in the customer’s credit quality.
The contractual amounts of commitments to extend credit at December 31, 2025 and December 31, 2024 are as follows:
(in thousands) | | 2025 | | 2024 | ||
Residential mortgage - home equity | $ | | $ | | ||
Residential mortgage - construction | | | ||||
Commercial | | | ||||
Consumer - personal credit lines | | | ||||
Standby letters of credit | | | ||||
Total | $ | | $ | | ||
We do not issue any guarantees that would require liability recognition or disclosure other than the standby letters of credit issued by the Bank. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party to support contractual obligations and to ensure job performance. Generally, the Bank’s letters of credit are issued with expiration dates within
17. Fair Value of Financial Instruments
The Corporation complies with the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. The Corporation also follows the guidance on matters relating to all financial instruments found in ASC Subtopic 825-10, Financial Instruments – Overall.
Fair value is defined as the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. Fair value is best determined by values quoted through active trading markets. Active trading markets are characterized by numerous transactions of similar financial instruments between willing buyers and willing sellers. Because no active trading market exists for various types of financial instruments, many of the fair values disclosed were derived using present value discounted cash flows or other valuation techniques described below. As a result, the Corporation’s ability to actually realize these derived values cannot be assumed.
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
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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:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities. This level is the most reliable source of valuation.
Level 2: Quoted prices that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). It also includes inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Several sources are utilized for valuing these assets, including a contracted valuation service, Standard & Poor’s (“S&P”) evaluations and pricing services, and other valuation matrices.
Level 3: Prices or valuation techniques that require inputs that are both significant to the valuation assumptions and not readily observable in the market (i.e. supported with little or no market activity). Level 3 instruments are valued based on the best available data, some of which is internally developed, and consider risk premiums that a market participant would require.
The level established within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 1, 2 or 3 are recorded at fair value at the beginning of the reporting period.
Investments – The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.
The fair value of investments available-for-sale is determined using a market approach. U.S. Government agencies and treasuries, residential and commercial mortgage-backed securities, and municipal bonds segments are classified as Level 2 within the valuation hierarchy. Their fair values were determined based upon market-corroborated inputs and valuation matrices, which were obtained through third party data service providers or securities brokers through which we have historically transacted both purchases and sales of investment securities.
Derivative financial instruments (cash flow hedge) – The Corporation’s open derivative positions are interest rate swap agreements. Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Corporation has considered counterparty credit risk in the valuation of its interest rate swap assets.
Individually evaluated loans – Loans included in the table below are those that are considered individually evaluated with a specific allocation or with partial charge-offs, based upon the guidance of the loan impairment subsection of the Receivables Topic, ASC Section 310-10-35, under which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value consists of the loan balance less its valuation allowance and is generally determined based on independent third-party appraisals of the collateral or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
Equity investments- Equity investments included in the table below are considered are recorded with a write-down to fair value recorded in other operating expenses. Fair value of the equity investment was based on an independent third-party valuation report where the value was determined based on the revenue multiples of like kind information technology businesses. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
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Other real estate owned – OREO included in the table below are recorded with specific write-downs. Fair value of other real estate owned was based on independent third-party appraisals of the properties. These values were determined based on the sales prices of similar properties in the approximate geographic area. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2025 and 2024 are as follows:
Fair Value Measurements at | ||||||||||||
December 31, 2025 Using | ||||||||||||
(in thousands) | ||||||||||||
| Assets | | Quoted Prices | | Significant | | Significant | |||||
Description | 12/31/25 | (Level 1) | (Level 2) | (Level 3) | ||||||||
Recurring: | ||||||||||||
Investment securities available-for-sale: | ||||||||||||
U.S. government agencies | $ | | $ | $ | | $ | ||||||
Residential mortgage-backed agencies | | | ||||||||||
Commercial mortgage-backed agencies | | | ||||||||||
Collateralized mortgage obligations | | | ||||||||||
Obligations of states and political subdivisions | | | ||||||||||
Corporate bonds | | | ||||||||||
Collateralized debt obligations | | | ||||||||||
Equity investments not held for trading with readily determinable fair values | | | ||||||||||
Financial derivative | | | ||||||||||
Non-recurring: | ||||||||||||
Individually evaluated loans | | | ||||||||||
Other real estate owned | | | ||||||||||
Fair Value Measurements at | ||||||||||||
December 31, 2024 Using | ||||||||||||
(in thousands) | ||||||||||||
| Assets | | Quoted Prices | | Significant | | Significant | |||||
Description | 12/31/24 | (Level 1) | (Level 2) | (Level 3) | ||||||||
Recurring: | ||||||||||||
Investment securities available-for-sale: | ||||||||||||
U.S. treasuries | $ | | $ | $ | | $ | ||||||
U.S. government agencies | | | ||||||||||
Residential mortgage-backed agencies | | | ||||||||||
Commercial mortgage-backed agencies | | | ||||||||||
Collateralized mortgage obligations | | | ||||||||||
Obligations of states and political subdivisions | | | ||||||||||
Collateralized debt obligations | | | ||||||||||
Financial derivative | | | ||||||||||
Non-recurring: | ||||||||||||
Individually evaluated loans | | | ||||||||||
Equity investment | | | ||||||||||
Other real estate owned | | | ||||||||||
There were
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For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2025 and 2024, the significant unobservable inputs used in the fair value measurements were as follows:
(in thousands) | | Fair Value at | | Valuation | | Significant | | Significant | |
Recurring: | |||||||||
Investment Securities – available for sale - CDO | $ | | Discounted Cash Flow | Discount Rate | Range of upper | ||||
Non-recurring: | |||||||||
Individually Evaluated Loans | $ | | Market Comparable Properties | Marketability Discount | N/A | ||||
Other Real Estate Owned (1) | $ | | Market Comparable Properties | Marketability Discount | |||||
(in thousands) | | Fair Value at | | Valuation | | Significant | | Significant | |
Recurring: | |||||||||
Investment Securities – available for sale - CDO | $ | | Discounted Cash Flow | Discount Rate | Range of low to mid | ||||
Non-recurring: | |||||||||
Individually Evaluated Loans | $ | | Market Comparable Properties | Marketability Discount | N/A | ||||
Equity Investment | $ | | Market Method | Revenue Multiples | |||||
Other Real Estate Owned (1) | $ | | Market Comparable Properties | Marketability Discount |
| ||||
| (1) | Range would include discounts taken since appraisal and estimated values. |
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The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured using Level 3 significant unobservable inputs for the years ended December 31, 2025 and 2024:
Fair Value Measurement Using Unobservable Inputs (Level 3) | |||
(in thousands) | | Investment Securities Available for Sale | |
Beginning balance January 1, 2025 | $ | | |
Total gains realized/unrealized: | |||
Included in other comprehensive income | | ||
Ending balance December 31, 2025 | $ | | |
Fair Value Measurement Using Unobservable Inputs (Level 3) | |||
(in thousands) | | Investment Securities Available for Sale | |
Beginning balance January 1, 2024 | $ | | |
Total gains realized/unrealized: | |||
Included in other comprehensive income | | ||
Ending balance December 31, 2024 | $ | |
Gains and losses (realized and unrealized) included in earnings for the periods above are reported in the Consolidated Statement of Income in other operating income.
The fair values disclosed may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies. The derived fair values are subjective in nature and involve uncertainties and significant judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could significantly impact the derived estimates of fair value. Disclosure of non-financial assets such as buildings as well as certain financial instruments such as leases is not required. Accordingly, the aggregate fair values presented do not represent the underlying value of the Corporation.
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The following table presents fair value information about financial instruments, whether or not recognized in the statement of financial condition, for which it is practicable to estimate that value. The actual carrying amounts and estimated fair values of the Corporation’s financial instruments that are included in the statement of financial condition are as follows:
December 31, 2025 | Fair Value Measurements | ||||||||||||||
Carrying | Fair | Quoted Prices | Significant | Significant | |||||||||||
(in thousands) | | Amount | | Value | | (Level 1) | | (Level 2) | | (Level 3) | |||||
Financial Assets: | |||||||||||||||
Cash and due from banks | $ | | $ | | $ | | |||||||||
Interest bearing deposits in banks | | | | ||||||||||||
Investment securities - AFS | | | $ | | $ | | |||||||||
Investment securities - HTM | | | | | |||||||||||
Equity investments not held for trading with readily determinable fair values | | | | ||||||||||||
Restricted bank stock | | N/A | |||||||||||||
Loans, net | | | | ||||||||||||
Financial derivative | | | | ||||||||||||
Accrued interest receivable | | | | | |||||||||||
Financial Liabilities: | |||||||||||||||
Deposits – non-maturity | | | | ||||||||||||
Deposits – time deposits | | | | ||||||||||||
Short-term borrowed funds | | | | ||||||||||||
Long-term borrowed funds | | | | ||||||||||||
Accrued interest payable | | | | ||||||||||||
December 31, 2024 | Fair Value Measurements | ||||||||||||||
Carrying | Fair | Quoted Prices | Significant | Significant | |||||||||||
(in thousands) | | Amount | | Value | | (Level 1) | | (Level 2) | | (Level 3) | |||||
Financial Assets: | |||||||||||||||
Cash and due from banks | $ | | $ | | $ | | |||||||||
Interest bearing deposits in banks | | | | ||||||||||||
Investment securities - AFS | | | $ | | $ | | |||||||||
Investment securities - HTM | | | | | |||||||||||
Restricted bank stock | | N/A | |||||||||||||
Loans, net | | | | ||||||||||||
Financial derivative | | | | ||||||||||||
Accrued interest receivable | | | | | |||||||||||
Financial Liabilities: | |||||||||||||||
Deposits – non-maturity | | | | ||||||||||||
Deposits – time deposits | | | | ||||||||||||
Short-term borrowed funds | | | | ||||||||||||
Long-term borrowed funds | | | | ||||||||||||
Accrued interest payable | | | | ||||||||||||
18. Derivative Financial Instruments
As a part of managing interest rate risk, the Corporation entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated its interest rate swap
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agreements as cash flow hedges under the guidance of ASC Subtopic 815-30, Derivatives and Hedging – Cash Flow Hedges. Cash flow hedges have the effective portion of changes in the fair value of the derivative, net of taxes, recorded in net accumulated other comprehensive income.
In March 2016, the Corporation entered into
The fair value of the interest rate swap contracts was $
For the year ended December 31, 2025, the Corporation recorded a decrease in the value of the derivatives of $
The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the years ended December 31, 2025 and December 31, 2024.
Derivative in Cash Flow Hedging Relationships
(in thousands) | | Amount of loss recognized in OCI on derivative (effective portion) | | Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) (1) | | Amount of gain or (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing) (2) | |||
Interest rate contracts: | |||||||||
December 31, 2025 | $ | ( | $ | — | $ | — | |||
December 31, 2024 | $ | ( | $ | — | $ | — | |||
Notes:
| (1) | Reported as interest expense |
| (2) | Reported as other income |
19. Revenue Recognition
ASC Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. ASC Topic 606 is applicable to noninterest revenue streams such as wealth management, including trust and brokerage services, service charges on deposit accounts, interchange fee income – debit card income and gains/losses on OREO sales. Noninterest revenue streams in-scope of ASC Topic 606 are discussed below.
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Wealth Management – Trust and Brokerage
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Corporation’s performance obligation is generally satisfied over time, and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Corporation’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Corporation’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Corporation’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.
Other Service Charges
Fees, exchange, and other service charges are primarily comprised of ATM fees, loan servicing fees and other service charges. ATM fees are primarily generated when a Bank cardholder uses a non-Bank ATM, or a non-Bank cardholder uses a Bank ATM. Loan servicing fees are comprised of fees earned on servicing of loan portfolios sold to the secondary market. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Corporation’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion.
Interchange Fees – Debit and Credit Card Income
Debit and credit card income is primarily comprised of interchange fees earned whenever the Corporation’s debit cards are processed through card payment networks such as Visa. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Payment is typically received immediately or in the following month.
The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC Topic 606.
Year Ended | ||||||
December 31, | ||||||
(in thousands) | | 2025 | | 2024 | ||
Noninterest income | ||||||
In-scope of Topic 606: | ||||||
Service charges on deposit accounts | $ | | $ | | ||
Other service charges | | | ||||
Trust department | | | ||||
Debit card income | | | ||||
Brokerage commissions | | | ||||
Noninterest income (in-scope of Topic 606) | $ | | $ | | ||
Noninterest income (out-of-scope of Topic 606) | | | ||||
Total Noninterest Income | $ | | $ | | ||
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20. Segment Reporting
The Corporation is managed under an organizational structure that conducts business in
Business activity for the operating segments are as follows:
Community Banking: The Community Banking segment is conducted through the Bank and involves delivering a broad range of financial products and services, including various loan and deposit products, to consumer, business, and not-for-profit customers. Parent company income and assets are included in the Community Banking segment, as the majority of parent company functions are related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, and service charges on deposit accounts. 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 $
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Information for the operating segments for the years ended December 31, 2025 and 2024 are presented in the following tables:
December 31, 2025 | ||||||||||
Community | Wealth | |||||||||
(in thousands) | Banking | | Management | | Total | |||||
Interest income | $ | | $ | — | $ | | ||||
Interest expense | | — | | |||||||
Net interest income | | — | | |||||||
Credit loss expense | | — | | |||||||
Net interest income after credit loss expense | | — | | |||||||
Other operating income: | ||||||||||
Net gains on investments, available for sale | | — | | |||||||
Net gains on sales of residential mortgages | | — | | |||||||
Net losses on disposal of fixed assets | ( | — | ( | |||||||
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 | | | | |||||||
Intercompany management fee income (expense) | | ( | — | |||||||
Income before income taxes | | | | |||||||
Income tax expense | | | | |||||||
Net income | $ | | $ | | $ | | ||||
Significant noncash items | ||||||||||
Credit loss expense | $ | | $ | — | $ | | ||||
Depreciation | | | | |||||||
Amortization of intangible assets | | | | |||||||
Intangible assets | $ | | $ | | $ | | ||||
Total 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. |
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December 31, 2024 | ||||||||||
Community | Wealth | |||||||||
(in thousands) | Banking | | Management | | Total | |||||
Interest income | $ | | $ | — | $ | | ||||
Interest expense | | — | | |||||||
Net interest income | | — | | |||||||
Credit loss 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 | | | | |||||||
Intercompany management fee income (expense) | | ( | — | |||||||
Income before income taxes | | | | |||||||
Income tax expense | | | | |||||||
Net income | $ | | $ | | $ | | ||||
Significant noncash items | ||||||||||
Credit loss expense | $ | | $ | — | $ | | ||||
Depreciation | | | | |||||||
Amortization of intangible assets | | | | |||||||
Intangible assets | $ | | $ | | $ | | ||||
Total 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. |
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21. Parent Company Only Financial Information
Condensed Statements of Financial Condition
December 31, | ||||||
(in thousands) | | 2025 | | 2024 | ||
Assets | ||||||
Cash | $ | | $ | | ||
Investment securities- available for sale (at fair value) | | | ||||
Investment in bank subsidiary | | | ||||
Investment in non-bank subsidiaries | | | ||||
Other assets | | | ||||
Total Assets | $ | | $ | | ||
Liabilities and Shareholders' Equity | ||||||
Accrued interest and other liabilities | $ | | $ | | ||
Dividends payable | | | ||||
Junior subordinated debt | | | ||||
Shareholders' equity | | | ||||
Total Liabilities and Shareholders' Equity | $ | | $ | | ||
Condensed Statements of Income
December 31, | ||||||
(in thousands) | | 2025 | | 2024 | ||
Income: | ||||||
Dividend income from bank subsidiary | $ | | $ | | ||
Interest income on investments | | | ||||
Other income | | | ||||
Total other income | | | ||||
Total Income | | | ||||
Expenses: | ||||||
Interest expense | | | ||||
Other expenses | | | ||||
Total Expenses | | | ||||
Income before income taxes and equity in undistributed net income of subsidiaries | | | ||||
Applicable income tax benefit | | | ||||
Net income before equity in undistributed net income of subsidiaries | | | ||||
Equity in undistributed net income of subsidiaries: | ||||||
Bank | | | ||||
Net Income | $ | | $ | | ||
Condensed Statements of Comprehensive Income
December 31, | ||||||
Components of Comprehensive Income (in thousands) | | 2025 | | 2024 | ||
Net Income | $ | | $ | | ||
Unrealized gains/(losses) on AFS securities, net of tax | | ( | ||||
Unrealized losses on cash flow hedges, net of tax | ( | ( | ||||
Other comprehensive income/(loss), net of tax | | ( | ||||
Comprehensive income | $ | | $ | | ||
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Condensed Statements of Cash Flows
December 31, | ||||||
(in thousands) | | 2025 | | 2024 | ||
Operating Activities | ||||||
Net Income | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Equity in undistributed net income of subsidiaries | ( | ( | ||||
Increase in other assets | ( | ( | ||||
Increase in accrued interest payable and other liabilities | | | ||||
Stock based compensation | | | ||||
Net cash provided by operating activities | | | ||||
Investing Activities | ||||||
Proceeds from principal paydowns on AFS securities | | | ||||
Net cash provided by investing activities | | | ||||
Financing Activities | ||||||
Proceeds from issuance of common stock | | | ||||
Repurchase of common stock | — | ( | ||||
Cash dividends on common stock | ( | ( | ||||
Net cash used in financing activities | ( | ( | ||||
Increase/(decrease) in cash and cash equivalents | | ( | ||||
Cash and cash equivalents at beginning of year | | | ||||
Cash and cash equivalents at end of year | $ | | $ | | ||
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports filed under the Exchange Act with the SEC, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in those rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including the principal executive officer (“PEO”) and the principal financial officer (“PFO”), as appropriate, to allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Pursuant to Item 308(b) of the SEC’s Regulation S-K, this annual report does not include an attestation report of the Corporation’s registered public accounting on the Corporation’s internal control over financial reporting because the Corporation is not an “accelerated filer” or a “large accelerated filer” as such terms are defined in Rule 12b-2 promulgated under the Exchange Act.
An evaluation of the effectiveness of these disclosure controls and procedures as of December 31, 2025 was carried out under the supervision and with the participation of the Corporation’s management, including the PEO and the PFO. Based on that evaluation, the Corporation’s management, including the PEO and the PFO, has concluded that the Corporation’s disclosure controls and procedures are, in fact, effective at the reasonable assurance level.
During the fourth quarter of 2025, there was no change in the Corporation’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has performed an evaluation and testing of the Corporation’s internal control over financial reporting as of December 31, 2025. Management’s report on the Corporation’s internal control over financial reporting is included on the following page.
126
Management’s Report on Internal Control Over Financial Reporting
The Board of Directors and Shareholders
First United Corporation
First United Corporation’s management is responsible for establishing and maintaining adequate internal control over financial reporting. This internal control system was designed to provide reasonable assurance to management and the Board of Directors as to the reliability of First United Corporation’s financial reporting and the preparation and presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States, as well as to safeguard assets from unauthorized use or disposition.
An internal control system, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation and may not prevent or detect misstatements in the financial statements or the unauthorized use or disposition of First United Corporation’s assets. Also, projections of any evaluation of effectiveness of internal controls to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Management assessed the effectiveness of First United Corporation’s internal control over financial reporting as of December 31, 2025, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control--Integrated Framework (2013 Framework). Based on this assessment and on the foregoing criteria, management has concluded that, as of December 31, 2025, First United Corporation’s internal control over financial reporting is effective.
Dated: | March 10, 2026 | | |
/s/ Jason B. Rush | /s/ Tonya K. Sturm | ||
Jason B. Rush | Tonya K. Sturm | ||
President and | Executive Vice President and | ||
Chief Executive Officer | Chief Financial Officer | ||
(Principal Executive Officer) | (Principal Financial Officer) | ||
127
ITEM 9B. OTHER INFORMATION
During the three months ended December 31, 2025,
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not Applicable
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Corporation has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) applicable to its principal executive officer, principal financial officer, principal accounting officer, or controller, or persons performing similar functions. A copy of the Code of Ethics is available free of charge upon request to Jason B. Rush, President and Chief Executive Officer, First United Bank & Trust, 19 S. Second Street, Oakland, MD 21550. This Code of Ethics is also available on the Investor Relations page of the Corporation’s website at https://s205.q4cdn.com/164474296/files/doc_downloads/govdoc/code-of-business-conduct-and-ethics.pdf.
All other information required by this item is incorporated herein by reference to the following sections of the Corporation’s definitive Proxy Statement for the 2026 Annual Meeting of Shareholders to be filed with the SEC pursuant to Regulation 14A (the “2026 Proxy Statement”):
| ● | Election of Directors (Proposal 1); |
| ● | Qualifications of Director Nominees; |
| ● | Executive Officers; |
| ● | Delinquent Section 16(a) Reports; and |
| ● | Corporate Governance and Related Matters (under the headings “Committees of the Board - Audit Committee” and “ |
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the sections of the 2026 Proxy Statement entitled “Director Compensation” and “Executive Compensation” (excluding the information under the subheading “Pay Versus Performance”).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
At the 2018 Annual Meeting of Shareholders, the Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation Plan (the “Equity Plan”), which authorizes the grant of stock options, stock appreciation rights, stock awards, dividend equivalents, and other stock-based awards. Subject to the anti-dilution provisions of the Equity Plan, the maximum number of shares for which awards may be granted to any one participant in
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any calendar year is 20,000 shares, without regard to whether an award is paid in cash or shares. The following table contains information as of December 31, 2025 regarding securities that are authorized for issuance under the Equity Plan:
| Number of securities to be issued upon exercise of outstanding options, warrants, and rights | | Weighted-average exercise price of outstanding options, warrants, and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||
Plan Category | (a) | (b) | (c) | ||||
Equity compensation plans approved by security holders | 33,784 | (1) | N/A | 121,158 | (2) | ||
Equity compensation plans not approved by security holders | — | N/A | N/A | ||||
Total | 33,784 | N/A | 121,158 |
| (1) | As of December 31, 2025, there were time-vesting and performance-vesting restricted stock units (“RSUs”) that had been granted under the Equity Plan. An RSU is a right to receive one share of Common Stock (or the cash value thereof) if certain vesting conditions are satisfied. The amount shown in this column (a) relates to 11,882 time-vesting RSUs and 21,902 performance-vesting RSUs. The amount included for performance-vesting RSUs assumes that those RSUs will vest based on the achievement of the maximum performance levels applicable thereto. That amount would be 7,298 or 14,599, respectively, if only the RSUs’ threshold performance levels or target performance levels were to be achieved. |
| (2) | The amount shown in this column (c) relates to remaining balance available. The amount assumes that the performance-vesting RSUs will vest based on the achievement of the maximum performance levels applicable thereto. That amount would be 128,461 or 135,762, respectively, if only the RSUs’ threshold performance levels or target performance levels were to be achieved. |
All other information required by this item is incorporated herein by reference to the section of the 2026 Proxy Statement entitled “Beneficial Ownership of Common Stock by Principal Shareholders and Management”.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the following sections of the 2026 Proxy Statement:
| ● | Certain Relationships and Related Transactions; and |
| ● | “Corporate Governance and Related Matters” (under the heading “Director Independence”). |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the section of the 2026 Proxy Statement entitled “Audit Fees and Services”.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1), (2) and (c) Financial Statements.
Report of Independent Registered Public Accounting Firms
Consolidated Statements of Financial Condition as of December 31, 2025 and 2024
Consolidated Statements of Income for the years ended December 31, 2025 and 2024
Consolidated Statements of Comprehensive Income for the years ended December 31, 2025 and 2024
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2025 and 2024
Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024
Notes to Consolidated Financial Statements for the years ended December 31, 2025 and 2024
(a)(3) and (b) Exhibits.
The exhibits filed or furnished with this annual report are listed in the following Exhibit Index.
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Exhibit | | Description |
3.1(i) | ||
3.1(ii) | ||
3.2(i) | ||
3.2(ii) | ||
4.1 | ||
4.2 | ||
4.3 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 |
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10.15 | ||
10.16 | ||
10.17 | ||
10.18 | ||
19.1 | First United Corporation Insider Trading Policy (incorporated by reference to Exhibit 19.1 to First United Corporation’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2023) | |
21 | ||
23.1 | Consent of Crowe LLP, Independent Registered Public Accounting Firm (filed herewith) | |
31.1 | ||
31.2 | ||
32.1 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith) | |
97 | ||
101.INS | Inline XBRL Instance Document (filed herewith) | |
101.SCH | Inline XBRL Taxonomy Extension Schema (filed herewith) | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith) | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith) | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase (filed herewith) | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith) | |
104 | The cover page of First United Corporation’s Annual Report on Form 10K for the year ended December 31, 2025, formatted in Inline XBRL, included within the Exhibit 101 attachments (filed herewith). |
* | Portions of Exhibit 10.14, identified in brackets, were excluded because they were immaterial and would have likely caused competitive harm to the Corporation if publicly disclosed. Such information will be disclosed in “Executive Compensation” section of the 2026 Proxy Statement. |
ITEM 16. FORM 10-K SUMMARY
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIRST UNITED CORPORATION | |||
Date: | March 10, 2026 | By: | /s/ Jason B. Rush |
Jason B. Rush | |||
President and | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: | March 10, 2026 | By: | /s/ Tonya K. Sturm |
Tonya K. Sturm, | |||
Executive Vice President and | |||
Chief Financial Officer, | |||
(Principal Financial Officer | |||
and Principal Accounting Officer) | |||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.
/s/ John F. Barr | | /s/ Brian R. Boal |
John F. Barr – Director | Brian R. Boal – Director | |
March 10, 2026 | March 10, 2026 | |
/s/ Sanu B. Chadha | /s/ Christy M. DiPietro | |
Sanu B. Chadha – Director | Christy M. DiPietro – Director | |
March 10, 2026 | March 10, 2026 | |
/s/ Kevin R. Hessler | /s/ Patricia A. Milon | |
Kevin R. Hessler – Director | Patricia A. Milon – Director | |
March 10, 2026 | March 10, 2026 | |
/s/ Beth E. Moran | /s/ Carissa L. Rodeheaver | |
Beth E. Moran – Director | Carissa L. Rodeheaver – Executive Chairman of the | |
March 10, 2026 | Board | |
/s/ I. Robert Rudy | March 10, 2026 /s/ H. Andrew Walls, III | |
I. Robert Rudy – Director | H. Andrew Walls, III – Director | |
March 10, 2026 | March 10, 2026 | |
/s/ Jason B. Rush | /s/ Tonya K. Sturm | |
Jason B. Rush – President and Chief Executive Officer | Tonya K. Sturm – Executive Vice President and | |
(Principal Executive Officer) | Chief Financial Officer (Principal Financial Officer | |
March 10, 2026 | and Principal Accounting Officer) | |
March 10, 2026 |
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