What changed in this filing

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Item 1. Financial Statements

2021-11-09 compared with 2021-08-12 · 260 added, 209 removed, 1115 unchanged (30% of the section changed)

3 unchanged sentences

(In thousands, except share data - Unaudited)

September 30,

Cash and due from banks

2 unchanged sentences

Investment securities – available for sale (at fair value)

Investment securities – held to maturity (fair value $ 75,574 at June 30, 2021 and $ 77,612 at December 31, 2020)

Investment securities – held to maturity (fair value $ 71,707 at September 30, 2021 and $ 77,612 at December 31, 2020)

Restricted investment in bank stock, at cost

21 unchanged sentences

Authorized 25,000,000 shares;

issued and outstanding 6,614,604 shares at June 30, 2021 and 6,992,911 at December 31, 2020

issued and outstanding 6,617,941 shares at September 30, 2021 and 6,992,911 at December 31, 2020

Retained earnings

6 unchanged sentences

(In thousands, except per share data)

Six Months Ended

Nine Months Ended

September 30,

Interest income

34 unchanged sentences

Settlement expense

FHLB prepayment penalty

Total other operating expenses

11 unchanged sentences

Three Months Ended

September 30,

Interest income

33 unchanged sentences

Investor relations

FHLB prepayment penalty

Total other operating expenses

8 unchanged sentences

First United Corporation and Subsidiaries

Consolidated Statement of Comprehensive Loss

Consolidated Statement of Comprehensive Income

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Comprehensive Income

Other comprehensive income/(loss), net of tax and reclassification adjustments:

Other comprehensive income, net of tax and reclassification adjustments:

Net unrealized gains/(losses) on investments with OTTI

2 unchanged sentences

Net unrealized gains/(losses) on cash flow hedges

Net unrealized gains/(losses) on pension

Net unrealized gains on pension

Net unrealized gains on SERP

Other comprehensive income/(loss), net of tax

Other comprehensive income, net of tax

Comprehensive income

Three Months Ended

September 30,

Comprehensive Income (in thousands)

Other comprehensive income, net of tax and reclassification adjustments:

Net unrealized gains/(losses) on investments with OTTI

Net unrealized gains on all other AFS securities

Net unrealized gains on investments with OTTI

Net unrealized losses on all other AFS securities

Net unrealized gains on HTM securities

Net unrealized losses on cash flow hedges

Net unrealized gains on pension

Net unrealized gains on cash flow hedges

Net unrealized (losses)/gains on pension

Net unrealized gains on SERP

Other comprehensive income, net of tax

Other comprehensive (loss)/income, net of tax

Comprehensive income

17 unchanged sentences

Balance at June 30, 2021

Other comprehensive loss

Stock based compensation

Common stock issued - 3,337 shares

Common stock dividend declared -

$0.15 per share

Balance at September 30, 2021

See accompanying notes to the consolidated financial statements

16 unchanged sentences

Balance at June 30, 2020

Other comprehensive income

Stock based compensation

Common stock issued - 4,245 shares

Common stock dividend declared -

$0.13 per share

Balance at September 30, 2020

See accompanying notes to the consolidated financial statements

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities

11 unchanged sentences

Gains on sales/calls of investment securities – AFS

Gain on calls of investment securities – HTM

Losses/(gains) on investment securities – HTM

Earnings on Bank owned life insurance

1 unchanged sentence

Operating lease asset

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

Increase in accrued interest receivable and other assets

Deferred tax (benefit)/expense

19 unchanged sentences

Cash dividends on common stock

Net increase/(decrease) in short-term borrowings

Net increase in short-term borrowings

Stock repurchase

Net cash provided by financing activities

Increase in cash and cash equivalents

Net decrease in long-term borrowings

Net cash (used in)/provided by financing activities

(Decrease)/increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

13 unchanged sentences

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

Operating results for the three and six month periods ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year or for any future interim period.

Operating results for the three and nine month periods ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year or for any future interim period.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of June 30, 2021 for items that should potentially be recognized or disclosed in these financial statements.

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of September 30, 2021 for items that should potentially be recognized or disclosed in these financial statements.

Note 2 – COVID-19

12 unchanged sentences

Also, the Consolidated Appropriations Act (the “CAA”) passed on December 27, 2020, which, among other things, extended the provisions of Section 4013 of the CARES Act to January 1, 2022.

The Federal Reserve also took actions to mitigate the economic impact of the COVID-19 pandemic, including cutting the federal funds rate 150 basis points and targeting a 0 to 25 basis point rate.

In addition to the general impact of the COVID-19 pandemic, certain provisions of the CARES Act as well as other legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations.

During the first six months of 2021, we continued to assist our business customers with the PPP loan forgiveness process and to originate additional PPP loans.

We remained diligent in protecting our associates and customers from the lingering effects of

the pandemic, delaying opening our lobbies until April 1, 2021.

The Federal Reserve’s actions have included cutting the federal funds rate 150 basis points and targeting a 0 to 25 basis point rate.

During the first nine months of 2021, we continued to assist our business customers with the PPP loan forgiveness process and to originate additional PPP loans through the third round of funding.

We remained diligent in protecting our associates and customers from the lingering effects of the pandemic, delaying opening our lobbies until April 1, 2021.

During the third quarter, we made the decision to reclose our lobbies as COVID cases increased in most of our markets and staffing was at reduced levels.

Many of our sales and support employees continue to work remotely as we have adjusted to a hybrid work environment.

1 unchanged sentence

Paycheck Protection Program

The Corporation actively participated in the PPP.

On January 19, 2021, the SBA implemented a second round of funding for PPP loans.

The Corporation originated $ 66.1 million in PPP loans during the first six months of 2021, consisting of 870 loans with an average loan size of $ 80 thousand.

New PPP loans are no longer available.

A total of 1,174 loans totaling $ 148.5 million were originated in 2020.

As of June 30, 2021, approximately $ 140.5 million have been forgiven with a remaining balance of $ 74.1 million.

The Corporation continues to actively participate in the PPP.

On January 19, 2021, the SBA implemented a third round of funding for PPP loans.

During 2020, the Corporation originated a total of $ 148.5 million in PPP loans under the first and second rounds of funding, consisting of 1,174 loans with an average loan size of $ 162 thousand.

During 2021, the Corporation originated a total of $ 66.1 million in PPP loans under the third round of funding, consisting of 870 loans with an average loan size of $ 80 thousand.

Net PPP origination fees recognized in the first nine months of 2021 were $ 3.2 million due to amortization and forgiveness, compared to $ 2.4 million in 2020.

During 2020, 290 PPP loans, totaling $ 34.5 million were forgiven, resulting in 885 loans with a remaining balance of $ 114.0 million at December 31, 2020.

During the first nine months of 2021, an additional 1,384 PPP loans originated under all three rounds, with an aggregate principal balance of $ 150.0 million, were forgiven, resulting in 371 loans with a total remaining balance of $ 30.3 million at September 30, 2021.

Of the 2,046 PPP loans originated by the Corporation since the PPP’s inception, 1,675 loans, totaling $ 184.9 million, have been forgiven through the end of third quarter 2021, representing 86 % of the number of loans originated and 82 % of originated principal balances.

COVID Modifications

While the COVID-19 pandemic has had an impact on most industries, some have been more affected than others.

In accordance with Section 4013 of the CARES Act and related regulatory pronouncements, we have not accounted for modifications of loans affected by the pandemic as troubled debt restructurings nor have we designated them as past due or nonaccrual.

As of July 16, 2021, there were six commercial loans totaling $ 7.3 million in total loan modifications related to the real estate rental and health care sectors.

In accordance with Section 4013 of the CARES Act and related regulatory pronouncements, we have not accounted for modifications of loans affected by the pandemic as troubled debt restructurings (“TDRs”) nor have we designated them as past due or nonaccrual.

As of October 15, 2021, modified loans not treated as TDRs consisted of eleven commercial loans relating to real estate rental, food services and health care sectors and one mortgage loan, with an aggregate balance of $ 9.9 million.

These loans are scheduled to return to contractual payment terms within the next quarter.

2 unchanged sentences

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

At June 30, 2021, there were RSUs relating to 7,073 time-vested shares of common stock outstanding.

There were no anti-dilutive shares at June 30, 2021 or 2020.

The following tables set forth the calculation of basic and diluted earnings per common share for the six and three months periods ended June 30, 2021 and 2020:

Six months ended June 30,

At September 30, 2021, there were RSUs relating to 7,073 time-vested shares of common stock outstanding.

There were no anti-dilutive shares at September 30, 2021 or 2020.

The following tables set forth the calculation of basic and diluted earnings per common share for the nine and three months periods ended September 30, 2021 and 2020:

Nine months ended September 30,

(in thousands, except for per share amount)

1 unchanged sentence

Diluted Earnings Per Share:

Three months ended June 30,

Three months ended September 30,

(in thousands, except for per share amount)

2 unchanged sentences

Note 4 – Investments

The following table shows a comparison of amortized cost and fair values of investment securities at June 30, 2021 and December 31, 2020:

The following table shows a comparison of amortized cost and fair values of investment securities at September 30, 2021 and December 31, 2020:

(in thousands)

June 30, 2021

September 30, 2021

Available for Sale:

9 unchanged sentences

Commercial mortgage-backed agencies

Collateralized mortgage obligations

Obligations of states and political subdivisions

15 unchanged sentences

Total held to maturity

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at June 30, 2021 and December 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at September 30, 2021 and December 31, 2020, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

Less than 12 months

1 unchanged sentence

(in thousands)

June 30, 2021

September 30, 2021

Available for Sale:

30 unchanged sentences

See Note 7 for a discussion of the methodology used by management to determine the fair values of these securities.

Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that there were no securities that had credit-related OTTI charges during the first six months of 2021 or 2020.

The Corporation believes that the investment securities that were in an unrealized loss position at June 30, 2021 do not represent other-than-temporary impairment.

The Corporation believes that the investment securities that were in an unrealized loss position at September 30, 2021 do not represent other-than-temporary impairment.

The Corporation does not intend to sell, nor is it anticipated that the Corporation will be required to sell, any of its impaired investment securities at a loss.

The following tables present a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses that have been recognized in earnings for the trust preferred securities held in the CDO portfolio during the six month and three month periods ended June 30, 2021 and 2020 that the Corporation does not intend to sell:

Six Months Ended

The following tables present a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses that have been recognized in earnings for the trust preferred securities held in the CDO portfolio during the nine and three month periods ended September 30, 2021 and 2020 that the Corporation does not intend to sell:

Nine Months Ended

September 30,

(in thousands)

1 unchanged sentence

Reduction for increases in cash flows expected to be collected

Balance of credit-related OTTI at June 30

Balance of credit-related OTTI at September 30

Three Months Ended

September 30,

(in thousands)

Balance of credit-related OTTI at April 1

Balance of credit-related OTTI at July 1

Reduction for increases in cash flows expected to be collected

Balance of credit-related OTTI at June 30

The amortized cost and estimated fair value of securities by contractual maturity at June 30, 2021 are shown in the following table.

Balance of credit-related OTTI at September 30

The amortized cost and estimated fair value of securities by contractual maturity at September 30, 2021 are shown in the following table.

Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2021

September 30, 2021

(in thousands)

15 unchanged sentences

Note 5 – Loans and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio at June 30, 2021 and December 31, 2020:

The following table summarizes the primary segments of the loan portfolio at September 30, 2021 and December 31, 2020:

(in thousands)

June 30, 2021

September 30, 2021

Individually evaluated for impairment

3 unchanged sentences

Collectively evaluated for impairment

The commercial and industrial portfolio in the table above includes $ 74.1 million and $ 114.0 million of PPP loans at June 30, 2021 and December 31, 2020, respectively, which are 100 % guaranteed by the SBA, and no allowance for loan loss (“ALL”) has been assigned to them.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard within the internal risk rating system at June 30, 2021 and December 31, 2020:

The commercial and industrial portfolio in the table above includes $ 30.3 million and $ 114.0 million of PPP loans at September 30, 2021 and December 31, 2020, respectively, which are 100 % guaranteed by the SBA, and no allowance for loan loss (“ALL”) has been assigned to them.

(in thousands)

June 30, 2021

September 30, 2021

Commercial real estate

19 unchanged sentences

Residential mortgage - home equity

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at June 30, 2021 and December 31, 2020:

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at September 30, 2021 and December 31, 2020:

(in thousands)

June 30, 2021

September 30, 2021

Commercial real estate

19 unchanged sentences

Residential mortgage - home equity

The current status of commercial and industrial loans includes $ 74.1 million and $ 114.0 million of PPP loans at June 30, 2021 and December 31, 2020, respectively.

Non-accrual loans that have been subject to partial charge-offs totaled $ 0.5 million at June 30, 2021 and $ 0.2 million at December 31, 2020.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 0.6 million at June 30, 2021 and $ 0.4 million at December 31, 2020.

Foreclosure and repossession activities were temporarily suspended as a result of COVID-19.

As a percentage of the loan portfolio, accruing loans past due 30 days or more increased slightly to 0.19 %, including PPP loans, or 0.20 % excluding PPP loans, compared to 0.17 % at June 30, 2020 and 0.20 % at December 31, 2020.

The following table summarizes the primary segments of the ALL at June 30, 2021 and December 31, 2020, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

The current status of commercial and industrial loans includes $ 30.3 million and $ 114.0 million of PPP loans at September 30, 2021 and December 31, 2020, respectively.

Non-accrual loans that have been subject to partial charge-offs totaled $ 0.5 million at September 30, 2021 and $ 0.4 million at December 31, 2020.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 0.2 million at September 30, 2021 and $ 0.4 million at December 31, 2020.

Foreclosure and repossession activities were temporarily suspended as a result of COVID-19 but resumed during the third quarter 2021.

Management continues to conform to federal and state mandates relative to the foreclosure processes for both Federal Backed and Non-Federal Backed mortgages.

As a percentage of the loan portfolio, accruing loans past due 30 days or more decreased to 0.20 %, including PPP loans, or 0.21 % excluding PPP loans, compared to 0.20 % at December 31, 2020.

The following table summarizes the primary segments of the ALL at September 30, 2021 and December 31, 2020, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

(in thousands)

June 30, 2021

September 30, 2021

Individually evaluated

8 unchanged sentences

The evaluation of the need and amount of a specific allocation of the ALL and whether a loan can be removed from impairment status is made on a quarterly basis.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at June 30, 2021 and December 31, 2020:

Impaired Loans with

3 unchanged sentences

Investment (1)

June 30, 2021

September 30, 2021

Commercial real estate

22 unchanged sentences

(1) Recorded investment consists of unpaid principal balance, net of charge-offs, interest payments received applied to principal and unamortized deferred loan origination fees and cost.

The following tables present the activity in the ALL for the six and three month periods ended June 30, 2021 and 2020:

The following tables present the activity in the ALL for the nine and three month periods ended September 30, 2021 and 2020:

(in thousands)

ALL balance at January 1, 2021

ALL balance at June 30, 2021

ALL balance at September 30, 2021

ALL balance at January 1, 2020

ALL balance at June 30, 2020

ALL balance at September 30, 2020

(in thousands)

ALL balance at April 1, 2021

ALL balance at June 30, 2021

ALL balance at April 1, 2020

ALL balance at June 30, 2020

ALL balance at July 1, 2021

ALL balance at September 30, 2021

ALL balance at July 1, 2020

ALL balance at September 30, 2020

The ALL 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 consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

The following table presents the average recorded investment in impaired loans by class and related interest income recognized for the periods indicated:

Six months ended

June 30, 2021

June 30, 2020

The following tables present the average recorded investment in impaired loans by class and related interest income recognized for the periods indicated:

Nine months ended

For the year ended

Nine months ended

September 30, 2021

December 31, 2020

September 30, 2020

(in thousands)

21 unchanged sentences

Three months ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(in thousands)

21 unchanged sentences

Among other reasons, modifications might be made in an effort to retain the loan relationship, to remain competitive in the current interest rate environment and/or to re-amortize or extend the loan’s term to better match the loan’s payment stream with the borrower’s cash flow.

A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e., experiencing financial difficulties).

The Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification.

To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations.

A modified loan is considered to be a TDR when the modification occurs in connection with a determination by the Bank that the borrower is troubled (i.e., experiencing financial difficulties).

In deciding whether to modify a loan, the Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification.

To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current abilities to meet their financial obligations.

Section 4013 of the CARES Act allows financial institutions to suspend application of certain current TDRs accounting guidance under ASC 310-40 for loan modifications related to the COVID-19 pandemic made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the COVID-19 national emergency, provided certain criteria are met.

This relief can

be applied to loan modifications for borrowers that defer or delay the payment of principal or interest, or change the interest rate on the loan and that were not more than 30 days past due as of December 31, 2019.

This relief can be applied to loan modifications for borrowers that defer or delay the payment of principal or interest, or change the interest rate on the loan and that were not more than 30 days past due as of December 31, 2019.

In April 2020, federal and state banking regulators issued the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus to provide further interpretation of when a borrower is experiencing financial difficulty, specifically indicating that if the modification is either short-term (i.e., up to nine months) or mandated by a federal or state government in response to the COVID-19 pandemic, the borrower is not experiencing financial difficulty under ASC 310-40.

1 unchanged sentence

See Note 2 to the financial statements included elsewhere in this report for additional information.

There were 14 loans totaling $ 3.8 million and $ 4.0 million that were classified as TDRs at June 30, 2021 and December 31, 2020, respectively.

There were 14 loans totaling $ 3.8 million and $ 4.0 million that were classified as TDRs at September 30, 2021 and December 31, 2020, respectively.

The following tables present the volume and recorded investment in TDRs at the times they were modified, by class and type of modification that occurred during the periods indicated:

Temporary Rate

3 unchanged sentences

(in thousands)

Six months ended June 30, 2021

Nine months ended September 30, 2021

Commercial real estate

13 unchanged sentences

(in thousands)

Six months ended June 30, 2020

Nine months ended September 30, 2020

Commercial real estate

8 unchanged sentences

Residential mortgage – home equity

During the six month period ended June 30, 2021, there were no new TDRs and one existing TDR that had reached its modification maturity date and was re-modified.

During the nine month period ended September 30, 2021, there were no new TDRs and three existing TDRs that had reached their modification maturity date and was re-modified.

The Bank had no significant commitments to lend additional funds to TDRs.

the six month period ended June 30, 2020, there were no new TDRs but six existing TDRs that had reached their modification maturity dates were re-modified.

During the nine month period ended September 30, 2020, there were no new TDRs but nine existing TDRs that had reached their modification maturity dates were re-modified.

These modifications did not impact the ALL.

During the six month periods ended June 30, 2021 and 2020, there were no payment defaults.

During the nine months ended September 30, 2021 and 2020, there were no payment defaults.

The following tables present the volume and recorded investment in TDRs at the times they were modified, by class and type of modification that occurred during the periods indicated:

Temporary Rate

3 unchanged sentences

(in thousands)

Three months ended June 30, 2021

Three months ended September 30, 2021

Commercial real estate

13 unchanged sentences

(in thousands)

Three months ended June 30, 2020

Three months ended September 30, 2020

Commercial real estate

8 unchanged sentences

Residential mortgage – home equity

During the three month period ended June 30, 2021, there were no new TDRs and one existing TDR that had reached its modification maturity date and was re-modified.

During the three month period ended September 30, 2021, there were no new TDRs and two existing TDRs that had reached their modification maturity dates and were re-modified.

The Bank had no significant commitments to lend additional funds to TDR borrowers.

During the three month period ended June 30, 2020, there were no new TDRs but six existing TDRs that had reached their modification maturity dates were re-modified.

During the three month period ended Sept 30, 2020, there were no new TDRs but two existing TDRs that had reached their modification maturity dates were re-modified.

These re-modifications did not impact the ALL.

During the three months ended June 30, 2021 and 2020, there were no payment defaults under TDRs.

During the three months ended September 30, 2021 and 2020, there were no payment defaults under TDRs.

Note 6 - Other Real Estate Owned, net

The following table presents the components of other real estate owned (“OREO”) at June 30, 2021 and December 31, 2020:

The following table presents the components of other real estate owned (“OREO”) at September 30, 2021 and December 31, 2020:

(in thousands)

September 30,

Commercial real estate

2 unchanged sentences

Total OREO, net

The following table presents the activity in the OREO valuation allowance for the six and three month periods ended June 30, 2021 and 2020:

Six Months Ended

The following table presents the activity in the OREO valuation allowance for the nine and three month periods ended September 30, 2021 and 2020:

Nine Months Ended

Three Months Ended

September 30,

(in thousands)

3 unchanged sentences

Balance at end of period

The following table presents the components of OREO (income)/expenses, net, for the six and three month periods ended June 30, 2021 and 2020:

Six Months Ended

The following table presents the components of OREO (income)/expenses, net, for the nine and three month periods ended September 30, 2021 and 2020:

Nine Months Ended

Three Months Ended

September 30,

(in thousands)

Gains on sale of real estate, net

(Gains)/losses on sale of real estate, net

Fair value adjustment, net

1 unchanged sentence

Rental and other income

Total OREO income, net

Total OREO (income)/expense, net

Note 7 – Fair Value of Financial Instruments

5 unchanged sentences

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

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

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1

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

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

2 unchanged sentences

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).

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).

6 unchanged sentences

However, the use of different methodologies and assumptions could result in a different estimate of fair values at the reporting date.

The valuation techniques used by the Corporation to measure, on a recurring basis and on a non-recurring basis, the fair value of assets as of June 30, 2021 are discussed in the paragraphs that follow.

The valuation techniques used by the Corporation to measure, on a recurring basis and on a non-recurring basis, the fair value of assets as of September 30, 2021 are discussed in the paragraphs that follow.

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

As of June 30, 2021, the U.S.

As of September 30, 2021, the U.S.

Government agencies, residential and commercial mortgage-backed securities, collateralized mortgage obligations, and state and political subdivisions bonds, excluding the tax increment financing (“TIF”) bonds, were classified as Level 2 within the valuation hierarchy.

2 unchanged sentences

The CDO segment, which consists of pooled trust preferred securities issued by banks, thrifts and insurance companies, is classified as Level 3 within the valuation hierarchy.

At June 30, 2021, the Corporation owned nine trust preferred securities with an amortized cost of $ 18.6 million and a fair value of $ 16.2 million.

At June 30, 2021, the market for these securities is not active and the markets for similar securities are also not active.

At September 30, 2021, the Corporation owned nine trust preferred securities with an amortized cost of $ 18.6 million and a fair value of $ 17.1 million.

As of September 30, 2021, the market for these securities was not active and the markets for similar securities were also not active.

Recent developments in the credit markets have had a negative impact on the market for CDOs.

5 unchanged sentences

Therefore, in the current market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issue.

Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at June 30, 2021, (b) an income valuation approach technique (i.e.

Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at September 30, 2021, (b) an income valuation approach technique (i.e.

present value) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than a market approach, and (c) the CDO segment is appropriately classified within Level 3 of the valuation hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

Management uses an independent third party to prepare both the evaluations of OTTI as well as the fair value determinations for its CDO portfolio.

Management believes that the valuations are adequately reflected at June 30, 2021.

Management believes that the valuations are adequately reflected at September 30, 2021.

The approach used by the third party to determine fair value involved several steps, which included detailed credit and structural evaluation of each piece of collateral in each bond, projection of default, recovery and prepayment/amortization probabilities for each piece of collateral in the bond, and discounted cash flow modeling.

The discount rate methodology used by the third party combines a baseline current market yield for comparable corporate and structured credit products with adjustments based on evaluations of the differences found in structure and risks associated with actual and projected credit performance of each CDO being valued.

Currently, the only active and liquid trading market that exists is for stand-alone trust preferred securities, with

a limited market for highly-rated CDO securities that are more senior in the capital structure than the securities in the CDO portfolio.

Currently, the only active and liquid trading market that exists is for stand-alone trust preferred securities, with a limited market for highly-rated CDO securities that are more senior in the capital structure than the securities in the CDO portfolio.

Therefore, adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments.

At June 30, 2021, these conditions had a minimal impact on the trust preferred bonds, although there has been a significant effect on several asset classes in the equity and fixed income markets related to COVID-19.

At September 30, 2021, these conditions had a minimal impact on the trust preferred bonds, although there has been a significant effect on several asset classes in the equity and fixed income markets related to COVID-19.

Management will continue to review assumptions as they relate to the impact of COVID-19 during the remainder of the year.

12 unchanged sentences

The estimated fair value for OREO included in Level 3 is determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement.

If the fair value of the collateral deteriorates subsequent to initial recognition, the Company records the OREO as a nonrecurring Level 3 adjustment.

If the fair value of the collateral deteriorates subsequent to initial recognition, the Corporation records the OREO as a nonrecurring Level 3 adjustment.

Valuation techniques are consistent with those techniques applied in prior periods.

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of September 30, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)

Fair Value at

September 30,

Investment Securities – available for sale

23 unchanged sentences

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

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2021 and December 31, 2020 were as follows:

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2021 and December 31, 2020 were as follows:

Fair Value Measurements

at June 30, 2021 Using

at September 30, 2021 Using

Assets/(liabilities)

30 unchanged sentences

Other real estate owned

There were no transfers of assets between any of the fair value hierarchy for the six and three month periods ended June 30, 2021 or 2020.

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the six and three month periods ended June 30, 2021 and 2020:

There were no transfers of assets between any of the fair value hierarchy for the nine and three month periods ended September 30, 2021 or 2020.

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the nine and three month periods ended September 30, 2021 and 2020:

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive income

Ending balance June 30, 2021

Ending balance September 30, 2021

Fair Value Measurements

3 unchanged sentences

Available for Sale

Beginning balance April 1, 2021

Beginning balance July 1, 2021

Total gains realized/unrealized:

Included in other comprehensive income

Ending balance June 30, 2021

Ending balance September 30, 2021

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive loss

Ending balance June 30, 2020

Ending balance September 30, 2020

Fair Value Measurements

3 unchanged sentences

Available for Sale

Beginning balance April 1, 2020

Beginning balance July 1, 2020

Total losses realized/unrealized:

Included in other comprehensive income

Ending balance June 30, 2020

There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the six and three month periods ended June 30, 2021 or 2020.

Ending balance September 30, 2020

There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the nine and three month periods ended September 30, 2021 or 2020.

The disclosed fair values may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies.

6 unchanged sentences

The actual carrying amounts and estimated fair values of the Corporation’s financial instruments that are included in the Consolidated Statement of Financial Condition are as follows:

June 30, 2021

September 30, 2021

Fair Value Measurements

38 unchanged sentences

Note 8 – Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2020, the three months ended March 31, 2021, and the three months ended June 30, 2021 :

(in thousands)

10 unchanged sentences

Balance - June 30, 2021

The following tables present the components of other comprehensive income/(loss) for the six and three month periods ended June 30, 2021 and 2020:

Other comprehensive

income/(loss) before

reclassifications

Amounts reclassified from

accumulated other

comprehensive loss

Balance - September 30, 2021

The following tables present the components of other comprehensive income/(loss) for the nine and three month periods ended September 30, 2021 and 2020:

Components of Other Comprehensive Income

(in thousands)

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Available for sale (AFS) securities with OTTI:

7 unchanged sentences

Held to maturity securities:

gains recognized in income

Unrealized holding gains

losses recognized in income

amortization recognized in income

8 unchanged sentences

amortization of unrecognized loss

amortization of prior service costs

Net SERP liability adjustment

Other comprehensive income

Components of Other Comprehensive Loss

Components of Other Comprehensive Income

(in thousands)

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Available for sale (AFS) securities with OTTI:

21 unchanged sentences

Net SERP liability adjustment

Other comprehensive loss

Components of Other Comprehensive Income

Other comprehensive income

Components of Other Comprehensive Loss

(in thousands)

For the three months ended June 30, 2021

For the three months ended September 30, 2021

Available for sale (AFS) securities with OTTI:

3 unchanged sentences

Available for sale securities – all other:

Unrealized holding gains

Unrealized holding losses

gains recognized in income

2 unchanged sentences

Unrealized holding gains

losses recognized in income

amortization recognized in income

3 unchanged sentences

Pension Plan:

Unrealized net actuarial gain

Unrealized net actuarial loss

amortization of unrecognized loss

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

amortization of prior service costs

Net SERP liability adjustment

Other comprehensive income

Other comprehensive loss

Components of Other Comprehensive Income

(in thousands)

For the three months ended June 30, 2020

For the three months ended September 30, 2020

Available for sale (AFS) securities with OTTI:

Unrealized holding losses

Unrealized holding gains

accretable yield recognized in income

1 unchanged sentence

Available for sale securities – all other:

Unrealized holding gains

Unrealized holding losses

gains recognized in income

1 unchanged sentence

Held to maturity securities:

Unrealized holding gains

gains recognized in income

amortization recognized in income

1 unchanged sentence

Cash flow hedges:

Unrealized holding losses

Unrealized holding gains

Pension Plan:

6 unchanged sentences

Other comprehensive income

The following table presents the details of amounts reclassified from accumulated other comprehensive loss for the six and three month periods ended June 30, 2021 and 2020:

The following table presents the details of amounts reclassified from accumulated other comprehensive loss for the nine and three month periods ended September 30, 2021 and 2020:

Amounts Reclassified from

Six Months Ended

Nine Months Ended

Accumulated Other Comprehensive Loss

September 30,

Affected Line Item in the Statement

6 unchanged sentences

Net unrealized gains on available for sale investment securities - all others:

Gains on sales

Gains recognized

Provision for income tax expense

1 unchanged sentence

Interest income on taxable investment securities

Gains on calls

(Losses)/gains recognized

Provision for income tax expense

13 unchanged sentences

Accumulated Other Comprehensive Loss

September 30,

Affected Line Item in the Statement

6 unchanged sentences

Net unrealized gains on available for sale investment securities - all others:

Gains on sales

Gains recognized

Provision for income tax expense

1 unchanged sentence

Interest income on taxable investment securities

Gains on calls

Losses recognized

Provision for income tax expense

14 unchanged sentences

The following tables present the components of the net periodic pension plan cost for First United Corporation’s noncontributory Defined Benefit Pension Plan (the “Pension Plan”) and the Bank’s Defined Benefit Supplemental Executive Retirement Plan (“Defined Benefit SERP”) for the periods indicated:

Six Months Ended

Nine Months Ended

Three Months Ended

September 30,

(in thousands)

3 unchanged sentences

Net pension credit included in employee benefits and other expense

Six Months Ended

Nine Months Ended

Three Months Ended

Defined Benefit SERP

September 30,

(in thousands)

17 unchanged sentences

The Corporation will assess the need for future annual contributions to the pension plan based upon its funded status and an evaluation of the future benefits to be provided thereunder.

No contributions were made to the Pension Plan during the first three months of 2021 and a contribution of $ 1.0 million was made during the first three months of 2020.

No contributions were made to the Pension Plan during the first nine months of 2021 and a contribution of $ 1.0 million was made during the first nine months of 2020.

The Corporation expects to fund the annual projected benefit payments for the Defined Benefit SERP from operations.

7 unchanged sentences

or (e) 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).

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 (1) refraining from engaging in Competitive Employment (as defined in the Contribution Agreement) for three years following his or her Separation from Service, (2) refraining from injurious disclosure of confidential information concerning the Corporation, and (3) 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 (2) will apply in the event of a Separation from Service following a Change of Control and subsequent Triggering Event.

2 unchanged sentences

In January 2020, the Board of Directors of First United Corporation approved discretionary contributions to four participants totaling $ 126,058 .

The Corporation recorded $ 31,514 of related compensation expense for the first six months of 2021 and 2020.

The Corporation recorded $ 15,757 for the second quarters of 2021 and 2020, related to these contributions.

The Corporation recorded $ 47,271 of related compensation expense for the first nine months of 2021 and 2020.

The Corporation recorded $ 15,757 for the third quarters of 2021 and 2020 related to these contributions.

In January 2021, the Board of Directors approved discretionary contributions to three participants totaling $ 101,257 .

The Corporation recorded $ 25,314 of related compensation expense for the first six months of 2021 and $ 12,657 for the second quarter of 2021 related to these contributions.

The Corporation recorded $ 37,971 of related compensation expense for the first nine months of 2021 and $ 12,657 for the third quarter of 2021 related to these contributions.

Each discretionary contribution has a two year vesting period.

4 unchanged sentences

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

Stock based awards were made to non-employee directors in June 2020 pursuant to First United Corporation’s director compensation policy.

Each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $ 10,000 to be paid, at the director’s election, in cash or additional shares of common stock.

Pursuant to First United Corporation’s director compensation policy, each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $ 10,000 to be paid, at the director’s election, in cash or additional shares of common stock.

In June 2020, a total of 13,160 fully vested shares of common stock were issued to directors, which had a grant date fair market value of $ 14.52 per share.

1 unchanged sentence

In May 2021, a total of 12,726 fully vested shares of common stock were issued to directors, which had a grant date fair value of $ 18.50 per share.

Director stock compensation expense was $ 132,860 for the six months ended June 30, 2021 and $ 106,681 for the six months ended June 30, 2020.

Director stock compensation expense was $ 62,644 for the three months ended June 30, 2021 and $ 39,698 for the three months ended June 30, 2020.

Director stock compensation expense was $ 191,717

for the nine months ended September 30, 2021 and $ 158,795 for the nine months ended September 30, 2020.

Director stock compensation expense was $ 58,857 for the three months ended September 30, 2021 and $ 52,114 for the three months ended September 30, 2020.

Restricted Stock Units

On March 26, 2020, pursuant to the Corporation’s Long Term Incentive Plan (the "LTIP"), which is a sub-plan of the Equity Plan, the Compensation Committee of the Corporation’s Board of Directors (the "Committee") granted RSUs to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers.

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

On March 26, 2020, pursuant to the Corporation’s Long Term Incentive Plan (the "LTIP"), which is a sub-plan of the Equity Plan, the Compensation Committee of First United Corporation’s Board of Directors (the "Committee") granted RSUs to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers.

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 (a) a performance vesting award for a three year performance period ending December 31, 2021, (b) a performance vesting award for a three year performance period ending December 31, 2022, and (c) a time-vesting award that will vest ratably over a three year period beginning on March 26, 2021.

Target performance levels were set based on the annual budget which supports the Company’s long-term objective of achieving high performance as compared to peers.

Target performance levels were set based on the annual budget which supports the Corporation’s long-term objective of achieving high performance as compared to peers.

Threshold performance is the minimum level of acceptable performance as defined by the Committee and maximum performance represented a level potentially achievable under ideal circumstances.

Achievement of the threshold performance level

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

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

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

4 unchanged sentences

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"

In the first quarter of 2020, RSUs relating to 19,934 performance vested shares and 5,070 time vested shares of common stock (target level) were granted, which had a grant date fair market value of $ 12.54 per share of common stock underlying each RSU.

On March 26, 2021, 1,690 of the 5,070 time vested shares were issued to participants.

Stock compensation expense was $ 52,254 and $ 62,484 for the first six months of 2021 and 2020, respectively.

Stock compensation expense was $ 26,127 and $ 31,242 for the three month periods ended June 30, 2021 and 2020.

Unrecognized compensation expense at June 30, 2021 related to unvested units was $ 136,300 .

In May 2021, RSUs relating to 7,389 performance vested shares and 3,693 time vested shares of common stock (target level) were granted, which had a grant date fair market value of $ 17.93 per share of common stock underlying each RSU.

These RSUs are related to the 2021 plan granted in the second quarter of 2021.

The performance vesting award for a three year performance period ending December 31, 2023, and a time-vesting award that will vest ratably over a three year period beginning on May 5, 2022.

Stock compensation expense was $ 11,048 for the three and six month periods ended June 30, 2021.

Unrecognized compensation expense at June 30, 2021 related to unvested units was $ 187,806 .

In the first quarter of 2020, RSUs relating to 19,934 performance vesting shares and 5,070 time vesting shares (target level) were granted, which had a grant date fair market value of $ 12.54 per share of common stock underlying each RSU.

On March 26, 2021, 1,690 of the 5,070 time vesting shares were issued to participants.

Stock compensation expense was $ 78,381 and $ 93,727 for the first nine months of 2021 and 2020, respectively.

Stock compensation expense was $ 26,127 and $ 31,243 for the three month periods ended September 30, 2021 and 2020.

Unrecognized compensation expense at September 30, 2021 related to unvested RSUs was $ 110,173 .

In May 2021, RSUs relating to 7,389 performance vesting shares and 3,693 time vesting shares (target level) were granted, which had a grant date fair market value of $ 17.93 per share of common stock underlying each RSU.

The performance period for the performance-vesting RSUs is the three year period ending December 31, 2023.

The time-vesting RSUs will vest ratably over a three year period beginning on May 5, 2022.

Stock compensation expense was $ 27,619 for the nine month periods ended September 30, 2021.

Stock compensation expense was $ 16,571 for the three months ended September 30, 2021.

Unrecognized compensation expense as of September 30, 2021 related to unvested units was $ 171,235 .

Note 11 – Derivative Financial Instruments

4 unchanged sentences

These contracts included a three year $ 5.0 million contract that matured on September 17, 2019 , a five year $ 5.0 million contract that matured on March 17, 2021 , a seven year $ 5.0 million contract that matures on March 17, 2023 and a 10 year $ 15.0 million contract that matures on March 17, 2026 .

As of June 30, 2021, $ 20.0 million notional amount remains.

The fair value of the interest rate swap contracts was $( 834 ) thousand and $( 1.3 ) million at June 30, 2021 and December 31, 2020, respectively.

For the six months ended June 30, 2021, the Corporation recorded an increase in the value of the derivatives of $ 485 thousand and the related deferred tax of $ 114 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.

As of September 30, 2021, $ 20.0 million notional amount remains.

The fair value of the interest rate swap contracts was $( 727 ) thousand and $( 1.3 ) million at September 30, 2021 and December 31, 2020, respectively.

For the nine months ended September 30, 2021, the Corporation recorded an increase in the value of the derivatives of $ 5 94 thousand and the related deferred tax of $ 62 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.

ASC Subtopic 815-30 requires the net accumulated other comprehensive loss to be reclassified to earnings if the hedge becomes ineffective or is terminated.

There was no hedge ineffectiveness recorded for the six months ended June 30, 2021.

There was no hedge ineffectiveness recorded for the six months ended September 30, 2021.

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

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of June 30, 2021.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six and three month periods ended June 30, 2021 and 2020.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the nine and three month periods ended September 30, 2021 and 2020.

Derivative in Cash Flow Hedging Relationships

15 unchanged sentences

Interest rate contracts:

Six months ended:

June 30, 2021

June 30, 2020

Nine months ended:

September 30, 2021

September 30, 2020

Three months ended:

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(a) Reported as interest expense

1 unchanged sentence

Note 12 – Revenue Recognition

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities.

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 Topic 606 are discussed below.

ASC Topic 606- Revenue from Contracts with Customers , does not apply to revenue associated with financial instruments, including revenue from loans and securities.

ASC Topic 606 does apply 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 that are within the scope of ASC Topic 606 are discussed below.

Wealth Management

2 unchanged sentences

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.

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).

8 unchanged sentences

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.

ATM fees are primarily generated when a

Corporation cardholder uses a non-Corporation ATM or a non-Corporation cardholder uses a Corporation ATM.

ATM fees are primarily generated when a Corporation cardholder uses a non-Corporation ATM or a non-Corporation cardholder uses a Corporation ATM.

Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

2 unchanged sentences

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 Topic 606, for the six and three month periods ended June 30, 2021 and June 30, 2020:

Six Months Ended

The following presents noninterest income, segregated by revenue streams that are within and outside the scope of ASC Topic 606, for the nine and three month periods ended September 30, 2021 and September 30, 2020:

Nine Months Ended

Three Months Ended

September 30,

(in thousands)

10 unchanged sentences

Note 13 – Regulatory Capital Requirements

The following table presents our capital ratios for the six months ended June 30, 2021.

The following table presents our capital ratios for the nine months ended September 30, 2021.

September 30,

Total Capital (to risk-weighted assets)

6 unchanged sentences

First United Bank & Trust

As of June 30, 2021, the Bank and the Corporation are considered “well capitalized” under the regulatory framework for prompt corrective action.

As of September 30, 2021, the Bank and the Corporation were considered “well capitalized” under the regulatory framework for prompt corrective action.

The ratios at the Bank and Consolidated levels were negatively impacted primarily due to the increased funding from the Bank to the holding company related to the settlement expenses and the stock repurchase program.

2 unchanged sentences

The plan authorizes the repurchases to be conducted through open market or private transactions at such times and in such amounts per transaction as the Chairman and Chief Executive Officer of First United Corporation determines to be appropriate.

On April 16, 2021 (the “Effective Date”), First United Corporation (the “Corporation”) entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Driver Opportunity Partners I LP (“Driver Partners”) under which, pursuant to the Corporation’s stock repurchase program authorized by the Corporation’s Board of Directors on January 27, 2021, the Corporation agreed to repurchase from Driver Partners 360,737 shares of the common stock, par value $ 0.01 per share, of the Corporation at a purchase price of $ 18.00 per share.

On April 16, 2021, First United Corporation entered into a Stock Purchase Agreement with Driver Opportunity Partners I LP (“Driver Partners”) under which, pursuant to the foregoing stock repurchase program.

First United Corporation agreed to repurchase 360,737 shares of its common stock held by Driver Partners at a purchase price of $ 18.00 per share.

Note 14 – Assets and Liabilities Subject to Enforceable Master Netting Arrangements

11 unchanged sentences

government agency securities to certain customers subject to an obligation to repurchase, and on the part of the customers to resell, such interests.

Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets.

Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the

Bank to repurchase the assets.

As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities.

6 unchanged sentences

The investment security collateral, maintained at 102 % of the borrowing, is held by a third party financial institution in the counterparty’s custodial account.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement or repurchase agreements at June 30, 2021 and December 31, 2020.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement or repurchase agreements at September 30, 2021 and December 31, 2020.

Gross Amounts

4 unchanged sentences

(in thousands)

June 30, 2021

September 30, 2021

Interest Rate Swap Agreements

26 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements