FIRST UNITED CORP/MD/ 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ Page Report of Independent Registered Public Accounting Firms (PCAOB ID: 173 ) and (PCAOB ID: 23 ) 56 Consolidated Statements of Financial Condition at December 31, 2021 and 2020 59 Consolidated Statements of Income for the years ended December 31, 2021 and 2020 60 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020 61 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021 and 2020 62 Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020 63 Notes to Consolidated Financial Statements for the years ended December 31, 2021 and 2020 64 ​ ​ ​ 55 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors of First United Corporation Oakland, Maryland Opinion on the Financial Statements We have audited the accompanying consolidated statement of financial condition of First United Corporation (the "Company") as of December 31, 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended, 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, 2021, and the results of its operations and its cash flows for the year then ended , 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 audit. 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 audit 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 audit 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 audit 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 audit provides 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 consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) 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 consolidated 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 Loan Losses – Qualitative Factors As more fully described in Note 9 to the consolidated financial statements, the Company estimates and records an allowance for loan losses for loans collectively evaluated for impairment by developing a loss rate based on historical losses and qualitative factors. Qualitative factors are used to adjust historical loss rates considering relevant factors such as national and local economic trends and conditions; levels and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit. The application of the adjustments for qualitative factors to the historical loss rate calculation is subjective. 56 Table of Contents The principal considerations for our determination that auditing the qualitative factors is a critical audit matter is the high degree of judgment involved in the assessment of the risk of loss associated with each risk factor. Our audit procedures included substantive testing related to the qualitative factors. Procedures included, among others: ● Evaluation of relevance and reliability of the data used to determine the qualitative factors and agreed to source documentation. ● Evaluation of management judgments involved in the assessment of the qualitative factors, including the reasonableness and appropriateness of the magnitude of the adjustments for the factors, and the resulting allocation to the allowance. ● Testing the mathematical accuracy of the allowance calculation, including the calculation of the qualitative allowance, which included the accuracy of the allocation of the qualitative factors. /s/ Crowe LLP We have served as the Company's auditor since 2021. Washington, D.C. March 25, 2022 ​ ​ 57 Table of Contents Report of Independent Registered Public Accounting Firms To the Shareholders and Board of Directors of First United Corporation and Subsidiaries Opinion on the Financial Statements ​ We have audited the accompanying consolidated statement of financial condition of First United Corporation and Subsidiaries (Corporation) as of December 31, 2020, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Corporation as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. ​ Basis for Opinion ​ These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on the Corporation's consolidated financial statements based on our audit. 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 Corporation 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 audit 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 consolidated financial statements are free of material misstatement, whether due to error or fraud. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ ​ /s/ Baker Tilly US, LLP ​ We served as the Corporation’s auditor from 2006 to 2021. ​ Pittsburgh, Pennsylvania March 25, 2021 ​ ​ ​ 58 Table of Contents First United Corporation and Subsidiaries Consolidated Statements of Financial Condition (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2021 2020 Assets ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 109,823 ​ $ 146,673 Interest bearing deposits in banks ​ ​ 5,897 ​ ​ 2,759 Cash and cash equivalents ​ ​ 115,720 ​ ​ 149,432 Investment securities – available-for-sale (at fair value) ​ ​ 286,771 ​ ​ 226,885 Investment securities – held to maturity (fair value of $ 65,369 at December 31, 2021 and $ 77,612 at December 31, 2020) ​ ​ 56,259 ​ ​ 68,263 Restricted investment in bank stock, at cost ​ ​ 1,029 ​ ​ 4,468 Loans held for sale (at lower of cost or fair value) ​ ​ 67 ​ ​ 3,546 Loans ​ ​ 1,153,687 ​ ​ 1,167,812 Unearned fees ​ ​ ( 292 ) ​ ​ ( 1,730 ) Allowance for loan losses ​ ​ ( 15,955 ) ​ ​ ( 16,486 ) Net loans ​ ​ 1,137,440 ​ ​ 1,149,596 Premises and equipment, net ​ ​ 34,697 ​ ​ 36,863 Goodwill and other intangibles ​ ​ 12,052 ​ ​ 11,004 Bank owned life insurance ​ ​ 45,150 ​ ​ 43,974 Deferred tax assets ​ ​ 6,857 ​ ​ 7,972 Other real estate owned ​ ​ 4,477 ​ ​ 9,386 Right of use assets ​ ​ 2,247 ​ ​ 2,408 Trust receivable ​ ​ 8,650 ​ ​ 7,446 Pension Asset ​ ​ 4,765 ​ ​ — Accrued interest receivable ​ ​ 4,821 ​ ​ 6,241 Other assets ​ ​ 8,836 ​ ​ 5,930 Total Assets ​ $ 1,729,838 ​ $ 1,733,414 Liabilities and Shareholders’ Equity ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Non-interest bearing deposits ​ $ 501,627 ​ $ 420,427 Interest bearing deposits ​ ​ 967,747 ​ ​ 1,001,939 Total deposits ​ ​ 1,469,374 ​ ​ 1,422,366 Short-term borrowings ​ ​ 57,699 ​ ​ 49,160 Long-term borrowings ​ ​ 30,929 ​ ​ 100,929 Operating lease liability ​ ​ 2,761 ​ ​ 2,958 SERP deferred compensation ​ ​ 10,395 ​ ​ 9,300 Accrued interest payable and other liabilities ​ ​ 15,787 ​ ​ 16,744 Dividends payable ​ ​ 993 ​ ​ 910 Total Liabilities ​ ​ 1,587,938 ​ ​ 1,602,367 Shareholders’ Equity: ​ ​ ​ ​ ​ ​ Common Stock – par value $ 0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,620,955 shares at December 31, 2021 and 6,992,911 shares at December 31, 2020 ​ ​ 66 ​ ​ 70 Surplus ​ ​ 23,661 ​ ​ 30,149 Retained earnings ​ ​ 145,487 ​ ​ 129,691 Accumulated other comprehensive loss ​ ​ ( 27,314 ) ​ ​ ( 28,863 ) Total Shareholders’ Equity ​ ​ 141,900 ​ ​ 131,047 Total Liabilities and Shareholders’ Equity ​ $ 1,729,838 ​ $ 1,733,414 ​ See notes to consolidated financial statements ​ 59 Table of Contents First United Corporation and Subsidiaries Consolidated Statements of Income (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 Interest income ​ ​ ​ ​ ​ ​ Interest and fees on loans ​ $ 52,952 ​ $ 52,155 Interest on investment securities ​ ​ ​ ​ ​ ​ Taxable ​ ​ 3,912 ​ ​ 4,526 Exempt from federal income tax ​ ​ 1,077 ​ ​ 1,084 Total investment income ​ ​ 4,989 ​ ​ 5,610 Other ​ ​ 315 ​ ​ 436 Total interest income ​ ​ 58,256 ​ ​ 58,201 Interest expense ​ ​ ​ ​ ​ ​ Interest on deposits ​ ​ 3,473 ​ ​ 6,356 Interest on short-term borrowings ​ ​ 86 ​ ​ 94 Interest on long-term borrowings ​ ​ 2,155 ​ ​ 3,205 Total interest expense ​ ​ 5,714 ​ ​ 9,655 Net interest income ​ ​ 52,542 ​ ​ 48,546 Provision/(credit) for loan losses ​ ​ ( 817 ) ​ ​ 5,401 Net interest income after provision for loan losses ​ ​ 53,359 ​ ​ 43,145 Other operating income ​ ​ ​ ​ ​ ​ Net gains ​ ​ 1,195 ​ ​ 2,788 Service charges on deposit accounts ​ ​ 1,771 ​ ​ 1,929 Other service charges ​ ​ 909 ​ ​ 699 Trust department ​ ​ 8,650 ​ ​ 7,446 Debit card income ​ ​ 3,644 ​ ​ 2,902 Bank owned life insurance ​ ​ 1,176 ​ ​ 1,253 Brokerage commissions ​ ​ 1,082 ​ ​ 1,004 Insurance reimbursement ​ ​ 1,375 ​ ​ — Other ​ ​ 912 ​ ​ 556 Total other income ​ ​ 19,519 ​ ​ 15,789 Total other operating income ​ ​ 20,714 ​ ​ 18,577 Other operating expenses ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 22,061 ​ ​ 21,079 FDIC premiums ​ ​ 772 ​ ​ 611 Equipment ​ ​ 3,898 ​ ​ 3,904 Occupancy ​ ​ 2,775 ​ ​ 2,860 Data processing ​ ​ 3,204 ​ ​ 3,981 Marketing ​ ​ 535 ​ ​ 573 Professional services ​ ​ 3,528 ​ ​ 4,204 Contract labor ​ ​ 638 ​ ​ 641 Line rentals ​ ​ 737 ​ ​ 864 (Gains)/losses on sales and write downs of foreclosed real estate, net ​ ​ ( 945 ) ​ ​ 11 Investor relations ​ ​ 676 ​ ​ 1,277 Settlement expense ​ ​ 3,300 ​ ​ — FHLB prepayment expense ​ ​ 2,368 ​ ​ — Contributions ​ ​ 1,220 ​ ​ 127 Other ​ ​ 2,997 ​ ​ 3,802 Total other operating expenses ​ ​ 47,764 ​ ​ 43,934 Income before income tax expense ​ $ 26,309 ​ $ 17,788 Provision for income tax expense ​ ​ 6,539 ​ ​ 3,947 Net Income ​ $ 19,770 ​ $ 13,841 Basic net income per share ​ $ 2.95 ​ $ 1.98 Diluted net income per share ​ $ 2.95 ​ $ 1.97 Weighted average number of basic shares outstanding ​ ​ 6,710 ​ ​ 7,004 Weighted average number of diluted shares outstanding ​ ​ 6,717 ​ ​ 7,013 ​ See notes to consolidated financial statements ​ 60 Table of Contents First United Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, Comprehensive Income 2021 2020 Net Income ​ $ 19,770 ​ $ 13,841 Other comprehensive income/(losses), net of tax and reclassification adjustments ​ ​ ​ ​ ​ ​ Available for sale securities: ​ ​ ​ ​ ​ ​ Unrealized holding gains/(losses) on investments with OTTI ​ ​ 3,379 ​ ​ ( 803 ) Reclassification adjustment for (gains) realized in income ​ ​ 201 ​ ​ 202 Other comprehensive income/(losses) on investments with OTTI ​ ​ 3,178 ​ ​ ( 1,005 ) ​ ​ ​ ​ ​ ​ ​ Unrealized holding (losses)/gains on all other AFS investments ​ ​ ( 7,661 ) ​ ​ 1,765 Reclassification adjustment for (gains) realized in income ​ ​ 154 ​ ​ 632 Other comprehensive (losses)/income on all other AFS investments ​ ​ ( 7,815 ) ​ ​ 1,133 ​ ​ ​ ​ ​ ​ ​ Held to maturity securities: ​ ​ ​ ​ ​ ​ Unrealized holding gains/(losses) on HTM investments ​ ​ — ​ ​ — Reclassification adjustment for (gains) realized in income ​ ​ ( 247 ) ​ ​ ( 798 ) Other comprehensive income on HTM investments ​ ​ 247 ​ ​ 798 ​ ​ ​ ​ ​ ​ ​ Cash flow hedges: ​ ​ ​ ​ ​ ​ Unrealized holding gains/(losses) on cash flow hedges ​ ​ 867 ​ ​ ( 1,187 ) Reclassification adjustment for (gains) realized in income ​ ​ — ​ ​ ​ Other comprehensive income/(losses) on cash flow hedges ​ ​ 867 ​ ​ ( 1,187 ) ​ ​ ​ ​ ​ ​ ​ Pension plan liability: ​ ​ ​ ​ ​ ​ Unrealized holding gains/(losses) on pension plan liability ​ ​ 4,684 ​ ​ ( 4,456 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 1,490 ) ​ ​ ( 1,433 ) Other comprehensive income/(losses) on pension plan liability ​ ​ 6,174 ​ ​ ( 3,023 ) ​ ​ ​ ​ ​ ​ ​ SERP liability: ​ ​ ​ ​ ​ ​ Unrealized holding losses on SERP liability ​ ​ ( 711 ) ​ ​ ( 854 ) Reclassification adjustment for (gains) realized in income ​ ​ ( 175 ) ​ ​ ( 188 ) Other comprehensive losses on SERP liability ​ ​ ( 536 ) ​ ​ ( 666 ) ​ ​ ​ ​ ​ ​ ​ Other comprehensive income/(losses) before income tax ​ ​ 2,115 ​ ​ ( 3,950 ) Income tax (expense)/benefit related to other comprehensive income ​ ​ ( 566 ) ​ ​ 1,058 ​ ​ ​ ​ ​ ​ ​ Other comprehensive income/(loss), net of tax ​ ​ 1,549 ​ ​ ( 2,892 ) Comprehensive Income ​ $ 21,319 ​ $ 10,949 ​ See notes to consolidated financial statements ​ 61 Table of Contents First United Corporation and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity (In thousands, except number of shares) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock Surplus Retained Earnings Accumulated Other Comprehensive Loss, net of tax Total Shareholders' Equity Balance at January 1, 2020 ​ $ 71 ​ ​ 32,359 ​ ​ 119,481 ​ ​ ( 25,971 ) ​ ​ 125,940 Net income ​ ​ ​ ​ ​ ​ ​ ​ 13,841 ​ ​ ​ ​ ​ 13,841 Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 2,892 ) ​ ​ ( 2,892 ) Common stock issued - 28,180 shares ​ ​ ​ ​ ​ 198 ​ ​ ​ ​ ​ ​ ​ ​ 198 Common stock dividend declared - $ 0.52 per share ​ ​ ​ ​ ​ ​ ​ ​ ( 3,631 ) ​ ​ ​ ​ ​ ( 3,631 ) Stock based compensation ​ ​ ​ ​ ​ 345 ​ ​ ​ ​ ​ ​ ​ ​ 345 Stock repurchase - 145,291 shares ​ ​ ( 1 ) ​ ​ ( 2,753 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 2,754 ) Balance at December 31, 2020 ​ ​ 70 ​ ​ 30,149 ​ ​ 129,691 ​ ​ ( 28,863 ) ​ ​ 131,047 Net income ​ ​ ​ ​ ​ ​ ​ ​ 19,770 ​ ​ ​ ​ ​ 19,770 Other comprehensive income, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,549 ​ ​ 1,549 Common stock issued- 28,044 shares ​ ​ ​ ​ ​ 215 ​ ​ ​ ​ ​ ​ ​ ​ 215 Common stock dividend declared - $ 0.60 per share ​ ​ ​ ​ ​ ​ ​ ​ ( 3,974 ) ​ ​ ​ ​ ​ ( 3,974 ) Stock based compensation ​ ​ ​ ​ ​ 472 ​ ​ ​ ​ ​ ​ ​ ​ 472 Stock repurchase - 400,000 shares ​ ​ ( 4 ) ​ ​ ( 7,175 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 7,179 ) Balance at December 31, 2021 ​ $ 66 ​ $ 23,661 ​ $ 145,487 ​ $ ( 27,314 ) ​ $ 141,900 ​ See notes to consolidated financial statements ​ 62 Table of Contents First United Corporation and Subsidiaries Consolidated Statements of Cash Flows (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 Operating activities ​ ​ ​ ​ ​ ​ Net income ​ $ 19,770 ​ $ 13,841 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Provision/(credit) for loan losses ​ ​ ( 817 ) ​ ​ 5,401 Depreciation ​ ​ 3,269 ​ ​ 3,301 Stock based compensation ​ ​ 472 ​ ​ 345 Gains on sales of other real estate owned ​ ​ ( 1,372 ) ​ ​ ( 130 ) Write-downs of other real estate owned ​ ​ 59 ​ ​ 116 Origination of loans held for sale ​ ​ ( 28,426 ) ​ ​ ( 73,797 ) Proceeds from sales of loans held for sale ​ ​ 33,020 ​ ​ 74,403 Gains on sales of loans held for sale ​ ​ ( 1,115 ) ​ ​ ( 2,403 ) (Gain)/loss on disposal of fixed assets ​ ​ ( 15 ) ​ ​ 150 Net amortization of investment securities discounts and premiums- AFS ​ ​ 1,001 ​ ​ 382 Net amortization of investment securities discounts and premiums- HTM ​ ​ 311 ​ ​ 352 Net gain on sales of investment securities – available-for-sale ​ ​ ( 154 ) ​ ​ ( 632 ) Net losses on calls of investment securities – held to maturity ​ ​ 54 ​ ​ 97 Loss on equity investment ​ ​ 35 ​ ​ — Amortization of deferred loan fees ​ ​ ( 4,045 ) ​ ​ ( 2,683 ) Deferred tax expense ​ ​ 550 ​ ​ 527 Earnings on bank owned life insurance ​ ​ ( 1,176 ) ​ ​ ( 1,253 ) Amortization of operating lease right of use asset ​ ​ 161 ​ ​ 253 Operating lease liability ​ ​ ( 197 ) ​ ​ ( 281 ) Increase in accrued interest receivable and other assets ​ ​ ( 1,601 ) ​ ​ ( 6,830 ) Increase in accrued interest payable and other liabilities ​ ​ 237 ​ ​ 5,010 Net cash provided by operating activities ​ ​ 20,021 ​ ​ 16,169 Investing activities ​ ​ ​ ​ ​ ​ Proceeds from maturities/calls of investment securities available-for-sale ​ ​ 48,464 ​ ​ 45,595 Proceeds from maturities/calls of investment securities held-to-maturity ​ ​ 17,971 ​ ​ 46,926 Proceeds from sales of investment securities available-for-sale ​ ​ 13,687 ​ ​ 43,278 Purchases of investment securities available-for-sale ​ ​ ( 127,526 ) ​ ​ ( 184,079 ) Purchases of investment securities held-to-maturity ​ ​ ( 6,332 ) ​ ​ ( 21,658 ) Proceeds from sales of other real estate owned ​ ​ 6,222 ​ ​ 2,175 Proceeds from disposal of fixed assets ​ ​ 39 ​ ​ — Proceeds from BOLI ​ ​ — ​ ​ 728 Net decrease/(increase) in FHLB stock ​ ​ 3,439 ​ ​ ( 53 ) Net decrease/(increase) in loans ​ ​ 85,962 ​ ​ ( 122,589 ) Purchases of loans ​ ​ ( 68,944 ) ​ ​ — Purchase of wealth portfolio ​ ​ ( 280 ) ​ ​ — Purchases of premises and equipment ​ ​ ( 1,127 ) ​ ​ ( 1,604 ) Net cash used in investing activities ​ ​ ( 28,425 ) ​ ​ ( 191,281 ) Financing activities ​ ​ ​ ​ ​ ​ Net increase in deposits ​ ​ 47,008 ​ ​ 280,335 Proceeds from issuance of common stock ​ ​ 215 ​ ​ 198 Cash dividends paid on common stock ​ ​ ( 3,891 ) ​ ​ ( 3,646 ) Net increase in short-term borrowings ​ ​ 8,539 ​ ​ 432 Stock repurchase ​ ​ ( 7,179 ) ​ ​ ( 2,754 ) Payments on long-term borrowings ​ ​ ( 70,000 ) ​ ​ — Net cash (used)/provided by financing activities ​ ​ ( 25,308 ) ​ ​ 274,565 (Decrease)/increase in cash and cash equivalents ​ ​ ( 33,712 ) ​ ​ 99,453 Cash and cash equivalents at beginning of the year ​ ​ 149,432 ​ ​ 49,979 Cash and cash equivalents at end of period ​ $ 115,720 ​ $ 149,432 Supplemental information ​ ​ ​ ​ ​ ​ Interest paid ​ $ 5,968 ​ $ 9,763 Taxes paid ​ $ 5,657 ​ $ 1,210 Non-cash investing activities: ​ ​ ​ ​ ​ ​ Transfers from loans to other real estate owned ​ $ — ​ $ 7,420 ​ See notes to consolidated financial statements ​ 63 Table of Contents 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 two consumer finance company subsidiaries - OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company - and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure - First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company. In addition, the Bank owns 99.9 % of the limited partnership interests in Liberty Mews Limited Partnership, a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland (“Liberty Mews”), and a 99.9 % non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland (the “MCC Fund”). First United Corporation and its subsidiaries operate principally in four counties in Western Maryland and four counties in West Virginia. As used in these Notes, the terms “the Corporation”, “we”, “us”, and “our” mean First United Corporation and, unless the context clearly suggests otherwise, its consolidated subsidiaries. Basis of Presentation The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“U.S. GAAP”). 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. Material estimates that are particularly susceptible to change include: (1) the allowance for loan losses and (2) fair values of available for sale debt securities based on estimates from independent valuation services or from brokers. Principles of Consolidation The consolidated financial statements of the Corporation include the accounts of First United Corporation, the Bank, the OakFirst Loan Centers, First OREO Trust and FUBT OREO I, LLC. 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, 2021, approximately 11 %, or $ 128.1 million, of total loans were secured by real estate acquisition, construction and development projects, with $ 127.5 million performing according to their contractual terms and $ 0.6 million considered to be impaired based on management’s concerns about the borrowers’ ability to comply with present repayment terms. Of the $ 0.6 million in impaired loans, $ 0.4 million were performing, and $ 0.2 million were classified as troubled debt restructurings (“TDRs”) performing in accordance with their modified terms. There were no 64 Table of Contents non-performing loans at December 31, 2021. Additionally, loans collateralized by commercial rental properties represented 16 % of the total loan portfolio as of December 31, 2021. Note 8 discusses the types of securities in which the Corporation invests and Note 9 discusses the Corporation’s lending activities. Investments The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities . Securities bought and held principally for the purpose of selling them in the near term are classified as trading account securities and reported at fair value with unrealized gains and losses included in net gains/losses in other operating income. Securities purchased with the intent and ability to hold the securities to maturity are classified as held-to-maturity securities and are recorded at amortized cost. All other investment securities are classified as available-for-sale. These securities are held for an indefinite period of time and may be sold in response to changing market and interest rate conditions or for liquidity purposes as part of our overall asset/liability management strategy. Available-for-sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of other comprehensive income included in the consolidated statement of comprehensive income, net of applicable income taxes. 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. Management systematically evaluates securities for other than temporary impairment on a quarterly basis. Based upon application of accounting guidance for subsequent measurement in ASC Topic 320 (ASC Section 320-10-35), management assesses whether (i) the Corporation has the intent to sell a security being evaluated and (ii) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery. If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components. The first is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses, which are recognized in other comprehensive loss. In estimating OTTI losses, management considers (a) the length of time and the extent to which the fair value has been less than cost, (b) adverse conditions specifically related to the security, an industry, or a geographic area, (c) the historic and implied volatility of the fair value of the security, (d) changes in the rating of the security by a rating agency, (e) recoveries or additional declines in fair value subsequent to the balance sheet date, (f) failure of the issuer of the security to make scheduled interest or principal payments, and (g) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets , (ASC Section 325-40-35). Management utilizes an independent third party to prepare both the impairment valuations and fair value determinations for its collateralized debt obligation (“CDO“) portfolio consisting of pooled trust preferred securities. Management performs due diligence on the third-party processes and believes that it has an adequate understanding of the analysis, assumptions and methodology used by the third party to prepare the fair value determination and the OTTI evaluation. Management reviews the qualifications of the third party and believes they are qualified to provide the analysis and pricing determinations. Quarterly, management reviews the third party’s detailed assumptions and analyzes its projected discounted present value results for reasonableness and consistency with the trend of prior projections. Annually, management performs stress tests of the assumptions used in the third party models and performs back tests of the assumptions and prepayment projections to validate the impairment model results. As a result of its due diligence process, the fair value presented and the OTTI recognized are appropriate. 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 65 Table of Contents 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. Therefore, adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments. Restricted Investment in Bank Stock Restricted stock, which represents required investments in the common stock of the Federal Home Loan Bank (“FHLB”) of Atlanta, Atlantic Community Bankers Bank and Community Banker’s Bank, is carried at cost and is considered a long-term investment. Management evaluates the restricted stock for OTTI in accordance with ASC Industry Topic 942, Financial Services – Depository and Lending (942-325-35). Management’s evaluation of potential impairment is based on its assessment of the ultimate recoverability of the cost of the restricted stock rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability is influenced by criteria such as (i) the significance of the decline in net assets of the issuing bank as compared to the capital stock amount for that bank and the length of time this situation has persisted, (ii) commitments by the issuing bank to make payments required by law or regulation and the level of such payments in relation to the operating performance of that bank, and (iii) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuing bank. Management has evaluated the restricted stock for impairment and believes that no impairment charge is necessary as of December 31, 2021 or 2020. The Corporation recognizes dividends on a cash basis. For the years ended December 31, 2021 and December 31, 2020, dividends of $ 134,836 and $ 212,252 , respectively, were recorded in other operating income. 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 determined on an individual basis. Loans held for sale were $ 0.1 million at December 31, 2021 and $ 3.5 million at December 31, 2020. 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 66 Table of Contents 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 loan 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 considered impaired 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. All non-accrual loans are considered to be impaired. 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 loans are charged-off based on an evaluation of the facts and circumstances of each individual loan. Allowance for Loan Losses An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. The Corporation’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement , for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies - Loss Contingencies , for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL. 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 impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment 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 for impairment, unless such loans are part of larger relationship that is impaired; otherwise loans in these segments are considered impaired when they are classified as non-accrual. Once the determination has been made that a loan is impaired, 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 67 Table of Contents 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 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 ALL 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. An unallocated component is maintained to cover uncertainties that could affect Management’s estimate of probable incurred loss. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio. This estimate, if changed only several basis points, could vary by several hundred thousand dollars. Therefore, management believes some level of unallocated allowance should be maintained to account for this imprecision 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 Corporation maintains an ALL on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is determined utilizing a methodology that is similar to that used to determine the ALL, modified to take into account the probability of a draw down on the commitment. This allowance is reported as a liability on the balance sheet within accrued interest payable and other liabilities. The balance in the liability account was $ 117,685 at December 31, 2021 and $ 109,559 at December 31, 2020. 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 10 to 31.5 years for buildings and 3 to 20 years for furniture and equipment. 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. 68 Table of Contents 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, 2021, other intangible assets included $ 1.0 million for the purchase of a wealth book of business. These assets are amortized over their estimated useful lives either on a straight-line or sum-of-the-years basis over varying periods that initially did not exceed 5 years . 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 ALL, 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 net expenses from other real estate owned. 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 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 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 69 Table of Contents 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 19 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. Net 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 25 for further discussion. Business Segments The Corporation operates in one segment, community banking, as defined by ASC Topic 280, Segment Reporting . The Corporation in its entirety is managed and evaluated on an ongoing basis by First United Corporation’s Board of Directors and executive management, with no division or subsidiary receiving separate analysis regarding performance or resource allocation. 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, $ 0.01 for common stock), and any excess over par value reduces capital surplus. The Corporation repurchased 400,000 shares of common stock at a weighted average price of $ 17.95 during 2021 and 145,291 shares of common stock at a weighted average price of $ 18.96 during 2020. Recent Accounting Pronouncements Recently issued but not yet effective Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchases financial assets with credit deterioration since their origination. The new model referred to as current expected credit losses (“CECL”) model, will apply to: (a) financial assets subject to credit losses and measured at amortized cost; and (b) certain off-balance sheet credit exposures. This includes loans, held to maturity debt securities, loan commitments, financial guarantees and net investments in leases as well as reinsurance and trade receivables. The estimate of expected credit losses should consider historical information, current information, and supportable forecasts, including estimates of prepayments. ASU 2016-13 was originally effective for SEC filers for annual periods beginning after December 15, 2019, and interim periods within those annual periods. In November 2019, the FASB approved a delay of the required implementation date of ASU No. 2016-13 for smaller reporting companies, as defined by the Securities and Exchange Commission, including the Corporation, resulting in a required implementation date for the Corporation of January 1, 2023. Management has formed a focus group consisting of multiple members from areas, including credit, finance, loan servicing, reporting, and information systems. The Corporation is completing its data and model validation analyses, with parallel processing of our existing allowance for loan losses model with the CECL model to follow. The Corporation is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the financial condition or results of operations. 70 Table of Contents In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848).” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. The ASU is effective as of March 12, 2020 through December 31, 2022. The Corporation is in the process of evaluating the impact of this standard on the loan portfolio, investment portfolio, long term debt and interest rate swaps, but believes that its adoption will not have a material impact on the Corporation’s financial condition or results of operations. 2. Subsequent Event Subsequent to December 31, 2021, the Company transferred investments that were classified as available for sale to the held to maturity classification. The investment securities had a cost basis of approximately $ 149.0 million and a fair market value of approximately $ 139.0 million at the time of transfer. There was no impact to the income statement as a result of the reclassification. This transfer was to mitigate the potential future impact to capital through accumulated other comprehensive loss in consideration of a rising interest rate environment and the impact of rising rates on the market value of the fixed income bond portfolio. The Company believes that it maintains sufficient liquidity for future business needs. 3. COVID-19 Paycheck Protection Program (“PPP”) ​ The Corporation continued to actively participate in the PPP administered by the Small Business Administration (the “SBA”). On January 19, 2021, the SBA implemented a third round of funding for PPP loans. During 2020, a total of $ 148.9 million in PPP loans were originated under the first two rounds of funding, consisting of 1,174 loans with an average loan size of $ 162 thousand. During 2021, a total of $ 66.1 million in PPP loans were originated under the third round of funding, consisting of 870 loans with an average loan size of $ 80 thousand. Net fees recognized in 2021 were $ 4.0 million due to amortization and forgiveness, compared to $ 2.0 million in 2020. During 2020, 290 loans, totaling $ 34.5 million were forgiven, resulting in 884 loans with a remaining balance of $ 114.0 million at December 31, 2020. During 2021, an additional 1,631 loans with an aggregate principal balance of $ 172.6 million, were forgiven, resulting in 65 loans with a remaining balance of $ 7.7 million at December 31, 2021. Of the 2,044 PPP loans originated by the Bank since the PPP’s inception, 1,978 loans, totaling $ 207.5 million, have been forgiven through December 31, 2021 representing 97 % of the number of loans originated and 96 % 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 Coronavirus Aid, Relief, and Economic Security 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 December 31, 2021, total loan modifications of $ 9.4 million were performed in accordance with the CARES Act. This amount included 13 commercial loans related to real estate rental, food services and health care sectors. These loans are scheduled to return to contractual payment terms within the first quarter of 2022. ​ 4. Earnings Per Common Share Basic earnings per common share is derived by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period and does not include the effect of any 71 Table of Contents potentially dilutive common stock equivalents. Diluted earnings per share is derived by dividing net income available to common shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents. There were no anti-dilutive shares at December 31, 2021 or 2020. The following table sets forth the calculation of basic and diluted earnings per common share for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 ​ ​ ​ ​ ​ 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 ​ $ 19,770 ​ 6,710 ​ $ 2.95 ​ $ 13,841 ​ 7,004 ​ $ 1.98 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted Earnings Per Share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted stock units ​ ​ ​ ​ 7 ​ ​ ​ ​ ​ ​ ​ 9 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 19,770 ​ 6,717 ​ $ 2.95 ​ $ 13,841 ​ 7,013 ​ $ 1.97 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5. Net Gains The following table summarizes the gain/(loss) activity for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Net gains/(losses): ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ Realized gains ​ $ 370 ​ $ 817 Realized losses ​ ​ ( 216 ) ​ ​ ( 185 ) Held-to-Maturity: ​ ​ ​ ​ ​ ​ Realized losses ​ ​ ( 54 ) ​ ​ ( 97 ) Loss on equity investment ​ ​ ( 35 ) ​ ​ — Gains on sale of consumer loans ​ ​ 1,115 ​ ​ 2,403 Gain/(loss) on disposal of fixed assets ​ ​ 15 ​ ​ ( 150 ) Net gains ​ $ 1,195 ​ $ 2,788 ​ ​ 6. Regulatory 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 a number of funding sources, including an unsecured Fed Funds lines of credit with upstream correspondent banks; secured advances with the FHLB of Atlanta, which are collateralized by eligible one to four family residential mortgage loans, home equity lines of credit, and commercial real estate loans. Cash and securities may also be pledged as collateral. In addition, First United Corporation has a secured line of credit with the Fed Discount Window for use in borrowing funds up to 90 days, using municipal securities as collateral; brokered deposits, including CDs; and One Way Buy CDARS/ ICS funding, which is a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly. At December 31, 2021, the Bank had $ 130.0 million available through unsecured lines of credit with correspondent banks, $ 1.0 million through a secured line of credit with the Fed Discount Window and approximately $ 188.2 million at the FHLB. 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. 72 Table of Contents The following table presents our capital ratios for years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual ​ For Capital Adequacy Purposes ​ To Be Well Capitalized Under Prompt Corrective Action Provisions (in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to risk-weighted assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 187,029 ​ 14.97 % ​ ​ 99,986 ​ 8.00 % ​ ​ 124,983 ​ 10.00 % Tier 1 Capital (to risk-weighted assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 171,404 ​ 13.72 % ​ ​ 74,990 ​ 6.00 % ​ ​ 99,986 ​ 8.00 % Common Equity Tier 1 Capital (to risk-weighted assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 171,404 ​ 13.72 % ​ ​ 56,242 ​ 4.50 % ​ ​ 81,239 ​ 6.50 % Tier 1 Capital (to average assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 171,404 ​ 10.00 % ​ ​ 68,167 ​ 4.00 % ​ ​ 85,209 ​ 5.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual ​ For Capital Adequacy Purposes ​ To Be Well Capitalized Under Prompt Corrective Action Provisions (in thousands) ​ Amount ​ Ratio ​ Amount ​ Ratio ​ Amount ​ Ratio December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to risk-weighted assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 181,977 ​ 15.50 % ​ ​ 94,084 ​ 8.00 % ​ ​ 117,605 ​ 10.00 % Tier 1 Capital (to risk-weighted assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 167,276 ​ 14.25 % ​ ​ 70,563 ​ 6.00 % ​ ​ 94,084 ​ 8.00 % Common Equity Tier 1 Capital (to risk-weighted assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 167,276 ​ 14.25 % ​ ​ 52,922 ​ 4.50 % ​ ​ 76,443 ​ 6.50 % Tier 1 Capital (to average assets) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ First United Bank & Trust ​ ​ 167,276 ​ 9.81 % ​ ​ 67,643 ​ 4.00 % ​ ​ 84,554 ​ 5.00 % ​ ​ As of December 31, 2021 and 2020, the most recent notifications from the regulators categorized First United Corporation and the Bank as “well capitalized” under the regulatory framework for prompt corrective action. ​ 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 10 % of the Bank’s capital stock and surplus on a secured basis. In addition, dividends paid by the Bank to First United Corporation would be prohibited if the effect thereof would cause the Bank’s capital to be reduced below applicable minimum capital requirements. 7. Cash and Cash Equivalents Cash and due from banks, which represents vault cash in the retail offices and invested cash balances at the Federal Reserve, is carried at fair value. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2021 December 31, 2020 Cash and due from banks, weighted average interest rate of 0.10 % and 0.18 % (at December 31, 2021 and 2020) ​ $ 109,823 ​ $ 146,673 ​ 73 Table of Contents Interest bearing deposits in banks, which represent funds invested at a correspondent bank, are carried at fair value and, as of December 31, 2021 and 2020, consisted of daily funds invested at the FHLB of Atlanta. In addition, at December 31, 2021, cash was pledged at Raymond James for the interest rate swap. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2021 December 31, 2020 FHLB daily investments, interest rate of 0.01 % and 0.36 % (at December 31, 2021 and 2020) ​ $ 3,897 ​ $ 759 Raymond James pledged cash, interest rate of 0.07 % and 0.09 % (at December 31, 2021 and 2020) ​ ​ 2,000 ​ ​ 2,000 ​ ​ $ 5,897 ​ $ 2,759 ​ ​ 8. Investment Securities The following table shows a comparison of amortized cost and fair values of investment securities at December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value OTTI in AOCL December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 69,602 ​ $ 66 ​ $ 2,499 ​ $ 67,169 ​ $ — Residential mortgage-backed agencies ​ ​ 49,630 ​ ​ — ​ ​ 969 ​ ​ 48,661 ​ ​ — Commercial mortgage-backed agencies ​ ​ 51,694 ​ ​ 175 ​ ​ 1,001 ​ ​ 50,868 ​ ​ — Collateralized mortgage obligations ​ ​ 93,018 ​ ​ 84 ​ ​ 3,025 ​ ​ 90,077 ​ ​ — Obligations of states and political subdivisions ​ ​ 12,439 ​ ​ 371 ​ ​ 6 ​ ​ 12,804 ​ ​ — Collateralized debt obligations ​ ​ 18,609 ​ ​ 112 ​ ​ 1,529 ​ ​ 17,192 ​ ​ ( 660 ) Total available for sale ​ $ 294,992 ​ $ 808 ​ $ 9,029 ​ $ 286,771 ​ $ ( 660 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value OTTI in AOCL December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage-backed agencies ​ $ 30,634 ​ $ 649 ​ $ 436 ​ $ 30,847 ​ $ — Commercial mortgage-backed agencies ​ ​ 5,456 ​ ​ 145 ​ ​ — ​ ​ 5,601 ​ ​ — Obligations of states and political subdivisions ​ ​ 20,169 ​ ​ 8,752 ​ ​ — ​ ​ 28,921 ​ ​ — Total held to maturity ​ $ 56,259 ​ $ 9,546 ​ $ 436 ​ $ 65,369 ​ $ — ​ 74 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value OTTI in AOCL December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies $ 75,856 ​ $ 899 ​ $ 322 $ 76,433 $ — Residential mortgage-backed agencies ​ ​ 22,999 ​ ​ — ​ ​ 100 ​ ​ 22,899 ​ ​ — Commercial mortgage-backed agencies ​ ​ 32,549 ​ ​ 529 ​ ​ 36 ​ ​ 33,042 ​ ​ — Collateralized mortgage obligations ​ ​ 70,372 ​ ​ 266 ​ ​ 1 ​ ​ 70,637 ​ ​ — Obligations of states and political subdivisions ​ ​ 10,144 ​ ​ 470 ​ ​ — ​ ​ 10,614 ​ ​ — Collateralized debt obligations ​ ​ 18,544 ​ ​ — ​ ​ 5,284 ​ ​ 13,260 ​ ​ ( 3,839 ) Total available for sale ​ $ 230,464 ​ $ 2,164 ​ $ 5,743 ​ $ 226,885 ​ $ ( 3,839 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Fair Value OTTI in AOCL December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage-backed agencies ​ ​ 34,597 ​ $ 1,173 ​ $ 38 ​ ​ 35,732 ​ ​ — Commercial mortgage-backed agencies ​ ​ 11,716 ​ ​ 587 ​ ​ — ​ ​ 12,303 ​ ​ — Collateralized mortgage obligations ​ ​ 1,348 ​ ​ 58 ​ ​ — ​ ​ 1,406 ​ ​ — Obligations of states and political subdivisions ​ ​ 20,602 ​ ​ 7,569 ​ ​ — ​ ​ 28,171 ​ ​ — Total held to maturity ​ $ 68,263 ​ $ 9,387 ​ $ 38 ​ $ 77,612 ​ $ — ​ Proceeds from sales of available-for-sale securities and the realized gains and losses for the years ended December 31, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Proceeds ​ $ 13,687 ​ $ 43,278 Gross realized gains ​ ​ 370 ​ ​ 817 Gross realized losses ​ ​ 216 ​ ​ 185 ​ 75 Table of Contents 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, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 months ​ 12 months or more (in thousands) Fair Value Unrealized Losses Number of Investments Fair Value Unrealized Losses Number of Investments December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 23,577 ​ $ 122 ​ 3 ​ $ 33,972 ​ $ 2,377 ​ 6 Residential mortgage-backed agencies ​ ​ 29,507 ​ ​ 257 ​ 3 ​ ​ 19,154 ​ ​ 712 ​ 2 Commercial mortgage-backed agencies ​ ​ 32,177 ​ ​ 787 ​ 4 ​ ​ 5,211 ​ ​ 214 ​ 1 Collateralized mortgage obligations ​ ​ 24,322 ​ ​ 649 ​ 5 ​ ​ 43,076 ​ ​ 2,376 ​ 5 Obligations of states and political subdivisions ​ ​ 3,046 ​ ​ 6 ​ 1 ​ ​ — ​ ​ — ​ — Collateralized debt obligations ​ ​ — ​ ​ — ​ — ​ ​ 10,468 ​ ​ 1,529 ​ 5 Total available for sale ​ $ 112,629 ​ $ 1,821 ​ 16 ​ $ 111,881 ​ $ 7,208 ​ 19 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 months ​ 12 months or more (in thousands) Fair Value Unrecognized Losses Number of Investments Fair Value Unrecognized Losses Number of Investments December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage-backed agencies ​ $ 7,395 ​ $ 291 ​ 6 ​ $ 2,782 ​ $ 145 ​ 1 Total held to maturity ​ $ 7,395 ​ $ 291 ​ 6 ​ $ 2,782 ​ $ 145 ​ 1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 months ​ 12 months or more (in thousands) Fair Value Unrealized Losses Number of Investments Fair Value Unrealized Losses Number of Investments December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 39,611 ​ $ 322 ​ 7 ​ $ — ​ $ — ​ — Residential mortgage-backed agencies ​ ​ 22,899 ​ ​ 100 ​ 2 ​ ​ — ​ ​ — ​ — Commercial mortgage-backed agencies ​ ​ 16,034 ​ ​ 36 ​ 1 ​ ​ — ​ ​ — ​ — Collateralized mortgage obligations ​ ​ 39,628 ​ ​ 1 ​ 4 ​ ​ — ​ ​ — ​ — Collateralized debt obligations ​ ​ — ​ ​ — ​ — ​ ​ 13,260 ​ ​ 5,284 ​ 9 Total available for sale ​ $ 118,172 ​ $ 459 ​ 14 ​ $ 13,260 ​ $ 5,284 ​ 9 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than 12 months ​ 12 months or more (in thousands) Fair Value Unrecognized Losses Number of Investments Fair Value Unrecognized Losses Number of Investments December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage-backed agencies ​ $ 2,973 ​ $ 38 ​ 1 ​ $ — ​ $ — ​ — Total held to maturity ​ $ 2,973 ​ $ 38 ​ 1 ​ $ — ​ $ — ​ — ​ Each of these investment securities has been evaluated for OTTI. In performing a detailed cash flow analysis of each investment security, the Bank works with an independent third party to estimate expected cash flows and assist with the evaluation of OTTI. The cash flow analyses performed included the following assumptions: ● Default probabilities vary for each investment. ● Recoveries of 10 % for banks and 15 % for insurance companies with a two-year lag on all defaults and deferrals. 76 Table of Contents ● No prepayments for 5 years and then 5 % per annum for the remaining life of the investment. ● Our investment securities have been modeled using the above assumptions by independent third party using the forward London Inter-bank Offered Rate (“LIBOR”) There were no other than temporary impairment charges related to credit losses or sales of these securities during the years ended December 31, 2021 or 2020. Management performs due diligence on the third-party processes and has an adequate understanding of the analysis, assumptions and methodology used by the third party to prepare the fair value determination and the OTTI evaluation. Management reviews the qualifications of the third party and believes they are qualified to provide the analysis and pricing determinations. Quarterly, management reviews the third party’s detailed assumptions and analyzes its projected discounted present value results for reasonableness and consistency with the trend of prior projections. Annually, management performs stress tests of the assumptions used in the third party models and performs back tests of the assumptions and prepayment projections to validate the impairment model results. As a result of its due diligence process, the fair value presented and the OTTI recognized are appropriate. A total of $ 3.0 million in impairment losses was realized during the time period 2009 through 2011 on the CDO portfolio remaining at December 31, 2021. Due to the prior credit impairment, the securities in this portfolio have continued to be evaluated to determine whether any additional OTTI has occurred. Based on management’s review of the third-party evaluations, there were no material differences in the relative valuations between December 31, 2021 and December 31, 2020. Due to the duration and market value decline in the pooled trust preferred securities held in our portfolio, we performed more extensive testing on these securities for purposes of evaluating whether or not OTTI has occurred. The market for these securities as of December 31, 2021 was not active and markets for similar securities were also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive, as no new CDOs have been issued since 2007. There are currently very few market participants who are willing to effect transactions in these securities. The market values for these securities, or any securities other than those issued or guaranteed by the U.S. Department of the Treasury (the “Treasury”), are very depressed relative to historical levels. 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 December 31, 2021, (b) an income valuation approach technique (i.e. present value) that maximizes the use of relevant unobservable inputs and minimizes the use of observable 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 utilizes an independent third party to prepare both the evaluations of OTTI and the fair value determinations for the CDO portfolio. Management does not believe that there were any material differences in the OTTI evaluations and pricing between December 31, 2020 and December 31, 2021. The following table presents a cumulative roll-forward of the amount of OTTI charges related to credit losses which have been recognized in earnings for the trust preferred securities in the CDO portfolio held and not intended to be sold for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Balance of credit-related OTTI at January 1 ​ $ 2,244 ​ $ 2,446 Reduction for increases in cash flows expected to be collected ​ ​ ( 201 ) ​ ​ ( 202 ) Balance of credit-related OTTI at December 31 ​ $ 2,043 ​ $ 2,244 ​ 77 Table of Contents The amortized cost and estimated fair value of securities by contractual maturity at December 31, 2021 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 Cost Fair Value Contractual Maturity ​ ​ ​ ​ ​ ​ Available for sale: ​ ​ ​ ​ ​ ​ Due after one year through five years ​ $ 9,398 ​ $ 9,501 Due after five years through ten years ​ ​ 19,124 ​ ​ 19,044 Due after ten years ​ ​ 72,128 ​ ​ 68,620 ​ ​ ​ 100,650 ​ ​ 97,165 Residential mortgage-backed agencies ​ ​ 49,630 ​ ​ 48,661 Commercial mortgage-backed agencies ​ ​ 51,694 ​ ​ 50,868 Collateralized mortgage obligations ​ ​ 93,018 ​ ​ 90,077 Total available for sale ​ $ 294,992 ​ $ 286,771 Held to Maturity: ​ ​ ​ ​ ​ ​ Due after ten years ​ $ 20,169 ​ $ 28,921 ​ ​ ​ 20,169 ​ ​ 28,921 Residential mortgage-backed agencies ​ ​ 30,634 ​ ​ 30,847 Commercial mortgage-backed agencies ​ ​ 5,456 ​ ​ 5,601 Collateralized mortgage obligations ​ ​ — ​ ​ — Total held to maturity ​ $ 56,259 ​ $ 65,369 ​ At December 31, 2021 and 2020, investment securities with a value of $ 158.7 million and $ 137.1 million, respectively, were pledged as permitted or required to secure public deposits, for securities sold under agreements to repurchase as required or permitted by law and as collateral for borrowing capacity. ​ 9. Loans and Related Allowance for Loan Losses The following table summarizes the primary segments of the loan portfolio as of December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Total December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 2,365 ​ $ 629 ​ $ 90 ​ $ 2,644 ​ $ — ​ $ 5,728 Collectively evaluated for impairment ​ $ 371,926 ​ $ 127,448 ​ $ 180,886 ​ $ 402,042 ​ $ 65,657 ​ $ 1,147,959 Total loans ​ $ 374,291 ​ $ 128,077 ​ $ 180,976 ​ $ 404,686 ​ $ 65,657 ​ $ 1,153,687 December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 3,330 ​ $ 842 ​ $ — ​ $ 3,185 ​ $ 102 ​ $ 7,459 Collectively evaluated for impairment ​ $ 365,846 ​ $ 116,119 ​ $ 266,745 ​ $ 375,985 ​ $ 35,658 ​ $ 1,160,353 Total loans ​ $ 369,176 ​ $ 116,961 ​ $ 266,745 ​ $ 379,170 ​ $ 35,760 ​ $ 1,167,812 ​ In the ordinary course of business, executive officers and directors of the Corporation, including their families and companies in which certain directors are principal owners, were loan customers of the Bank. Changes in the dollar amount of loans outstanding to officers, directors and their associates were as follows for the year ended December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 Balance at January 1 ​ $ 8,857 Loans or advances ​ ​ 1,877 Changes due to change in status ​ ​ ( 3,910 ) Repayments ​ ​ ( 3,112 ) Balance at December 31 ​ $ 3,712 ​ ​ 78 Table of Contents The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard. There were no loans classified as Doubtful within the internal risk rating system as of December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Pass Special Mention Substandard Total December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 173,299 ​ $ 12,987 ​ $ 6,077 ​ $ 192,363 All other CRE ​ ​ 174,395 ​ ​ 2,357 ​ ​ 5,176 ​ ​ 181,928 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 19,924 ​ ​ — ​ ​ — ​ ​ 19,924 All other A&D ​ ​ 107,532 ​ ​ 218 ​ ​ 403 ​ ​ 108,153 Commercial and industrial ​ ​ 161,429 ​ ​ 5,071 ​ ​ 14,476 ​ ​ 180,976 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 338,832 ​ ​ — ​ ​ 5,624 ​ ​ 344,456 Residential mortgage – home equity ​ ​ 59,533 ​ ​ — ​ ​ 697 ​ ​ 60,230 Consumer ​ ​ 65,557 ​ ​ — ​ ​ 100 ​ ​ 65,657 Total ​ $ 1,100,501 ​ $ 20,633 ​ $ 32,553 ​ $ 1,153,687 December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 178,670 ​ $ 5,526 ​ $ 6,322 ​ $ 190,518 All other CRE ​ ​ 166,504 ​ ​ 5,664 ​ ​ 6,490 ​ ​ 178,658 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 18,920 ​ ​ — ​ ​ — ​ ​ 18,920 All other A&D ​ ​ 97,648 ​ ​ 17 ​ ​ 376 ​ ​ 98,041 Commercial and industrial ​ ​ 245,185 ​ ​ 8,867 ​ ​ 12,693 ​ ​ 266,745 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 309,177 ​ ​ 283 ​ ​ 6,117 ​ ​ 315,577 Residential mortgage – home equity ​ ​ 62,804 ​ ​ — ​ ​ 789 ​ ​ 63,593 Consumer ​ ​ 35,648 ​ ​ 3 ​ ​ 109 ​ ​ 35,760 Total ​ $ 1,114,556 ​ $ 20,360 ​ $ 32,896 ​ $ 1,167,812 ​ 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. The increase of $ 7.5 million in non-owner occupied offset the decreases in the commercial and industrial and all other commercial real estate categories of $ 3.8 million and $ 3.3 million, respectively. In accordance with the CARES Act, as of December 31, 2021, total loan modifications were $ 9.4 million. This amount included 13 commercial loans related to real estate rental, food services and health care sectors. These loans are scheduled to return to contractual payment terms within the first quarter of 2022. Of these 13 loans, five are classified as pass, six are classified as special mention, and two classified as substandard. The pandemic triggered the Bank to proactively communicate with borrowers initially based on types of industry deemed to be at a higher risk level (i.e. hospitality, accommodations, etc.). This was then expanded to our top borrowers regardless of industry. Discussions evolved into weekly meetings between borrowers and Bank personnel; with the goal being to provide assistance to the communities we serve. 79 Table of Contents The following table presents the classes of the loan portfolio at December 31, 2021 and December 31, 2020, summarized by the aging categories of performing loans and non-accrual loans. Loans under modification are reported as current in accordance with CARES Act requirements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Current 30-59 Day Past Due 60-89 Days Past Due 90 Days+ Past Due Total Past Due and still accruing Non- Accrual Total Loans December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 192,363 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 192,363 All other CRE ​ ​ 181,847 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 81 ​ ​ 181,928 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 19,924 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 19,924 All other A&D ​ ​ 107,763 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 390 ​ ​ 108,153 Commercial and industrial ​ ​ 180,676 ​ ​ 132 ​ ​ 78 ​ ​ — ​ ​ 210 ​ ​ 90 ​ ​ 180,976 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 340,429 ​ ​ 159 ​ ​ 2,222 ​ ​ 148 ​ ​ 2,529 ​ ​ 1,498 ​ ​ 344,456 Residential mortgage – home equity ​ ​ 59,485 ​ ​ 238 ​ ​ 104 ​ ​ — ​ ​ 342 ​ ​ 403 ​ ​ 60,230 Consumer ​ ​ 65,208 ​ ​ 268 ​ ​ 29 ​ ​ 152 ​ ​ 449 ​ ​ — ​ ​ 65,657 Total ​ $ 1,147,695 ​ $ 797 ​ $ 2,433 ​ $ 300 ​ $ 3,530 ​ $ 2,462 ​ $ 1,153,687 December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 190,510 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 8 ​ $ 190,518 All other CRE ​ ​ 177,360 ​ ​ 408 ​ ​ — ​ ​ — ​ ​ 408 ​ ​ 890 ​ ​ 178,658 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 18,920 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 18,920 All other A&D ​ ​ 97,660 ​ ​ 5 ​ ​ — ​ ​ 10 ​ ​ 15 ​ ​ 366 ​ ​ 98,041 Commercial and industrial ​ ​ 266,708 ​ ​ 37 ​ ​ — ​ ​ — ​ ​ 37 ​ ​ — ​ ​ 266,745 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 312,500 ​ ​ 63 ​ ​ 670 ​ ​ 710 ​ ​ 1,443 ​ ​ 1,634 ​ ​ 315,577 Residential mortgage – home equity ​ ​ 63,036 ​ ​ 80 ​ ​ 63 ​ ​ — ​ ​ 143 ​ ​ 414 ​ ​ 63,593 Consumer ​ ​ 35,473 ​ ​ 230 ​ ​ 26 ​ ​ 4 ​ ​ 260 ​ ​ 27 ​ ​ 35,760 Total ​ $ 1,162,167 ​ $ 823 ​ $ 759 ​ $ 724 ​ $ 2,306 ​ $ 3,339 ​ $ 1,167,812 ​ Non-accrual loans that have been subject to partial charge-offs totaled $ 0.5 million at December 31, 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 December 31, 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 increased to 0.31 % at December 31, 2021 compared to 0.20 % at December 31, 2020. ​ The ALL is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans. The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement , for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies - Loss Contingencies , for loans collectively evaluated for impairment, as well as the Interagency 80 Table of Contents Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ — ​ $ — ​ $ 28 ​ $ 36 ​ $ — ​ $ — ​ $ 64 Collectively evaluated for impairment ​ $ 6,032 ​ $ 2,615 ​ $ 2,432 ​ $ 3,448 ​ $ 934 ​ $ 430 ​ $ 15,891 Total ALL ​ $ 6,032 ​ $ 2,615 ​ $ 2,460 ​ $ 3,484 ​ $ 934 ​ $ 430 ​ $ 15,955 December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 4 ​ $ 13 ​ $ — ​ $ 40 ​ $ — ​ $ — ​ $ 57 Collectively evaluated for impairment ​ $ 5,539 ​ $ 2,326 ​ $ 2,584 ​ $ 5,110 ​ $ 370 ​ $ 500 ​ $ 16,429 Total ALL ​ $ 5,543 ​ $ 2,339 ​ $ 2,584 ​ $ 5,150 ​ $ 370 ​ $ 500 ​ $ 16,486 ​ 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, at December 31, 2021 and December 31, 2020, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired Loans with Specific Allowance ​ Impaired Loans with No Specific Allowance ​ Total Impaired Loans (in thousands) Recorded Investment Related Allowances Recorded Investment Recorded Investment Unpaid Principal Balance December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ — ​ $ — ​ $ 106 ​ $ 106 ​ $ 106 All other CRE ​ ​ — ​ ​ — ​ ​ 2,259 ​ ​ 2,259 ​ ​ 2,259 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ — ​ ​ — ​ ​ 239 ​ ​ 239 ​ ​ 239 All other A&D ​ ​ — ​ ​ — ​ ​ 390 ​ ​ 390 ​ ​ 1,599 Commercial and industrial ​ ​ 90 ​ ​ 28 ​ ​ — ​ ​ 90 ​ ​ 2,304 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 344 ​ ​ 31 ​ ​ 1,897 ​ ​ 2,241 ​ ​ 2,302 Residential mortgage – home equity ​ ​ 46 ​ ​ 5 ​ ​ 357 ​ ​ 403 ​ ​ 422 Consumer ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total impaired loans ​ $ 480 ​ $ 64 ​ $ 5,248 ​ $ 5,728 ​ $ 9,231 December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 111 ​ $ 4 ​ $ 8 ​ $ 119 ​ $ 119 All other CRE ​ ​ — ​ ​ — ​ ​ 3,211 ​ ​ 3,211 ​ ​ 3,211 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ — ​ ​ — ​ ​ 266 ​ ​ 266 ​ ​ 266 All other A&D ​ ​ 276 ​ ​ 13 ​ ​ 300 ​ ​ 576 ​ ​ 1,724 Commercial and industrial ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,214 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 936 ​ ​ 34 ​ ​ 1,910 ​ ​ 2,846 ​ ​ 3,031 Residential mortgage – home equity ​ ​ 76 ​ ​ 6 ​ ​ 339 ​ ​ 415 ​ ​ 447 Consumer ​ ​ — ​ ​ — ​ ​ 26 ​ ​ 26 ​ ​ 51 Total impaired loans ​ $ 1,399 ​ $ 57 ​ $ 6,060 ​ $ 7,459 ​ $ 11,063 ​ Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors. The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level. A historical charge-off factor is calculated utilizing a defined number of 81 Table of Contents consecutive historical quarters. Consumer pools currently utilize a rolling twelve quarters, while Commercial pools currently utilize a rolling eight quarters. “Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. The un-criticized (“pass”) pools for commercial and residential real estate are further segmented based upon the geographic location of the underlying collateral. There are seven geographic regions utilized – six that represent the Bank’s lending footprint and a seventh for all out-of-market credits. Different economic environments and resultant credit risks exist in each region that are acknowledged in the assignment of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors. Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are: (i) national and local economic trends and conditions; (ii) levels of and trends in delinquency rates and non-accrual loans; (iii) trends in volumes and terms of loans; (iv) effects of changes in lending policies; (v) experience, ability, and depth of lending staff; (vi) value of underlying collateral; and (vii) concentrations of credit from a loan type, industry and/or geographic standpoint. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Residential mortgage and consumer loans are charged off after they are 120 days contractually past due. All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral. The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy. There may be circumstances where due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized. This specific allocation may be either charged-off or removed depending upon the outcome of the pending event. Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. In most cases, loans with partial charge-offs remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL. Activity in the ALL is presented for the years ended December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total ALL balance at January 1, 2021 ​ $ 5,543 ​ $ 2,339 ​ $ 2,584 ​ $ 5,150 ​ $ 370 ​ $ 500 ​ $ 16,486 Charge-offs ​ ​ ( 14 ) ​ ​ ( 85 ) ​ ​ ( 2 ) ​ ​ ( 141 ) ​ ​ ( 396 ) ​ ​ — ​ ​ ( 638 ) Recoveries ​ ​ — ​ ​ 175 ​ ​ 513 ​ ​ 66 ​ ​ 170 ​ ​ — ​ ​ 924 Provision ​ ​ 503 ​ ​ 186 ​ ​ ( 635 ) ​ ​ ( 1,591 ) ​ ​ 790 ​ ​ ( 70 ) ​ ​ ( 817 ) ALL balance at December 31, 2021 ​ $ 6,032 ​ $ 2,615 ​ $ 2,460 ​ $ 3,484 ​ $ 934 ​ $ 430 ​ $ 15,955 ALL balance at January 1, 2020 ​ $ 2,882 ​ $ 3,674 ​ $ 1,341 ​ $ 3,828 ​ $ 312 ​ $ 500 ​ $ 12,537 Charge-offs ​ ​ — ​ ​ ( 1,172 ) ​ ​ ( 232 ) ​ ​ ( 217 ) ​ ​ ( 341 ) ​ ​ — ​ ​ ( 1,962 ) Recoveries ​ ​ 69 ​ ​ 37 ​ ​ 151 ​ ​ 83 ​ ​ 170 ​ ​ — ​ ​ 510 Provision ​ ​ 2,592 ​ ​ ( 200 ) ​ ​ 1,324 ​ ​ 1,456 ​ ​ 229 ​ ​ — ​ ​ 5,401 ALL balance at December 31, 2020 ​ $ 5,543 ​ $ 2,339 ​ $ 2,584 ​ $ 5,150 ​ $ 370 ​ $ 500 ​ $ 16,486 ​ The ALL is based on estimates, and actual losses will vary from current estimates. The granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the 82 Table of Contents 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 and related interest income recognized for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ 2020 (in thousands) Average investment Interest income recognized on an accrual basis Interest income recognized on a cash basis Average investment Interest income recognized on an accrual basis Interest income recognized on a cash basis Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 2,836 ​ $ 12 ​ $ — ​ $ 131 ​ $ 9 ​ $ — All other CRE ​ ​ 2,840 ​ ​ 118 ​ ​ 94 ​ ​ 3,203 ​ ​ 144 ​ ​ — Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 252 ​ ​ 11 ​ ​ — ​ ​ 278 ​ ​ 12 ​ ​ — All other A&D ​ ​ 557 ​ ​ 9 ​ ​ — ​ ​ 6,709 ​ ​ 12 ​ ​ 1 Commercial and industrial ​ ​ 18 ​ ​ — ​ ​ — ​ ​ 16 ​ ​ — ​ ​ — Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 2,561 ​ ​ 70 ​ ​ 5 ​ ​ 2,593 ​ ​ 82 ​ ​ — Residential mortgage – home equity ​ ​ 439 ​ ​ — ​ ​ — ​ ​ 604 ​ ​ — ​ ​ 4 Consumer ​ ​ 14 ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ — Total ​ $ 9,517 ​ $ 220 ​ $ 99 ​ $ 13,554 ​ $ 259 ​ $ 5 ​ In the normal course of business, the Bank modifies loan terms for various reasons. These reasons may include as a retention strategy to compete in the current interest rate environment, and to re-amortize or extend a loan term to better match the loan’s payment stream with the borrower’s cash flows. A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e. experiencing financial difficulties) and a concession has been granted. The Bank evaluates the probability that the borrower will be in payment default on any of its debt 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. See Note 3 for more details on loan modifications and the CARES Act. When the Bank restructures a loan to a troubled borrower, the loan terms (i.e. interest rate, payment, amortization period and/or maturity date) are modified in such a way to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms are only offered for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status. If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months. TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure. A loan may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months. Further, a loan that has been removed from TDR reporting status and has been subsequently re-modified at standard market terms, may be removed from impaired status as well. The volume, type and performance of TDR activity is considered in the assessment of the local economic trend qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment. There were 12 loans totaling $ 3.3 million and 14 loans totaling $ 4.0 million that were classified as TDRs at December 31, 2021 and December 31, 2020, respectively. The following table presents the volume and recorded 83 Table of Contents investment at the time of modification of TDRs by class and type of modification that occurred during the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Temporary Rate Modification ​ Extension of Maturity ​ Modification of Payment and Other Terms (Dollars in thousands) Number of Contracts Recorded Investment Number of Contracts Recorded Investment Number of Contracts Recorded Investment For the year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ — ​ $ — ​ 1 ​ $ 109 ​ — ​ $ — All other CRE ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — All other A&D ​ — ​ ​ — ​ 1 ​ ​ 202 ​ — ​ ​ — Commercial and industrial ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage – term ​ — ​ ​ — ​ 2 ​ ​ 299 ​ — ​ ​ — Residential mortgage – home equity ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Consumer ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Total ​ — ​ $ — ​ 4 ​ $ 610 ​ — ​ $ — For the year ended December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ — ​ $ — ​ — ​ $ — ​ — ​ $ — All other CRE ​ — ​ ​ — ​ — ​ ​ — ​ 1 ​ ​ 2,226 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — All other A&D ​ — ​ ​ — ​ 2 ​ ​ 430 ​ — ​ ​ 0 Commercial and industrial ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage – term ​ 1 ​ ​ 46 ​ 2 ​ ​ 457 ​ 3 ​ ​ 356 Residential mortgage – home equity ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Consumer ​ — ​ ​ — ​ — ​ ​ — ​ — ​ ​ — Total ​ 1 ​ $ 46 ​ 4 ​ $ 887 ​ 4 ​ $ 2,582 ​ During the years ended December 31, 2021 and 2020, there were no payment defaults. Also, there were no additional funds committed to be advanced in connection with TDRs at December 31, 2021 or 2020. 10. Other Real Estate Owned The following table presents the components of OREO, net of related valuation allowance, as of December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Commercial real estate ​ $ — ​ $ 945 Acquisition and development ​ ​ 4,477 ​ ​ 8,441 Residential mortgage ​ ​ — ​ ​ — Total OREO ​ $ 4,477 ​ $ 9,386 ​ The following table presents the activity in the OREO valuation allowance for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Balance January 1 ​ $ 1,010 ​ $ 1,790 Fair value write-down ​ ​ 59 ​ ​ 116 Sales of OREO ​ ​ ( 616 ) ​ ​ ( 896 ) Balance December 31 ​ $ 453 ​ $ 1,010 ​ 84 Table of Contents The following table presents the components of OREO expenses, net, for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Gains on real estate, net ​ $ ( 1,372 ) ​ $ ( 130 ) Fair value write-down ​ ​ 59 ​ ​ 116 Expenses, net ​ ​ 420 ​ ​ 184 Rental and other income ​ ​ ( 52 ) ​ ​ ( 159 ) Total OREO (income)/ expenses, net ​ $ ( 945 ) ​ $ 11 ​ ​ ​ 11. Premises and Equipment The following table presents the components of premises and equipment at December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2021 2020 Land ​ $ 6,953 ​ $ 6,953 Land Improvements ​ ​ 1,499 ​ ​ 1,411 Premises ​ ​ 34,685 ​ ​ 34,701 Furniture and Equipment ​ ​ 18,925 ​ ​ 18,113 ​ ​ ​ 62,062 ​ ​ 61,178 Less accumulated depreciation ​ ​ ( 27,365 ) ​ ​ ( 24,315 ) Total ​ $ 34,697 ​ $ 36,863 ​ The Corporation recorded depreciation expense of $ 3.3 million for each of the years ended December 31, 2021 and 2020. 12. Leases Substantially all of the leases in which the Corporation is the lessee are comprised of real estate property for branches, ATM locations, and office equipment with terms extending through 2030. All of the Corporation’s leases are classified as operating leases. The present value of lease payments is reported as a lease liability and right of use asset on the Corporation’s Consolidated Statement of Financial Condition. The following table represents the Consolidated Statements of Financial Condition classification of the Corporation’s ROU assets and lease liabilities. The Corporation elected not to include short-term leases (i.e., leases with remaining terms of 12 months or less), or equipment leases that were deemed immaterial on the Consolidated Statement of Financial Condition. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2021 December 31, 2020 Lease Right-of Use Assets ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 2,247 ​ $ 2,408 Lease Liabilities ​ ​ ​ ​ ​ ​ Operating lease liabilities ​ $ 2,761 ​ $ 2,958 ​ In calculating the present value of the lease payments, the Corporation has utilized its incremental borrowing rate based on electing the original lease term to account for each lease component. 85 Table of Contents The following table presents the weighted-average lease term and discount rate for operating leases at December 31, 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 Weighted-average remaining lease term ​ ​ ​ ​ Operating leases ​ 6.89 years ​ 7.77 years Weighted-average discount rate ​ ​ ​ ​ Operating leases ​ 5.03 % ​ 5.06 % ​ The Corporation elected, for all classes of underlying assets, to separate lease and non-lease components. Total operating lease expense was $ 0.5 million for the year ended December 31, 2021 and December 31, 2020. Short-term lease expense was $ 20 thousand for the year ended December 31, 2021 and December 31, 2020. Future minimum payments for operating leases with initial or remaining terms of one year or more at December 31, 2021 were as follows: ​ ​ ​ ​ ​ (in thousands) Amount 2022 ​ $ 518 2023 ​ ​ 457 2024 ​ ​ 457 2025 ​ ​ 457 2026 ​ ​ 403 Thereafter ​ ​ 1,005 Total future minimum lease payments ​ ​ 3,297 Amounts representing interest ​ ​ ( 536 ) Present value of net future minimum lease payments ​ $ 2,761 ​ ​ 13. Deposits Time deposits that exceed the FDIC insurance limit of $250,000 at December 31, 2021 and 2020 were $ 44.6 million and $ 68.6 million, respectively. At December 31, 2021 and 2020, $ 0.9 million and $ 0.2 million of deposit overdrafts were re-classified as loans respectively. The following is a summary of the scheduled maturities of all time deposits maturing within years ended December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) ​ Amount 2022 $ 110,012 2023 ​ ​ 24,081 2024 ​ ​ 22,793 2025 ​ ​ 4,428 2026 ​ ​ 1,836 Thereafter ​ ​ 79 Total ​ $ 163,229 ​ 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, 2021, executive officers and directors had approximately $ 11.4 million in deposits with the Bank compared to $ 11.2 million at December 31, 2020. 86 Table of Contents 14. Borrowed Funds The following is a summary of short-term borrowings at December 31, 2021 and 2020 with original maturities of less than one year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) 2021 2020 Securities sold under agreements to repurchase: ​ ​ ​ ​ ​ ​ Outstanding at end of year ​ $ 57,699 ​ $ 49,160 Weighted average interest rate at year end ​ ​ 0.15 % ​ ​ 0.19 % Maximum amount outstanding as of any month end ​ $ 72,396 ​ $ 55,290 Average amount outstanding ​ $ 57,697 ​ $ 46,519 Approximate weighted average rate during the year ​ ​ 0.15 % ​ ​ 0.20 % ​ Repurchase agreements were secured by $ 69.3 million in investment securities at December 31, 2021 and $ 68.3 million at December 31, 2020. In March 2004 , Trust I and Trust II issued preferred securities with an aggregate liquidation amount of $ 30.0 million to third-party investors and issued common equity with an aggregate liquidation amount of $ 0.9 million to First United Corporation. These Trusts used the proceeds of these offerings to purchase an equal amount of TPS Debentures, as follows: $ 20.6 million —floating rate payable quarterly based on three-month LIBOR plus 275 basis points ( 2.97 % at December 31, 2021), maturing in 2034 , became redeemable five years after issuance at First United Corporation’s option. $ 10.3 million --floating rate payable quarterly based on three-month LIBOR plus 275 basis points ( 2.97 % at December 31, 2021) maturing in 2034 , became redeemable five years after issuance at First United Corporation’s option. 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 20 quarterly periods, in which case distributions on the preferred securities will also be deferred. Should this occur, the Corporation may not pay dividends or distributions on, or repurchase, redeem or acquire any shares of its capital stock. The following is a summary of long-term borrowings at December 31, 2021 and 2020 with original maturities exceeding one year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2021 2020 FHLB advances, 0.00 % at December 31, 2021 and bearing fixed interest rates ranging from 1.37 % to 2.90 % at December 31, 2020 ​ $ — ​ $ 70,000 Junior subordinated debt ​ ​ 30,929 ​ ​ 30,929 Total long-term debt ​ $ 30,929 ​ $ 100,929 ​ 87 Table of Contents The contractual maturities of long-term borrowings at December 31, 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 ​ ​ Fixed ​ Floating ​ ​ ​ (in thousands) Rate Rate Total Due in 2022 ​ ​ — ​ ​ — ​ ​ — Due in 2023 ​ ​ — ​ ​ — ​ ​ — Due in 2024 ​ ​ — ​ ​ — ​ ​ — Due in 2025 ​ ​ — ​ ​ — ​ ​ — Due in 2026 ​ ​ — ​ ​ — ​ ​ — Thereafter ​ ​ — ​ ​ 30,929 ​ ​ 30,929 Total long-term debt ​ $ — ​ $ 30,929 ​ $ 30,929 ​ The Bank has a borrowing capacity agreement with the FHLB in an amount equal to 30 % of the Bank’s assets. The available line of credit equaled $ 520.1 million at December 31, 2021 and $ 515.2 million at December 31, 2020. This line of credit, which can be used for both short and long-term funding, can only be utilized to the extent of available collateral. The line is secured by certain qualified mortgage, commercial and home equity loans as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family mortgage loans $ 125,428 Commercial loans ​ ​ 38,174 Multi-family loans ​ ​ 8,522 Home equity loans ​ ​ 19,456 ​ ​ $ 191,580 ​ At December 31, 2021, $ 188.2 million was available for additional borrowings. The Bank also has various unsecured lines of credit totaling $ 130.0 million with various financial institutions and a $ 1.0 million secured line with the Federal Reserve to meet daily liquidity requirements. At December 31, 2021 and 2020, there were no borrowings under these credit facilities. Repurchase Agreements - The Bank has retail repurchase agreements with customers within its local market areas. Repurchase agreements generally have maturities of one to four days from the transaction date. These borrowings are collateralized with securities that we own and are held in safekeeping at independent correspondent banks. FHLB Advances - During 2021, the Company prepaid the $ 70.0 million of FHLB advances for a prepayment penalty of $ 2.4 million 15. Goodwill and Other Intangible Assets The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at December 31, 2021 and 2020 in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ December 31, 2020 (In thousands) ​ Gross Carrying Amount ​ ​ Accumulated Amortization ​ Net Carrying Amount Weighted Average Remaining Life ​ Gross Carrying Amount ​ ​ Accumulated Amortization ​ Net Carrying Amount Weighted Average Remaining Life ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizing intangible assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other intangibles ​ $ 1,048 ​ $ — ​ $ 1,048 5 years ​ $ — ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Goodwill ​ $ 11,004 ​ ​ ​ ​ $ 11,004 ​ ​ $ 11,004 ​ ​ ​ ​ $ 11,004 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 88 Table of Contents The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amount 2022 ​ $ 210 2023 ​ ​ 210 2024 ​ ​ 210 2025 ​ ​ 209 2026 ​ ​ 209 ​ ​ ​ ​ Total amortizing intangible assets ​ $ 1,048 ​ ​ ​ ​ ​ ​ ​ 16. Accumulated Other Comprehensive Loss (“AOCL”) The following table presents the changes in each component of accumulated other comprehensive loss for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Investment securities- with OTTI AFS Investment securities- all other AFS Investment securities- HTM Cash Flow Hedge Pension Plan SERP Total Accumulated OCL, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance - January 1, 2020 ​ $ ( 2,542 ) ​ $ ( 853 ) ​ $ ( 899 ) ​ $ ( 85 ) ​ $ ( 20,417 ) ​ $ ( 1,175 ) ​ $ ( 25,971 ) Other comprehensive income/(loss) before reclassifications ​ ​ ( 587 ) ​ ​ 1,291 ​ ​ — ​ ​ ( 869 ) ​ ​ ( 3,262 ) ​ ​ ( 625 ) ​ ​ ( 4,052 ) Amounts reclassified from accumulated other comprehensive loss ​ ​ ( 148 ) ​ ​ ( 463 ) ​ ​ 584 ​ ​ — ​ ​ 1,049 ​ ​ 138 ​ ​ 1,160 Balance - December 31, 2020 ​ $ ( 3,277 ) ​ $ ( 25 ) ​ $ ( 315 ) ​ $ ( 954 ) ​ $ ( 22,630 ) ​ $ ( 1,662 ) ​ $ ( 28,863 ) Other comprehensive income/(loss) before reclassifications ​ ​ 2,475 ​ ​ ( 5,611 ) ​ ​ — ​ ​ 635 ​ ​ 3,431 ​ ​ ( 521 ) ​ ​ 409 Amounts reclassified from accumulated other comprehensive loss ​ ​ ( 147 ) ​ ​ ( 113 ) ​ ​ 181 ​ ​ — ​ ​ 1,091 ​ ​ 128 ​ ​ 1,140 Balance - December 31, 2021 ​ $ ( 949 ) ​ $ ( 5,749 ) ​ $ ( 134 ) ​ $ ( 319 ) ​ $ ( 18,108 ) ​ $ ( 2,055 ) ​ $ ( 27,314 ) ​ 89 Table of Contents The following tables present the components of other comprehensive loss for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Components of Other Comprehensive Income (in thousands) Before Tax Amount Tax (Expense) Benefit Net For the year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale (AFS) securities with OTTI: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ $ 3,379 ​ $ ( 904 ) ​ $ 2,475 Less: accretable yield recognized in income ​ ​ 201 ​ ​ ( 54 ) ​ ​ 147 Net unrealized gains on investments with OTTI ​ ​ 3,178 ​ ​ ( 850 ) ​ ​ 2,328 Available for sale securities – all other: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ ​ ( 7,661 ) ​ ​ 2,050 ​ ​ ( 5,611 ) Less: gains recognized in income ​ ​ 154 ​ ​ ( 41 ) ​ ​ 113 Net unrealized losses on all other AFS securities ​ ​ ( 7,815 ) ​ ​ 2,091 ​ ​ ( 5,724 ) Held to maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ — ​ ​ — ​ ​ — Less: amortization recognized in income ​ ​ ( 247 ) ​ ​ 66 ​ ​ ( 181 ) Net unrealized gains on HTM securities ​ ​ 247 ​ ​ ( 66 ) ​ ​ 181 Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ 867 ​ ​ ( 232 ) ​ ​ 635 Less: amortization recognized in income ​ ​ — ​ ​ — ​ ​ — Net unrealized gains on cash flow hedges ​ ​ 867 ​ ​ ( 232 ) ​ ​ 635 Pension Plan: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial gain ​ ​ 4,684 ​ ​ ( 1,253 ) ​ ​ 3,431 Less: amortization of unrecognized loss ​ ​ ( 1,490 ) ​ ​ 399 ​ ​ ( 1,091 ) Less: amortization of prior service costs ​ ​ — ​ ​ — ​ ​ — Net pension plan liability adjustment ​ ​ 6,174 ​ ​ ( 1,652 ) ​ ​ 4,522 SERP: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial loss ​ ​ ( 711 ) ​ ​ 190 ​ ​ ( 521 ) Less: amortization of unrecognized loss ​ ​ ( 175 ) ​ ​ 47 ​ ​ ( 128 ) Less: amortization of prior service costs ​ ​ — ​ ​ — ​ ​ — Net SERP liability adjustment ​ ​ ( 536 ) ​ ​ 143 ​ ​ ( 393 ) Other comprehensive income ​ $ 2,115 ​ $ ( 566 ) ​ $ 1,549 ​ 90 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Components of Other Comprehensive Loss (in thousands) Before Tax Amount Tax (Expense) Benefit Net For the year ended December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale (AFS) securities with OTTI: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ $ ( 803 ) ​ $ 216 ​ $ ( 587 ) Less: accretable yield recognized in income ​ ​ 202 ​ ​ ( 54 ) ​ ​ 148 Net unrealized losses on investments with OTTI ​ ​ ( 1,005 ) ​ ​ 270 ​ ​ ( 735 ) Available for sale securities – all other: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ 1,765 ​ ​ ( 474 ) ​ ​ 1,291 Less: gains recognized in income ​ ​ 632 ​ ​ ( 169 ) ​ ​ 463 Net unrealized losses on all other AFS securities ​ ​ 1,133 ​ ​ ( 305 ) ​ ​ 828 Held to maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ — ​ ​ — ​ ​ — Less: amortization recognized in income ​ ​ ( 798 ) ​ ​ 214 ​ ​ ( 584 ) Net unrealized gains on HTM securities ​ ​ 798 ​ ​ ( 214 ) ​ ​ 584 Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ ​ ( 1,187 ) ​ ​ 318 ​ ​ ( 869 ) Less: amortization recognized in income ​ ​ — ​ ​ — ​ ​ — Net unrealized losses on cash flow hedges ​ ​ ( 1,187 ) ​ ​ 318 ​ ​ ( 869 ) Pension Plan: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial loss ​ ​ ( 4,456 ) ​ ​ 1,194 ​ ​ ( 3,262 ) Less: amortization of unrecognized loss ​ ​ ( 1,433 ) ​ ​ 384 ​ ​ ( 1,049 ) Net pension plan liability adjustment ​ ​ ( 3,023 ) ​ ​ 810 ​ ​ ( 2,213 ) SERP: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial loss ​ ​ ( 854 ) ​ ​ 229 ​ ​ ( 625 ) Less: amortization of unrecognized loss ​ ​ ( 188 ) ​ ​ 50 ​ ​ ( 138 ) Less: amortization of prior service costs ​ ​ — ​ ​ — ​ ​ — Net SERP liability adjustment ​ ​ ( 666 ) ​ ​ 179 ​ ​ ( 487 ) Other comprehensive loss ​ $ ( 3,950 ) ​ $ 1,058 ​ $ ( 2,892 ) ​ 91 Table of Contents The following tables present the details of accumulated other comprehensive loss components for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ Details of Accumulated Other Comprehensive Loss Components ​ Amount Reclassified from Accumulated Other Comprehensive Loss ​ Affected Line Item in the Statement (in thousands) 2021 Where Net Income is Presented Net unrealized losses on investment securities with OTTI: ​ ​ ​ ​ ​ Accretable Yield ​ $ 201 ​ Interest income on taxable investment securities Taxes ​ ​ ( 54 ) ​ Provision for income tax expense ​ ​ $ 147 ​ Net of tax Net unrealized gains on available for sale investment securities - all other: ​ ​ ​ ​ ​ Gains on sales ​ $ 154 ​ Net gains Taxes ​ ​ ( 41 ) ​ Provision for income tax expense ​ ​ $ 113 ​ Net of tax Net unrealized gains on held to maturity investment securities: ​ ​ ​ ​ ​ Amortization ​ $ ( 247 ) ​ Interest income on taxable investment securities Taxes ​ ​ 66 ​ Provision for income tax expense ​ ​ $ ( 181 ) ​ Net of tax Net pension plan liability adjustment: ​ ​ ​ ​ ​ Amortization of unrecognized loss ​ $ ( 1,490 ) ​ Other expense Taxes ​ ​ 399 ​ Provision for income tax expense ​ ​ $ ( 1,091 ) ​ Net of tax Net SERP liability adjustment: ​ ​ ​ ​ ​ Amortization of unrecognized loss ​ $ ( 175 ) ​ Other expense Taxes ​ ​ 47 ​ Provision for income tax expense ​ ​ $ ( 128 ) ​ Net of tax Total reclassifications for the period ​ $ ( 1,140 ) ​ Net of tax ​ 92 Table of Contents ​ ​ ​ ​ ​ ​ Details of Accumulated Other Comprehensive Loss Components ​ Amount Reclassified from Accumulated Other Comprehensive Loss ​ Affected Line Item in the Statement (in thousands) 2020 Where Net Income is Presented Net unrealized gains on investment securities with OTTI: ​ ​ ​ ​ ​ Accretable Yield ​ $ 202 ​ Interest income on taxable investment securities Taxes ​ ​ ( 54 ) ​ Provision for income tax expense ​ ​ $ 148 ​ Net of tax Net unrealized losses on available for sale investment securities - all other: ​ ​ ​ ​ ​ Gains on sales ​ $ 632 ​ Net gains Taxes ​ ​ ( 169 ) ​ Provision for income tax expense ​ ​ $ 463 ​ Net of tax Net unrealized gains on held to maturity investment securities: ​ ​ ​ ​ ​ Amortization ​ $ ( 798 ) ​ Interest income on taxable investment securities Taxes ​ ​ 214 ​ Provision for income tax expense ​ ​ $ ( 584 ) ​ Net of tax Net pension plan liability adjustment: ​ ​ ​ ​ ​ Amortization of unrecognized loss ​ $ ( 1,433 ) ​ Other expense Taxes ​ ​ 384 ​ Provision for income tax expense ​ ​ $ ( 1,049 ) ​ Net of tax Net SERP liability adjustment: ​ ​ ​ ​ ​ Amortization of unrecognized loss ​ $ ( 188 ) ​ Other expense Taxes ​ ​ 50 ​ Provision for income tax expense ​ ​ $ ( 138 ) ​ Net of tax Total reclassifications for the period ​ $ ( 1,160 ) ​ Net of tax ​ ​ 17. Income Taxes The provision for income taxes consists of the following for the years ended December 31, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2021 2020 Current Tax expense: ​ ​ ​ ​ ​ ​ Federal ​ $ 4,164 ​ $ 1,957 State ​ ​ 1,825 ​ ​ 1,463 ​ ​ $ 5,989 ​ $ 3,420 Deferred tax expense: ​ ​ ​ ​ ​ ​ Federal ​ $ 420 ​ $ 772 State ​ ​ 130 ​ ​ ( 245 ) ​ ​ $ 550 ​ $ 527 Income tax expense for the year ​ $ 6,539 ​ $ 3,947 ​ 93 Table of Contents The reconciliation between the statutory federal income tax rate and effective income tax rate for the years ended December 31, 2021 and 2020 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 Federal statutory rate ​ ​ 21.0 % ​ ​ 21.0 % Tax-exempt income on securities and loans ​ ​ ( 1.0 ) ​ ​ ( 1.3 ) Tax-exempt BOLI income ​ ​ ( 1.0 ) ​ ​ ( 1.5 ) State income tax, net of federal tax benefit ​ ​ 6.0 ​ ​ 5.1 Tax credits ​ ​ ( 0.2 ) ​ ​ ( 1.2 ) Other ​ ​ 0.1 ​ ​ 0.1 ​ ​ ​ 24.9 % ​ ​ 22.2 % ​ 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, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2021 2020 Deferred tax assets: ​ ​ ​ ​ ​ ​ Allowance for loan losses ​ $ 4,269 ​ $ 4,417 Deferred fees ​ ​ 88 ​ ​ 490 Deferred compensation ​ ​ 1,125 ​ ​ 1,019 Federal and state tax loss carry forwards ​ ​ 2,966 ​ ​ 2,743 Unrealized loss on investment securities ​ ​ 2,264 ​ ​ 1,089 SERP ​ ​ 2,829 ​ ​ 2,626 Pension ​ ​ — ​ ​ 515 Lease liability ​ ​ 547 ​ ​ 569 Low income housing ​ ​ 670 ​ ​ 647 Other than temporary impairment on investment securities ​ ​ 601 ​ ​ 643 Derivative contract ​ ​ 121 ​ ​ 353 Other real estate owned ​ ​ 121 ​ ​ 271 Other ​ ​ 87 ​ ​ 115 Total deferred tax assets ​ ​ 15,688 ​ ​ 15,497 Valuation allowance ​ ​ ( 2,966 ) ​ ​ ( 2,743 ) Total deferred tax assets less valuation allowance ​ ​ 12,722 ​ ​ 12,754 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Goodwill and other intangibles ​ ​ ( 2,801 ) ​ ​ ( 2,805 ) Lease right-of-use asset ​ ​ ( 508 ) ​ ​ ( 545 ) Pension ​ ​ ( 1,275 ) ​ ​ — Depreciation ​ ​ ( 1,152 ) ​ ​ ( 1,380 ) Other ​ ​ ( 129 ) ​ ​ ( 52 ) Total deferred tax liabilities ​ ​ ( 5,865 ) ​ ​ ( 4,782 ) Net deferred tax assets ​ $ 6,857 ​ $ 7,972 ​ 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 94 Table of Contents 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, 2021, the Corporation had Maryland net operating losses (“NOLs”) and other MD carryforwards of $ 45.5 million for which a deferred tax asset of $ 3.0 million has been recorded. There has been and continues to be a full valuation allowance on these NOLs 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 $ 3.0 million at December 31, 2021 and $ 2.7 million at December 31, 2020. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states jurisdictions. The 2018-2020 tax years remain open under the standard statute of limitations. Also, with few exceptions, the Company is no longer subject to state income tax examinations for tax years before 2018. 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 no amounts of accrued tax-related interest and penalties at December 31, 2021 and 2020. Furthermore, there were no net interest and penalties related to unrecognized tax benefits for the periods presented. 18. Equity Compensation Plan 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 325,000 shares of common stock to employees, directors and qualifying consultants pursuant to stock options, stock appreciation rights, stock awards, dividend equivalents, and other stock-based awards. 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 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. In July 2020, a total of 916 fully vested shares of common stock were issued to a new director, which had a grant date fair market value of $ 11.22 per share. In January 2021, a total of 1,202 fully vested shares were issued to two new directors, which had a grant date fair market value of $ 16.66 per share. 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 $ 250,575 for the year ended December 31, 2021 and $ 220,598 for the year ended December 31, 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 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 and (b) a time-vesting award that will vest ratably over a three year period. 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 95 Table of Contents 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 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. Actual results for any goal that falls between performance levels would be interpolated to calculate a proportionate award. For the performance period ending December 31, 2021, the RSUs’ performance goal is based on earnings per share for the year ending December 31, 2021. For the performance period ending December 31, 2022, the RSUs performance goals are based on earnings per share for the year ending December 31, 2022 and growth in tangible book value per share during the performance period. For the performance period ending December 31, 2023, the RSUs performance goals are based on earnings per share for the year ending December 31, 2023 and growth in tangible book value per share during the performance period. 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 the first quarter of 2020, RSUs were granted relating to 9,791 performance vesting shares (target level) for 2019 LTIP plan for the performance period ending December 31, 2021 and 10,143 performance vesting shares and 5,070 time vesting shares (target level) for 2020 LTIP plan for the performance period ending December 31, 2022, which had a grant date fair market value of $ 12.54 per share of common stock underlying each RSU. The 2020 plan has a performance period for the performance-vesting RSUs of three years ending December 31, 2022 and the time-vesting RSUs will vest ratably over a three year period that began on March 26, 2021. On March 26, 2021, 1,690 of the 5,070 time vesting shares were issued to participants. Stock compensation expense was $ 98,842 and $ 124,970 for the years ended 2021 and 2020, respectively. Unrecognized compensation expense at December 31, 2021 related to unvested RSUs was $ 89,710 . In May 2021, RSUs relating to 7,389 performance vesting shares and 3,693 time vesting shares (target level) for plan year 2021 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 $ 44,190 for the year ended December 31, 2021. Unrecognized compensation expense as of December 31, 2021 related to unvested units was $ 154,664 . 19. 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. Effective April 30, 2010, the Pension Plan was amended, resulting in a “soft freeze”, the effect of which prohibits new entrants into the Pension Plan and ceases crediting of additional years of service, after that date. Effective January 1, 2013, the Pension Plan was amended to unfreeze it for those employees for whom the sum of (i) their ages, at their closest birthday, plus (ii) years of service for vesting purposes equals 80 or greater. The “soft freeze” continues to apply to all other plan participants. Pension benefits for these participants will be managed through discretionary contributions to the First United Corporation 401(k) Profit Sharing Plan (the “401(k) Plan”). 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. 96 Table of Contents 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 15 % of the participant’s base salary level for such Plan Year, with the first Plan Year being the year ending December 31, 2015. The Contribution Agreement provides that the participant will become 100% vested in the amount maintained in his or her Employer Account upon the earliest to occur of the following events: (i) Normal Retirement (as defined in the Contribution Agreement); (ii) Separation from Service (as defined in the Contribution Agreement) following a Change of Control (as defined in the Deferred Compensation Plan) and subsequent Triggering Event (as defined in the Contribution Agreement); (iii) Separation from Service due to a Disability (as defined in the Contribution Agreement); (iv) with respect to a particular award of Employer Contribution Credits, the participant’s completion of two consecutive Years of Service (as defined in the Contribution Agreement) immediately following the Plan Year for which such award was made; 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 2019, the Board approved discretionary contributions to four participants totaling $ 123,179 . The contributions had a two year vesting period that ended on December 31, 2020. In January 2020, the Board of Directors of First United Corporation approved discretionary contributions to four participants totaling $ 126,058 . The Corporation recorded $ 63,029 of related compensation expense for the year ended December 31, 2021 and $ 63,029 for the year ended December 31, 2020. In January 2021, the Board of Directors approved discretionary contributions to three participants totaling $ 101,257 . The Corporation recorded $ 50,628 of related compensation expense for 2021 related to these contributions. Each discretionary contribution has a two year vesting period. 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) 2021 2020 2021 2020 Change in Benefit Obligation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligation at the beginning of the year ​ $ 57,898 ​ $ 50,995 ​ $ 9,614 ​ $ 8,647 Service cost ​ ​ 154 ​ ​ 225 ​ ​ 168 ​ ​ 135 Interest cost ​ ​ 1,421 ​ ​ 1,624 ​ ​ 238 ​ ​ 236 Change in discount rate and mortality assumptions ​ ​ ( 2,583 ) ​ ​ 5,971 ​ ​ — ​ ​ — Actuarial losses ​ ​ 168 ​ ​ 1,157 ​ ​ 711 ​ ​ 862 Benefits paid ​ ​ ( 2,127 ) ​ ​ ( 2,074 ) ​ ​ ( 336 ) ​ ​ ( 266 ) Obligation at the end of the year ​ ​ 54,931 ​ ​ 57,898 ​ ​ 10,395 ​ ​ 9,614 Change in Plan Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value at the beginning of the year ​ ​ 55,971 ​ ​ 50,829 ​ ​ — ​ ​ — Actual return on plan assets ​ ​ 5,852 ​ ​ 6,216 ​ ​ — ​ ​ — Employer contribution ​ ​ — ​ ​ 1,000 ​ ​ 336 ​ ​ 266 Benefits paid ​ ​ ( 2,127 ) ​ ​ ( 2,074 ) ​ ​ ( 336 ) ​ ​ ( 266 ) Fair value at the end of the year ​ ​ 59,696 ​ ​ 55,971 ​ ​ — ​ ​ — Funded/(Unfunded) Status ​ $ 4,765 ​ $ ( 1,927 ) ​ $ ( 10,395 ) ​ $ ( 9,614 ) ​ 97 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ Defined Benefit SERP (in thousands) 2021 2020 2021 2020 Components of Net Pension Cost ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service cost ​ $ 154 ​ $ 225 ​ $ 168 ​ $ 135 Interest cost ​ ​ 1,421 ​ ​ 1,624 ​ ​ 238 ​ ​ 236 Expected return on assets ​ ​ ( 3,569 ) ​ ​ ( 3,548 ) ​ ​ — ​ ​ — Amortization of recognized loss ​ ​ 1,490 ​ ​ 1,433 ​ ​ 175 ​ ​ 188 Amortization of prior service cost ​ ​ — ​ ​ — ​ ​ ( 2 ) ​ ​ ( 3 ) Net pension (income)/expense in employee benefits ​ $ ( 504 ) ​ $ ( 266 ) ​ $ 579 ​ $ 556 Weighted Average Assumptions used to determine benefit obligations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Discount rate for benefit obligations ​ ​ 2.85 % ​ ​ 2.50 % ​ ​ 2.80 % ​ ​ 2.52 % Discount rate for net pension cost ​ ​ 2.50 % ​ ​ 3.25 % ​ ​ — ​ ​ — Expected long-term return on assets ​ ​ 6.50 % ​ ​ 7.00 % ​ ​ — ​ ​ — Rate of compensation increase ​ ​ 3.00 % ​ ​ 3.00 % ​ ​ 3.00 % ​ ​ 3.00 % ​ The accumulated benefit obligation for the Pension Plan was $ 51.1 million and $ 54.0 million at December 31, 2021 and 2020, respectively. The accumulated benefit obligation for the Defined Benefit SERP was $ 9.1 million and $ 8.7 million at December 31, 2021 and 2020, respectively. 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 Target Range Cash ​ 1 % ​ 0 % - 20 % Fixed Income ​ 40 % ​ 30 % - 50 % Equities ​ 59 % ​ 45 % - 65 % ​ 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. 98 Table of Contents 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. At December 31, 2021 and 2020, the value of Pension Plan investments was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ Fair Value Hierarchy (Dollars in thousands) Assets at Fair Value % of Portfolio Level 1 Level 2 Cash and cash equivalents ​ $ 763 ​ 1.3 % ​ $ 763 ​ $ — Fixed income securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government and Agencies ​ ​ 125 ​ 0.2 % ​ ​ — ​ ​ 125 Taxable municipal bonds and notes ​ ​ 5,290 ​ 8.9 % ​ ​ — ​ ​ 5,290 Corporate bonds and notes ​ ​ 8,451 ​ 14.2 % ​ ​ — ​ ​ 8,451 Preferred stock ​ ​ 960 ​ 1.6 % ​ ​ — ​ ​ 960 Fixed income mutual funds ​ ​ 9,260 ​ 15.5 % ​ ​ 9,260 ​ ​ — Total fixed income ​ ​ 24,086 ​ 40.3 % ​ ​ 9,260 ​ ​ 14,826 Equities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Large Cap ​ ​ 27,575 ​ 46.2 % ​ ​ 27,575 ​ ​ — Mid Cap ​ ​ 2,052 ​ 3.4 % ​ ​ 2,052 ​ ​ — Small Cap ​ ​ 39 ​ 0.1 % ​ ​ 39 ​ ​ — International ​ ​ 5,181 ​ 8.7 % ​ ​ 5,181 ​ ​ — Total equities ​ ​ 34,847 ​ 58.4 % ​ ​ 34,847 ​ ​ — Total market value ​ $ 59,696 ​ 100.0 % ​ $ 44,870 ​ $ 14,826 Note: The Large cap equities includes 194,124 shares of First United Corporation common stock at December 31, 2021 and 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ ​ Fair Value Hierarchy (Dollars in thousands) Assets at Fair Value % of Portfolio Level 1 Level 2 Cash and cash equivalents ​ $ 2,312 ​ 4.1 % ​ $ 2,312 ​ $ — Fixed income securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government and Agencies ​ ​ 298 ​ 0.6 % ​ ​ — ​ ​ 298 Taxable municipal bonds and notes ​ ​ 4,215 ​ 7.5 % ​ ​ — ​ ​ 4,215 Corporate bonds and notes ​ ​ 10,681 ​ 19.1 % ​ ​ — ​ ​ 10,681 Preferred stock ​ ​ 973 ​ 1.7 % ​ ​ — ​ ​ 973 Fixed income mutual funds ​ ​ 6,256 ​ 11.2 % ​ ​ 6,256 ​ ​ — Total fixed income ​ ​ 22,423 ​ 40.1 % ​ ​ 6,256 ​ ​ 16,167 Equities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Large Cap ​ ​ 24,886 ​ 44.5 % ​ ​ 24,886 ​ ​ — Mid Cap ​ ​ 1,511 ​ 2.7 % ​ ​ 1,511 ​ ​ — Small Cap ​ ​ 477 ​ 0.8 % ​ ​ 477 ​ ​ — International ​ ​ 4,362 ​ 7.8 % ​ ​ 4,362 ​ ​ — Total equities ​ ​ 31,236 ​ 55.8 % ​ ​ 31,236 ​ ​ — Total market value ​ $ 55,971 ​ 100.0 % ​ $ 39,804 ​ $ 16,167 ​ As of December 31, 2021, the 25-year average return on pension portfolio assets was 7.21 %, exceeding the expected long-term return of 6.50 % utilized for 2021. Considering that future equity returns are partially a function of 99 Table of Contents current starting valuations and the general level of interest rates, return expectations and forecasts by the majority of market analysts have been lowered. With equity valuations that have exceeded pre-pandemic highs, elevated inflation, and the prospect of policy normalization going forward, it is considered appropriate to maintain the forward expected long-term rate of return at 6.50 %. Estimated cash flows related to expected future benefit payments from the Pension Plan and Defined Benefit SERP are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) Pension Plan Defined Benefit SERP 2022 ​ $ 2,166 ​ $ 336 2023 ​ ​ 2,237 ​ ​ 336 2024 ​ ​ 2,341 ​ ​ 336 2025 ​ ​ 2,385 ​ ​ 336 2026 ​ ​ 2,517 ​ ​ 530 2027-2031 ​ ​ 13,320 ​ ​ 2,934 ​ First United Corporation made no contributions to the Pension Plan in 2021 and contributed $ 1.0 million in 2020. First United Corporation will continue to evaluate future annual contributions to the Pension Plan based upon its funded status and an evaluation of the future benefits to be provided thereunder. The Bank expects to fund the annual projected benefit payments for the Defined Benefit SERP from operations. 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 Benefit SERP Net actuarial loss ​ ​ 1,117 ​ ​ 271 ​ ​ $ 1,117 ​ $ 271 ​ ​ 20. 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 100 % on the first 1% of salary reduction and 50 % on the next 5% of salary reduction. This match is accrued for all participants, including executive officers, immediately upon entering the plan on the first day of the month following the completion of 30 days of employment. The employee must be a plan participant and be actively employed on the last day of the plan year to share in the employer matching contribution, except in the case of death, disability or retirement of the participant. Additionally, First United Corporation accrued a non-elective employer contribution during 2021 for all employees other than employees who participate in the Defined Benefit SERP and Defined Contribution SERP and those employees meeting the age plus service requirement in the Pension Plan equal to 4.0 % of each employee’s salary, and 0.05 % of each employee’s salary hired before January 1, 2010, which will be paid in the first quarter of 2022. Expense charged to operations for the 401(k) Plan was $ 1.2 million in 2021 and $ 1.1 million in 2020. 100 Table of Contents 21. Federal Reserve Requirements The Bank is required to maintain cash reserves with the Federal Reserve Bank of Richmond based on specified deposit liabilities. Effective March 26, 2020, the Federal Reserve Board reduced reserve requirement ratios to 0 %. This action eliminated reserve requirements for all depository institutions. 22. Contractual Obligations, Commitments and Contingent Liabilities Contractual Obligations The Corporation enters into contractual obligations in the normal course of business. Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices, and for data processing and telecommunications equipment. At December 31, 2021, 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. Commitments to extend credit in the form of consumer, commercial and business as of December 31, 2021 and December 31, 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) 2021 2020 Residential Mortgage - home equity ​ $ 66,874 ​ $ 59,615 Residential Mortgage - construction ​ ​ 18,657 ​ ​ 12,220 Commercial ​ ​ 136,897 ​ ​ 125,294 Consumer - personal credit lines ​ ​ 4,551 ​ ​ 4,314 Standby letters of credit ​ ​ 15,711 ​ ​ 17,675 Total ​ $ 242,690 ​ $ 219,118 ​ 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 one year . Historically, most letters of credit expire unfunded, and therefore, cash requirements are substantially less than the total commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting letters of credit. 23. 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. 101 Table of Contents 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 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. At December 31, 2021 and 2020, the 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. Impaired loans – Loans included in the table below are those that are considered impaired 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 Investment- Equity investments included in the table below are considered impaired with losses recognized on the income statement in net gains. 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. 102 Table of Contents Other real estate owned – OREO included in the table below are considered impaired 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 and liabilities 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, 2021 and 2020 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ ​ ​ ​ December 31, 2021 Using ​ ​ ​ ​ ​ (In Thousands) ​ Assets & Liabilities Measured at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Description ​ 12/31/21 ​ (Level 1) ​ (Level 2) ​ (Level 3) Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities available-for-sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 67,169 ​ ​ ​ ​ $ 67,169 ​ ​ ​ Residential mortgage-backed agencies ​ $ 48,661 ​ ​ ​ ​ $ 48,661 ​ ​ ​ Commercial mortgage-backed agencies ​ $ 50,868 ​ ​ ​ ​ $ 50,868 ​ ​ ​ Collateralized mortgage obligations ​ $ 90,077 ​ ​ ​ ​ $ 90,077 ​ ​ ​ Obligations of states and political subdivisions ​ $ 12,804 ​ ​ ​ ​ $ 12,804 ​ ​ ​ Collateralized debt obligations ​ $ 17,192 ​ ​ ​ ​ ​ ​ ​ $ 17,192 Financial derivative ​ $ ( 453 ) ​ ​ ​ ​ $ ( 453 ) ​ ​ ​ Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 408 ​ ​ ​ ​ ​ ​ ​ $ 408 Equity investment ​ $ 590 ​ ​ ​ ​ ​ ​ ​ $ 590 Other real estate owned ​ $ 349 ​ ​ ​ ​ ​ ​ ​ $ 349 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ ​ ​ ​ December 31, 2020 Using ​ ​ ​ ​ ​ (In Thousands) ​ Assets & Liabilities Measured at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Description ​ 12/31/20 ​ (Level 1) ​ (Level 2) ​ (Level 3) Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities available-for-sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 76,433 ​ ​ ​ ​ $ 76,433 ​ ​ ​ Residential mortgage-backed agencies ​ $ 22,899 ​ ​ ​ ​ $ 22,899 ​ ​ ​ Commercial mortgage-backed agencies ​ $ 33,042 ​ ​ ​ ​ $ 33,042 ​ ​ ​ Collateralized mortgage obligations ​ $ 70,637 ​ ​ ​ ​ $ 70,637 ​ ​ ​ Obligations of states and political subdivisions ​ $ 10,614 ​ ​ ​ ​ $ 10,614 ​ ​ ​ Collateralized debt obligations ​ $ 13,260 ​ ​ ​ ​ ​ ​ ​ $ 13,260 Financial derivative ​ $ ( 1,320 ) ​ ​ ​ ​ $ ( 1,320 ) ​ ​ ​ Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 1,465 ​ ​ ​ ​ ​ ​ ​ $ 1,465 Other real estate owned ​ $ 913 ​ ​ ​ ​ ​ ​ ​ $ 913 ​ There were no transfers of assets between any of the levels of the fair value hierarchy for the years ended December 31, 2021 or December 31, 2020. 103 Table of Contents For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2021 and 2020, the significant unobservable inputs used in the fair value measurements were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Fair Value at December 31, 2021 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities – available for sale - CDO ​ $ 17,192 ​ Discounted Cash Flow ​ Discount Rate ​ Libor + 3.25 % Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired Loans ​ $ 408 ​ Market Comparable Properties ​ Marketability Discount ​ 10.0 % to 15.0 % (1) (weighted avg 13.2 %) Equity Investment ​ $ 590 ​ Market Method ​ Revenue Multiples ​ 2.8 x Other Real Estate Owned ​ $ 349 ​ Market Comparable Properties ​ Marketability Discount ​ 15.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Fair Value at December 31, 2020 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities – available for sale - CDO ​ $ 13,260 ​ Discounted Cash Flow ​ Discount Rate ​ Libor+ 5.25 % Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired Loans ​ $ 1,465 ​ Market Comparable Properties ​ Marketability Discount ​ 10.0 % to 15.0 % (1) (weighted avg 12.5 %) Other Real Estate Owned ​ $ 913 ​ Market Comparable Properties ​ Marketability Discount ​ 15.0 % ​ (1) Range would include discounts taken since appraisal and estimated values 104 Table of Contents 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, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements Using Significant ​ ​ Unobservable Inputs ​ ​ (Level 3) ​ ​ (In Thousands) ​ Investment Securities Available for Sale Beginning balance January 1, 2021 ​ $ 13,260 Total gains/(losses) realized/unrealized: ​ ​ ​ Included in other comprehensive income ​ ​ 3,932 Ending balance December 31, 2021 ​ $ 17,192 ​ ​ ​ ​ ​ ​ Fair Value Measurements Using Significant ​ ​ Unobservable Inputs ​ ​ (Level 3) ​ ​ (In Thousands) ​ Investment Securities Available for Sale Beginning balance January 1, 2020 ​ $ 14,354 Total gains/(losses) realized/unrealized: ​ ​ ​ Included in other comprehensive loss ​ ​ ( 1,094 ) Ending balance December 31, 2020 ​ $ 13,260 ​ 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. 105 Table of Contents 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, 2021 ​ Fair Value Measurements ​ ​ Carrying ​ Fair ​ Quoted Prices in Active Markets for Identical Assets ​ Significant Other Observable Inputs ​ Significant Unobservable Inputs (in thousands) Amount Value (Level 1) (Level 2) (Level 3) Financial Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 109,823 ​ $ 109,823 ​ $ 109,823 ​ ​ ​ ​ ​ ​ Interest bearing deposits in banks ​ ​ 5,897 ​ ​ 5,897 ​ ​ 5,897 ​ ​ ​ ​ ​ ​ Investment securities - AFS ​ ​ 286,771 ​ ​ 286,771 ​ ​ ​ ​ $ 269,579 ​ $ 17,192 Investment securities - HTM ​ ​ 56,259 ​ ​ 65,369 ​ ​ ​ ​ ​ 36,448 ​ ​ 28,921 Restricted bank stock ​ ​ 1,029 ​ ​ 1,029 ​ ​ ​ ​ ​ 1,029 ​ ​ ​ Loans, net ​ ​ 1,137,440 ​ ​ 1,122,671 ​ ​ ​ ​ ​ ​ ​ ​ 1,122,671 Accrued interest receivable ​ ​ 4,821 ​ ​ 4,821 ​ ​ ​ ​ ​ 4,821 ​ ​ ​ Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits – non-maturity ​ ​ 1,306,145 ​ ​ 1,306,145 ​ ​ ​ ​ ​ 1,306,145 ​ ​ ​ Deposits – time deposits ​ ​ 163,229 ​ ​ 163,961 ​ ​ ​ ​ ​ 163,961 ​ ​ ​ Financial derivative ​ ​ 453 ​ ​ 453 ​ ​ ​ ​ ​ 453 ​ ​ ​ Short-term borrowed funds ​ ​ 57,699 ​ ​ 57,699 ​ ​ ​ ​ ​ 57,699 ​ ​ ​ Long-term borrowed funds ​ ​ 30,929 ​ ​ 31,085 ​ ​ ​ ​ ​ 31,085 ​ ​ ​ Accrued interest payable ​ ​ 137 ​ ​ 137 ​ ​ ​ ​ ​ 137 ​ ​ ​ Off balance sheet financial instruments ​ ​ — ​ ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Fair Value Measurements ​ ​ Carrying ​ Fair ​ Quoted Prices in Active Markets for Identical Assets ​ Significant Other Observable Inputs ​ Significant Unobservable Inputs (In thousands) Amount Value (Level 1) (Level 2) (Level 3) Financial Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 146,673 ​ $ 146,673 ​ $ 146,673 ​ ​ ​ ​ ​ ​ Interest bearing deposits in banks ​ ​ 2,759 ​ ​ 2,759 ​ ​ 2,759 ​ ​ ​ ​ ​ ​ Investment securities - AFS ​ ​ 226,885 ​ ​ 226,885 ​ ​ ​ ​ $ 213,625 ​ $ 13,260 Investment securities - HTM ​ ​ 68,263 ​ ​ 77,612 ​ ​ ​ ​ ​ 49,442 ​ ​ 28,170 Restricted bank stock ​ ​ 4,468 ​ ​ 4,468 ​ ​ ​ ​ ​ 4,468 ​ ​ ​ Loans, net ​ ​ 1,149,596 ​ ​ 1,150,186 ​ ​ ​ ​ ​ ​ ​ ​ 1,150,186 Accrued interest receivable ​ ​ 6,241 ​ ​ 6,241 ​ ​ ​ ​ ​ 6,241 ​ ​ ​ Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits – non-maturity ​ ​ 1,194,140 ​ ​ 1,194,140 ​ ​ ​ ​ ​ 1,194,140 ​ ​ ​ Deposits – time deposits ​ ​ 228,226 ​ ​ 231,241 ​ ​ ​ ​ ​ 231,241 ​ ​ ​ Financial derivative ​ ​ 1,320 ​ ​ 1,320 ​ ​ ​ ​ ​ 1,320 ​ ​ ​ Short-term borrowed funds ​ ​ 49,160 ​ ​ 49,160 ​ ​ ​ ​ ​ 49,160 ​ ​ ​ Long-term borrowed funds ​ ​ 100,929 ​ ​ 104,825 ​ ​ ​ ​ ​ 104,825 ​ ​ ​ Accrued interest payable ​ ​ 391 ​ ​ 391 ​ ​ ​ ​ ​ 391 ​ ​ ​ Off balance sheet financial instruments ​ ​ — ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 106 Table of Contents 24. 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 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 four interest rate swap contracts totaling $ 30.0 million notional amount, hedging future cash flows associated with floating rate trust preferred debt. As of December 31, 2021, $ 20.0 million notional amount remains. The fair value of the interest rate swap contracts was $( 0.5 ) million and $( 1.3 ) million at December 31, 2021 and December 31, 2020, respectively. For the year ended December 31, 2021, the Corporation recorded an increase in the value of the derivatives of $ 0.9 million and the related deferred tax of $ 0.2 million 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 year ended December 31, 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 at December 31, 2021. The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the years ended December 31, 2021 and December 31, 2020. Derivative in Cash Flow Hedging Relationships ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (In thousands) Amount of gain (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, 2021 ​ $ 635 ​ $ — ​ $ — December 31, 2020 ​ $ ( 869 ) ​ $ — ​ $ — Notes : (1) Reported as interest expense (2) Reported as other income ​ 25. 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. 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 107 Table of Contents 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, for the years ended December 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2021 2020 Noninterest income ​ ​ ​ ​ ​ ​ In-scope of Topic 606: ​ ​ ​ ​ ​ ​ Service charges on deposit accounts ​ $ 1,771 ​ $ 1,929 Other service charges ​ ​ 909 ​ ​ 699 Trust department ​ ​ 8,650 ​ ​ 7,446 Debit card income ​ ​ 3,644 ​ ​ 2,902 Brokerage commissions ​ ​ 1,082 ​ ​ 1,004 Noninterest income (in-scope of Topic 606) ​ ​ 16,056 ​ ​ 13,980 Noninterest income (out-of-scope of Topic 606) ​ ​ 3,463 ​ ​ 1,809 Total Noninterest Income ​ $ 19,519 ​ $ 15,789 ​ ​ ​ 108 Table of Contents 26. Parent Company Only Financial Information Condensed Statements of Financial Condition ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (In thousands) 2021 2020 Assets ​ ​ ​ ​ ​ ​ Cash ​ $ 200 ​ $ 186 Investment securities- Available for Sale (at fair value) ​ ​ 15,816 ​ ​ 12,198 Investment in bank subsidiary ​ ​ 154,405 ​ ​ 150,895 Investment in non-bank subsidiaries ​ ​ 929 ​ ​ 929 Other assets ​ ​ 7,566 ​ ​ 7,082 Total Assets ​ $ 178,916 ​ $ 171,290 Liabilities and Shareholders' Equity ​ ​ ​ ​ ​ ​ Accrued interest and other liabilities ​ $ 5,094 ​ $ 8,404 Dividends payable ​ ​ 993 ​ ​ 910 Junior subordinated debt ​ ​ 30,929 ​ ​ 30,929 Shareholders' equity ​ ​ 141,900 ​ ​ 131,047 Total Liabilities and Shareholders' Equity ​ $ 178,916 ​ $ 171,290 ​ Condensed Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2021 2020 Income: ​ ​ ​ ​ ​ ​ Dividend income from bank subsidiary ​ $ 18,791 ​ $ 7,328 Interest income on investments ​ ​ 479 ​ ​ 603 Other income ​ ​ 1,740 ​ ​ 61 Total other income ​ ​ 2,219 ​ ​ 664 Total Income ​ ​ 21,010 ​ ​ 7,992 Expenses: ​ ​ ​ ​ ​ ​ Interest expense ​ ​ 1,264 ​ ​ 1,354 Other expenses ​ ​ 6,346 ​ ​ 3,607 Total Expenses ​ ​ 7,610 ​ ​ 4,961 Income before income taxes and equity in undistributed net income of subsidiaries ​ ​ 13,400 ​ ​ 3,031 Applicable income tax benefit ​ ​ 1,193 ​ ​ 982 Net income before equity in undistributed net income of subsidiaries ​ ​ 14,593 ​ ​ 4,013 Equity in undistributed net income of subsidiaries: ​ ​ ​ ​ ​ ​ Bank ​ ​ 5,177 ​ ​ 9,828 Net Income ​ $ 19,770 ​ $ 13,841 ​ Condensed Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, Components of Comprehensive Income (in thousands) 2021 2020 Net Income ​ $ 19,770 ​ $ 13,841 Unrealized losses on AFS Securities, net of tax ​ ​ ( 749 ) ​ ​ ( 3,330 ) Unrealized gains/(losses) on cash flow hedges, net of tax ​ ​ 635 ​ ​ ( 869 ) Other comprehensive loss, net of tax ​ ​ ( 114 ) ​ ​ ( 4,199 ) Comprehensive income ​ $ 19,656 ​ $ 9,642 ​ 109 Table of Contents Condensed Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (In thousands) 2021 2020 Operating Activities ​ ​ ​ ​ ​ ​ Net Income ​ $ 19,770 ​ $ 13,841 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Equity in undistributed net income of subsidiaries ​ ​ ( 5,177 ) ​ ​ ( 9,828 ) Increase in other assets ​ ​ ( 1,518 ) ​ ​ ( 1,490 ) (Decrease)/increase in accrued interest payable and other liabilities ​ ​ ( 2,595 ) ​ ​ 3,286 Stock compensation ​ ​ 472 ​ ​ 345 Net cash provided by operating activities ​ ​ 10,952 ​ ​ 6,154 Financing Activities ​ ​ ​ ​ ​ ​ Proceeds from issuance of common stock ​ ​ 211 ​ ​ 198 Repurchase of common stock ​ ​ ( 7,175 ) ​ ​ ( 2,754 ) Cash dividends on common stock ​ ​ ( 3,974 ) ​ ​ ( 3,646 ) Net cash used in financing activities ​ ​ ( 10,938 ) ​ ​ ( 6,202 ) Increase/(decrease) in cash and cash equivalents ​ ​ 14 ​ ​ ( 48 ) Cash and cash equivalents at beginning of year ​ ​ 186 ​ ​ 234 Cash and cash equivalents at end of year ​ $ 200 ​ $ 186 ​ Accumulated Other Comprehensive Loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Components of Other Comprehensive Loss (in thousands) Before Tax Amount Tax (Expense) Benefit Net For the year ended December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ $ ( 1,022 ) ​ $ 273 ​ $ ( 749 ) Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ 867 ​ ​ ( 232 ) ​ ​ 635 Other comprehensive loss ​ $ ( 155 ) ​ $ 41 ​ $ ( 114 ) For the year ended December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ $ ( 4,548 ) ​ $ 1,218 ​ $ ( 3,330 ) Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ ​ ( 1,187 ) ​ ​ 318 ​ ​ ( 869 ) Other comprehensive loss ​ $ ( 5,735 ) ​ $ 1,536 ​ $ ( 4,199 ) ​ ​ ​ ​ 110 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.