What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-11 compared with 2022-05-09 · 449 added, 165 removed, 902 unchanged (41% of the section changed)

7 unchanged sentences

Investment securities – available for sale (at fair value)

Investment securities – held to maturity (fair value $ 235,026 at March 31, 2022 and $ 65,369 at December 31, 2021)

Investment securities – held to maturity (fair value $ 220,301 at June 30, 2022 and $ 65,369 at December 31, 2021)

Restricted investment in bank stock, at cost

18 unchanged sentences

SERP deferred compensation

Pension Liability

Accrued interest payable and other liabilities

4 unchanged sentences

Authorized 25,000,000 shares;

issued and outstanding 6,637,979 shares at March 31, 2022 and 6,620,955 at December 31, 2021

issued and outstanding 6,656,395 shares at June 30, 2022 and 6,620,955 at December 31, 2021

Retained earnings

6 unchanged sentences

(In thousands, except per share data)

Three Months Ended

Six Months Ended

Interest income

7 unchanged sentences

Interest-bearing transaction accounts

Time deposits

Total interest on Deposits

3 unchanged sentences

Net Interest income

Provision/(credit) for loan losses

Provision for loan losses

Net interest income after provision for loan losses

20 unchanged sentences

Contract labor

Other real estate owned

Losses/(gains) on sales and write downs of other real estate owned, net

Investor relations

11 unchanged sentences

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss

(In thousands)

Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended

Comprehensive Loss

Other comprehensive income, net of tax and reclassification adjustments:

Interest income

Interest and fees on loans

Interest on investment securities

Exempt from federal income tax

Total investment income

Total interest income

Interest expense

Interest on deposits:

Interest-bearing transaction accounts

Time deposits

Total interest on Deposits

Interest on short-term borrowings

Interest on long-term borrowings

Total Interest Expense

Net Interest income

Provision for loan losses

Net interest income after provision for loan losses

Other operating income

Net gains on investments, available for sale

Gains on sale of residential mortgage loans

Gains on disposal of fixed assets

Service charges on deposit accounts

Other service charges

Trust department

Debit card income

Bank owned life insurance

Brokerage commissions

Total other income

Total other operating income

Other operating expenses

Salaries and employee benefits

FDIC premiums

Data processing

Professional services

Contract labor

Losses/(gains) on sales and write downs of other real estate owned, net

Investor relations

Contributions

Total other operating expenses

Income before income tax expense

Provision for income tax expense

Basic net income per common share

Diluted net income per common share

Weighted average number of basic shares outstanding

Weighted average number of diluted shares outstanding

Dividends declared per common share

See accompanying notes to the consolidated financial statements

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive (Loss)/Income

(In thousands)

Six Months Ended

Comprehensive (Loss)/Income

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

Available for sale securities:

Unrealized holding gains on investments with OTTI

Unrealized holding (losses)/gains on investments with OTTI

Reclassification adjustment for accretable yield realized in income

Other comprehensive income on investments with OTTI

Other comprehensive (loss)/income on investments with OTTI

Unrealized holding losses on all other AFS investments

11 unchanged sentences

Pension plan liability:

Unrealized holding losses on pension plan liability

Unrealized holding (losses)/gains on pension plan liability

Reclassification adjustment for amortization of unrecognized loss realized in income

Other comprehensive (loss)/income on pension plan liability

SERP liability:

Unrealized holding losses on SERP liability

Reclassification adjustment for amortization of unrealized loss realized in income

Other comprehensive income on SERP liability

Other comprehensive (losses)/gains before income tax

Income tax benefit/(expense) related to other comprehensive income

Other comprehensive (loss)/income, net of tax

Comprehensive (loss)/income

See accompanying notes to the consolidated financial statements

First United Corporation and Subsidiaries

Consolidated Statements of Comprehensive (Loss)/Income

(In thousands)

Three Months Ended

Comprehensive (Loss)/Income (in thousands)

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

Available for sale securities:

Unrealized holding (losses)/gains on investments with OTTI

Reclassification adjustment for accretable yield realized in income

Other comprehensive(loss)/income on investments with OTTI

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

Reclassification adjustment for gains realized in income

Other comprehensive (losses)/gains on all other AFS investments

Held to Maturity Securities

Unrealized holding losses on securities transferred to held to maturity

Unrealized holding losses on HTM investments

Reclassification adjustment for amortization realized in income

Other comprehensive income on HTM investments

Cash flow hedges:

Unrealized holding gains/(loss) on cash flow hedges

Reclassification adjustment for gains realized in income

Other comprehensive income/(loss) on cash flow hedges

Pension plan liability:

Unrealized holding (losses)/gains on pension plan liability

Reclassification adjustment for amortization of unrecognized loss realized in income

Other comprehensive (losses)/income on pension plan liability

1 unchanged sentence

Unrealized holding losses on SERP liability

Reclassification adjustment for amortization of prior service costs realized in income

Other comprehensive losses on SERP liability

Other comprehensive losses before income tax

Income tax benefit related to other comprehensive income

Other comprehensive loss, net of tax

Comprehensive Loss

Reclassification adjustment for amortization of unrealized loss realized in income

Other comprehensive income on SERP liability

Other comprehensive (losses)/income before income tax

Income tax benefit/(expense) related to other comprehensive income

Other comprehensive (loss)/income, net of tax

Comprehensive (loss)/income

See accompanying notes to the consolidated financial statements

10 unchanged sentences

Balance at March 31, 2022

Other comprehensive loss

Stock based compensation

Common stock issued - 18,416 shares

Common stock dividend declared - $ 0.15 per share

Balance at June 30, 2022

Comprehensive

6 unchanged sentences

Balance at March 31, 2021

Other comprehensive income

Stock based compensation

Common stock issued - 3,261 shares

Common stock repurchase - 400,000 shares

Common stock dividend declared - $ 0.15 per share

Balance at June 30, 2021

See accompanying notes to the consolidated financial statements

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities

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

Provision (credit) for loan losses

Provision for loan losses

Stock based compensation

13 unchanged sentences

Increase in accrued interest receivable and other assets

Deferred tax expense/(benefit)

Deferred tax benefit

Operating lease liability

(Decrease)/increase in accrued interest payable and other liabilities

Increase/(decrease) in accrued interest payable and other liabilities

Net cash provided by operating activities

8 unchanged sentences

Net decrease in restricted stock

Net increase in loans

Net (increase)/decrease in loans

Purchases of loans

Purchases of premises and equipment

Net cash used in investing activities

Net cash (used in)/provided by investing activities

Financing activities

1 unchanged sentence

Issuance of common stock

Cash dividends on common stock

Cash dividends paid on common stock

Net increase in short-term borrowings

Stock repurchase

Net cash provided by financing activities

5 unchanged sentences

Non-cash investing activities:

Transfers from loans to other real estate owned

Transfers from securities available for sale to held to maturity

6 unchanged sentences

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:

(a) the allowance for loan losses and (b) fair values of available for sale debt securities based on estimates from independent valuation services or from brokers.

Transfers of Investment Securities from Available-for-Sale to Held-to-Maturity

Transfers of debt securities into the held-to-maturity category from the available-for-sale category are made at fair value at the date of transfer.

The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the held-to-maturity securities.

Such amounts are amortized over the remaining expected life of the security.

Principles of Consolidation

The consolidated financial statements include the accounts of First United Corporation, the Bank, the OakFirst Loan Centers, First OREO Trust and FUBT OREO I, LLC.

The consolidated financial statements include the accounts of First United Corporation, the Bank, First United Statutory Trust I, First United Statutory Trust II, OakFirst Loan Center, LLC, Oakfirst Loan Center, Inc., First OREO Trust and FUBT OREO I, LLC.

All significant inter-company accounts and transactions have been eliminated.

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

Operating results for the three month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year or for any future interim period.

Operating results for the six and three month periods ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year or for any future interim period.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021.

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

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2022 for items that should potentially be recognized or disclosed in these financial statements.

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of June 30, 2022 and through the date these consolidated financial statements were issued, for items of potential recognition or disclosure.

Note 2 – Earnings Per Common Share

1 unchanged sentence

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

There were no anti-dilutive shares outstanding at March 31, 2022 or 2021.

The following table sets forth the calculation of basic and diluted earnings per common share for the three month periods ended March 31, 2022 and 2021:

Three months ended March 31,

There were no anti-dilutive shares outstanding at June 30, 2022 or 2021.

The following table sets forth the calculation of basic and diluted earnings per common share for the six and three month periods ended June 30, 2022 and 2021:

Six months ended June 30,

(in thousands, except for per share amount)

2 unchanged sentences

Restricted stock units

Three months ended June 30,

(in thousands, except for per share amount)

Basic Earnings Per Share:

Diluted Earnings Per Share:

Restricted stock units

Note 3 – Investments

The following table shows a comparison of amortized cost and fair values of investment securities at March 31, 2022 and December 31, 2021:

The following table shows a comparison of amortized cost and fair values of investment securities at June 30, 2022 and December 31, 2021:

(in thousands)

March 31, 2022

June 30, 2022

Available for Sale:

8 unchanged sentences

(in thousands)

March 31, 2022

June 30, 2022

Held to Maturity:

22 unchanged sentences

Total held to maturity

The Corporation reassessed classification of certain investments and, effective February 1, 2022, the Corporation transferred $ 139.0 million of callable agencies, obligation of state and political subdivisions, and collateralized mortgage obligations from available for sale to held to maturity securities.

The Corporation reassessed classification of certain investments and, effective February 1, 2022, the Corporation transferred $ 139.0 million of callable agencies, obligations of state and political subdivisions, and collateralized mortgage obligations from available for sale to held to maturity securities.

The transfer occurred at fair value.

1 unchanged sentence

No gain or loss was recorded at the time of transfer.

The following table shows the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at March 31, 2022 and December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

The following table shows the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at June 30, 2022 and December 31, 2021, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

Less than 12 months

1 unchanged sentence

(in thousands)

March 31, 2022

June 30, 2022

Available for Sale:

5 unchanged sentences

Collateralized debt obligations

Corporate Bonds

Total available for sale

2 unchanged sentences

(in thousands)

March 31, 2022

June 30, 2022

Held to Maturity:

33 unchanged sentences

Due to the duration and the significant 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 an OTTI has occurred.

A cash flow analysis is performed quarterly on each of the collateralized debt obligation (“CDO”) investment securities.

In performing the detailed cash flow analysis 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.

● 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”)

Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that no additional credit-related OTTI was required during the first three months of 2022.

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 the third party is 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 were realized between calendar year 2009 and calendar year 2011 on the CDO portfolio remaining at March 31, 2022.

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 March 31, 2022 and December 31, 2021.

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 March 31, 2022 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 March 31, 2022, (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, 2021 and March 31, 2022.

The following table presents a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses that have been recognized in earnings for the trust preferred securities held in the CDO portfolio during the three month periods ended March 31, 2022 and 2021 that the Corporation does not intend to sell:

Three Months Ended

The following table presents a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses that have been recognized in earnings for the trust preferred securities held in the CDO portfolio during the six and three month periods ended June 30, 2022 and 2021 that the Corporation does not intend to sell:

Six Months Ended

(in thousands)

1 unchanged sentence

Reduction for increases in cash flows expected to be collected

Balance of credit-related OTTI at March 31

The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2022 are shown in the following table.

Balance of credit-related OTTI at June 30

Three Months Ended

(in thousands)

Balance of credit-related OTTI at April 1

Reduction for increases in cash flows expected to be collected

Balance of credit-related OTTI at June 30

The amortized cost and estimated fair value of securities by contractual maturity at June 30, 2022 are shown in the following table.

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

March 31, 2022

June 30, 2022

(in thousands)

16 unchanged sentences

Note 4 – Loans and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio at March 31, 2022 and December 31, 2021:

The following table summarizes the primary segments of the loan portfolio at June 30, 2022 and December 31, 2021:

(in thousands)

March 31, 2022

June 30, 2022

Individually evaluated for impairment

3 unchanged sentences

Collectively evaluated for impairment

The commercial and industrial portfolio in the table above includes $ 1.3 million and $ 7.7 million of Paycheck Protection Program (“PPP”) loans at March 31, 2022 and December 31, 2021, respectively, which are 100 % guaranteed by the SBA, and no allowance for loan loss (“ALL”) has been assigned to them.

The following table presents the classes of the loan portfolio summarized by the aggregate pass and the criticized categories of special mention and substandard within the internal risk rating system at March 31, 2022 and December 31, 2021:

The commercial and industrial portfolio in the table above includes $ 0.8 million and $ 7.7 million of Paycheck Protection Program (“PPP”) loans at June 30, 2022 and December 31, 2021, respectively, which are 100 % guaranteed by the SBA, and no allowance for loan loss (“ALL”) has been assigned to them.

(in thousands)

March 31, 2022

June 30, 2022

Commercial real estate

22 unchanged sentences

This relationship continues to perform according to its contractual terms and is not considered impaired.

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2022 and December 31, 2021:

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at June 30, 2022 and December 31, 2021:

(in thousands)

March 31, 2022

June 30, 2022

Commercial real estate

19 unchanged sentences

Residential mortgage - home equity

The current category of commercial and industrial loans includes $ 1.3 million and $ 7.7 million of PPP loans at March 31, 2022 and December 31, 2021, respectively.

Non-accrual loans that have been subject to partial charge-offs totaled $ 0.6 million at March 31, 2022 and $ 0.5 million at December 31, 2021.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 0.2 million at both March 31, 2022 and December 31, 2021.

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

As a percentage of the loan portfolio, accruing loans past due 30 days or more decreased to 0.19 % at March 31, 2022 from 0.31 % at December 31, 2021.

The following table summarizes the primary segments of the ALL at March 31, 2022 and December 31, 2021, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

Non-accrual loans that have been subject to partial charge-offs totaled $ 1.3 million at June 30, 2022 and $ 0.5 million at December 31, 2021.

Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 0.1 million at June 30, 2022 and $ 0.2 million at December 31, 2021.

As a percentage of the loan portfolio, accruing loans past due 30 days or more increased to 0.37 % compared to 0.19 % at March 31, 2022 and 0.31 % as of December 31, 2021.

The following table summarizes the primary segments of the ALL at June 30, 2022 and December 31, 2021, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

(in thousands)

March 31, 2022

June 30, 2022

Individually evaluated

8 unchanged sentences

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

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at March 31, 2022 and December 31, 2021:

Impaired Loans with

3 unchanged sentences

Investment (1)

March 31, 2022

June 30, 2022

Commercial real estate

49 unchanged sentences

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.

The following tables present the activity in the ALL for the three month periods ended March 31, 2022 and 2021:

The following tables present the activity in the ALL for the six and three month periods ended June 30, 2022 and 2021:

(in thousands)

ALL balance at January 1, 2022

ALL balance at March 31, 2022

ALL balance at June 30, 2022

ALL balance at January 1, 2021

ALL balance at March 31, 2021

ALL balance at June 30, 2021

(in thousands)

ALL balance at April 1, 2022

ALL balance at June 30, 2022

ALL balance at April 1, 2021

ALL balance at June 30, 2021

The ALL is based on estimates, and actual losses may vary from current estimates.

1 unchanged sentence

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

Six months ended

June 30, 2022

June 30, 2021

(in thousands)

Interest income

recognized on

an accrual basis

Interest income

recognized on

Interest income

recognized on

an accrual basis

Interest income

recognized on

Commercial real estate

Non owner-occupied

All other CRE

Acquisition and development

1-4 family residential construction

All other A&D

Commercial and industrial

Residential mortgage

Residential mortgage – term

Residential mortgage – home equity

Three months ended

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

(in thousands)

27 unchanged sentences

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.

If a borrower’s hardship is thought to be temporary, then modified terms are only offered for that

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.

8 unchanged sentences

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 $ 3.2 million and $ 3.3 million that were classified as TDRs at March 31, 2022 and December 31, 2021, respectively.

During the three month periods ended March 31, 2022 and 2021, there were no new TDRs and no modifications on existing TDRs, nor were there any payment defaults under existing TDRs.

There were 12 loans totaling $ 3.2 million and $ 3.3 million that were classified as TDRs at June 30, 2022 and December 31, 2021, respectively.

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

During the six month period ended June 30, 2022, there were no new TDRs and no existing TDRs that were re-modified.

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

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

These modifications did not impact the ALL.

During the six month periods ended June 30, 2022 and 2021, there were no payment defaults.

Temporary Rate

Extension of Maturity

Modification of Payment

and Other Terms

(in thousands)

Six months ended June 30, 2021

Commercial real estate

Non owner-occupied

All other CRE

Acquisition and development

1-4 family residential construction

All other A&D

Commercial and industrial

Residential mortgage

Residential mortgage – term

Residential mortgage – home equity

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

During the three month period ended June 30, 2022, there were no new TDRs and no existing TDRs that were re-modified.

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

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

These re-modifications did not impact the ALL.

During the three months ended June 30, 2022 and 2021, there were no payment defaults under TDRs.

Temporary Rate

Extension of Maturity

Modification of Payment

and Other Terms

(in thousands)

Three months ended June 30, 2021

Commercial real estate

Non owner-occupied

All other CRE

Acquisition and development

1-4 family residential construction

All other A&D

Commercial and industrial

Residential mortgage

Residential mortgage – term

Residential mortgage – home equity

Note 5 - Other Real Estate Owned, net

The following table presents the components of other real estate owned (“OREO”) at March 31, 2022 and December 31, 2021:

The following table presents the components of other real estate owned (“OREO”) at June 30, 2022 and December 31, 2021:

(in thousands)

Acquisition and development

Residential mortgage

Total OREO, net

The following table presents the activity in the OREO valuation allowance for the three month periods ended March 31, 2022 and 2021:

The following table presents the activity in the OREO valuation allowance for the six and three month periods ended June 30, 2022 and 2021:

Six Months Ended

Three Months Ended

4 unchanged sentences

Balance at end of period

The following table presents the components of OREO (income)/expenses, net, for the three month periods ended March 31, 2022 and 2021:

The following table presents the components of OREO (income)/expenses, net, for the six and three month periods ended June 30, 2022 and 2021:

Six Months Ended

Three Months Ended

14 unchanged sentences

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

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

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

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

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

12 unchanged sentences

The fair value of investments available-for-sale is determined using a market approach.

At March 31, 2022 and December 31, 2021, the U.S.

At June 30, 2022 and December 31, 2021, 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.

13 unchanged sentences

These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2022 and December 31, 2021 were as follows:

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2022 and December 31, 2021 were as follows:

Fair Value Measurements

at March 31, 2022 Using

at June 30, 2022 Using

Assets/(liabilities)

33 unchanged sentences

Other real estate owned

At March 31, 2022, the fair value of impaired loans with a valuation allowance or partial charge-off was $ 0.8 million, net of valuation allowances of $ 35,500 and partial charge-offs of $ 1.3 million.

During the three months ended March 31, 2022, changes to the valuation allowance or additional charge off activity was recorded on loans with a net balance of approximately $ 0.1 million.

At June 30, 2022, the fair value of impaired loans with a valuation allowance or partial charge-off was $ 0.8 million, net of valuation allowances of $ 61,811 and partial charge-offs of $ 1.3 million.

During the six months ended June 30, 2022, changes to the valuation allowance or additional charge off activity was recorded on loans with a net balance of approximately $ 0.3 million.

At December 31, 2021, the fair value of impaired loans with a valuation allowance or charge-off was $ 1.0 million, net of valuation allowances of $ 64,700 and charge-offs of $ 1.3 million.

During the year ended December 31, 2021, changes to the valuation allowance or additional charge off activity was recorded on loans with a net balance of approximately $ 0.4 million.

There were no transfers of assets between any of the fair value hierarchy for the three month periods ended March 31, 2022 or 2021.

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

There were no transfers of assets between any of the fair value hierarchy for the six month periods ended June 30, 2022 or 2021.

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2022 and December 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)

2 unchanged sentences

Discounted Cash Flow

Discount Rate

Discount Margin

Range of low to mid 300 and mid 400

Non-recurring:

11 unchanged sentences

Discount Rate

Libor + 3.25 %

Non-recurring:

10 unchanged sentences

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

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the three month periods ended March 31, 2022 and 2021:

Fair Value Measurements

6 unchanged sentences

Included in other comprehensive loss

Ending balance March 31, 2022

Ending balance June 30, 2022

Fair Value Measurements

Using Significant Unobservable Inputs

(in thousands)

Investment Securities

Available for Sale

Beginning balance April 1, 2022

Total gains realized/unrealized:

Included in other comprehensive income

Ending balance June 30, 2022

Fair Value Measurements

Using Significant Unobservable Inputs

Investment Securities

(in thousands)

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Included in other comprehensive loss

Ending balance March 31, 2021

There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the three month periods ended March 31, 2022 or 2021.

Ending balance June 30, 2021

Fair Value Measurements

Using Significant Unobservable Inputs

(in thousands)

Investment Securities

Available for Sale

Beginning balance April 1, 2021

Total losses realized/unrealized:

Included in other comprehensive income

Ending balance June 30, 2021

There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the six and three month periods ended June 30, 2022 or 2021.

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

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

March 31, 2022

June 30, 2022

Fair Value Measurements

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Accrued interest payable

Off balance sheet financial instruments

December 31, 2021

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Restricted bank stock

Loan held for sale

Accrued interest receivable

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Note 7 – Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2021, and the three months ended March 31, 2022:

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2021, and the three months ended March 31, 2022 and June 30, 2022:

(in thousands)

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Balance - March 31, 2022

The following tables present the components of other comprehensive income/(loss) for the three month periods ended March 31, 2022 and 2021:

Other comprehensive income/(loss) before reclassifications

Amounts reclassified from accumulated other comprehensive loss

Balance - June 30, 2022

The following tables present the components of other comprehensive income/(loss) for the six and three month periods ended June 30, 2022 and 2021:

Components of Other Comprehensive Loss

(in thousands)

For the three months ended March 31, 2022

For the six months ended June 30, 2022

Available for sale (AFS) securities with OTTI:

Unrealized holding gains

Unrealized holding losses

accretable yield recognized in income

Net unrealized gains on investments with OTTI

Net unrealized losses on investments with OTTI

Available for sale securities – all other:

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Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

amortization of prior service costs

Net SERP liability adjustment

Other comprehensive loss

Components of Other Comprehensive Loss

Components of Other Comprehensive Income

(in thousands)

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Available for sale (AFS) securities with OTTI:

Unrealized holding gains

gains recognized in income

accretable yield recognized in income

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gains recognized in income

Net unrealized gains on all other AFS securities

Net unrealized losses on all other AFS securities

Held to maturity securities:

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Pension Plan:

Unrealized net actuarial gain

amortization of unrecognized loss

amortization of prior service costs

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

Net SERP liability adjustment

Other comprehensive income

Components of Other Comprehensive Loss

(in thousands)

For the three months ended June 30, 2022

Available for sale (AFS) securities with OTTI:

Unrealized holding losses

accretable yield recognized in income

Net unrealized losses on investments with OTTI

Available for sale securities – all other:

Unrealized holding losses

Unrealized holding losses on securities transferred from available for sale to held to maturity

gains recognized in income

Net unrealized losses on all other AFS securities

Held to maturity securities:

Unrealized holding gains

amortization recognized in income

Net unrealized gains on HTM securities

Cash flow hedges:

Unrealized holding gains

Pension Plan:

Unrealized net actuarial loss

amortization of unrecognized loss

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

amortization of prior service costs

Net SERP liability adjustment

Other comprehensive loss

The following table presents the details of amounts reclassified from accumulated other comprehensive loss for the three month periods ended March 31, 2022 and 2021:

Components of Other Comprehensive Income

(in thousands)

For the three months ended June 30, 2021

Available for sale (AFS) securities with OTTI:

Unrealized holding gains

accretable yield recognized in income

Net unrealized gains on investments with OTTI

Available for sale securities – all other:

Unrealized holding gains

gains recognized in income

Net unrealized gains on all other AFS securities

Held to maturity securities:

amortization recognized in income

Net unrealized gains on HTM securities

Cash flow hedges:

Unrealized holding losses

Pension Plan:

Unrealized net actuarial gain

amortization of unrecognized loss

amortization of prior service costs

Net pension plan liability adjustment

Unrealized net actuarial loss

amortization of unrecognized loss

Net SERP liability adjustment

Other comprehensive income

The following table presents the details of amounts reclassified from accumulated other comprehensive loss for the six and three month periods ended June 30, 2022 and 2021:

Amounts Reclassified from

Six Months Ended

Accumulated Other Comprehensive Loss

Affected Line Item in the Statement

(in thousands)

Where Net Income is Presented

Net unrealized gains on available for sale investment securities with OTTI:

Accretable yield

Interest income on taxable investment securities

Provision for income tax expense

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

Gains recognized

Provision for income tax expense

Net unrealized losses on held to maturity securities:

Interest income on taxable investment securities

Provision for income tax expense

Net pension plan liability adjustment:

Amortization of unrecognized loss

Other Expense

Provision for income tax expense

Net SERP liability adjustment:

Amortization of unrecognized loss

Other Expense

Provision for income tax expense

Total reclassifications for the period

Amounts Reclassified from

Three Months Ended

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Other expense

Amortization of prior service costs

Salaries and employee benefits

Provision for income tax expense

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

Six Months Ended

Three Months Ended

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Net pension credit included in employee benefits and other expense

At June 30, 2022, the market value of the pension plan decreased $ 9.4 million since December 31, 2021.

This decrease is related to the increasing rate environment and market volatility resulting in a pension plan liability of $ 4.6 million at June 30, 2022 compared to a pension plan asset of $ 4.8 million at December 31, 2021.

Six Months Ended

Three Months Ended

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

No contributions were made to the Pension Plan during the first three months of 2022 or 2021.

No contributions were made to the Pension Plan during the first six months of 2022 or 2021.

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

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or (e) death.

Notwithstanding the foregoing, however, a participant will lose entitlement to the amount maintained in his or her Employer Account in the event employment is terminated for Cause (as

defined in the Contribution Agreement).

Notwithstanding the foregoing, however, a participant will

lose entitlement to the amount maintained in his or her Employer Account in the event employment is terminated for Cause (as defined in the Contribution Agreement).

In addition, the Contribution Agreement conditions entitlement to the amounts held in the Employer Account on the participant (1) refraining from engaging in Competitive Employment (as defined in the Contribution Agreement) for three years following his or her Separation from Service, (2) refraining from injurious disclosure of confidential information concerning the Corporation, and (3) remaining available, at the First United Corporation’s reasonable request, to provide at least six hours of transition services per month for 12 months following his or her Separation from Service (except in the case of death or Disability), except that only item (2) will apply in the event of a Separation from Service following a Change of Control and subsequent Triggering Event.

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

The Corporation recorded $ 12,657 of related compensation expense for the first three months of 2022 and 2021 related to these contributions.

The Corporation recorded $ 25,314 of related compensation expense for the first six months of 2022 and 2021 related to these contributions.

The Corporation recorded $ 12,657 of related compensation expense for the second quarter of 2022 and 2021 related to these contributions.

In January 2022, the Board of Directors approved discretionary contributions to three participants totaling $ 103,689 .

The Corporation recorded $ 12,961 of related compensation expense for the first three months of 2022 related to these contributions.

The Corporation recorded $ 25,922 of related compensation expense for the first six months of 2022 related to these contributions.

The Corporation recorded $ 12,961 of related compensation expense for the second quarter of 2022 related to these contributions.

Each discretionary contribution has a two year vesting period.

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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 $ 58,858 for the three months ended March 31, 2022 and $ 70,216 for the three months ended March 31, 2021.

In May 2022, a total of 14,940 fully vested shares of common stock were issued to directors, which had a grant date fair value of $ 18.92 per share.

Director stock compensation expense was $ 125,588 for the six months ended June 30, 2022 and $ 132,860 for the six months ended June 30, 2021.

Director stock compensation expense was $ 66,730 for the second quarter of 2022 and $ 62,644 for the second quarter of 2021.

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 restricted stock units (“RSUs”) to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers.

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.

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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.

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.

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"

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On March 26, 2022, 1,688 shares of the 3,380 remaining time vesting shares were issued to participants.

Stock compensation expense was $ 26,127 for both of the three month periods ended March 31, 2022 and 2021.

Unrecognized compensation expense at March 31, 2022 related to unvested RSUs was $ 63,584 .

Stock compensation expense was $ 42,024 and $ 52,254 for the six month periods ended June 30, 2022 and 2021.

Stock compensation expense was $ 15,896 and $ 26,127 for the second quarter of 2022 and 2021, respectively.

Unrecognized compensation expense at June 30, 2022 related to unvested RSUs was $ 47,687 .

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 $ 16,571 for the three months ended March 31, 2022.

Unrecognized compensation expense as of March 31, 2022 related to unvested units was $ 138,093 .

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

On May 5, 2022, 1,230 shares of the 3,693 time-vesting RSUs were issued to participants.

Stock compensation expense was $ 33,142 and $ 11,048 for the first six months of 2022 and 2021, respectively.

Stock compensation expense was $ 16,571 and $ 11,048 for the second quarter of 2022 and 2021, respectively.

Unrecognized compensation expense as of June 30, 2022 related to unvested units was $ 121,522 .

In March 2022, RSUs relating to 8,096 performance vesting shares and 6,238 time vesting shares (target level) for plan year 2022 were granted, which had a grant date fair market value of $ 21.88 per share of common stock underlying each RSU.

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The time-vesting RSUs will vest ratably over a three year period beginning on March 9, 2023.

Unrecognized compensation expense as of March 31, 2022 related to unvested units was $ 313,743 .

Stock compensation expense was $ 26,145 for the six and three month periods ended June 30, 2022.

Unrecognized compensation expense as of June 30, 2022 related to unvested units was $ 287,598 .

Note 10 – Derivative Financial Instruments

3 unchanged sentences

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 March 31, 2022, $ 20.0 million notional amount remains.

The fair value of the interest rate swap contracts was $ 0.4 million and $( 0.5 ) million at March 31, 2022 and December 31, 2021, respectively.

For the three months ended March 31, 2022, the Corporation recorded an increase in the value of the derivatives of $ 0.8 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.

As of June 30, 2022, $ 20.0 million notional amount remains.

The fair value of the interest rate swap contracts was $ 0.6 million and $( 0.5 ) million at June 30, 2022 and December 31, 2021, respectively.

For the six months ended June 30, 2022, the Corporation recorded an increase in the value of the derivatives of $ 1.1 million and the related deferred tax of $ 0.3 million in net accumulated other comprehensive loss to reflect the effective portion of cash flow

For the three months ended June 30, 2022, the Corporation recorded an increase in the value of the derivatives of $ 0.2 million and the related deferred tax of $ 0.1 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 three months ended March 31, 2022.

There was no hedge ineffectiveness recorded for the six or three months ended June 30, 2022.

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

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of March 31, 2022.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three month periods ended March 31, 2022 and 2021.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six and three month periods ended June 30, 2022 and 2021.

Derivative in Cash Flow Hedging Relationships

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Interest rate contracts:

Six months ended:

June 30, 2022

June 30, 2021

Three months ended:

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

(a) Reported as interest expense

13 unchanged sentences

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.

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.

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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.

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.

3 unchanged sentences

Payment is typically received immediately or in the following month.

The following presents noninterest income, segregated by revenue streams that are within and outside the scope of ASC Topic 606, for the three month periods ended March 31, 2022 and March 31, 2021:

The following presents noninterest income, segregated by revenue streams that are within and outside the scope of ASC Topic 606, for the six and three month periods ended June 30, 2022 and June 30, 2021:

Six Months Ended

Three Months Ended

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Note 12 – Regulatory Capital Requirements

The following table presents our capital ratios for the three months ended March 31, 2022.

The following table presents our capital ratios as of June 30, 2022 and December 31, 2021.

Total Capital (to risk-weighted assets)

6 unchanged sentences

First United Bank & Trust

As of March 31, 2022, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

As of June 30, 2022 and December 31, 2021, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

Note 13 – Borrowed Funds

The following is a summary of short-term borrowings with original maturities of less than one year:

(Dollars in thousands)

June 30, 2022

December 31, 2021

Overnight borrowings, weighted average interest rate of 1.75 % at June 30, 2022

Securities sold under agreements to repurchase:

Outstanding at end of period

Weighted average interest rate at end of period

Maximum amount outstanding as of any month end

Average amount outstanding

Approximate weighted average rate during the period

Short-term borrowings increased $ 12.2 million since December 31, 2021, driven by $ 18.9 million in overnight borrowings, which were offset by a decrease in other short-term borrowings of $ 6.7 million during the six months related to our Treasury Management customers utilizing their funds.

At June 30, 2022, the repurchase agreements were secured by $ 69.5 million in investment securities issued by government related agencies.

A minimum of 102 % of fair value is pledged against account balances.

Note 14 – Recent Accounting Pronouncements

4 unchanged sentences

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:

The new model referred to as current expected credit losses (“CECL”) model, will

(a) financial assets subject to credit losses and measured at amortized cost;

12 unchanged sentences

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 ASU is effective as of March 12, 2020 and 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.

5 unchanged sentences

ASU 2022-02 is effective March 31, 2023, for entities that have adopted ASU 2016-13, otherwise effective date is the same as ASU 2016-13.

The Corporation’s current plan is to adopt ASU 2016-13 January 1, 2023 and will simultaneously implement ASU 2022-02.

The Corporation’s current plan is to adopt ASU 2016-13 effective January 1, 2023 at which time it will also implement ASU 2022-02.

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

What changed 10-Q

Item 1. Financial Statements