FIRST UNITED CORP/MD/ 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 173 ) 63 Consolidated Statements of Financial Condition at December 31, 2023 and 2022 65 Consolidated Statements of Income for the years ended December 31, 2023 and 2022 66 Consolidated Statements of Comprehensive Income for the years ended December 31, 2023 and 2022 67 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2023 and 2022 68 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 69 Notes to Consolidated Financial Statements for the years ended December 31, 2023 and 2022 70 ​ ​ ​ 62 ​ Table of Contents ​ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ​ ​ ​ Shareholders and the Board of Directors of First United Corporation Oakland, Maryland ​ ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated statements of financial condition of First United Corporation (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. ​ Change in Accounting Principle ​ As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also related to the critical audit matter communicated below. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ 63 ​ Table of Contents ​ Critical Audit Matter ​ The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ Allowance for Credit Losses on Loans – Reasonable and Supportable Forecasts and Assumptions ​ In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2023 as described in Notes 1 and 5 of the consolidated financial statements using the modified retrospective method. See also explanatory paragraph above. The ASU requires the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on evaluation of the size of the portfolio, current risk characteristics, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The Company disclosed the impact of adoption of this standard on January 1, 2023 with an increase of $2.0 million to the allowance for credit losses on loans. The Company recorded a $2.2 million decrease to retained earnings for the cumulative effect adjustment upon adoption. Provision expense for the year ending December 31, 2023 was $1.6 million and the allowance for credit losses as of December 31, 2023 was $17.5 million. ​ The Company’s methodology for estimating the allowance for credit losses on loans includes quantitative and qualitative components of the calculation. The quantitative analysis includes using a discounted cash flow (DCF) model for determining the allowance for credit losses. Management leverages economic projections from a third party source for its forecasts over the forecast period. Economic forecast models include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product (“loss drivers”). These forecasts are assumed to revert to the long-term average and are utilized in the model to estimate the probability of default and the loss given default, which vary over time. Forecast and reversion periods as well as the selection and application of economic forecast models are considered assumptions applied by management . Based on management’s review and analysis of internal, external, and model risks, management may adjust the quantitative model output with qualitative adjustments. Management developed a qualitative framework in which maximum loss rates are established considering economic forecasts that serve as the basis for determining the reasonableness of the quantitative model’s output and necessary adjustments. ​ We determined that auditing the forecasts and assumptions, including the development of quantitative forecast models using the loss drivers, was a critical audit matter as it involved significant judgment by management, which led especially a high degree of auditor judgment and subjectivity and increased audit effort, including the involvement of specialists to obtain audit evidence related to the forecasts. ​ The primary procedures performed to address this critical audit matter included the following: ​ ● Tested the effectiveness of the Company’s controls that addressed the following: o Development of the forecast models that are used to determine the quantitative component and used in determining the basis for qualitative adjustments. o Relevance and reliability of reasonable and supportable forecast data and the reasonableness of significant model assumptions input into the model. ● Use of specialists to test development of the forecast models that are used to determine the quantitative component and used in determining the basis for qualitative adjustments. ● Evaluated the reasonableness of reasonable and supportable economic forecasts and the significant model assumptions, including the relevance and reliability of data used in the model. ​ ​ /s/ Crowe LLP We have served as the Company's auditor since 2021. Washington, D.C. March 15, 2024 ​ ​ 64 ​ Table of Contents ​ First United Corporation and Subsidiaries Consolidated Statements of Financial Condition (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2023 2022 Assets ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 48,343 ​ $ 72,720 Interest bearing deposits in banks ​ ​ 1,410 ​ ​ 1,595 Cash and cash equivalents ​ ​ 49,753 ​ ​ 74,315 Investment securities – available-for-sale (at fair value) ​ ​ 97,169 ​ ​ 125,889 Investment securities – held to maturity, net of allowance for credit losses of $ 45 and $ 0 , respectively (fair value of $ 184,415 at December 31, 2023 and $ 203,080 at December 31, 2022) ​ ​ 214,297 ​ ​ 235,659 Restricted investment in bank stock, at cost ​ ​ 5,250 ​ ​ 1,027 Loans held for sale (at lower of cost or fair value) ​ ​ 443 ​ ​ — Loans ​ ​ 1,406,667 ​ ​ 1,279,494 Unearned fees ​ ​ ( 340 ) ​ ​ ( 174 ) Allowance for credit losses ​ ​ ( 17,480 ) ​ ​ ( 14,636 ) Net loans ​ ​ 1,388,847 ​ ​ 1,264,684 Premises and equipment, net ​ ​ 31,459 ​ ​ 34,948 Goodwill and other intangibles ​ ​ 12,103 ​ ​ 12,433 Bank owned life insurance ​ ​ 47,607 ​ ​ 46,346 Deferred tax assets ​ ​ 11,133 ​ ​ 10,605 Other real estate owned ​ ​ 4,493 ​ ​ 4,733 Right of use assets ​ ​ 1,367 ​ ​ 1,898 Pension Asset ​ ​ 11,208 ​ ​ 8,001 Accrued interest receivable ​ ​ 7,487 ​ ​ 6,051 Other assets ​ ​ 23,244 ​ ​ 21,580 Total Assets ​ $ 1,905,860 ​ $ 1,848,169 Liabilities and Shareholders’ Equity ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ Non-interest bearing deposits ​ $ 427,670 ​ $ 506,613 Interest bearing deposits ​ ​ 1,123,307 ​ ​ 1,064,120 Total deposits ​ ​ 1,550,977 ​ ​ 1,570,733 Short-term borrowings ​ ​ 45,418 ​ ​ 64,565 Long-term borrowings ​ ​ 110,929 ​ ​ 30,929 Operating lease liability ​ ​ 1,556 ​ ​ 2,373 SERP deferred compensation ​ ​ 9,777 ​ ​ 7,194 Allowance for credit losses on unfunded commitments ​ ​ 873 ​ ​ 133 Accrued interest payable ​ ​ 612 ​ ​ 151 Other liabilities ​ ​ 22,515 ​ ​ 19,099 Dividends payable ​ ​ 1,330 ​ ​ 1,199 Total Liabilities ​ ​ 1,743,987 ​ ​ 1,696,376 Shareholders’ Equity: ​ ​ ​ ​ ​ ​ Common Stock – par value $ 0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,639,888 shares at December 31, 2023 and 6,666,428 shares at December 31, 2022 ​ ​ 66 ​ ​ 67 Surplus ​ ​ 23,734 ​ ​ 24,409 Retained earnings ​ ​ 173,900 ​ ​ 166,343 Accumulated other comprehensive loss ​ ​ ( 35,827 ) ​ ​ ( 39,026 ) Total Shareholders’ Equity ​ ​ 161,873 ​ ​ 151,793 Total Liabilities and Shareholders’ Equity ​ $ 1,905,860 ​ $ 1,848,169 ​ See notes to consolidated financial statement 65 ​ Table of Contents ​ First United Corporation and Subsidiaries Consolidated Statements of Income (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2023 2022 Interest income ​ ​ ​ ​ ​ ​ Interest and fees on loans ​ $ 69,569 ​ $ 54,448 Interest on investment securities ​ ​ ​ ​ ​ ​ Taxable ​ ​ 7,173 ​ ​ 6,252 Exempt from federal income tax ​ ​ 714 ​ ​ 1,106 Total investment income ​ ​ 7,887 ​ ​ 7,358 Other ​ ​ 3,700 ​ ​ 616 Total interest income ​ ​ 81,156 ​ ​ 62,422 Interest expense ​ ​ ​ ​ ​ ​ Interest on deposits ​ ​ 19,198 ​ ​ 3,226 Interest on short-term borrowings ​ ​ 147 ​ ​ 112 Interest on long-term borrowings ​ ​ 4,941 ​ ​ 1,451 Total interest expense ​ ​ 24,286 ​ ​ 4,789 Net interest income ​ ​ 56,870 ​ ​ 57,633 Credit loss expense ​ ​ ​ ​ ​ ​ Credit loss expense/(credit)- loans ​ ​ 1,700 ​ ​ ( 643 ) Credit loss expense- debt securities held to maturity ​ ​ 45 ​ ​ — Credit loss (credit)/expense- unfunded commitments ​ ​ ( 125 ) ​ ​ 16 Total credit loss expense/(credit) ​ ​ 1,620 ​ ​ ( 627 ) Net interest income after provision for credit losses ​ ​ 55,250 ​ ​ 58,260 Other operating income ​ ​ ​ ​ ​ ​ Net (losses)/gains on investments, available for sale ​ ​ ( 4,214 ) ​ ​ 3 Net gains on investment, held to maturity ​ ​ — ​ ​ 91 Net gains on sales of residential mortgage loans ​ ​ 381 ​ ​ 45 Net (losses)/gains on disposal of fixed assets ​ ​ ( 29 ) ​ ​ 33 Net (losses)/gains ​ ​ ( 3,862 ) ​ ​ 172 Service charges on deposit accounts ​ ​ 2,198 ​ ​ 1,981 Other service charges ​ ​ 929 ​ ​ 925 Trust department ​ ​ 8,282 ​ ​ 8,244 Debit card income ​ ​ 4,101 ​ ​ 3,958 Bank owned life insurance ​ ​ 1,261 ​ ​ 1,196 Brokerage commissions ​ ​ 1,160 ​ ​ 1,049 Other ​ ​ 400 ​ ​ 525 Total other income ​ ​ 18,331 ​ ​ 17,878 Total other operating income ​ ​ 14,469 ​ ​ 18,050 Other operating expenses ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ ​ 27,503 ​ ​ 24,130 FDIC premiums ​ ​ 992 ​ ​ 636 Equipment ​ ​ 4,356 ​ ​ 4,163 Occupancy ​ ​ 3,445 ​ ​ 2,906 Data processing ​ ​ 3,980 ​ ​ 3,444 Marketing ​ ​ 762 ​ ​ 543 Professional services ​ ​ 2,160 ​ ​ 1,538 Contract labor ​ ​ 643 ​ ​ 618 Line rentals ​ ​ 466 ​ ​ 482 Total OREO (income)/expense, net ​ ​ ( 89 ) ​ ​ 590 Investor relations ​ ​ 345 ​ ​ 300 Contributions ​ ​ 229 ​ ​ 288 Other ​ ​ 5,451 ​ ​ 3,491 Total other operating expenses ​ ​ 50,243 ​ ​ 43,129 Income before income tax expense ​ $ 19,476 ​ $ 33,181 Provision for income tax expense ​ ​ 4,416 ​ ​ 8,133 Net Income ​ $ 15,060 ​ $ 25,048 Basic net income per share ​ $ 2.25 ​ $ 3.77 Diluted net income per share ​ $ 2.25 ​ $ 3.76 Weighted average number of basic shares outstanding ​ ​ 6,686 ​ ​ 6,650 Weighted average number of diluted shares outstanding ​ ​ 6,701 ​ ​ 6,661 See notes to consolidated financial statements 66 ​ Table of Contents ​ First United Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, Comprehensive Income 2023 2022 Net Income ​ $ 15,060 ​ $ 25,048 Other comprehensive income, net of tax and reclassification adjustments ​ ​ ​ ​ ​ ​ Available for sale securities: ​ ​ ​ ​ ​ ​ Unrealized holding losses on investments with credit related impairment ​ ​ ( 845 ) ​ ​ ( 835 ) Reclassification adjustment for gains realized in income ​ ​ 202 ​ ​ 202 Other comprehensive losses on investments with credit related impairment ​ ​ ( 1,047 ) ​ ​ ( 1,037 ) ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains/(losses) on all other AFS investments ​ ​ 83 ​ ​ ( 22,792 ) Unrealized holding losses on securities transferred from available for sale to held to maturity ​ ​ — ​ ​ 8,328 Reclassification adjustment for (losses)/gains realized in income ​ ​ ( 4,214 ) ​ ​ 3 Other comprehensive income/(losses) on all other AFS investments ​ ​ 4,297 ​ ​ ( 14,467 ) ​ ​ ​ ​ ​ ​ ​ Held to maturity securities: ​ ​ ​ ​ ​ ​ Unrealized holding losses on securities transferred to held to maturity ​ ​ — ​ ​ ( 8,328 ) Reclassification adjustment for gains realized in income ​ ​ — ​ ​ 91 Reclassification adjustment for amortization realized in income ​ ​ ( 682 ) ​ ​ ( 841 ) Other comprehensive income/(losses) on HTM investments ​ ​ 682 ​ ​ ( 7,578 ) ​ ​ ​ ​ ​ ​ ​ Cash flow hedges: ​ ​ ​ ​ ​ ​ Unrealized holding (losses)/gains on cash flow hedges ​ ​ ( 310 ) ​ ​ 1,521 Other comprehensive (loss)/gain on cash flow hedges ​ ​ ( 310 ) ​ ​ 1,521 ​ ​ ​ ​ ​ ​ ​ Pension plan liability: ​ ​ ​ ​ ​ ​ Unrealized holding gains on pension plan liability ​ ​ 2,180 ​ ​ 931 Reclassification adjustment for amortization of unrecognized loss realized in income ​ ​ ( 998 ) ​ ​ ( 1,117 ) Other comprehensive income on pension plan liability ​ ​ 3,178 ​ ​ 2,048 ​ ​ ​ ​ ​ ​ ​ SERP liability: ​ ​ ​ ​ ​ ​ Unrealized holding (gains)/losses on SERP liability ​ ​ ( 2,448 ) ​ ​ 3,307 Reclassification adjustment for amortization of unrecognized income/(loss) realized in income ​ ​ 7 ​ ​ ( 271 ) Other comprehensive (losses)/gains on SERP liability ​ ​ ( 2,455 ) ​ ​ 3,578 Other comprehensive income/(loss) before income tax ​ ​ 4,345 ​ ​ ( 15,935 ) Income tax (credit)/expense related to other comprehensive income ​ ​ ( 1,146 ) ​ ​ 4,223 Other comprehensive income/(loss), net of tax ​ ​ 3,199 ​ ​ ( 11,712 ) Comprehensive Income ​ $ 18,259 ​ $ 13,336 ​ See notes to consolidated financial statements ​ 67 ​ 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, 2022 ​ $ 66 ​ ​ 23,661 ​ ​ 145,487 ​ ​ ( 27,314 ) ​ ​ 141,900 Net income ​ ​ ​ ​ ​ ​ ​ ​ 25,048 ​ ​ ​ ​ ​ 25,048 Other comprehensive loss, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ( 11,712 ) ​ ​ ( 11,712 ) Common stock issued - 45,473 shares ​ ​ 1 ​ ​ 216 ​ ​ ​ ​ ​ ​ ​ ​ 217 Common stock dividend declared - $ 0.63 per share ​ ​ ​ ​ ​ ​ ​ ​ ( 4,192 ) ​ ​ ​ ​ ​ ( 4,192 ) Stock based compensation ​ ​ ​ ​ ​ 532 ​ ​ ​ ​ ​ ​ ​ ​ 532 Balance at December 31, 2022 ​ ​ 67 ​ ​ 24,409 ​ ​ 166,343 ​ ​ ( 39,026 ) ​ ​ 151,793 Adoption of ASC 326- Financial Instruments- Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ( 2,155 ) ​ ​ ​ ​ ​ ( 2,155 ) Net income ​ ​ ​ ​ ​ ​ ​ ​ 15,060 ​ ​ ​ ​ ​ 15,060 Other comprehensive income, net of tax ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,199 ​ ​ 3,199 Common stock issued- 55,558 shares ​ ​ ​ ​ ​ 293 ​ ​ ​ ​ ​ ​ ​ ​ 293 Common stock dividend declared - $ 0.80 per share ​ ​ ​ ​ ​ ​ ​ ​ ( 5,348 ) ​ ​ ​ ​ ​ ( 5,348 ) Stock based compensation ​ ​ ​ ​ ​ 527 ​ ​ ​ ​ ​ ​ ​ ​ 527 Stock repurchase- 82,098 shares ​ ​ ( 1 ) ​ ​ ( 1,495 ) ​ ​ ​ ​ ​ ​ ​ ​ ( 1,496 ) Balance at December 31, 2023 ​ $ 66 ​ $ 23,734 ​ $ 173,900 ​ $ ( 35,827 ) ​ $ 161,873 ​ See notes to consolidated financial statements ​ 68 ​ Table of Contents ​ First United Corporation and Subsidiaries Consolidated Statements of Cash Flows (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2023 2022 Operating activities ​ ​ ​ ​ ​ ​ Net income ​ $ 15,060 ​ $ 25,048 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Provision/(credit) for credit losses ​ ​ 1,620 ​ ​ ( 627 ) Depreciation ​ ​ 3,799 ​ ​ 3,077 Stock based compensation ​ ​ 527 ​ ​ 532 Amortization of intangible assets ​ ​ 330 ​ ​ 219 Gains on sales of other real estate owned, net ​ ​ ( 599 ) ​ ​ — Write-downs of other real estate owned ​ ​ 23 ​ ​ — Origination of loans held for sale ​ ​ ( 4,832 ) ​ ​ ( 1,401 ) Proceeds from sales of loans held for sale ​ ​ 4,770 ​ ​ 1,513 Gains on sales of loans held for sale ​ ​ ( 381 ) ​ ​ ( 45 ) Losses/(gains) on disposal of fixed assets, net ​ ​ 29 ​ ​ ( 33 ) Net (accretion)/amortization of investment securities discounts and premiums- AFS ​ ​ ( 51 ) ​ ​ 83 Net accretion of investment securities discounts and premiums- HTM ​ ​ ( 805 ) ​ ​ ( 850 ) Net losses on sales of investment securities – available-for-sale ​ ​ 4,214 ​ ​ — Net gain on calls of investment securities – available-for-sale ​ ​ — ​ ​ ( 3 ) Net gains on investment securities – held to maturity ​ ​ — ​ ​ ( 91 ) Amortization of deferred loan fees ​ ​ ( 98 ) ​ ​ ( 150 ) Deferred tax (benefit)/expense ​ ​ ( 889 ) ​ ​ 595 Earnings on bank owned life insurance ​ ​ ( 1,261 ) ​ ​ ( 1,196 ) Amortization of operating lease right of use assets ​ ​ 787 ​ ​ 349 Amortization of operating lease liabilities ​ ​ ( 1,073 ) ​ ​ ( 388 ) (Increase)/decrease in accrued interest receivable and other assets ​ ​ ( 4,932 ) ​ ​ 648 Increase/(decrease) in accrued interest payable and other liabilities ​ ​ 6,232 ​ ​ ( 737 ) Net cash provided by operating activities ​ ​ 22,470 ​ ​ 26,543 Investing activities ​ ​ ​ ​ ​ ​ Proceeds from maturities/calls of investment securities available-for-sale ​ ​ 7,497 ​ ​ 14,248 Proceeds from maturities/calls of investment securities held-to-maturity ​ ​ 26,110 ​ ​ 16,263 Proceeds from sales of investment securities available-for-sale ​ ​ 20,249 ​ ​ 1,023 Purchases of investment securities available-for-sale ​ ​ — ​ ​ ( 17,652 ) Purchases of investment securities held-to-maturity ​ ​ ( 3,988 ) ​ ​ ( 55,686 ) Proceeds from sales of other real estate owned ​ ​ 1,041 ​ ​ — Proceeds from disposal of fixed assets ​ ​ 14 ​ ​ 281 Net (increase)/decrease in FHLB stock ​ ​ ( 4,223 ) ​ ​ 2 Net increase in loans ​ ​ ( 128,056 ) ​ ​ ( 126,707 ) Acquisition of mortgage company ​ ​ — ​ ​ ( 600 ) Purchases of premises and equipment ​ ​ ( 353 ) ​ ​ ( 3,576 ) Net cash used in investing activities ​ ​ ( 81,709 ) ​ ​ ( 172,404 ) Financing activities ​ ​ ​ ​ ​ ​ Net (decrease)/increase in deposits ​ ​ ( 19,756 ) ​ ​ 101,359 Proceeds from issuance of common stock ​ ​ 293 ​ ​ 217 Cash dividends paid on common stock ​ ​ ( 5,217 ) ​ ​ ( 3,986 ) Net (decrease)/increase in short-term borrowings ​ ​ ( 19,147 ) ​ ​ 6,866 Stock repurchase ​ ​ ( 1,496 ) ​ ​ — Proceeds from long-term borrowings ​ ​ 80,000 ​ ​ — Net cash provided by financing activities ​ ​ 34,677 ​ ​ 104,456 Decrease in cash and cash equivalents ​ ​ ( 24,562 ) ​ ​ ( 41,405 ) Cash and cash equivalents at beginning of the year ​ ​ 74,315 ​ ​ 115,720 Cash and cash equivalents at end of period ​ $ 49,753 ​ $ 74,315 Supplemental information ​ ​ ​ ​ ​ ​ Interest paid ​ $ 23,825 ​ $ 4,775 Taxes paid ​ $ 6,126 ​ $ 7,508 Non-cash investing activities: ​ ​ ​ ​ ​ ​ Transfers from loans to other real estate owned ​ $ 225 ​ $ 256 Transfers from securities available for sale to held-to-maturity ​ $ — ​ $ 139,036 ​ ​ ​ ​ ​ ​ ​ ​ See notes to consolidated financial statements 69 ​ 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 financial 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 (“GAAP”). All significant intercompany transactions and accounts have been eliminated. Certain reclassifications have been made to prior year amounts to conform with current year classifications. In the opinion of management, all adjustments (all of which are normal recurring in nature) that are necessary for a fair statement are reflected in the consolidated financial statements. In preparing financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and as such, actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements of the Corporation include the accounts of First United Corporation, the Bank, the OakFirst Loan Centers, 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, 2023, approximately 5 %, or $ 77.1 million, of total loans were secured by real estate acquisition, construction and development projects, with $ 77.0 million performing according to their contractual terms and 70 ​ Table of Contents ​ $ 0.1 million considered to be individually evaluated loans based on management’s concerns about the borrowers’ ability to comply with present repayment terms. The $ 0.1 million in individually evaluated loans were all classified as non-accrual as of December 31, 2023. Additionally, loans collateralized by commercial rental properties represented 21 % of the total loan portfolio as of December 31, 2023. Note 4 discusses the types of securities in which the Corporation invests and Note 5 discusses the Corporation’s lending activities. Investments The investment portfolio is classified and accounted for based on the guidance of Accounting Standards Codification (“ASC”) Topic 320, Investments – Debt and Equity Securities . Securities bought and held principally for the purpose of selling them in the near term are classified as trading account securities and reported at fair value with unrealized gains and losses included in net gains/losses in other operating income. Securities purchased with the intent and ability to hold the securities to maturity are classified as held-to-maturity 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. The Corporation adopted Accounting Standards Codification (“ASC “) 326 using the prospective transition approach for debt securities for which other than temporary impairment (“OTTI”) had been recognized prior to January 1, 2023, such as available-for-sale (“AFS”) collateralized debt obligations. As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously written off are recognized in other comprehensive income (“OCI”) as of January 1, 2023 relating to improvements in cash flows expected to be collected are accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2023 are recorded in earnings when received. The Corporation utilizes ASC 326 to evaluate its AFS and HTM debt security portfolio for expected credit losses. For AFS debt securities in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, as a non-credit-related impairment. ​ The Corporation has made the policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheets. Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when 71 ​ Table of Contents ​ a security is placed on nonaccrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable. ​ The Corporation separately evaluates its HTM investment securities for any credit losses. The Corporation pools like securities and calculates expected credit losses through an estimate based on a security’s credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and is included in the balance of investment securities held to maturity on the Consolidated Balance Sheets. If the Corporation determines that a security indicates evidence of deteriorated credit quality, the security is individually evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis. ​ Restricted Investment in Bank Stock The Corporation owns non-marketable equity securities in a combination of the Federal Home Loan Bank (“FHLB”) of Atlanta, Atlantic Community Bankers Bank and Community Banker’s Bank. These securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. The Corporation recognizes dividend income on a cash basis. For the years ended December 31, 2023 and December 31, 2022, dividends of $ 198,457 and $ 36,558 , 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. There were $ 0.4 million in loans held for sale at December 31, 2023. No loans were held for sale at December 31, 2022. The segments of the Bank’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The commercial real estate (“CRE”) loan segment is further disaggregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied nonfarm nonresidential properties, generally have a greater risk profile than all other CRE loans, which include loans secured by farmland, multifamily structures and owner-occupied commercial structures. The acquisition and development (“A&D”) loan segment is further disaggregated into two classes. One-to-four family residential construction loans are generally made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. All other A&D loans are generally made to developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures. These loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the A&D loan. The commercial and industrial (“C&I”) loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment is further disaggregated into two classes: amortizing term loans, which are primarily first liens, and home equity lines of credit, which are generally second liens. The consumer loan segment consists primarily of installment loans (direct and indirect), student loans and overdraft lines of credit connected with customer deposit accounts. Management uses a 10-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. All loans greater than 90 days past due are considered Substandard. Only the portion of a specific allocation of the allowance for credit losses is associated with a pending event that could trigger loss in the short term is classified in the Doubtful category. It is possible for a loan to be classified as Substandard in the internal risk rating system, but not be 72 ​ Table of Contents ​ individually evaluated under GAAP, due to the broader reach of “well-defined weaknesses” in the application of the Substandard definition. Interest and Fees on Loans Interest on loans (other than those on non-accrual status) is recognized based upon the principal amount outstanding. Loan fees in excess of the costs incurred to originate the loan are recognized as income over the life of the loan utilizing either the interest method or the straight-line method, depending on the type of loan. Generally, fees on loans with a specified maturity date, such as residential mortgages, are recognized using the interest method. Loan fees for lines of credit are recognized using the straight-line method. A loan is considered to be past due when a payment has not been received for 30 days past its contractual due date. For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may be classified as nonaccrual if repayment in full of principal and/or interest is unlikely. Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. Generally, consumer installment loans are not placed on non-accrual status, but are charged off after they are 120 days contractually past due. Loans other than consumer installment loans are charged-off based on an evaluation of the facts and circumstances of each individual loan. Allowance for Credit Losses An allowance for credit loss (“ACL”) is mainained to absorb losses from the Corporation’s financial assets in accordance with ASC 326: Financial Instruments- Credit Losses . Allowance for Credit Losses Policy The ACL represents an amount that, in management’s judgment, is adequate to absorb expected losses on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased or decreased by a provision for credit losses, which is recorded as a current period operating expense. Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness is reviewed quarterly by management. Management believes it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial condition of borrowers. The adoption of CECL accounting did not result in a significant change to any other credit risk management and monitoring processes, including identification of past due or delinquent borrowers, nonaccrual practices, assessment of modified loans, or charge-off policy. 73 ​ Table of Contents ​ Held-to-Maturity Securities Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Management has elected not to measure an ACL for accrued interest on securities. The estimate of expected credit losses considers historical credit loss information tha tis adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: securities issued by U.S. government issues and agencies (including U.S. treasuries, agency bonds, and U.S. guaranteed residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized mortgage obligations), rated municipal securities, and unrated municipal securities. Securities that are issued or explicitly or implicitely guaranteed by the U.S. government are hghly rated by major rating agencies and have a long history of no credit losses. Rated municipal securities are evaluated based on credit rating by major rating agencies and financial performance. Non-rated securities are evaluated internally based on financial performance and expected future cash flows. Available-for-Sale Securities For AFS debt securities in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery to its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities AFS that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted rom credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected rom the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the ACL is recognized in other comprehensive income. The Corporation adopted Accounting Standards Codification (“ASC “) 326 using the prospective transition approach for debt securities for which other than temporary impairment (“OTTI”) had been recognized prior to January 1, 2023, such as available-for-sale (“AFS”) collateralized debt obligations. As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously written off are recognized in other comprehensive income (“OCI”) as of January 1, 2023 relating to improvements in cash flows expected to be collected are accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after January 1, 2023 are recorded in earnings when received. Loans An ACL is maintained as a valuation account that is deducted from the Corporation’s loan porfolio’s amortized cost basis to present the net amount expected to be collected on the loans. Loan are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis or the estimation of expected credit losses. Adjustments to historical loss information are made for differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental condition, such as changes in unemployment rates, property values, or other relevant factors. 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 74 ​ Table of Contents ​ risk-rated Substandard and is greater than 60 days past due. Loans are considered to be individually evaluated when, based on current information and events, they no longer share the same risk characteristics of other loans within our portfolio. Factors considered by management in evaluating loans include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Bank does not separately evaluate individual consumer and residential mortgage loans, unless such loans are part of larger relationship that is individually evaluated; otherwise loans in these segments are considered individually evaluated when they are classified as non-accrual. Once the determination has been made that a loan is individually evaluated, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the loan’s observable market price; or (iii) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management utilizing the fair value of collateral or the discounted cash flow method for the analyses. If the fair value of the collateral less selling costs method is utilized for collateral securing loans in the commercial segments, then an updated external appraisal is ordered on the collateral supporting the loan if the loan balance is greater than $500,000 and the existing appraisal is greater than 18 months old. If the loan balance is less than $500,000, then the estimated fair value of the collateral is determined by adjusting the existing appraisal by the appropriate percentage from an internally prepared appraisal discount grid. This grid considers the age of a third-party appraisal and the geographic region where the collateral is located in order to discount an appraisal. The discount rates in the appraisal discount grid are updated at least annually to reflect the most current knowledge that management has available, including the results of current appraisals. If there is a delay in receiving an updated appraisal or if the appraisal is found to be deficient in our internal appraisal review process and re-ordered, the Bank continues to use a discount factor from the appraisal discount grid based on the collateral location and current appraisal age in order to determine the estimated fair value. If the general market conditions in that geographic market have changed considerably, the property has deteriorated or perhaps lost an income stream, or a recent appraisal for a similar property indicates a significant change, then management may adjust the fair value indicated by the existing appraisal until a new appraisal is obtained. A specific allocation of the ACL is recorded if there is any deficiency in collateral value determined by comparing the estimated fair value to the recorded investment of the loan. When updated appraisals are received and reviewed, adjustments are made to the specific allocation as needed. A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $ 0.1 million or greater; otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 5, Fair Value Measurements. There were no loan modifications to borrowers facing financial difficulties for the year ending December 31, 2023. The evaluation of the need and amount of a specific allocation of the ACL and whether a loan can be removed from impairment status is made on a quarterly basis. Loan Commitments and Allowance for Credit Loss on Unfunded Commitments Financial instruments include unfunded commitments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for unfunded commitments commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Corporation records a reserve for unfunded commitments (“RUC”) on unfunded commitments through a charge to provision for credit loss expense in the Corporation’s Consolidated Statement of Income. The RUC on unfunded commitments is estimated by loan segment at each balance sheet date under the CECL model using the same 75 ​ Table of Contents ​ methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in the RUC on the Corporation’s Consolidated Balance Sheet. Loan Modifications In situations where, for economic or legal reasons related to a borrower’s financial condition, management may grant a concession to the borrower that it would not otherwise consider, the related loan is classified as a modified loan. Management strives to identify borrowers in financial difficulty early and work with them to modify the loan to more affordable terms before their loan reaches nonaccrual status. The Corporation modifies loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reductions. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses. These concessions are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. See Note 5 for more detail related to the accounting of modified loans. 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. 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, 2023, other intangible assets included $ 0.6 million for the purchase of certain assets from a wealth company and $ 0.5 million for the purchase of certain assets of a mortgage company. 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. 76 ​ Table of Contents ​ Other Real Estate Owned (“OREO”) Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less the cost to sell at the date of foreclosure, with any losses charged to the ACL, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Changes in the valuation allowance, sales gains and losses, and revenue and expenses from holding and operating properties are all included in 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 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 15 for a further discussion of the pension plan and supplemental executive retirement plan obligations. Statement of Cash Flows Cash and cash equivalents are defined as cash and due from banks and interest-bearing deposits in banks in the Consolidated Statements of Cash Flows. Cash flows are reported for customer loan and deposit transactions and interest-bearing deposits in banks. 77 ​ Table of Contents ​ 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 21 for further discussion. Business Segments The Corporation operates in two segments, as defined by ASC Topic 280, Segment Reporting : community banking and trust and investment services. The Corporation, both in its entirety and by its business segments, is managed and evaluated on an ongoing basis by First United Corporation’s Board of Directors and executive management. Refer to Note 22 for further discussion. 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. In 2023, the Corporation repurchased 82,098 shares of common stock at a weighted average price of $ 16.79 per share. The Corporation did no t repurchase shares of common stock during 2022. Recent Accounting Pronouncements Newly Adopted Pronouncements in 2023 In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , universally referred to as CECL. The amendments in ASU, 2016-13 among other things, requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied previously are still permitted, although the inputs to those techniques changed to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on purchased financial assets with credit deterioration. For periodic report filers that are smaller reporting companies, such as the Corporation, ASU 2016-13 was effective as of January 1, 2023. As part of its process of adopting the CECL accounting method, management implemented a third party software solution and determined the appropriate loan segments, methodologies, model assumptions and qualitative components. Our CECL model includes portfolio loan segmentation based upon similar risk characteristics and both a quantitative and qualitative component of the calculation which incorporates a forecasting component of certain economic variables. Our implementation plan also includes the assessment and documentation of appropriate processes, policies and internal controls. Management had a third party independent consultant review and validate our CECL model. In addition, ASU 2016-13 amends the accounting for credit losses on certain debt securities. The Corporation did not record any allowance for credit losses (“ACL”) on its debt securities as a result of adopting this ASU. The ultimate impact of adopting ASU 2016-13, and at each subsequent reporting period, is highly dependent on credit quality, macroeconomic forecasts and conditions, compensation of our loan portfolio, and other management judgments. The Corporation adopted ASU 2016-13 using the modified retrospective method. Results beginning after January 1, 2023 are presented under ASU 2016-13, while prior period amounts continue to be reported in accordance with previously applicable GAAP. We made the accounting policy election to not measure an ACL for accrued interest receivables for loans and securities. Accrued interest deemed uncollectible will be written off through interest income. 78 ​ Table of Contents ​ The following table illustrates the day-one impact of adopting ASU 2016-13. ​ ​ ​ ​ ​ ​ ​ ​ ​ January 1, 2023 (in thousands) ​ As Reported Under ASU 2016-13 ​ Pre ASU 2016-13 ​ Impact of ASU 2016-13 Adoption Assets ​ ​ ​ ​ ​ ​ Allowance for credit losses on loans ​ ​ ​ ​ ​ ​ Commercial real estate $ 5,202 $ 6,345 $ ( 1,143 ) Acquisition and development ​ 964 ​ 979 ​ ( 15 ) Commercial and industrial ​ 4,179 ​ 2,845 ​ 1,334 Residentail mortgage ​ 5,272 ​ 3,160 ​ 2,112 Consumer ​ 1,085 ​ 877 ​ 208 Unallocated ​ - ​ 430 ​ ( 430 ) Allowance for Credit Losses on Loans $ 16,702 $ 14,636 $ 2,066 Assets: ​ ​ ​ ​ ​ ​ Investment securities- available for sale (at fair value) $ 125,889 $ 125,889 $ - Investment securities- held to maturity ​ 245,659 ​ 245,659 ​ - Total loans held for investments, net ​ 1,262,792 ​ 1,264,858 ​ ( 2,066 ) Net deferred tax asset ​ 11,381 ​ 10,605 ​ 776 Liabilities: ​ ​ ​ ​ ​ ​ Life-of-loss reserve on unfunded loan commitments $ 998 $ 133 $ 865 Equity: ​ ​ ​ ​ ​ ​ Retained earnings $ 149,638 $ 151,793 $ ( 2,155 ) ​ In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology of CECL. Refer to Note 5, Loans and Related Allowance for Credit Losses, for further discussion of these portfolio segments. The adoption of ASU 2016-13 resulted in a Day 1 adjustment of $ 2.9 million to our ACL, including an increase of $ 2.0 million to the ACL for loans and $ 0.9 million to the ACL for unfunded commitments. The Corporation did not record any ACL on its available-for-sale or held-to-maturity investments upon adoption of ASC 326. The Corporation recorded a net decrease to retained earnings of $ 2.2 million as of January 1, 2023 for the cumulative effect of adopting ASU 2016-13. In March 2022, FASB issued ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures . ASU 2022-02, which eliminates the troubled debt restructuring (“TDR”) accounting model for creditors that have adopted ASU 2016-13. Due to the removal of the TDR accounting model, all loan modifications were evaluated to determine if they resulted in a new loan or a continuation of the existing loan. The amendments in ASU 2022-02 also required that entities disclose current-period gross charge-offs by year of origination for loans and leases. The amendments in ASU 2022-02 were effective January 1, 2023. This change did not have a material effect on our consolidated financial statements. Refer to Note 5, Loans and Related Allowance for Credit Losses for disclosures for debtors experiencing financial difficulty and for vintage disclosures related to gross charge-offs by loan segment by year of origination. Recently issued but not yet effective Accounting Pronouncements In March 2020, FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of Reference Rate Reform on Financial Reporting.” The amendments in ASU 2020-04 provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from the London Interbank Offered Rate (“LIBOR”) toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible 79 ​ Table of Contents ​ for relief from these modification accounting requirements in GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in ASU 2020-04 are effective for all entities between March 12, 2020 and December 31, 2022. In December 2022, FASB issued ASU No. 2022-06: “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” The amendments in ASU 2020-06 defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ​ The Corporation has identified all known LIBOR exposures, created a plan to address the exposures, and continues to communicate with all stakeholders to transition to alternative reference rates. As of December 31, 2023, the Corporation has no financial instruments tied to LIBOR and does not anticipate that the transition related to ASU 2020-04 will have a significant impact on our financial statements. ​ In November 2023, FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280); Improvement to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expense and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is not expected to have a significant impact on our financial statements. ​ In December 2023, FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about Federal, state, and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by Federal, state, and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. ASU 2023-09 is not expected to have a significant impact on our financial statements. ​ ​ 80 ​ Table of Contents ​ 2. Earnings Per Common Share Basic earnings per common share is derived by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents. Diluted earnings per share is derived by dividing net income available to common shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents. There were no anti-dilutive shares at December 31, 2023 or 2022. The following table sets forth the calculation of basic and diluted earnings per common share for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 ​ ​ ​ ​ ​ 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 ​ $ 15,060 ​ 6,686 ​ $ 2.25 ​ $ 25,048 ​ 6,650 ​ $ 3.77 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted Earnings Per Share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restricted stock units ​ ​ ​ ​ 15 ​ ​ ​ ​ ​ ​ ​ 11 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 15,060 ​ 6,701 ​ $ 2.25 ​ $ 25,048 ​ 6,661 ​ $ 3.76 ​ ​ ​ ​ ​ 3. Regulatory Capital Requirements Banks and holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is included in computing regulatory capital. Management believes that, as of December 31, 2023, the Corporation and Bank met all capital adequacy requirements to which they are subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2023, the most recent regulatory notification categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. ​ 81 ​ Table of Contents ​ The following table presents First United Bank & Trust’s capital ratios for years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual ​ For Capital Adequacy Purposes ​ To Be Well Capitalized Under Prompt Corrective Action Provisions (in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to risk-weighted assets) ​ ​ 207,767 ​ 14.05 % ​ ​ 118,292 ​ 8.00 % ​ ​ 147,865 ​ 10.00 % Tier 1 Capital (to risk-weighted assets) ​ ​ 189,370 ​ 12.81 % ​ ​ 88,719 ​ 6.00 % ​ ​ 118,292 ​ 8.00 % Common Equity Tier 1 Capital (to risk-weighted assets) ​ ​ 189,370 ​ 12.81 % ​ ​ 66,540 ​ 4.50 % ​ ​ 96,112 ​ 6.50 % Tier 1 Capital (to average assets) ​ ​ 189,370 ​ 9.92 % ​ ​ 76,233 ​ 4.00 % ​ ​ 95,291 ​ 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, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Capital (to risk-weighted assets) ​ ​ 196,442 ​ 14.37 % ​ ​ 109,396 ​ 8.00 % ​ ​ 136,745 ​ 10.00 % Tier 1 Capital (to risk-weighted assets) ​ ​ 181,673 ​ 13.29 % ​ ​ 82,047 ​ 6.00 % ​ ​ 109,396 ​ 8.00 % Common Equity Tier 1 Capital (to risk-weighted assets) ​ ​ 181,673 ​ 13.29 % ​ ​ 61,535 ​ 4.50 % ​ ​ 88,884 ​ 6.50 % Tier 1 Capital (to average assets) ​ ​ 181,673 ​ 10.01 % ​ ​ 72,354 ​ 4.00 % ​ ​ 90,443 ​ 5.00 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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. We adopted CECL effective January 1, 2023 and elected not to implement the regulatory agencies’ capital transition and opted to record the impact to our capital ratios immediately upon implementation. Effective with the implementation of CECL, a $ 2.2 million adjustment, net of tax, was made to retained earnings. The adjustment did not have a material impact to our capital ratios. ​ ​ ​ ​ 82 ​ Table of Contents ​ 4. Investment Securities The following table shows a comparison of amortized cost and fair values of investment securities at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 7,000 ​ $ — ​ $ 966 ​ $ — ​ $ 6,034 Residential mortgage-backed agencies ​ ​ 24,781 ​ ​ — ​ ​ 4,218 ​ ​ — ​ ​ 20,563 Commercial mortgage-backed agencies ​ ​ 36,258 ​ ​ — ​ ​ 7,841 ​ ​ — ​ ​ 28,417 Collateralized mortgage obligations ​ ​ 19,725 ​ ​ — ​ ​ 3,369 ​ ​ — ​ ​ 16,356 Obligations of states and political subdivisions ​ ​ 10,486 ​ ​ 15 ​ ​ 189 ​ ​ — ​ ​ 10,312 Corporate Bonds ​ ​ 1,000 ​ ​ — ​ ​ 222 ​ ​ — ​ ​ 778 Collateralized debt obligations ​ ​ 18,671 ​ ​ — ​ ​ 3,962 ​ ​ — ​ ​ 14,709 Total available for sale ​ $ 117,921 ​ $ 15 ​ $ 20,767 ​ $ — ​ $ 97,169 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value Allowance for Credit Losses December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. treasuries ​ $ 37,462 ​ $ — ​ $ 243 ​ $ 37,219 ​ $ — U.S. government agencies ​ ​ 68,014 ​ ​ — ​ ​ 10,985 ​ ​ 57,029 ​ ​ — Residential mortgage-backed agencies ​ ​ 29,588 ​ ​ 42 ​ ​ 2,913 ​ ​ 26,717 ​ ​ — Commercial mortgage-backed agencies ​ ​ 21,413 ​ ​ — ​ ​ 5,361 ​ ​ 16,052 ​ ​ — Collateralized mortgage obligations ​ ​ 53,261 ​ ​ — ​ ​ 9,973 ​ ​ 43,288 ​ ​ — Obligations of states and political subdivisions ​ ​ 4,604 ​ ​ 177 ​ ​ 671 ​ ​ 4,110 ​ ​ 45 Total held to maturity ​ $ 214,342 ​ $ 219 ​ $ 30,146 ​ $ 184,415 ​ $ 45 ​ 83 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 11,044 ​ $ — ​ $ 1,582 ​ $ 9,462 Residential mortgage-backed agencies ​ 45,052 ​ ​ — ​ ​ 7,651 ​ ​ 37,401 Commercial mortgage-backed agencies ​ ​ 37,393 ​ ​ — ​ ​ 6,661 ​ ​ 30,732 Collateralized mortgage obligations ​ ​ 25,828 ​ ​ — ​ ​ 4,784 ​ ​ 21,044 Obligations of states and political subdivisions ​ ​ 10,848 ​ ​ 4 ​ ​ 360 ​ ​ 10,492 Corporate Bonds ​ ​ 1,000 ​ ​ — ​ ​ 113 ​ ​ 887 Collateralized debt obligations ​ ​ 18,664 ​ ​ — ​ ​ 2,793 ​ ​ 15,871 Total available for sale ​ $ 149,829 ​ $ 4 ​ $ 23,944 ​ $ 125,889 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. treasuries ​ $ 37,204 ​ $ — ​ $ 1,593 ​ $ 35,611 U.S. government agencies ​ ​ 67,734 ​ ​ — ​ ​ 13,261 ​ ​ 54,473 Residential mortgage-backed agencies ​ ​ 28,624 ​ ​ 1 ​ ​ 3,503 ​ ​ 25,122 Commercial mortgage-backed agencies ​ ​ 22,389 ​ ​ — ​ ​ 4,568 ​ ​ 17,821 Collateralized mortgage obligations ​ ​ 57,085 ​ ​ — ​ ​ 10,001 ​ ​ 47,084 Obligations of states and political subdivisions ​ ​ 22,623 ​ ​ 946 ​ ​ 600 ​ ​ 22,969 Total held to maturity ​ $ 235,659 ​ $ 947 ​ $ 33,526 ​ $ 203,080 ​ Proceeds from sales and calls of available-for-sale securities and the realized gains and losses for the years ended December 31, 2023 and 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Proceeds ​ $ 20,249 ​ $ 1,023 Gross realized gains ​ ​ — ​ ​ 3 Gross realized losses ​ ​ 4,214 ​ ​ — ​ ​ 84 ​ 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, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ — ​ $ — ​ — ​ $ 6,034 ​ $ 966 ​ 2 Residential mortgage-backed agencies ​ ​ — ​ ​ — ​ — ​ ​ 20,563 ​ ​ 4,218 ​ 3 Commercial mortgage-backed agencies ​ ​ — ​ ​ — ​ — ​ ​ 28,417 ​ ​ 7,841 ​ 8 Collateralized mortgage obligations ​ ​ — ​ ​ — ​ — ​ ​ 16,356 ​ ​ 3,369 ​ 9 Obligations of states and political subdivisions ​ ​ 1,445 ​ ​ 20 ​ 2 ​ ​ 6,668 ​ ​ 169 ​ 3 Corporate Bonds ​ ​ — ​ ​ — ​ — ​ ​ 778 ​ ​ 222 ​ 1 Collateralized debt obligations ​ ​ — ​ ​ — ​ — ​ ​ 14,709 ​ ​ 3,962 ​ 9 Total available for sale ​ $ 1,445 ​ $ 20 ​ 2 ​ $ 93,525 ​ $ 20,747 ​ 35 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. treasuries ​ $ — ​ $ — ​ — ​ $ 37,219 ​ $ 243 ​ 4 U.S. government agencies ​ ​ — ​ ​ — ​ — ​ ​ 57,029 ​ ​ 10,985 ​ 9 Residential mortgage-backed agencies ​ ​ — ​ ​ — ​ — ​ ​ 22,613 ​ ​ 2,913 ​ 35 Commercial mortgage-backed agencies ​ ​ — ​ ​ — ​ — ​ ​ 16,052 ​ ​ 5,361 ​ 2 Collateralized mortgage obligations ​ ​ — ​ ​ — ​ — ​ ​ 43,288 ​ ​ 9,973 ​ 8 Obligations of states and political subdivisions ​ ​ — ​ ​ — ​ — ​ ​ 2,205 ​ ​ 671 ​ 1 Total held to maturity ​ $ — ​ $ — ​ — ​ $ 178,406 ​ $ 30,146 ​ 59 ​ ​ ​ ​ 85 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 4,598 ​ $ 402 ​ 1 ​ $ 4,865 ​ $ 1,180 ​ 2 Residential mortgage-backed agencies ​ ​ — ​ ​ — ​ — ​ ​ 37,401 ​ ​ 7,651 ​ 5 Commercial mortgage-backed agencies ​ ​ 4,044 ​ ​ 455 ​ 3 ​ ​ 26,688 ​ ​ 6,206 ​ 6 Collateralized mortgage obligations ​ ​ 1,600 ​ ​ 210 ​ 5 ​ ​ 19,444 ​ ​ 4,574 ​ 5 Obligations of states and political subdivisions ​ ​ 8,906 ​ ​ 360 ​ 7 ​ ​ — ​ ​ — ​ — Corporate Bonds ​ ​ 887 ​ ​ 113 ​ 1 ​ ​ ​ ​ ​ ​ ​ ​ Collateralized debt obligations ​ ​ — ​ ​ — ​ — ​ ​ 15,871 ​ ​ 2,793 ​ 9 Total available for sale ​ $ 20,035 ​ $ 1,540 ​ 17 ​ $ 104,269 ​ $ 22,404 ​ 27 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held to Maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. treasuries ​ $ — ​ $ — ​ — ​ $ 35,611 ​ $ 1,593 ​ 4 U.S. government agencies ​ ​ 38,883 ​ ​ 9,617 ​ 7 ​ ​ 15,591 ​ ​ 3,644 ​ 2 Residential mortgage-backed agencies ​ ​ 16,893 ​ ​ 1,425 ​ 29 ​ ​ 8,138 ​ ​ 2,078 ​ 7 Commercial mortgage-backed agencies ​ ​ 17,821 ​ ​ 4,568 ​ 3 ​ ​ — ​ ​ — ​ — Collateralized mortgage obligations ​ ​ 47,083 ​ ​ 10,001 ​ 8 ​ ​ — ​ ​ — ​ — Obligations of states and political subdivisions ​ ​ 2,269 ​ ​ 600 ​ 1 ​ ​ — ​ ​ — ​ — Total held to maturity ​ $ 122,949 ​ $ 26,211 ​ 48 ​ $ 59,340 ​ $ 7,315 ​ 13 ​ ​ As of December 31, 2023, the Corporation recorded ACL of approximately $ 45,000 related to one bond in the HTM security portfolio. There was no ACL related to its AFS or HTM security portfolio at December 31, 2022. ​ ​ 86 ​ Table of Contents ​ The amortized cost and estimated fair value of securities by contractual maturity at December 31, 2023 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 in one year or less ​ $ 2,670 ​ $ 2,640 Due after one year through five years ​ ​ 5,250 ​ ​ 4,952 Due after five years through ten years ​ ​ 2,410 ​ ​ 2,168 Due after ten years ​ ​ 26,827 ​ ​ 22,073 ​ ​ ​ 37,157 ​ ​ 31,833 Residential mortgage-backed agencies ​ ​ 24,781 ​ ​ 20,563 Commercial mortgage-backed agencies ​ ​ 36,258 ​ ​ 28,417 Collateralized mortgage obligations ​ ​ 19,725 ​ ​ 16,356 Total available for sale ​ $ 117,921 ​ $ 97,169 Held to Maturity: ​ ​ ​ ​ ​ ​ Due in one year or less ​ $ 37,462 ​ $ 37,219 Due after one year through five years ​ ​ 12,500 ​ ​ 11,706 Due after five years through ten years ​ ​ 40,456 ​ ​ 34,495 Due after ten years ​ ​ 19,662 ​ ​ 14,938 ​ ​ ​ 110,080 ​ ​ 98,358 Residential mortgage-backed agencies ​ ​ 29,588 ​ ​ 26,717 Commercial mortgage-backed agencies ​ ​ 21,413 ​ ​ 16,052 Collateralized mortgage obligations ​ ​ 53,261 ​ ​ 43,288 Total held to maturity ​ $ 214,342 ​ $ 184,415 ​ At December 31, 2023 and 2022, AFS investment securities with a fair value of $ 50.5 million and $ 49.7 million, respectively, and HTM investment securities with a book value of $ 141.8 million and $ 165.9 million 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. ​ 5. Loans and Related Allowance for Credit Losses The following table summarizes the primary segments of the loan portfolio as of December 31, 2023 and December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Total December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 826 ​ $ — ​ $ — ​ $ 2,137 ​ $ — ​ $ 2,963 Collectively evaluated for impairment ​ ​ 492,877 ​ ​ 77,060 ​ ​ 274,604 ​ ​ 497,734 ​ ​ 61,429 ​ ​ 1,403,704 Total loans ​ $ 493,703 ​ $ 77,060 ​ $ 274,604 ​ $ 499,871 ​ $ 61,429 ​ $ 1,406,667 December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 2,262 ​ $ 356 ​ $ — ​ $ 3,880 ​ $ — ​ $ 6,498 Collectively evaluated for impairment ​ ​ 456,569 ​ ​ 70,240 ​ ​ 245,396 ​ ​ 440,531 ​ ​ 60,260 ​ ​ 1,272,996 Total loans ​ $ 458,831 ​ $ 70,596 ​ $ 245,396 ​ $ 444,411 ​ $ 60,260 ​ $ 1,279,494 ​ ​ 87 ​ Table of Contents ​ 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) 2023 Balance at January 1 ​ $ 3,302 Loans or advances ​ ​ 481 Repayments ​ ​ ( 937 ) Balance at December 31 ​ $ 2,846 ​ ​ 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 following table presents the classes of the loan portfolio at December 31, 2023 and December 31, 2022, summarized by the aging categories of performing loans and non-accrual loans. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 296,343 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 227 ​ $ 296,570 All other CRE ​ ​ 196,123 ​ ​ 411 ​ ​ — ​ ​ — ​ ​ 411 ​ ​ 599 ​ ​ 197,133 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 18,224 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 18,224 All other A&D ​ ​ 58,723 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 113 ​ ​ 58,836 Commercial and industrial ​ ​ 274,465 ​ ​ 120 ​ ​ 19 ​ ​ — ​ ​ 139 ​ ​ — ​ ​ 274,604 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 433,878 ​ ​ 130 ​ ​ 717 ​ ​ 384 ​ ​ 1,231 ​ ​ 2,720 ​ ​ 437,829 Residential mortgage – home equity ​ ​ 61,021 ​ ​ 520 ​ ​ 158 ​ ​ 75 ​ ​ 753 ​ ​ 268 ​ ​ 62,042 Consumer ​ ​ 60,576 ​ ​ 463 ​ ​ 277 ​ ​ 84 ​ ​ 824 ​ ​ 29 ​ ​ 61,429 Total ​ $ 1,399,353 ​ $ 1,644 ​ $ 1,171 ​ $ 543 ​ $ 3,358 ​ $ 3,956 ​ $ 1,406,667 December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non owner-occupied ​ $ 269,971 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 87 ​ $ 270,058 All other CRE ​ ​ 188,715 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 58 ​ ​ 188,773 Acquisition and development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ 19,637 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 19,637 All other A&D ​ ​ 50,813 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 146 ​ ​ 50,959 Commercial and industrial ​ ​ 245,342 ​ ​ 54 ​ ​ — ​ ​ — ​ ​ 54 ​ ​ — ​ ​ 245,396 Residential mortgage ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ 380,502 ​ ​ 31 ​ ​ 722 ​ ​ 239 ​ ​ 992 ​ ​ 2,893 ​ ​ 384,387 Residential mortgage – home equity ​ ​ 59,223 ​ ​ 399 ​ ​ 48 ​ ​ 43 ​ ​ 490 ​ ​ 311 ​ ​ 60,024 Consumer ​ ​ 59,789 ​ ​ 363 ​ ​ 83 ​ ​ 25 ​ ​ 471 ​ ​ — ​ ​ 60,260 Total ​ $ 1,273,992 ​ $ 847 ​ $ 853 ​ $ 307 ​ $ 2,007 ​ $ 3,495 ​ $ 1,279,494 ​ Non-accrual loans that have been subject to partial charge-offs totaled $ 0.1 million at December 31, 2023 and 2022. Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $ 1.8 million at December 31, 2023. There were no loans in the process of foreclosure at December 31, 2022. ​ Effective January 1, 2023, the Corporation adopted the accounting guidance in ASU 2022-02, which eliminated the recognition and measurement of TDRs. Due to the removal of the TDR designation, the Corporation evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal 88 ​ Table of Contents ​ forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the above. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows. A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $ 0.1 million or greater; otherwise, the modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 5, Fair Value Measurements. There were no loan modifications made to borrowers facing financial difficulties in the year ending December 31, 2023. The Corporation maintains an ACL at a level determined to be adequate to absorb expected credit losses associated with the Corporation’s financial instruments over the life of those instruments as of the balance sheet date. The Corporation develops and documents a systematic ACL methodology based on the following portfolio segments: (i) commercial real estate, (ii) acquisition and development, (iii) commercial and industrial, (iv) residential mortgage, and (v) consumer. The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The segmentation in the CECL model is different from the segmentation in the Incurred Loss model. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL. Commercial Real Estate- loans are secured by commercial purpose real estate, including both owner occupied properties and properties obtained for investment purposes, such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary source of repayment of these loans. The condition of the local economy is an important indicator of risk, but there are more specific risks depending on the collateral type as well as the business. Acquisition and Development- loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for supply of the property being constructed. Commercial and Industrial- loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local municipalities for various purposes including refinancing existing obligations, infrastructure up-fit and expansion, or to purchase new equipment. The primary repayment source for local municipalities include the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset service requirements give this type of loan a very low risk profile in the continuum of the Corporation’s loan portfolio. Residential mortgage- loans are secured by first and second liens such as home equity lines of credit and 1-4 family residential mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. 89 ​ Table of Contents ​ The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy debt. Consumer- loans are made to individuals and may be either secured by assets other than 1-4 family residences or unsecured. This segment includes automobile loans and unsecured loans and lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values. The following table presents the amortized cost basis of collateral-dependent individually evaluated loans as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 (in thousands) Real Estate Non-Accrual Loans with No Allowance Commercial real estate ​ $ 826 ​ $ 826 Residential mortgage ​ ​ 2,137 ​ ​ 2,137 Total Loans ​ $ 2,963 ​ $ 2,963 ​ Effective January 1, 2023, the Corporation adopted the accounting guidance in ASU 2022-02, which eliminates the recognition and measurement of a TDR. Due to the removal of the TDR designation, the Corporation evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contracted cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are only for modifications that directly affect cash flows. ​ A loan that is considered a modified loan may be subject to the individually evaluated loan analysis if the commitment is $ 0.1 million or greater; otherwise, the modified loan remains in the appropriate segment of the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the modified loan. As of December 31, 2023, there were no modified loans that were classified as individually evaluated loans. ​ ​ 90 ​ Table of Contents ​ The following tables present the activity in the ACL and ALL for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Commercial Real Estate Acquisition and Development Commercial and Industrial Residential Mortgage Consumer Unallocated Total Beginning balance at January 1, 2023 prior to adoption of ASC 326 ​ $ 6,345 ​ $ 979 ​ $ 2,845 ​ $ 3,160 ​ $ 877 ​ $ 430 ​ $ 14,636 Impact of adopting ASC 326 ​ ​ ( 1,143 ) ​ ​ ( 15 ) ​ ​ 1,334 ​ ​ 2,112 ​ ​ 208 ​ ​ ( 430 ) ​ ​ 2,066 Loan charge-offs ​ ​ ( 87 ) ​ ​ — ​ ​ ( 423 ) ​ ​ ( 55 ) ​ ​ ( 874 ) ​ ​ — ​ ​ ( 1,439 ) Recoveries collected ​ ​ 7 ​ ​ 11 ​ ​ 186 ​ ​ 73 ​ ​ 240 ​ ​ — ​ ​ 517 Credit loss (credit)/expense ​ ​ ( 2 ) ​ ​ ( 35 ) ​ ​ ( 225 ) ​ ​ 1,484 ​ ​ 478 ​ ​ — ​ ​ 1,700 ACL balance at December 31, 2023 ​ $ 5,120 ​ $ 940 ​ $ 3,717 ​ $ 6,774 ​ $ 929 ​ $ — ​ $ 17,480 ALL balance at January 1, 2022 ​ $ 6,032 ​ $ 2,615 ​ $ 2,460 ​ $ 3,484 ​ $ 934 ​ $ 430 ​ $ 15,955 Charge-offs ​ ​ — ​ ​ ( 20 ) ​ ​ ( 134 ) ​ ​ ( 46 ) ​ ​ ( 921 ) ​ ​ — ​ ​ ( 1,121 ) Recoveries ​ ​ 1 ​ ​ 22 ​ ​ 93 ​ ​ 184 ​ ​ 145 ​ ​ — ​ ​ 445 Loan loss expense/(credit) ​ ​ 312 ​ ​ ( 1,638 ) ​ ​ 426 ​ ​ ( 462 ) ​ ​ 719 ​ ​ — ​ ​ ( 643 ) ALL balance at December 31, 2022 ​ $ 6,345 ​ $ 979 ​ $ 2,845 ​ $ 3,160 ​ $ 877 ​ $ 430 ​ $ 14,636 ​ ​ The Corporation’s methodology for estimating the ACL includes: Segmentation. The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. Specific Analysis. A specific reserve analysis is applied to certain individually evaluated loans. These loans are evaluated quarterly generally based on collateral value, observable market value or the present value of expected future cash flows. A specific reserve is established if the fair value is less than the loan balance. A charge-off is recognized when the loss is quantifiable. Individually evaluated loans not specifically analyzed reside in the Quantitative Analysis. Quantitative Analysis. The Corporation elected to use discounted cash flows. Economic forecasts include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product. These forecasts are assumed to revert to the long term average and are utilized in the model to estimate the probability of default and the loss given default is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumption related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values. Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. Management reviews the peaks and troughs of the model’s calibrations, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary. This process challenges unexpected variability resulting from outputs beyond the model’s calibrations that appear to be unreasonable. Management also enhances the calculation through the use of Moody’s economic forecast data in its calculation. Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective. The ACL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date. 91 ​ Table of Contents ​ Credit Quality Indicators: The Corporation’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to pass grade until a loan migrates to past due status. The Corporation has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: (i) credit quality of the loan portfolio, (ii) compliance with loan policy, (iii) adequacy of documentation in credit files and (iv) validity of risk ratings. The Corporation’s internally assigned grades are as follows: Pass - The Corporation uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality. Special Mention - Assets with potential weaknesses that warrant management’s close attention and if left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Substandard - Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful - Assets with all weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable. Loss - Assets considered of such little value that its continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical to defer writing off this basically worthless asset even though partial recovery may be affected in the future. The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss. ​ 92 ​ Table of Contents ​ The following tables present loan balances by year of origination and internally assigned risk ratings for our portfolio segments as of dates presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 and ​ ​ ​ ​ Portfolio (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner-occupied ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 23,511 ​ $ 65,878 ​ $ 30,332 ​ $ 54,270 ​ $ 40,575 ​ $ 65,134 ​ $ 1,138 ​ $ 280,838 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4,331 ​ ​ — ​ ​ 4,331 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,401 ​ ​ — ​ ​ 11,401 Total non-owner occupied ​ ​ 23,511 ​ ​ 65,878 ​ ​ 30,332 ​ ​ 54,270 ​ ​ 40,575 ​ ​ 80,866 ​ ​ 1,138 ​ ​ 296,570 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 87 ​ ​ — ​ ​ 87 All other CRE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 30,130 ​ ​ 27,379 ​ ​ 27,042 ​ ​ 20,691 ​ ​ 22,879 ​ ​ 60,054 ​ ​ 4,495 ​ ​ 192,670 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ 644 ​ ​ — ​ ​ — ​ ​ — ​ ​ 644 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,847 ​ ​ 1,372 ​ ​ 600 ​ ​ 3,819 Total all other CRE ​ ​ 30,130 ​ ​ 27,379 ​ ​ 27,042 ​ ​ 21,335 ​ ​ 24,726 ​ ​ 61,426 ​ ​ 5,095 ​ ​ 197,133 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Acquisition and development: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 13,745 ​ ​ 3,446 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,033 ​ ​ 18,224 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total acquisition and development ​ ​ 13,745 ​ ​ 3,446 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,033 ​ ​ 18,224 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — All other A&D ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 12,184 ​ ​ 25,099 ​ ​ 2,966 ​ ​ 3,046 ​ ​ 1,301 ​ ​ 9,946 ​ ​ 4,181 ​ ​ 58,723 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 113 ​ ​ — ​ ​ 113 Total all other A&D ​ ​ 12,184 ​ ​ 25,099 ​ ​ 2,966 ​ ​ 3,046 ​ ​ 1,301 ​ ​ 10,059 ​ ​ 4,181 ​ ​ 58,836 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 52,004 ​ ​ 66,559 ​ ​ 24,387 ​ ​ 11,753 ​ ​ 8,872 ​ ​ 10,052 ​ ​ 78,992 ​ ​ 252,619 Special Mention ​ ​ 558 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 558 Substandard ​ ​ — ​ ​ 9,352 ​ ​ 1,854 ​ ​ 6,806 ​ ​ 98 ​ ​ 837 ​ ​ 2,480 ​ ​ 21,427 Total commercial and industrial ​ ​ 52,562 ​ ​ 75,911 ​ ​ 26,241 ​ ​ 18,559 ​ ​ 8,970 ​ ​ 10,889 ​ ​ 81,472 ​ ​ 274,604 Current period gross charge-offs ​ ​ 100 ​ ​ 103 ​ ​ 35 ​ ​ 166 ​ ​ — ​ ​ 19 ​ ​ — ​ ​ 423 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 51,625 ​ ​ 94,723 ​ ​ 88,835 ​ ​ 38,228 ​ ​ 25,375 ​ ​ 130,402 ​ ​ 1,577 ​ ​ 430,765 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ 138 ​ ​ 929 ​ ​ 17 ​ ​ 98 ​ ​ 5,825 ​ ​ 57 ​ ​ 7,064 Total residential mortgage - term ​ ​ 51,625 ​ ​ 94,861 ​ ​ 89,764 ​ ​ 38,245 ​ ​ 25,473 ​ ​ 136,227 ​ ​ 1,634 ​ ​ 437,829 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 13 ​ ​ — ​ ​ 13 Residential mortgage - home equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 1,127 ​ ​ 4,657 ​ ​ 864 ​ ​ 475 ​ ​ 286 ​ ​ 489 ​ ​ 53,467 ​ ​ 61,365 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ 38 ​ ​ — ​ ​ 16 ​ ​ 623 ​ ​ 677 Total residential mortgage - home equity ​ ​ 1,127 ​ ​ 4,657 ​ ​ 864 ​ ​ 513 ​ ​ 286 ​ ​ 505 ​ ​ 54,090 ​ ​ 62,042 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 42 ​ ​ — ​ ​ 42 Consumer: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 18,299 ​ ​ 10,616 ​ ​ 6,361 ​ ​ 2,206 ​ ​ 510 ​ ​ 20,365 ​ ​ 2,873 ​ ​ 61,230 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ 14 ​ ​ 35 ​ ​ 113 ​ ​ 23 ​ ​ 6 ​ ​ 2 ​ ​ 6 ​ ​ 199 Total consumer ​ ​ 18,313 ​ ​ 10,651 ​ ​ 6,474 ​ ​ 2,229 ​ ​ 516 ​ ​ 20,367 ​ ​ 2,879 ​ ​ 61,429 Current period gross charge-offs ​ ​ 236 ​ ​ 223 ​ ​ 74 ​ ​ 8 ​ ​ 4 ​ ​ 329 ​ ​ — ​ ​ 874 Total Portfolio Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 202,625 ​ ​ 298,357 ​ ​ 180,787 ​ ​ 130,669 ​ ​ 99,798 ​ ​ 296,442 ​ ​ 147,756 ​ ​ 1,356,434 Special Mention ​ ​ 558 ​ ​ — ​ ​ — ​ ​ 644 ​ ​ — ​ ​ 4,331 ​ ​ — ​ ​ 5,533 Substandard ​ ​ 14 ​ ​ 9,525 ​ ​ 2,896 ​ ​ 6,884 ​ ​ 2,049 ​ ​ 19,566 ​ ​ 3,766 ​ ​ 44,700 Total Portfolio Loans ​ $ 203,197 ​ $ 307,882 ​ $ 183,683 ​ $ 138,197 ​ $ 101,847 ​ $ 320,339 ​ $ 151,522 ​ $ 1,406,667 Current YTD Period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 336 ​ $ 326 ​ $ 109 ​ $ 174 ​ $ 4 ​ $ 490 ​ $ — ​ $ 1,439 93 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 and ​ ​ ​ ​ Portfolio (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner-occupied ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ $ 67,429 ​ $ 31,710 ​ $ 48,421 ​ $ 41,221 ​ $ 19,414 ​ $ 42,069 ​ $ 1,570 ​ $ 251,834 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 6,289 ​ ​ — ​ ​ 6,289 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,935 ​ ​ — ​ ​ 11,935 Total non-owner occupied ​ ​ 67,429 ​ ​ 31,710 ​ ​ 48,421 ​ ​ 41,221 ​ ​ 19,414 ​ ​ 60,293 ​ ​ 1,570 ​ ​ 270,058 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — All other CRE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 24,655 ​ ​ 26,947 ​ ​ 22,906 ​ ​ 27,213 ​ ​ 8,873 ​ ​ 67,691 ​ ​ 4,790 ​ ​ 183,075 Special Mention ​ ​ — ​ ​ 1,111 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,111 Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ 3,006 ​ ​ — ​ ​ 357 ​ ​ 1,224 ​ ​ 4,587 Total all other CRE ​ ​ 24,655 ​ ​ 28,058 ​ ​ 22,906 ​ ​ 30,219 ​ ​ 8,873 ​ ​ 68,048 ​ ​ 6,014 ​ ​ 188,773 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Acquisition and development: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 15,629 ​ ​ 1,453 ​ ​ 151 ​ ​ — ​ ​ — ​ ​ 210 ​ ​ 2,194 ​ ​ 19,637 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total acquisition and development ​ ​ 15,629 ​ ​ 1,453 ​ ​ 151 ​ ​ — ​ ​ — ​ ​ 210 ​ ​ 2,194 ​ ​ 19,637 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 20 ​ ​ — ​ ​ 20 All other A&D ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 18,733 ​ ​ 4,979 ​ ​ 9,755 ​ ​ 1,408 ​ ​ 558 ​ ​ 12,961 ​ ​ 2,419 ​ ​ 50,813 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 146 ​ ​ — ​ ​ 146 Total all other A&D ​ ​ 18,733 ​ ​ 4,979 ​ ​ 9,755 ​ ​ 1,408 ​ ​ 558 ​ ​ 13,107 ​ ​ 2,419 ​ ​ 50,959 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Commercial and industrial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 83,608 ​ ​ 30,451 ​ ​ 15,982 ​ ​ 12,707 ​ ​ 5,013 ​ ​ 9,528 ​ ​ 63,668 ​ ​ 220,957 Special Mention ​ ​ — ​ ​ 2,555 ​ ​ — ​ ​ — ​ ​ — ​ ​ 338 ​ ​ 2,134 ​ ​ 5,027 Substandard ​ ​ 8,923 ​ ​ — ​ ​ 7,167 ​ ​ 173 ​ ​ 634 ​ ​ 311 ​ ​ 2,204 ​ ​ 19,412 Total commercial and industrial ​ ​ 92,531 ​ ​ 33,006 ​ ​ 23,149 ​ ​ 12,880 ​ ​ 5,647 ​ ​ 10,177 ​ ​ 68,006 ​ ​ 245,396 Current period gross charge-offs ​ ​ — ​ ​ 97 ​ ​ 34 ​ ​ 3 ​ ​ — ​ ​ — ​ ​ — ​ ​ 134 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 64,930 ​ ​ 93,665 ​ ​ 42,784 ​ ​ 27,120 ​ ​ 14,132 ​ ​ 133,397 ​ ​ 2,306 ​ ​ 378,334 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ 16 ​ ​ 237 ​ ​ 143 ​ ​ 5,634 ​ ​ 23 ​ ​ 6,053 Total residential mortgage - term ​ ​ 64,930 ​ ​ 93,665 ​ ​ 42,800 ​ ​ 27,357 ​ ​ 14,275 ​ ​ 139,031 ​ ​ 2,329 ​ ​ 384,387 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 28 ​ ​ — ​ ​ 28 Residential mortgage - home equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 5,739 ​ ​ 957 ​ ​ 538 ​ ​ 328 ​ ​ 97 ​ ​ 478 ​ ​ 51,232 ​ ​ 59,369 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ — ​ ​ 44 ​ ​ — ​ ​ 21 ​ ​ 40 ​ ​ 550 ​ ​ 655 Total residential mortgage - home equity ​ ​ 5,739 ​ ​ 957 ​ ​ 582 ​ ​ 328 ​ ​ 118 ​ ​ 518 ​ ​ 51,782 ​ ​ 60,024 Current period gross charge-offs ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 12 ​ ​ 6 ​ ​ — ​ ​ 18 Consumer: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 16,748 ​ ​ 10,495 ​ ​ 3,845 ​ ​ 1,596 ​ ​ 687 ​ ​ 24,096 ​ ​ 2,654 ​ ​ 60,121 Special Mention ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Substandard ​ ​ — ​ ​ 92 ​ ​ 27 ​ ​ 9 ​ ​ 7 ​ ​ — ​ ​ 4 ​ ​ 139 Total consumer ​ ​ 16,748 ​ ​ 10,587 ​ ​ 3,872 ​ ​ 1,605 ​ ​ 694 ​ ​ 24,096 ​ ​ 2,658 ​ ​ 60,260 Current period gross charge-offs ​ ​ 36 ​ ​ 494 ​ ​ 18 ​ ​ 37 ​ ​ 11 ​ ​ 40 ​ ​ — ​ ​ 636 Total Portfolio Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ 297,471 ​ ​ 200,657 ​ ​ 144,382 ​ ​ 111,593 ​ ​ 48,774 ​ ​ 290,430 ​ ​ 130,833 ​ ​ 1,224,140 Special Mention ​ ​ — ​ ​ 3,666 ​ ​ — ​ ​ — ​ ​ — ​ ​ 6,627 ​ ​ 2,134 ​ ​ 12,427 Substandard ​ ​ 8,923 ​ ​ 92 ​ ​ 7,254 ​ ​ 3,425 ​ ​ 805 ​ ​ 18,423 ​ ​ 4,005 ​ ​ 42,927 Total Portfolio Loans ​ $ 306,394 ​ $ 204,415 ​ $ 151,636 ​ $ 115,018 ​ $ 49,579 ​ $ 315,480 ​ $ 136,972 ​ $ 1,279,494 Current YTD Period: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current period gross charge-offs ​ $ 36 ​ $ 591 ​ $ 52 ​ $ 40 ​ $ 23 ​ $ 94 ​ $ — ​ $ 836 94 ​ Table of Contents ​ ​ Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past. ​ The following tables present loan balances by year of origination segregated by performing and non-performing loans for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2018 and ​ ​ ​ ​ Portfolio (in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner-occupied ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 23,511 ​ $ 65,878 ​ $ 30,332 ​ $ 54,270 ​ $ 40,575 ​ $ 80,639 ​ $ 1,138 ​ $ 296,343 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 227 ​ ​ — ​ ​ 227 Total non-owner occupied ​ ​ 23,511 ​ ​ 65,878 ​ ​ 30,332 ​ ​ 54,270 ​ ​ 40,575 ​ ​ 80,866 ​ ​ 1,138 ​ ​ 296,570 All other CRE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 30,130 ​ ​ 27,379 ​ ​ 27,042 ​ ​ 21,335 ​ ​ 24,726 ​ ​ 60,827 ​ ​ 5,095 ​ ​ 196,534 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 599 ​ ​ — ​ ​ 599 Total all other CRE ​ ​ 30,130 ​ ​ 27,379 ​ ​ 27,042 ​ ​ 21,335 ​ ​ 24,726 ​ ​ 61,426 ​ ​ 5,095 ​ ​ 197,133 Acquisition and development: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 13,745 ​ ​ 3,446 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,033 ​ ​ 18,224 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total acquisition and development ​ ​ 13,745 ​ ​ 3,446 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1,033 ​ ​ 18,224 All other A&D ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 12,184 ​ ​ 25,099 ​ ​ 2,966 ​ ​ 3,046 ​ ​ 1,301 ​ ​ 9,946 ​ ​ 4,181 ​ ​ 58,723 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 113 ​ ​ — ​ ​ 113 Total all other A&D ​ ​ 12,184 ​ ​ 25,099 ​ ​ 2,966 ​ ​ 3,046 ​ ​ 1,301 ​ ​ 10,059 ​ ​ 4,181 ​ ​ 58,836 Commercial and industrial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 52,562 ​ ​ 75,911 ​ ​ 26,241 ​ ​ 18,559 ​ ​ 8,970 ​ ​ 10,889 ​ ​ 81,472 ​ ​ 274,604 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total commercial and industrial ​ ​ 52,562 ​ ​ 75,911 ​ ​ 26,241 ​ ​ 18,559 ​ ​ 8,970 ​ ​ 10,889 ​ ​ 81,472 ​ ​ 274,604 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 51,625 ​ ​ 94,722 ​ ​ 89,629 ​ ​ 38,245 ​ ​ 25,375 ​ ​ 133,526 ​ ​ 1,603 ​ ​ 434,725 Nonperforming ​ ​ — ​ ​ 139 ​ ​ 135 ​ ​ — ​ ​ 98 ​ ​ 2,701 ​ ​ 31 ​ ​ 3,104 Total residential mortgage - term ​ ​ 51,625 ​ ​ 94,861 ​ ​ 89,764 ​ ​ 38,245 ​ ​ 25,473 ​ ​ 136,227 ​ ​ 1,634 ​ ​ 437,829 Residential mortgage - home equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 1,127 ​ ​ 4,657 ​ ​ 864 ​ ​ 475 ​ ​ 286 ​ ​ 488 ​ ​ 53,802 ​ ​ 61,699 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ 38 ​ ​ — ​ ​ 17 ​ ​ 288 ​ ​ 343 Total residential mortgage - home equity ​ ​ 1,127 ​ ​ 4,657 ​ ​ 864 ​ ​ 513 ​ ​ 286 ​ ​ 505 ​ ​ 54,090 ​ ​ 62,042 Consumer: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 18,304 ​ ​ 10,616 ​ ​ 6,405 ​ ​ 2,229 ​ ​ 516 ​ ​ 20,367 ​ ​ 2,879 ​ ​ 61,316 Nonperforming ​ ​ 9 ​ ​ 35 ​ ​ 69 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 113 Total consumer ​ ​ 18,313 ​ ​ 10,651 ​ ​ 6,474 ​ ​ 2,229 ​ ​ 516 ​ ​ 20,367 ​ ​ 2,879 ​ ​ 61,429 Total Portfolio Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 203,188 ​ ​ 307,708 ​ ​ 183,479 ​ ​ 138,159 ​ ​ 101,749 ​ ​ 316,682 ​ ​ 151,203 ​ ​ 1,402,168 Nonperforming ​ ​ 9 ​ ​ 174 ​ ​ 204 ​ ​ 38 ​ ​ 98 ​ ​ 3,657 ​ ​ 319 ​ ​ 4,499 Total Portfolio Loans ​ $ 203,197 ​ $ 307,882 ​ $ 183,683 ​ $ 138,197 ​ $ 101,847 ​ $ 320,339 ​ $ 151,522 ​ $ 1,406,667 95 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2017 and ​ ​ ​ ​ Portfolio (in thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial real estate: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-owner-occupied ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ $ 67,429 ​ $ 31,710 ​ $ 48,421 ​ $ 41,221 ​ $ 19,414 ​ $ 60,206 ​ $ 1,570 ​ $ 269,971 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 87 ​ ​ — ​ ​ 87 Total non-owner occupied ​ ​ 67,429 ​ ​ 31,710 ​ ​ 48,421 ​ ​ 41,221 ​ ​ 19,414 ​ ​ 60,293 ​ ​ 1,570 ​ ​ 270,058 All other CRE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 24,655 ​ ​ 28,058 ​ ​ 22,906 ​ ​ 30,219 ​ ​ 8,873 ​ ​ 67,990 ​ ​ 6,014 ​ ​ 188,715 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 58 ​ ​ — ​ ​ 58 Total all other CRE ​ ​ 24,655 ​ ​ 28,058 ​ ​ 22,906 ​ ​ 30,219 ​ ​ 8,873 ​ ​ 68,048 ​ ​ 6,014 ​ ​ 188,773 Acquisition and development: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1-4 family residential construction ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 15,629 ​ ​ 1,453 ​ ​ 151 ​ ​ — ​ ​ — ​ ​ 210 ​ ​ 2,194 ​ ​ 19,637 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total acquisition and development ​ ​ 15,629 ​ ​ 1,453 ​ ​ 151 ​ ​ — ​ ​ — ​ ​ 210 ​ ​ 2,194 ​ ​ 19,637 All other A&D ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 18,733 ​ ​ 4,979 ​ ​ 9,755 ​ ​ 1,408 ​ ​ 558 ​ ​ 12,962 ​ ​ 2,419 ​ ​ 50,814 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 145 ​ ​ — ​ ​ 145 Total all other A&D ​ ​ 18,733 ​ ​ 4,979 ​ ​ 9,755 ​ ​ 1,408 ​ ​ 558 ​ ​ 13,107 ​ ​ 2,419 ​ ​ 50,959 Commercial and industrial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 92,531 ​ ​ 33,006 ​ ​ 23,149 ​ ​ 12,880 ​ ​ 5,647 ​ ​ 10,177 ​ ​ 68,006 ​ ​ 245,396 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total commercial and industrial ​ ​ 92,531 ​ ​ 33,006 ​ ​ 23,149 ​ ​ 12,880 ​ ​ 5,647 ​ ​ 10,177 ​ ​ 68,006 ​ ​ 245,396 Residential mortgage: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential mortgage - term ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 64,930 ​ ​ 93,665 ​ ​ 42,800 ​ ​ 27,120 ​ ​ 14,198 ​ ​ 136,228 ​ ​ 2,313 ​ ​ 381,254 Nonperforming ​ ​ — ​ ​ — ​ ​ — ​ ​ 237 ​ ​ 77 ​ ​ 2,803 ​ ​ 16 ​ ​ 3,133 Total residential mortgage - term ​ ​ 64,930 ​ ​ 93,665 ​ ​ 42,800 ​ ​ 27,357 ​ ​ 14,275 ​ ​ 139,031 ​ ​ 2,329 ​ ​ 384,387 Residential mortgage - home equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 5,739 ​ ​ 957 ​ ​ 538 ​ ​ 328 ​ ​ 115 ​ ​ 478 ​ ​ 51,515 ​ ​ 59,670 Nonperforming ​ ​ — ​ ​ — ​ ​ 44 ​ ​ — ​ ​ 3 ​ ​ 40 ​ ​ 267 ​ ​ 354 Total residential mortgage - home equity ​ ​ 5,739 ​ ​ 957 ​ ​ 582 ​ ​ 328 ​ ​ 118 ​ ​ 518 ​ ​ 51,782 ​ ​ 60,024 Consumer: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 16,748 ​ ​ 10,581 ​ ​ 3,872 ​ ​ 1,605 ​ ​ 694 ​ ​ 24,077 ​ ​ 2,658 ​ ​ 60,235 Nonperforming ​ ​ — ​ ​ 6 ​ ​ — ​ ​ — ​ ​ — ​ ​ 19 ​ ​ — ​ ​ 25 Total consumer ​ ​ 16,748 ​ ​ 10,587 ​ ​ 3,872 ​ ​ 1,605 ​ ​ 694 ​ ​ 24,096 ​ ​ 2,658 ​ ​ 60,260 Total Portfolio Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Performing ​ ​ 306,394 ​ ​ 204,409 ​ ​ 151,592 ​ ​ 114,781 ​ ​ 49,499 ​ ​ 312,328 ​ ​ 136,689 ​ ​ 1,275,692 Nonperforming ​ ​ — ​ ​ 6 ​ ​ 44 ​ ​ 237 ​ ​ 80 ​ ​ 3,152 ​ ​ 283 ​ ​ 3,802 Total Portfolio Loans ​ $ 306,394 ​ $ 204,415 ​ $ 151,636 ​ $ 115,018 ​ $ 49,579 ​ $ 315,480 ​ $ 136,972 ​ $ 1,279,494 ​ ​ ​ 96 ​ Table of Contents ​ 6. Other Real Estate Owned The following table presents the components of OREO, net of related valuation allowance, as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Acquisition and development ​ $ 4,281 ​ $ 4,670 Residential mortgage ​ ​ 212 ​ ​ 63 Total OREO ​ $ 4,493 ​ $ 4,733 ​ The following table presents the activity in the OREO valuation allowance for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Balance January 1 ​ $ 453 ​ $ 453 Fair value write-downs, net ​ ​ 23 ​ ​ — Sales of OREO ​ ​ ( 163 ) ​ ​ — Balance December 31 ​ $ 313 ​ $ 453 ​ The following table presents the components of OREO expenses, net, for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Gains on real estate, net ​ $ ( 599 ) ​ $ — Fair value write-down ​ ​ 23 ​ ​ — Expenses, net ​ ​ 491 ​ ​ 595 Rental and other income ​ ​ ( 4 ) ​ ​ ( 5 ) Total OREO (income)/expense, net ​ $ ( 89 ) ​ $ 590 ​ ​ ​ 7. Premises and Equipment The following table presents the components of premises and equipment at December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Land ​ $ 7,745 ​ $ 7,753 Land improvements ​ ​ 1,384 ​ ​ 1,548 Premises ​ ​ 34,922 ​ ​ 35,972 Furniture and equipment ​ ​ 18,873 ​ ​ 20,117 ​ ​ ​ 62,924 ​ ​ 65,390 Less accumulated depreciation ​ ​ ( 31,465 ) ​ ​ ( 30,442 ) Total ​ $ 31,459 ​ $ 34,948 ​ The Corporation recorded depreciation expense of $ 3.8 million and $ 3.1 million for the years ended December 31, 2023 and 2022, respectively. 8. 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. 97 ​ Table of Contents ​ The following table represents the Consolidated Statements of Financial Condition classification of the Corporation’s right-of-use 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, 2023 December 31, 2022 Lease Right-of Use Assets ​ ​ ​ ​ ​ ​ Operating lease right-of-use assets ​ $ 1,367 ​ $ 1,898 Lease Liabilities ​ ​ ​ ​ ​ ​ Operating lease liabilities ​ $ 1,556 ​ $ 2,373 ​ 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. The following table presents the weighted-average lease term and discount rate for operating leases at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 Weighted-average remaining lease term ​ ​ ​ ​ Operating leases ​ 5.33 years ​ 6.17 years Weighted-average discount rate ​ ​ ​ ​ Operating leases ​ 5.16 % ​ 5.00 % ​ The Corporation elected, for all classes of underlying assets, to separate lease and non-lease components. Total operating lease expense was $ 0.6 million and $ 0.5 million for the years ended December 31, 2023 and December 31, 2022, respectively. Short-term lease expense was approximately $ 20 thousand for the year ended December 31, 2023 and 2022. In the fourth quarter of 2023, the Bank announced the closure of four of its branches with an effective closing date of February 29, 2024. In conjunction with the announced branch closures, the Bank recognized accelerated lease expense of approximately $ 0.1 million in 2023. Future minimum payments for operating leases with initial or remaining terms of one year or more at December 31, 2023 were as follows: ​ ​ ​ ​ ​ (in thousands) Amount 2024 ​ $ 368 2025 ​ ​ 356 2026 ​ ​ 283 2027 ​ ​ 285 2028 ​ ​ 240 Thereafter ​ ​ 270 Total future minimum lease payments ​ ​ 1,802 Amounts representing interest ​ ​ ( 246 ) Present value of net future minimum lease payments ​ $ 1,556 ​ ​ 98 ​ Table of Contents ​ ​ 9. Deposits The following table summarizes deposits as of December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) December 31, 2023 December 31, 2022 ​ ​ ​ Balance ​ Percent ​ ​ Balance ​ Percent Non-Interest-bearing deposits: ​ $ 427,670 28 % ​ $ 506,613 ​ 32 % Interest-bearing deposits: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Demand ​ ​ 350,860 ​ 22 % ​ ​ 327,685 ​ 21 % Money market ​ ​ 385,649 ​ 25 % ​ ​ 365,192 ​ 23 % Savings deposits ​ ​ 191,265 ​ 12 % ​ ​ 250,720 ​ 16 % Time deposits- retail ​ ​ 165,533 ​ 11 % ​ ​ 120,523 ​ 8 % Time deposits- brokered ​ ​ 30,000 ​ 2 % ​ ​ — ​ 0 % Total Deposits ​ $ 1,550,977 ​ 100 % ​ $ 1,570,733 ​ 100 % ​ Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2023 and 2022 were $ 48.8 million and $ 37.5 million, respectively. At December 31, 2023 and 2022, $ 0.4 million and $ 0.3 million, respectively, of deposit overdrafts were re-classified as loans. The following is a summary of the scheduled maturities of all time deposits maturing within years ended December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) ​ Time deposits- brokered ​ Time deposits- retail 2024 $ 30,000 ​ $ 146,683 2025 ​ ​ — ​ ​ 13,990 2026 ​ ​ — ​ ​ 4,154 2027 ​ ​ — ​ ​ 491 2028 ​ ​ — ​ ​ 170 Thereafter ​ ​ — ​ ​ 45 Total ​ $ 30,000 ​ $ 165,533 ​ 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, 2023, executive officers and directors had approximately $ 17.2 million in deposits with the Bank compared to $ 14.0 million at December 31, 2022. 10. Borrowed Funds The following is a summary of short-term borrowings at December 31, 2023 and 2022 with original maturities of less than one year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Securities sold under agreements to repurchase: ​ ​ ​ ​ ​ ​ Outstanding at end of year ​ $ 45,418 ​ $ 64,565 Weighted average interest rate at year end ​ ​ 0.27 % ​ ​ 0.12 % Maximum amount outstanding as of any month end ​ $ 59,777 ​ $ 75,912 Average amount outstanding ​ $ 50,498 ​ $ 63,182 Approximate weighted average rate during the year ​ ​ 0.24 % ​ ​ 0.12 % ​ 99 ​ Table of Contents ​ Repurchase agreements were secured by $ 61.6 million in investment securities at December 31, 2023 and $ 74.6 million at December 31, 2022. The following is a summary of long-term borrowings at December 31, 2023 and 2022 with original maturities exceeding one year: ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 FHLB advances bearing fixed interest rates ranging from 4.53 % to 4.69 % at December 31, 2023 ​ $ 80,000 ​ $ — Junior subordinated debt ​ $ 30,929 ​ $ 30,929 Total long-term debt ​ $ 110,929 ​ $ 30,929 ​ 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 Secured Overnight Financing Rate (“SOFR”) plus 275 basis points ( 8.39 % at December 31, 2023), 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 SOFR plus 275 basis points ( 8.39 % at December 31, 2023) 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 contractual maturities of the FHLB advances outstanding at December 31, 2023 are March 15, 2024 and September 13, 2024. The contractual maturities of the junior subordinated debt outstanding at December 31, 2023 is 2034. ​ 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 $ 571.4 million at December 31, 2023 and $ 544.1 million at December 31, 2022. 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 $ 144,572 Commercial loans ​ ​ 52,753 Multi-family loans ​ ​ 11,453 Home equity loans ​ ​ 19,160 Total available borrowing capacity ​ ​ 227,938 Less: borrowings and letters of credit outstanding ​ ​ ( 82,500 ) ​ ​ $ 145,438 ​ The Bank also has various unsecured lines of credit totaling $ 140.0 million with various financial institutions and a $ 12.2 million secured line with the Federal Reserve to meet daily liquidity requirements.Additionally, the Bank had $ 69.5 million in available in a secured line of credit with the FRB through the BTFP. At December 31, 2023 and 2022, there were no borrowings under these credit facilities. 100 ​ Table of Contents ​ 11. Goodwill and Other Intangible Assets The gross carrying amounts and accumulated amortization of intangible assets and goodwill are presented at December 31, 2023 and 2022 in the following table: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 (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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Intangible assets associated with purchase of wealth portfolio ​ $ 1,048 ​ $ 419 ​ $ 629 3.00 years ​ $ 1,048 ​ $ 209 ​ $ 839 4.00 years Intangible assets associated with acquisition of mortgage company ​ ​ 600 ​ ​ 130 ​ ​ 470 3.92 years ​ ​ 600 ​ ​ 10 ​ ​ 590 4.92 years ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Other intangibles ​ $ 1,648 ​ $ 549 ​ $ 1,099 3.38 years ​ $ 1,648 ​ $ 219 ​ $ 1,429 4.38 years ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Goodwill ​ $ 11,004 ​ ​ ​ ​ $ 11,004 ​ ​ $ 11,004 ​ ​ ​ ​ $ 11,004 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The following table presents the estimated future amortization expense for amortizing intangible assets within the years ending December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amount 2024 ​ $ 330 2025 ​ ​ 330 2026 ​ ​ 330 2027 ​ ​ 109 Total amortizing intangible assets ​ $ 1,099 ​ ​ ​ ​ ​ ​ ​ 101 ​ Table of Contents ​ 12. 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, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Investment securities- with credit related impairment AFS Investment securities- all other AFS Investment securities- HTM Cash Flow Hedge Pension Plan SERP Total Accumulated OCL, net: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance - January 1, 2022 ​ $ ( 949 ) ​ $ ( 5,749 ) ​ $ ( 134 ) ​ $ ( 319 ) ​ $ ( 18,108 ) ​ $ ( 2,055 ) ​ $ ( 27,314 ) Other comprehensive income/(loss) before reclassifications ​ ​ ( 614 ) ​ ​ ( 10,629 ) ​ ​ ( 6,120 ) ​ ​ 1,116 ​ ​ 684 ​ ​ 2,430 ​ ​ ( 13,133 ) Amounts reclassified from accumulated other comprehensive loss ​ ​ ( 148 ) ​ ​ ( 2 ) ​ ​ 551 ​ ​ — ​ ​ 821 ​ ​ 199 ​ ​ 1,421 Balance - December 31, 2022 ​ $ ( 1,711 ) ​ $ ( 16,380 ) ​ $ ( 5,703 ) ​ $ 797 ​ $ ( 16,603 ) ​ $ 574 ​ $ ( 39,026 ) Other comprehensive (loss)/income before reclassifications ​ ​ ( 622 ) ​ ​ 61 ​ ​ — ​ ​ ( 228 ) ​ ​ 1,605 ​ ​ ( 1,802 ) ​ ​ ( 986 ) Amounts reclassified from accumulated other comprehensive loss ​ ​ ( 149 ) ​ ​ 3,102 ​ ​ 502 ​ ​ — ​ ​ 735 ​ ​ ( 5 ) ​ ​ 4,185 Balance - December 31, 2023 ​ $ ( 2,482 ) ​ $ ( 13,217 ) ​ $ ( 5,201 ) ​ $ 569 ​ $ ( 14,263 ) ​ $ ( 1,233 ) ​ $ ( 35,827 ) ​ 102 ​ Table of Contents ​ The following tables present the components of other comprehensive (loss)/income for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Components of Other Comprehensive Income (in thousands) Before Tax Amount Tax (Expense) Benefit Net For the year ended December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale (AFS) securities with credit-related impairment ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ $ ( 845 ) ​ $ 223 ​ $ ( 622 ) Less: accretable yield recognized in income ​ ​ 202 ​ ​ ( 53 ) ​ ​ 149 Net unrealized losses on investments with credit-related impairment ​ ​ ( 1,047 ) ​ ​ 276 ​ ​ ( 771 ) Available for sale securities – all other: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ 83 ​ ​ ( 22 ) ​ ​ 61 Less: losses recognized in income ​ ​ ( 4,214 ) ​ ​ 1,112 ​ ​ ( 3,102 ) Net unrealized gains on all other AFS securities ​ ​ 4,297 ​ ​ ( 1,134 ) ​ ​ 3,163 Held to maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on securities transferred to held to maturity ​ ​ — ​ ​ — ​ ​ — Less: amortization recognized in income ​ ​ ( 682 ) ​ ​ 180 ​ ​ ( 502 ) Net unrealized gains on HTM securities ​ ​ 682 ​ ​ ( 180 ) ​ ​ 502 Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ ​ ( 310 ) ​ ​ 82 ​ ​ ( 228 ) Net unrealized losses on cash flow hedges ​ ​ ( 310 ) ​ ​ 82 ​ ​ ( 228 ) Pension Plan: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial gain ​ ​ 2,180 ​ ​ ( 575 ) ​ ​ 1,605 Less: amortization of unrecognized loss ​ ​ ( 998 ) ​ ​ 263 ​ ​ ( 735 ) Net pension plan liability adjustment ​ ​ 3,178 ​ ​ ( 838 ) ​ ​ 2,340 SERP: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial loss ​ ​ ( 2,448 ) ​ ​ 646 ​ ​ ( 1,802 ) Less: amortization of unrecognized loss ​ ​ 7 ​ ​ ( 2 ) ​ ​ 5 Net SERP liability adjustment ​ ​ ( 2,455 ) ​ ​ 648 ​ ​ ( 1,807 ) Other comprehensive income ​ $ 4,345 ​ $ ( 1,146 ) ​ $ 3,199 ​ 103 ​ Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Components of Other Comprehensive Loss (in thousands) Before Tax Amount Tax (Expense) Benefit Net For the year ended December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale (AFS) securities with credit related impairment: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ $ ( 835 ) ​ $ 221 ​ $ ( 614 ) Less: accretable yield recognized in income ​ ​ 202 ​ ​ ( 54 ) ​ ​ 148 Net unrealized losses on investments with credit related impairment ​ ​ ( 1,037 ) ​ ​ 275 ​ ​ ( 762 ) Available for sale securities – all other: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses ​ ​ ( 22,792 ) ​ ​ 6,043 ​ ​ ( 16,749 ) Unrealized holding losses on securities transferred from available for sale to held to maturity ​ ​ 8,328 ​ ​ ( 2,208 ) ​ ​ 6,120 Less: gains recognized in income ​ ​ 3 ​ ​ ( 1 ) ​ ​ 2 Net unrealized losses on all other AFS securities ​ ​ ( 14,467 ) ​ ​ 3,836 ​ ​ ( 10,631 ) Held to maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding losses on securities transferred to held to maturity ​ ​ ( 8,328 ) ​ ​ 2,208 ​ ​ ( 6,120 ) Less: gains recognized in income ​ ​ 91 ​ ​ ( 24 ) ​ ​ 67 Less: amortization recognized in income ​ ​ ( 841 ) ​ ​ 223 ​ ​ ( 618 ) Net unrealized losses on HTM securities ​ ​ ( 7,578 ) ​ ​ 2,009 ​ ​ ( 5,569 ) Cash flow hedges: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding gains ​ ​ 1,521 ​ ​ ( 405 ) ​ ​ 1,116 Net unrealized gains on cash flow hedges ​ ​ 1,521 ​ ​ ( 405 ) ​ ​ 1,116 Pension Plan: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial gain ​ ​ 931 ​ ​ ( 247 ) ​ ​ 684 Less: amortization of unrecognized loss ​ ​ ( 1,117 ) ​ ​ 296 ​ ​ ( 821 ) Net pension plan liability adjustment ​ ​ 2,048 ​ ​ ( 543 ) ​ ​ 1,505 SERP: ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized net actuarial gain ​ ​ 3,307 ​ ​ ( 877 ) ​ ​ 2,430 Less: amortization of unrecognized loss ​ ​ ( 271 ) ​ ​ 72 ​ ​ ( 199 ) Net SERP liability adjustment ​ ​ 3,578 ​ ​ ( 949 ) ​ ​ 2,629 Other comprehensive loss ​ $ ( 15,935 ) ​ $ 4,223 ​ $ ( 11,712 ) ​ 104 ​ Table of Contents ​ The following tables present the details of accumulated other comprehensive loss components for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ Details of Accumulated Other Comprehensive Income Components ​ Amount Reclassified from Accumulated Other Comprehensive Loss ​ Affected Line Item in the Statement (in thousands) 2023 Where Net Income is Presented Net unrealized losses on investment securities with credit related impairment: ​ ​ ​ ​ ​ Accretable Yield ​ $ 202 ​ Interest income on taxable investment securities Taxes ​ ​ ( 53 ) ​ Provision for income tax expense ​ ​ $ 149 ​ Net of tax Net unrealized losses on available for sale investment securities - all other: ​ ​ ​ ​ ​ Loss on sales ​ $ ( 4,214 ) ​ Net gains Taxes ​ ​ 1,112 ​ Provision for income tax expense ​ ​ $ ( 3,102 ) ​ Net of tax Net unrealized gains on held to maturity investment securities: ​ ​ ​ ​ ​ Amortization ​ $ ( 682 ) ​ Interest income on taxable investment securities Taxes ​ ​ 180 ​ Provision for income tax expense ​ ​ $ ( 502 ) ​ Net of tax Net pension plan liability adjustment: ​ ​ ​ ​ ​ Amortization of unrecognized loss ​ $ ( 998 ) ​ Other expense Taxes ​ ​ 263 ​ Provision for income tax expense ​ ​ $ ( 735 ) ​ Net of tax Net SERP liability adjustment: ​ ​ ​ ​ ​ Amortization of unrecognized loss ​ $ 7 ​ Other expense Taxes ​ ​ ( 2 ) ​ Provision for income tax expense ​ ​ $ 5 ​ Net of tax Total reclassifications for the period ​ $ ( 4,185 ) ​ Net of tax ​ 105 ​ 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) 2022 Where Net Income is Presented Net unrealized losses on investment securities with credit related impairment: ​ ​ ​ ​ ​ Accretable Yield ​ $ 202 ​ Interest income on taxable investment securities Taxes ​ ​ ( 54 ) ​ Provision for income tax expense ​ ​ $ 148 ​ Net of tax Net unrealized gains on available for sale investment securities - all other: ​ ​ ​ ​ ​ Gains on sales ​ $ 3 ​ Net gains Taxes ​ ​ ( 1 ) ​ Provision for income tax expense ​ ​ $ 2 ​ Net of tax Net unrealized gains on held to maturity investment securities: ​ ​ ​ ​ ​ Amortization ​ $ ( 841 ) ​ Interest income on taxable investment securities Gains recognized ​ ​ 91 ​ Provision for income tax expense Taxes ​ ​ 199 ​ Net of tax ​ ​ $ ( 551 ) ​ ​ Net pension plan liability adjustment: ​ ​ ​ ​ Other expense Amortization of unrecognized loss ​ $ ( 1,117 ) ​ Other expense Taxes ​ ​ 296 ​ Net of tax ​ ​ $ ( 821 ) ​ ​ Net SERP liability adjustment: ​ ​ ​ ​ Other expense Amortization of unrecognized loss ​ $ ( 271 ) ​ Other expense Taxes ​ ​ 72 ​ Net of tax ​ ​ $ ( 199 ) ​ Net of tax Total reclassifications for the period ​ $ ( 1,421 ) ​ ​ ​ ​ 13. Income Taxes The provision for income taxes consists of the following for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Current Tax expense: ​ ​ ​ ​ ​ ​ Federal ​ $ 4,002 ​ $ 5,504 State ​ ​ 1,303 ​ ​ 2,034 ​ ​ $ 5,305 ​ $ 7,538 Deferred tax (benefit)/expense: ​ ​ ​ ​ ​ ​ Federal ​ $ ( 774 ) ​ $ 339 State ​ ​ ( 115 ) ​ ​ 256 ​ ​ $ ( 889 ) ​ $ 595 Income tax expense for the year ​ $ 4,416 ​ $ 8,133 ​ 106 ​ Table of Contents ​ The reconciliation between the statutory federal income tax rate and effective income tax rate for the years ended December 31, 2023 and 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Federal statutory rate ​ ​ 21.0 % ​ ​ 21.0 % Tax-exempt income on securities and loans ​ ​ ( 0.8 ) ​ ​ ( 0.8 ) Tax-exempt BOLI income ​ ​ ( 1.3 ) ​ ​ ( 0.8 ) State income tax, net of federal tax benefit ​ ​ 4.7 ​ ​ 5.6 Tax credits ​ ​ ( 0.8 ) ​ ​ ( 0.4 ) Other ​ ​ ( 0.1 ) ​ ​ ( 0.1 ) ​ ​ ​ 22.7 % ​ ​ 24.5 % ​ 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, 2023 and 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Deferred tax assets: ​ ​ ​ ​ ​ ​ Allowance for credit losses ​ $ 4,855 ​ $ 3,880 Deferred fees ​ ​ 96 ​ ​ 54 Deferred compensation ​ ​ 1,285 ​ ​ 1,163 Federal and state tax loss carry forwards ​ ​ 2,776 ​ ​ 2,873 Unrealized loss on investment securities ​ ​ 7,356 ​ ​ 8,419 SERP ​ ​ 2,622 ​ ​ 1,948 Lease liability ​ ​ 362 ​ ​ 471 Low income housing ​ ​ 439 ​ ​ 511 Other than temporary impairment on investment securities ​ ​ 464 ​ ​ 520 Other real estate owned ​ ​ 83 ​ ​ 120 Other ​ ​ 392 ​ ​ 133 Total deferred tax assets ​ ​ 20,730 ​ ​ 20,092 Valuation allowance ​ ​ ( 2,776 ) ​ ​ ( 2,873 ) Total deferred tax assets less valuation allowance ​ ​ 17,954 ​ ​ 17,219 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Goodwill and other intangibles ​ ​ ( 2,762 ) ​ ​ ( 2,736 ) Lease right-of-use asset ​ ​ ( 282 ) ​ ​ ( 418 ) Pension ​ ​ ( 2,958 ) ​ ​ ( 2,121 ) Depreciation ​ ​ ( 403 ) ​ ​ ( 921 ) Derivative contract ​ ​ ( 200 ) ​ ​ ( 283 ) Other ​ ​ ( 216 ) ​ ​ ( 135 ) Total deferred tax liabilities ​ ​ ( 6,821 ) ​ ​ ( 6,614 ) Net deferred tax assets ​ $ 11,133 ​ $ 10,605 ​ 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 107 ​ 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, 2023, the Corporation had Maryland net operating losses (“NOLs”) and other MD carryforwards of $ 39.1 million for which a deferred tax asset of $ 2.8 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 $ 2.8 million at December 31, 2023 and $ 2.9 million at December 31, 2022. The Corporation 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 Corporation is no longer subject to state income tax examinations for tax years before 2020. 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, 2023 and 2022. Furthermore, there were no net interest and penalties related to unrecognized tax benefits for the periods presented. 14. Equity Compensation Plans At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation Plan (the “Equity Plan”) which authorizes the issuance of up to 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 $ 15,000 to be paid, at the director’s election, in cash or additional shares of common stock. In May 2023, a total of 16,931 fully vested shares of common stock were issued to directors, which had a grant date fair value of $ 13.23 per share. 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. In January 2023, a total of 333 fully vested shares of common stock were issued to a new director, which had a grant date fair value of $ 19.36 per share. In October 2023, a total of 852 fully vested shares of common stock were issued to a new director, which had a grant date fair value of $ 16.26 per share. Director stock compensation expense was $ 255,937 for the year ended December 31, 2023 and $ 266,920 for the year ended December 31, 2022. Employee stock compensation was $ 33,279 and $ 79,464 for the years ended December 31, 2023 and 2022, respectively. 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. 108 ​ Table of Contents ​ The RSUs granted to each of the foregoing officers consist of (i) a performance vesting award for a three year performance period and (ii) 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 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, 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, 2024, the RSUs performance goals are based on earnings per share for the year ending December 31, 2024 and growth in tangible book value per share during the performance period. For the performance period ending December 31, 2025, the RSUs performance goals are based on earnings per share for the year ended December 31, 2025 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 (i) 9,791 performance-vesting shares (target level) for the performance period ending December 31, 2021 (the “2019 LTIP year”) and (ii) 10,143 performance-vesting shares and 5,070 time-vesting shares (target level) for the performance period ending December 31, 2022 (the “2020 LTIP year”). Each RSU had a grant date fair market value of $ 12.54 per share of common stock underlying the RSU. The time-vesting RSUs will vest ratably over a three-year period that began on March 26, 2021. On March 9, 2022, 14,688 shares subject to RSUs granted for the 2019 LTIP year were issued at maximum performance level. On March 8, 2023, 15,216 shares subject to RSUs granted for the 2020 LTIP year were issued at maximum performance. On March 26, 2021, 1,690 of the 5,070 time-vesting shares were issued to participants. On March 28, 2022, 1,688 shares of the 3,380 remaining time-vesting shares were issued to participants. On March 26, 2023, 1,692 shares of the remaining time-vesting shares were issued to participants. Stock compensation expense was $ 15,896 for the year ended December 31, 2023, and $ 73,816 for the year ended December 31, 2022. All compensation expense related to the 2019 LTIP year was recognized as of March 31, 2022. All compensation expense related to the 2020 LTIP plans was recognized as of March 31, 2023. 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. On May 5, 2022, 1,230 shares of the 3,693 time-vesting RSUs were issued to participants. On May 5, 2023, 1,230 shares of the remaining 2,463 time-vesting shares were issued to the participants. Net stock compensation (credit)/expense was ($ 51,555 ) and $ 66,285 for the years ended December 2023 and 2022. Unrecognized compensation expense as of December 31, 2023 related to unvested units was $ 7,365 . 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. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2024. The time-vesting RSUs will vest ratably over a three year period beginning on March 9, 2023. On March 9, 2023, 2,079 shares of the 6,238 time-vesting RSUs were issued to participants. Stock compensation expense was $ 104,580 and $ 78,436 109 ​ Table of Contents ​ for the years ended December 31, 2023 and 2022, respectively. Unrecognized compensation expense as of December 31, 2023 related to unvested units was $ 130,726 . In March 2023, RSUs relating to 10,214 performance-vesting shares and 7,920 time-vesting shares (target level) for plan year 2023 were granted, which had a grant date fair market value of $ 18.25 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three year period ending December 31, 2025. The time-vesting RSUs will vest ratably over a three-year period beginning on March 15, 2024. Stock compensation expense was $ 82,755 for the year ended Decmber 31, 2023. Unrecognized compensation expense as of December 31, 2023 related to unvested units was $ 248,264 . 15. 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. 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 110 ​ Table of Contents ​ 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 2021, the Board of Directors approved discretionary contributions to three participants totaling $ 101,257 . The Corporation recorded $ 50,628 of related compensation expense for 2022 related to these contributions. In January 2022, the Board of Directors approved discretionary contributions to three participants totaling $ 103,689 . The Corporation recorded $ 51,844 of related compensation expense for both 2023 and 2022 related to these contributions. In January 2023, the Board of Directors approved discretionary contributions to three participants totaling $ 108,184 . The Corporation recorded $ 54,092 of related compensation expense for 2023. 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) 2023 2022 2023 2022 Change in Benefit Obligation ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Obligation at the beginning of the year ​ $ 40,184 ​ $ 54,931 ​ $ 7,194 ​ $ 10,395 Service cost ​ ​ 25 ​ ​ 57 ​ ​ 102 ​ ​ 165 Interest cost ​ ​ 2,050 ​ ​ 1,535 ​ ​ 367 ​ ​ 286 Change in discount rate and mortality assumptions ​ ​ 314 ​ ​ ( 11,930 ) ​ ​ — ​ ​ — Actuarial losses/(gains) ​ ​ 144 ​ ​ ( 736 ) ​ ​ 2,450 ​ ​ ( 3,316 ) Benefits paid ​ ​ ( 2,103 ) ​ ​ ( 3,673 ) ​ ​ ( 336 ) ​ ​ ( 336 ) Obligation at the end of the year ​ ​ 40,614 ​ ​ 40,184 ​ ​ 9,777 ​ ​ 7,194 Change in Plan Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair value at the beginning of the year ​ ​ 48,185 ​ ​ 59,696 ​ ​ — ​ ​ — Actual return on plan assets ​ ​ 5,740 ​ ​ ( 7,838 ) ​ ​ — ​ ​ — Employer contribution ​ ​ — ​ ​ — ​ ​ 336 ​ ​ 336 Benefits paid ​ ​ ( 2,103 ) ​ ​ ( 3,673 ) ​ ​ ( 336 ) ​ ​ ( 336 ) Fair value at the end of the year ​ ​ 51,822 ​ ​ 48,185 ​ ​ — ​ ​ — Funded/(Unfunded) Status ​ $ 11,208 ​ $ 8,001 ​ $ ( 9,777 ) ​ $ ( 7,194 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pension ​ Defined Benefit SERP (in thousands) 2023 2022 2023 2022 Components of Net Pension Cost ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service cost ​ $ 25 ​ $ 57 ​ $ 102 ​ $ 165 Interest cost ​ ​ 2,050 ​ ​ 1,535 ​ ​ 367 ​ ​ 286 Expected return on assets ​ ​ ( 3,062 ) ​ ​ ( 3,810 ) ​ ​ — ​ ​ — Amortization of recognized loss ​ ​ 998 ​ ​ 1,117 ​ ​ ( 7 ) ​ ​ 271 Net pension (income)/expense in employee benefits ​ $ 11 ​ $ ( 1,101 ) ​ $ 462 ​ $ 722 Weighted Average Assumptions used to determine benefit obligations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Discount rate for benefit obligations ​ ​ 5.02 % ​ ​ 5.24 % ​ ​ 4.99 % ​ ​ 5.23 % Discount rate for net pension cost ​ ​ 5.24 % ​ ​ 2.85 % ​ ​ — ​ ​ — Expected long-term return on assets ​ ​ 6.50 % ​ ​ 6.50 % ​ ​ — ​ ​ — Rate of compensation increase ​ ​ 3.00 % ​ ​ 3.00 % ​ ​ 3.00 % ​ ​ 3.00 % ​ The accumulated benefit obligation for the Pension Plan was $ 38.3 million and $ 37.8 million at December 31, 2023 and 2022, respectively. The accumulated benefit obligation for the Defined Benefit SERP was $ 8.3 million and $ 6.9 million at December 31, 2023 and 2022, respectively. 111 ​ Table of Contents ​ 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 ​ 2 % ​ 0 % - 20 % Fixed Income ​ 43 % ​ 30 % - 50 % Equities ​ 55 % ​ 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. 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. ​ 112 ​ Table of Contents ​ At December 31, 2023 and 2022, the value of Pension Plan investments was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ ​ ​ ​ Fair Value Hierarchy (in thousands) Assets at Fair Value % of Portfolio Level 1 Level 2 Cash and cash equivalents ​ $ 1,217 ​ 2.3 % ​ $ 1,217 ​ $ — Fixed income securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government and Agencies ​ ​ 5,554 ​ 10.7 % ​ ​ — ​ ​ 5,554 Taxable municipal bonds and notes ​ ​ 2,503 ​ 4.8 % ​ ​ — ​ ​ 2,503 Corporate bonds and notes ​ ​ 10,258 ​ 19.8 % ​ ​ — ​ ​ 10,258 Preferred stock ​ ​ 276 ​ 0.5 % ​ ​ — ​ ​ 276 Fixed income mutual funds ​ ​ 3,302 ​ 6.4 % ​ ​ 3,302 ​ ​ — Total fixed income ​ ​ 21,893 ​ 42.2 % ​ ​ 3,302 ​ ​ 18,591 Equities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Large Cap ​ ​ 19,780 ​ 38.2 % ​ ​ 19,780 ​ ​ — Mid Cap ​ ​ 1,500 ​ 2.9 % ​ ​ 1,500 ​ ​ — Small Cap ​ ​ 4,564 ​ 8.8 % ​ ​ 4,564 ​ ​ — International ​ ​ 2,868 ​ 5.6 % ​ ​ 2,868 ​ ​ — Total equities ​ ​ 28,712 ​ 55.5 % ​ ​ 28,712 ​ ​ — Total market value ​ $ 51,822 ​ 100.0 % ​ $ 33,231 ​ $ 18,591 Note: The Large cap equities includes 194,124 shares of First United Corporation common stock at December 31, 2023 and 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ Fair Value Hierarchy (in thousands) Assets at Fair Value % of Portfolio Level 1 Level 2 Cash and cash equivalents ​ $ 985 ​ 2.0 % ​ $ 985 ​ $ — Fixed income securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government and Agencies ​ ​ 2,770 ​ 5.8 % ​ ​ — ​ ​ 2,770 Taxable municipal bonds and notes ​ ​ 4,166 ​ 8.6 % ​ ​ — ​ ​ 4,166 Corporate bonds and notes ​ ​ 10,575 ​ 21.9 % ​ ​ — ​ ​ 10,575 Preferred stock ​ ​ 474 ​ 1.0 % ​ ​ — ​ ​ 474 Fixed income mutual funds ​ ​ 5,454 ​ 11.4 % ​ ​ 5,454 ​ ​ — Total fixed income ​ ​ 23,439 ​ 48.7 % ​ ​ 5,454 ​ ​ 17,985 Equities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Large Cap ​ ​ 15,743 ​ 32.7 % ​ ​ 15,743 ​ ​ — Mid Cap ​ ​ 1,225 ​ 2.5 % ​ ​ 1,225 ​ ​ — Small Cap ​ ​ 3,815 ​ 7.9 % ​ ​ 3,815 ​ ​ — International ​ ​ 2,978 ​ 6.2 % ​ ​ 2,978 ​ ​ — Total equities ​ ​ 23,761 ​ 49.3 % ​ ​ 23,761 ​ ​ — Total market value ​ $ 48,185 ​ 100.0 % ​ $ 30,200 ​ $ 17,985 ​ As of December 31, 2023, the 25-year average return on pension portfolio assets was 6.59 %, exceeding the expected long-term return of 6.50 % utilized for 2023. Considering that future equity returns are partially a function of current starting valuations and the general level of interest rates, return expectations by market analysts have risen due to the large equity pullback and interest rates rising to multiyear highs. With equity valuations near historical averages and the monetary policy normalization process likely being near conclusion, it is considered appropriate to maintain the expected long-term rate of return of 6.50 % for 2024. ​ 113 ​ Table of Contents ​ 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 2024 ​ $ 2,217 ​ $ 336 2025 ​ ​ 2,267 ​ ​ 336 2026 ​ ​ 2,353 ​ ​ 602 2027 ​ ​ 2,401 ​ ​ 655 2028 ​ ​ 2,524 ​ ​ 643 2029-2033 ​ ​ 13,450 ​ ​ 3,628 ​ First United Corporation made no contributions to the Pension Plan in 2023 or 2022. 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 ​ $ 811 ​ $ 157 ​ ​ $ 811 ​ $ 157 ​ ​ 16. 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. Additionally, First United Corporation accrued a non-elective employer contribution during 2023 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 0.5 % of each employee’s salary hired before January 1, 2010, which will be paid in the first quarter of 2024. The employee must be a plan participant and be actively employed on the last day of the plan year to share in the discretionary profit sharing contribution, except in the case of death, disability, or retirement of the participant. Expense charged to operations for the 401(k) Plan was $ 1.4 million in 2023 and $ 1.3 million in 2022. 17. 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 FRB reduced reserve requirement ratios to 0 %. This action eliminated reserve requirements for all depository institutions. 114 ​ Table of Contents ​ 18. 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, 2023, 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, 2023 and December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) 2023 2022 Residential mortgage - home equity ​ $ 72,080 ​ $ 70,845 Residential mortgage - construction ​ ​ 17,684 ​ ​ 25,499 Commercial ​ ​ 160,196 ​ ​ 153,235 Consumer - personal credit lines ​ ​ 4,186 ​ ​ 4,323 Standby letters of credit ​ ​ 11,037 ​ ​ 14,325 Total ​ $ 265,183 ​ $ 268,227 ​ 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. 19. Fair Value of Financial Instruments The Corporation complies with the guidance of ASC Topic 820, Fair Value Measurements and Disclosures , which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. The Corporation also follows the guidance on matters relating to all financial instruments found in ASC Subtopic 825-10, Financial Instruments – Overall . Fair value is defined as the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. Fair value is best determined by values quoted through active trading markets. Active trading markets are characterized by numerous transactions of similar financial instruments between willing buyers and willing sellers. Because no active trading market exists for various types of financial instruments, many of the fair values disclosed were derived using present value discounted cash flows or other valuation techniques described below. As a result, the Corporation’s ability to actually realize these derived values cannot be assumed. The Corporation measures fair values based on the fair value hierarchy established in ASC Paragraph 820-10-35-37. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or 115 ​ Table of Contents ​ 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, 2023 and 2022, 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. Individually evaluated loans – Loans included in the table below are those that are considered individually evaluated with a specific allocation or with partial charge-offs, based upon the guidance of the loan impairment subsection of the Receivables Topic, ASC Section 310-10-35, under which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value consists of the loan balance less its valuation allowance and is generally determined based on independent third-party appraisals of the collateral or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements. Equity investments- Equity investments included in the table below are considered are recorded with a write-down to fair value recorded in other operating expenses. Fair value of the equity investment was based on an independent third-party valuation report where the value was determined based on the revenue multiples of like kind information technology businesses. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements. 116 ​ Table of Contents ​ Other real estate owned – OREO included in the table below are recorded with specific write-downs. Fair value of other real estate owned was based on independent third-party appraisals of the properties. These values were determined based on the sales prices of similar properties in the approximate geographic area. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements. For assets 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, 2023 and 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ ​ ​ ​ December 31, 2023 Using ​ ​ ​ ​ ​ (in Thousands) ​ Assets & Liabilities Measured at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Description ​ 12/31/23 ​ (Level 1) ​ (Level 2) ​ (Level 3) Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities available-for-sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. government agencies ​ $ 6,034 ​ ​ ​ ​ $ 6,034 ​ ​ ​ Residential mortgage-backed agencies ​ $ 20,563 ​ ​ ​ ​ $ 20,563 ​ ​ ​ Commercial mortgage-backed agencies ​ $ 28,417 ​ ​ ​ ​ $ 28,417 ​ ​ ​ Collateralized mortgage obligations ​ $ 16,356 ​ ​ ​ ​ $ 16,356 ​ ​ ​ Obligations of states and political subdivisions ​ $ 10,312 ​ ​ ​ ​ $ 10,312 ​ ​ ​ Corporate bonds ​ $ 778 ​ ​ ​ ​ $ 778 ​ ​ ​ Collateralized debt obligations ​ $ 14,709 ​ ​ ​ ​ ​ ​ ​ $ 14,709 Financial derivative ​ $ 756 ​ ​ ​ ​ $ 756 ​ ​ ​ Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated loans ​ $ — ​ ​ ​ ​ ​ ​ ​ $ — Equity investments ​ $ 3,087 ​ ​ ​ ​ ​ ​ ​ $ 3,087 Other real estate owned ​ $ 4,443 ​ ​ ​ ​ ​ ​ ​ $ 4,443 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at ​ ​ ​ ​ ​ December 31, 2022 Using ​ ​ ​ ​ ​ (in Thousands) ​ Assets & Liabilities Measured at Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Description ​ 12/31/22 ​ (Level 1) ​ (Level 2) ​ (Level 3) Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities available-for-sale: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. treasuries ​ $ 9,462 ​ ​ ​ ​ $ 9,462 ​ ​ ​ U.S. government agencies ​ $ 37,401 ​ ​ ​ ​ $ 37,401 ​ ​ ​ Residential mortgage-backed agencies ​ $ 30,732 ​ ​ ​ ​ $ 30,732 ​ ​ ​ Commercial mortgage-backed agencies ​ $ 21,044 ​ ​ ​ ​ $ 21,044 ​ ​ ​ Collateralized mortgage obligations ​ $ 10,492 ​ ​ ​ ​ $ 10,492 ​ ​ ​ Obligations of states and political subdivisions ​ $ 887 ​ ​ ​ ​ $ 887 ​ ​ ​ Collateralized debt obligations ​ $ 15,871 ​ ​ ​ ​ ​ ​ ​ $ 15,871 Financial derivative ​ $ 1,068 ​ ​ ​ ​ $ 1,068 ​ ​ ​ Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated loans ​ $ 211 ​ ​ ​ ​ ​ ​ ​ $ 211 Equity investment ​ $ 1,796 ​ ​ ​ ​ ​ ​ ​ $ 1,796 Other real estate owned ​ $ — ​ ​ ​ ​ ​ ​ ​ $ — ​ There were no transfers of assets between any of the levels of the fair value hierarchy for the years ended December 31, 2023 or December 31, 2022. 117 ​ Table of Contents ​ For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2023 and 2022, the significant unobservable inputs used in the fair value measurements were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Fair Value at December 31, 2023 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities – available for sale - CDO ​ $ 14,709 ​ Discounted Cash Flow ​ Discount Rate ​ Range of low to mid 500 and low to mid 600 Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity Investments ​ $ 3,087 ​ Market Method ​ Revenue Multiples ​ 2.8 x Other Real Estate Owned ​ $ 4,443 ​ Market Comparable Properties ​ Marketability Discount ​ 5.0 % to 15.0 % (weighted avg 5.9 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Fair Value at December 31, 2022 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment Securities – available for sale - CDO ​ $ 15,871 ​ Discounted Cash Flow ​ Discount Rate ​ Range of low to mid 300 and low to high 400 Non-recurring: ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually Evaluated Loans ​ $ 211 ​ Market Comparable Properties ​ Marketability Discount ​ 10.0 % to 15.0 % Equity Investment ​ $ 1,796 ​ Market Method ​ Revenue Multiples ​ 2.8 x Other Real Estate Owned ​ $ — ​ Market Comparable Properties ​ Marketability Discount ​ ​ ​ (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 using Level 3 significant unobservable inputs for the years ended December 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement Using Unobservable Inputs (Level 3) (in thousands) ​ Investment Securities Available for Sale Beginning balance January 1, 2023 ​ $ 15,871 Total gains/(losses) realized/unrealized: ​ ​ ​ Included in other comprehensive income ​ ​ ( 1,162 ) Ending balance December 31, 2023 ​ $ 14,709 ​ ​ ​ ​ ​ ​ ​ Fair Value Measurement Using Unobservable Inputs (Level 3) (in thousands) ​ Investment Securities Available for Sale Beginning balance January 1, 2022 ​ $ 17,192 Total gains/(losses) realized/unrealized: ​ ​ ​ Included in other comprehensive income ​ ​ ( 1,321 ) Ending balance December 31, 2022 ​ $ 15,871 ​ 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. 118 ​ Table of Contents ​ 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. 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, 2023 ​ 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 ​ $ 48,343 ​ $ 48,343 ​ $ 48,343 ​ ​ ​ ​ ​ ​ Interest bearing deposits in banks ​ ​ 1,410 ​ ​ 1,410 ​ ​ 1,410 ​ ​ ​ ​ ​ ​ Investment securities - AFS ​ ​ 97,169 ​ ​ 97,169 ​ ​ ​ ​ $ 82,460 ​ $ 14,709 Investment securities - HTM ​ ​ 214,297 ​ ​ 184,415 ​ ​ ​ ​ ​ 182,510 ​ ​ 1,905 Restricted bank stock ​ ​ 5,250 ​ ​ N/A ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans, net ​ ​ 1,388,847 ​ ​ 1,319,456 ​ ​ ​ ​ ​ ​ ​ ​ 1,319,456 Financial derivative ​ ​ 778 ​ ​ 778 ​ ​ ​ ​ ​ 778 ​ ​ ​ Accrued interest receivable ​ ​ 7,487 ​ ​ 7,487 ​ ​ ​ ​ ​ 828 ​ ​ 6,659 Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits – non-maturity ​ ​ 1,355,444 ​ ​ 1,355,444 ​ ​ ​ ​ ​ 1,355,444 ​ ​ ​ Deposits – time deposits ​ ​ 195,533 ​ ​ 193,337 ​ ​ ​ ​ ​ 193,337 ​ ​ ​ Short-term borrowed funds ​ ​ 45,418 ​ ​ 45,418 ​ ​ ​ ​ ​ 45,418 ​ ​ ​ Long-term borrowed funds ​ ​ 110,929 ​ ​ 110,809 ​ ​ ​ ​ ​ 110,809 ​ ​ ​ Accrued interest payable ​ ​ 612 ​ ​ 612 ​ ​ ​ ​ ​ 612 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ 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 ​ $ 72,720 ​ $ 72,720 ​ $ 72,720 ​ ​ ​ ​ ​ ​ Interest bearing deposits in banks ​ ​ 1,595 ​ ​ 1,595 ​ ​ 1,595 ​ ​ ​ ​ ​ ​ Investment securities - AFS ​ ​ 125,889 ​ ​ 125,889 ​ ​ ​ ​ $ 110,018 ​ $ 15,871 Investment securities - HTM ​ ​ 235,659 ​ ​ 203,080 ​ ​ ​ ​ ​ 182,380 ​ ​ 20,700 Restricted bank stock ​ ​ 1,027 ​ ​ N/A ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans, net ​ ​ 1,264,684 ​ ​ 1,177,702 ​ ​ ​ ​ ​ ​ ​ ​ 1,177,702 Financial derivative ​ ​ 1,068 ​ ​ 1,068 ​ ​ ​ ​ ​ 1,068 ​ ​ ​ Accrued interest receivable ​ ​ 6,051 ​ ​ 6,051 ​ ​ ​ ​ ​ 933 ​ ​ 5,118 Financial Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deposits – non-maturity ​ ​ 1,450,210 ​ ​ 1,450,210 ​ ​ ​ ​ ​ 1,450,210 ​ ​ ​ Deposits – time deposits ​ ​ 120,523 ​ ​ 120,083 ​ ​ ​ ​ ​ 120,083 ​ ​ ​ Financial derivative ​ ​ — ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ Short-term borrowed funds ​ ​ 64,565 ​ ​ 64,565 ​ ​ ​ ​ ​ 64,565 ​ ​ ​ Long-term borrowed funds ​ ​ 30,929 ​ ​ 30,909 ​ ​ ​ ​ ​ 30,909 ​ ​ ​ Accrued interest payable ​ ​ 151 ​ ​ 151 ​ ​ ​ ​ ​ 151 ​ ​ ​ ​ ​ 119 ​ Table of Contents ​ 20. 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, 2023, $ 15.0 million notional amount remains. The interest rate swap creates an effective fixed interest rate of 4.6450 % on the $ 15.0 million notional amount of the Corporation’s junior subordination debt until the interest rate swap’s maturity in March 2026. The fair value of the interest rate swap contracts was $ 0.8 million and $ 1.1 million at December 31, 2023 and December 31, 2022, respectively. For the year ended December 31, 2023, the Corporation recorded a decrease in the value of the derivatives of $ 0.3 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 year ended December 31, 2023. 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, 2023. The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the years ended December 31, 2023 and December 31, 2022. Derivative in Cash Flow Hedging Relationships ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (in thousands) Amount of (loss)/gain 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, 2023 ​ $ ( 228 ) ​ $ — ​ $ — December 31, 2022 ​ $ 1,116 ​ $ — ​ $ — Notes : (1) Reported as interest expense (2) Reported as other income ​ 21. 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. 120 ​ Table of Contents ​ Wealth Management – Trust and Brokerage Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Corporation’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Corporation’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Service Charges on Deposit Accounts Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Corporation’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Corporation’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts. Other Service Charges Fees, exchange, and other service charges are primarily comprised of ATM fees, loan servicing fees and other service charges. ATM fees are primarily generated when a Bank cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM. Loan servicing fees are comprised of fees earned on servicing of loan portfolios sold to the secondary market. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Corporation’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Interchange Fees – Debit and Credit Card Income Debit and credit card income is primarily comprised of interchange fees earned whenever the Corporation’s debit cards are processed through card payment networks such as Visa. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Payment is typically received immediately or in the following month. The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of ASC Topic 606, for the years ended December 31, 2023 and 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2023 2022 Noninterest income ​ ​ ​ ​ ​ ​ In-scope of Topic 606: ​ ​ ​ ​ ​ ​ Service charges on deposit accounts ​ $ 2,198 ​ $ 1,981 Other service charges ​ ​ 929 ​ ​ 925 Trust department ​ ​ 8,282 ​ ​ 8,244 Debit card income ​ ​ 4,101 ​ ​ 3,958 Brokerage commissions ​ ​ 1,160 ​ ​ 1,049 Noninterest income (in-scope of Topic 606) ​ ​ 16,670 ​ ​ 16,157 Noninterest income (out-of-scope of Topic 606) ​ ​ 1,661 ​ ​ 1,721 Total Noninterest Income ​ $ 18,331 ​ $ 17,878 ​ 121 ​ Table of Contents ​ 22. Segment Reporting Currently, the Corporation conducts business in two operating segments: (i) Community Banking and (ii) Trust and Investment Services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies provided earlier in this report. Business activity for the operating segments are as follows: Community Banking : The Community Banking segment is conducted through the Bank and involves delivering a broad range of financial products and services, including various loan and deposit products, to consumer, business, and not-for-profit customers. Parent company income and assets are included in the Community Banking segment, as the majority of parent company functions are related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, and service charges on deposit accounts. Expenses include personnel, occupancy, marketing, equipment, and other expenses. Non-cash charges other than depreciation of fixed assets were immaterial for the years ended December 31, 2023 and 2022. Trust and Investment Services : The Trust and Investment Services segment is conducted through the Bank and offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenues for this segment is generated from administration, service and custody fees, as well as management fees that are derived from Assets Under Management. Expenses include personnel, occupancy, marketing, equipment, and other expenses. Non-cash charges associated with amortization of intangibles were approximately $ 208,000 for the years ending December 31, 2023 and 2022. ​ 122 ​ Table of Contents ​ Information for the operating segments for the years ended December 31, 2023 and 2022 are presented in the following tables: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ ​ ​ ​ ​ Trust and ​ ​ ​ ​ ​ ​ Community ​ Investment ​ ​ ​ (in thousands) ​ ​ Banking Services Total Interest income ​ ​ $ 81,156 ​ $ — ​ $ 81,156 Interest expense ​ ​ ​ 24,286 ​ ​ — ​ ​ 24,286 Credit loss expense ​ ​ ​ 1,620 ​ ​ — ​ ​ 1,620 Non-interest income ​ ​ ​ 5,027 ​ ​ 9,442 ​ ​ 14,469 Non-interest expense ​ ​ ​ 45,098 ​ ​ 5,145 ​ ​ 50,243 Income before income taxes and intercompany fees ​ ​ ​ 15,179 ​ ​ 4,297 ​ ​ 19,476 Intercompany management fee income (expense) ​ ​ ​ 12 ​ ​ ( 12 ) ​ ​ — Income before income taxes ​ ​ ​ 15,191 ​ ​ 4,285 ​ ​ 19,476 Income tax expense ​ ​ ​ 3,514 ​ ​ 902 ​ ​ 4,416 Net income ​ ​ $ 11,677 ​ $ 3,383 ​ $ 15,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ ​ ​ ​ ​ Trust and ​ ​ ​ ​ ​ ​ Community ​ Investment ​ ​ ​ (in thousands) ​ ​ Banking Services Total Interest income ​ ​ $ 62,422 ​ $ — ​ $ 62,422 Interest expense ​ ​ ​ 4,789 ​ ​ — ​ ​ 4,789 Loan loss credit ​ ​ ​ ( 627 ) ​ ​ — ​ ​ ( 627 ) Non-interest income ​ ​ ​ 8,757 ​ ​ 9,293 ​ ​ 18,050 Non-interest expense ​ ​ ​ 38,435 ​ ​ 4,694 ​ ​ 43,129 Income before income taxes and intercompany fees ​ ​ ​ 28,582 ​ ​ 4,599 ​ ​ 33,181 Intercompany management fee income (expense) ​ ​ ​ 12 ​ ​ ( 12 ) ​ ​ — Income before income taxes ​ ​ ​ 28,594 ​ ​ 4,587 ​ ​ 33,181 Income tax expense ​ ​ ​ 7,168 ​ ​ 965 ​ ​ 8,133 Net income ​ ​ $ 21,426 ​ $ 3,622 ​ $ 25,048 ​ Total non-fiduciary assets of the trust and investment services segment were $ 0.7 million (including $ 0.6 million in intangible assets) at December 31, 2023 and $ 0.9 million (including $ 0.8 million in intangible assets) at December 31, 2022. All other assets (including goodwill of $ 11.0 million as of December 31 2023 and 2022 and other intangible assets of $ 0.5 million and $ 0.6 million as of December 31, 2023 and 2022, respectively) were held by the community banking segment. 123 ​ Table of Contents ​ 23. Parent Company Only Financial Information Condensed Statements of Financial Condition ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) 2023 2022 Assets ​ ​ ​ ​ ​ ​ Cash ​ $ 9,739 ​ $ 11,296 Investment securities- Available for Sale (at fair value) ​ ​ 13,591 ​ ​ 14,603 Investment in bank subsidiary ​ ​ 164,878 ​ ​ 153,245 Investment in non-bank subsidiaries ​ ​ 929 ​ ​ 929 Other assets ​ ​ 9,794 ​ ​ 8,273 Total Assets ​ $ 198,931 ​ $ 188,346 Liabilities and Shareholders' Equity ​ ​ ​ ​ ​ ​ Accrued interest and other liabilities ​ $ 4,799 ​ $ 4,425 Dividends payable ​ ​ 1,330 ​ ​ 1,199 Junior subordinated debt ​ ​ 30,929 ​ ​ 30,929 Shareholders' equity ​ ​ 161,873 ​ ​ 151,793 Total Liabilities and Shareholders' Equity ​ $ 198,931 ​ $ 188,346 ​ Condensed Statements of Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2023 2022 Income: ​ ​ ​ ​ ​ ​ Dividend income from bank subsidiary ​ $ 6,130 ​ $ 14,995 Interest income on investments ​ ​ 1,715 ​ ​ 780 Other income ​ ​ 75 ​ ​ 63 Total other income ​ ​ 1,790 ​ ​ 843 Total Income ​ ​ 7,920 ​ ​ 15,838 Expenses: ​ ​ ​ ​ ​ ​ Interest expense ​ ​ 1,950 ​ ​ 1,451 Other expenses ​ ​ 715 ​ ​ 249 Total Expenses ​ ​ 2,665 ​ ​ 1,700 Income before income taxes and equity in undistributed net income of subsidiaries ​ ​ 5,255 ​ ​ 14,138 Applicable income tax benefit ​ ​ 213 ​ ​ 194 Net income before equity in undistributed net income of subsidiaries ​ ​ 5,468 ​ ​ 14,332 Equity in undistributed net income of subsidiaries: ​ ​ ​ ​ ​ ​ Bank ​ ​ 9,592 ​ ​ 10,716 Net Income ​ $ 15,060 ​ $ 25,048 ​ Condensed Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, Components of Comprehensive Income (in thousands) 2023 2022 Net Income ​ $ 15,060 ​ $ 25,048 Unrealized losses on AFS Securities, net of tax ​ ​ ( 771 ) ​ ​ ( 954 ) Unrealized (losses)/gains on cash flow hedges, net of tax ​ ​ ( 228 ) ​ ​ 1,116 Other comprehensive (loss)/income, net of tax ​ ​ ( 999 ) ​ ​ 162 Comprehensive income ​ $ 14,061 ​ $ 25,210 124 ​ Table of Contents ​ ​ Condensed Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, (in thousands) 2023 2022 Operating Activities ​ ​ ​ ​ ​ ​ Net Income ​ $ 15,060 ​ $ 25,048 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ Equity in undistributed net income of subsidiaries ​ ​ ( 9,592 ) ​ ​ ( 10,716 ) Increase in other assets ​ ​ ( 1,280 ) ​ ​ ( 448 ) Increase in accrued interest payable and other liabilities ​ ​ 273 ​ ​ 655 Stock compensation ​ ​ 527 ​ ​ 532 Net cash provided by operating activities ​ ​ 4,988 ​ ​ 15,071 Financing Activities ​ ​ ​ ​ ​ ​ Proceeds from issuance of common stock ​ ​ 293 ​ ​ 217 Repurchase of common stock ​ ​ ( 1,495 ) ​ ​ — Cash dividends on common stock ​ ​ ( 5,343 ) ​ ​ ( 4,192 ) Net cash used in financing activities ​ ​ ( 6,545 ) ​ ​ ( 3,975 ) Increase in cash and cash equivalents ​ ​ ( 1,557 ) ​ ​ 11,096 Cash and cash equivalents at beginning of year ​ ​ 11,296 ​ ​ 200 Cash and cash equivalents at end of year ​ $ 9,739 ​ $ 11,296 ​ ​ ​ ​ ​ ​ 125 ​ Table of Contents ​ ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.