10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2019

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to ________________

Commission file number 0-14237

First United Corporation

(Exact name of registrant as specified in its charter)

Maryland	52-1380770
(State or other jurisdiction of	(I. R. S. Employer Identification No.)
incorporation or organization)

19 South Second Street, Oakland, Maryland	21550-0009
(Address of principal executive offices)	(Zip Code)

(800) 470-4356

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock	FUNC	Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨	Accelerated filer þ
Non-accelerated filer ¨	Smaller reporting company þ
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,088,987 shares of common stock, par value $.01 per share, as of April 30, 2019.

INDEX TO QUARTERLY REPORT

FIRST UNITED CORPORATION

		Page
PART I.  FINANCIAL INFORMATION		3
Item 1.	Financial Statements (unaudited)	3
	Consolidated Statement of Financial Condition – March 31, 2019 and December 31, 2018	3
	Consolidated Statement of Operations - for the three months ended March 31, 2019 and 2018	4
	Consolidated Statement of Comprehensive Income – for the three months ended March 31, 2019 and 2018	5
	Consolidated Statement of Changes in Shareholders’ Equity - for three months ended March 31, 2019 and 2018	6
	Consolidated Statement of Cash Flows - for the three months ended March 31, 2019 and 2018	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	63
Item 4.	Controls and Procedures	63
PART II. OTHER INFORMATION		64
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	64
SIGNATURES		65

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST UNITED CORPORATION

Consolidated Statement of Financial Condition

(In thousands, except per share data)

	March 31,			December 31,
	2019			2018
	(Unaudited)
Assets
Cash and due from banks	$	53,112		$	22,187
Interest bearing deposits in banks		892			1,354
Cash and cash equivalents		54,004			23,541
Investment securities – available for sale (at fair value)		136,514			137,641
Investment securities – held to maturity (fair value $97,364 at March 31, 2019 and $93,760 at December 31, 2018)		95,538			94,010
Restricted investment in bank stock, at cost		4,373			5,394
Loans		1,004,618			1,007,714
Allowance for loan losses		(11,548	)		(11,047	)
Net loans		993,070			996,667
Premises and equipment, net		37,616			37,855
Goodwill and other intangible assets, net		11,004			11,004
Bank owned life insurance		43,620			43,317
Deferred tax assets		6,835			7,844
Other real estate owned		6,167			6,598
Operating lease right-of-use asset		2,665			0
Accrued interest receivable and other assets		25,495			20,645
Total Assets	$	1,416,901		$	1,384,516
Liabilities and Shareholders’ Equity
Liabilities:
Non-interest bearing deposits	$	288,213		$	262,250
Interest bearing deposits		842,399			805,277
Total deposits		1,130,612			1,067,527
Short-term borrowings		39,695			77,707
Long-term borrowings		100,929			100,929
Operating lease liability		3,250			0
Accrued interest payable and other liabilities		19,377			20,649
Dividends payable		639			638
Total Liabilities		1,294,502			1,267,450
Shareholders’ Equity:
Common Stock – par value $.01 per share; Authorized 25,000 shares; issued and outstanding 7,089 shares at March 31, 2019 and 7,087 at December 31, 2018		71			71
Surplus		32,027			31,921
Retained earnings		111,989			109,477
Accumulated other comprehensive loss		(21,688	)		(24,403	)
Total Shareholders’ Equity		122,399			117,066
Total Liabilities and Shareholders’ Equity	$	1,416,901		$	1,384,516

See accompanying notes to the consolidated financial statements

3

FIRST UNITED CORPORATION

Consolidated Statement of Operations

(In thousands, except per share data)

	Three months ended
	March 31,
	2019		2018
	(Unaudited)
Interest income
Interest and fees on loans	$	12,190	$	10,481
Interest on investment securities
Taxable		1,467		1,447
Exempt from federal income tax		280		238
Total investment income		1,747		1,685
Other		135		196
Total interest income		14,072		12,362
Interest expense
Interest on deposits		1,771		856
Interest on short-term borrowings		103		30
Interest on long-term borrowings		852		894
Total interest expense		2,726		1,780
Net interest income		11,346		10,582
Provision for loan losses		349		447
Net interest income after provision for loan losses		10,997		10,135
Other operating income
Net gains		14		34
Service charges on deposit accounts		519		563
Other service charges		208		229
Trust department		1,715		1,664
Debit card income		600		553
Bank owned life insurance		303		299
Brokerage commissions		238		245
Other		124		123
Total other income		3,707		3,676
Total other operating income		3,721		3,710
Other operating expenses
Salaries and employee benefits		6,218		5,808
FDIC premiums		111		133
Equipment		883		683
Occupancy		712		638
Data processing		941		932
Professional services		204		336
Contract labor		156		176
Line rentals		217		211
Other real estate owned		143		385
Other		1,105		1,389
Total other operating expenses		10,690		10,691
Income before income tax expense		4,028		3,154
Provision for income tax expense		877		648
Net Income	$	3,151	$	2,506
Basic and diluted net income per common share	$	0.44	$	0.35
Weighted average number of basic and diluted shares outstanding		7,088		7,067
Dividends declared per common share	$	0.09	$	0.09

See accompanying notes to the consolidated financial statements

4

FIRST UNITED CORPORATION

Consolidated Statement of Comprehensive Income

(In thousands)

	Three months ended
	March 31,
	2019			2018
Comprehensive Income (in thousands)	(Unaudited)
Net Income	$	3,151		$	2,506
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized (losses)/gains on investments with OTTI		(80	)		645
Net unrealized gains/(losses) on all other AFS securities		905			(1,078	)
Net unrealized gains on HTM securities		55			45
Net unrealized (losses)/gains on cash flow hedges		(315	)		443
Net unrealized gains on pension		2,129			736
Net unrealized gains on SERP		21			29
Other comprehensive income, net of tax		2,715			820
Comprehensive income	$	5,866		$	3,326

See accompanying notes to the consolidated financial statements

5

FIRST UNITED CORPORATION

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands)

	Common Stock		Surplus		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Balance at January 1, 2019	$	71	$	31,921	$	109,477		$	(24,403	)	$	117,066
Net income						3,151						3,151
Other comprehensive income									2,715			2,715
Stock based compensation				67								67
Common stock issued				39								39
Common stock dividend declared - $.09 per share						(639	)					(639	)
Balance at March 31, 2019	$	71	$	32,027	$	111,989		$	(21,688	)	$	122,399

	Common Stock		Surplus		Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
Balance at January 1, 2018	$	71	$	31,553	$	101,359		$	(24,593	)	$	108,390
Net income						2,506						2,506
Other comprehensive income									820			820
Stock based compensation				53								53
Common stock dividend declared - $.09 per share						(635	)					(635	)
Balance at March 31, 2018	$	71	$	31,606	$	103,230		$	(23,773	)	$	111,134

See accompanying notes to the consolidated financial statements

6

FIRST UNITED CORPORATION

Consolidated Statement of Cash Flows

(In thousands)

	Three months ended
	March 31,
	2019			2018
	(Unaudited)
Operating activities
Net income	$	3,151		$	2,506
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		349			447
Depreciation		756			548
Stock compensation		67			53
Gains on sales of other real estate owned		(30	)		(20	)
Write-downs of other real estate owned		117			295
Originations of loans held for sale		(2,630	)		(5,137	)
Proceeds from sale of loans held for sale		2,627			5,330
Gains from sale of loans held for sale		(20	)		(43	)
Net amortization of investment securities discounts and premiums- AFS		3			8
Net (accretion)/amortization of investment securities discounts and premiums- HTM		(12	)		28
Losses on sales/calls of investment securities – available-for-sale		6			9
Earnings on bank owned life insurance		(303	)		(299	)
Amortization of deferred loan fees		(141	)		(156	)
Amortization of operating lease right-of-use asset		65			0
Increase in accrued interest receivable and other assets		(1,824	)		(799	)
Increase in deferred tax benefit		(1	)		(512	)
Decrease in operating lease liability		(67	)		0
(Decrease)/increase in accrued interest payable and other liabilities		(1,116	)		967
Net cash provided by operating activities		997			3,225
Investing activities
Proceeds from maturities/calls of investment securities available-for-sale		2,249			1,659
Proceeds from maturities/calls of investment securities held-to-maturity		1,238			1,726
Purchases of investment securities available-for-sale		0			(1,405	)
Purchases of investment securities held-to-maturity		(2,754	)		0
Proceeds from sales of other real estate owned		859			470
Net decrease/(increase) in FHLB stock		1,021			(148	)
Net decrease/(increase) in loans		2,897			(19,868	)
Purchases of loans		0			(25,168	)
Purchases of premises and equipment		(517	)		(2,220	)
Net cash provided by/(used in) investing activities		4,993			(44,954	)
Financing activities
Net increase/(decrease) in deposits		63,085			(21,527	)
Proceeds from sale of common stock		39			0
Cash dividends on common stock		(639	)		(635	)
Net (decrease)/increase in short-term borrowings		(38,012	)		6,365
Payments on long-term borrowings		0			(5,000	)
Net cash provided by/(used in) financing activities		24,473			(20,797	)
Increase/(decrease) in cash and cash equivalents		30,463			(62,526	)
Cash and cash equivalents at beginning of the year		23,541			83,752
Cash and cash equivalents at end of period	$	54,004		$	21,226
Supplemental information
Interest paid	$	2,691		$	1,737
Taxes paid	$	100		$	0
Non-cash investing activities:
Transfers from loans to other real estate owned	$	515		$	118
Initial recognition of operating lease right-of-use assets	$	2,730		$	0
Initial recognition of operating lease liabilities	$	3,317		$	0

See accompanying notes to the consolidated financial statements

7

FIRST UNITED CORPORATION

NoteS to Consolidated Financial Statements (UNAUDITED)

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of First United Corporation and its consolidated subsidiaries, including First United Bank & Trust (the “Bank”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 270, Interim Reporting, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required for annual financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring items, have been included. Operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year or for any future interim period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018. For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2019 presentation. Such reclassifications had no impact on net income or equity.

As used in these notes, the term “the Corporation” refers to First United Corporation and, unless the context clearly requires otherwise, its consolidated subsidiaries.

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2019 for items that should potentially be recognized or disclosed in these financial statements.

Note 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. No common stock equivalents were outstanding at March 31, 2019.

The following tables set forth the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
	2019						2018
			Average		Per Share				Average		Per Share
(in thousands, except for per share amount)	Income		Shares		Amount		Income		Shares		Amount
Basic and Diluted Earnings Per Share:
Net income	$	3,151		7,088	$	0.44	$	2,506		7,067	$	0.35

8

Note 3 – Net Gains

The following table summarizes the gain/(loss) activity for the three-month periods ended March 31, 2019 and 2018:

	Three months ended
	March 31,
(in thousands)	2019			2018
Net gains/(losses):
Available-for-sale securities:
Realized losses		(6	)		(9	)
Gains on sale of consumer loans		20			43
Net gains:	$	14		$	34

Note 4 – Investments

The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.

The amortized cost of debt securities classified as available-for-sale 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.

9

The following table shows a comparison of amortized cost and fair values of investment securities at March 31, 2019 and December 31, 2018:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
March 31, 2019
Available for Sale:
U.S. government agencies	$	30,000	$	0	$	536	$	29,464	$	0
Commercial mortgage-backed agencies		38,141		0		1,165		36,976		0
Collateralized mortgage obligations		35,564		0		559		35,005		0
Obligations of states and political subdivisions		19,798		213		94		19,917		0
Collateralized debt obligations		18,362		0		3,210		15,152		(2,075	)
Total available for sale	$	141,865	$	213	$	5,564	$	136,514	$	(2,075	)
Held to Maturity:
U.S. government agencies	$	16,054	$	401	$	0	$	16,455	$	0
Residential mortgage-backed agencies		45,312		15		667		44,660		0
Commercial mortgage-backed agencies		15,745		213		0		15,958		0
Collateralized mortgage obligations		3,753		0		62		3,691		0
Obligations of states and political subdivisions		14,674		1,974		48		16,600		0
Total held to maturity	$	95,538	$	2,603	$	777	$	97,364	$	0
December 31, 2018
Available for Sale:
U.S. government agencies	$	30,000	$	0	$	974	$	29,026	$	0
Commercial mortgage-backed agencies		39,013		0		1,261		37,752		0
Collateralized mortgage obligations		36,669		0		965		35,704		0
Obligations of states and political subdivisions		20,083		132		333		19,882		0
Collateralized debt obligations		18,358		0		3,081		15,277		(1,966	)
Total available for sale	$	144,123	$	132	$	6,614	$	137,641	$	(1,966	)
Held to Maturity:
U.S. government agencies	$	16,017	$	120	$	0	$	16,137	$	0
Residential mortgage-backed agencies		46,491		6		1,287		45,210		0
Commercial mortgage-backed agencies		15,821		75		68		15,828		0
Collateralized mortgage obligations		3,761		0		156		3,605		0
Obligations of states and political subdivisions		11,920		1,156		96		12,980		0
Total held to maturity	$	94,010	$	1,357	$	1,607	$	93,760	$	0

Proceeds from sales/calls of available for sale securities and the realized gains and losses are as follows:

	Three months ended
	March 31,
(in thousands)	2019		2018
Proceeds	$	260	$	235
Realized gains		0		0
Realized losses		6		9

10

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at March 31, 2019 and December 31, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 months						12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments		Fair Value		Unrealized Losses		Number of Investments
March 31, 2019
Available for Sale:
U.S. government agencies	$	0	$	0		0	$	29,464	$	536		5
Commercial mortgage-backed agencies		0		0		0		36,976		1,165		8
Collateralized mortgage obligations		171		1		1		34,834		558		8
Obligations of states and political subdivisions		115		1		1		5,278		93		4
Collateralized debt obligations		5,949		478		4		9,201		2,732		5
Total available for sale	$	6,235	$	480		6	$	115,753	$	5,084		30
Held to Maturity:
Residential mortgage-backed agencies		3,623		15		2		36,833		652		26
Collateralized mortgage obligations		0		0		0		3,691		62		1
Obligations of states and political subdivisions		2,247		48		1		0		0		0
Total held to maturity	$	5,870	$	63		3	$	40,524	$	714		27

December 31, 2018
Available for Sale:
U.S. government agencies	$	0	$	0	0	$	29,026	$	974	5
Commercial mortgage-backed agencies		0		0	0		37,752		1,261	8
Collateralized mortgage obligations		232		1	1		35,472		964	8
Obligations of states and political subdivisions		3,310		48	5		11,068		285	8
Collateralized debt obligations		5,987		438	4		9,290		2,643	5
Total available for sale	$	9,529	$	487	10	$	122,608	$	6,127	34
Held to Maturity:
Residential mortgage-backed agencies	$	3,605	$	51	2	$	41,448	$	1,236	29
Commercial mortgage-backed agencies		0		0	0		7,656		68	1
Collateralized mortgage obligations		0		0	0		3,605		156	1
Obligations of states and political subdivisions		0		0	0		2,199		96	1
Total held to maturity	$	3,605	$	51	2	$	54,908	$	1,556	32

Management systematically evaluates securities for impairment on a quarterly basis. Based upon application of accounting guidance for subsequent measurement in ASC Topic 320 (ASC Section 320-10-35), management assesses whether (a) the Corporation has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery. If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components. The first is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses, which are recognized in other comprehensive loss. In estimating other than temporary impairment (“OTTI”) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35). Further discussion about the evaluation of securities for impairment can be found in Item 2 of Part I of this report under the heading “Investment Securities”.

11

Management believes that the valuation of certain securities is a critical accounting policy that requires significant estimates in preparation of the Corporation’s consolidated financial statements. Management utilizes an independent third party to prepare both the impairment valuations and fair value determinations for the Corporation’s collateralized debt obligation (“CDO”) portfolio consisting of pooled trust preferred securities. See Note 7 for a discussion of the methodology used by management to determine the fair values of these securities. Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that there were no securities that had credit-related non-cash OTTI charges during the first three months of 2019.

The Corporation does not believe that the investment securities that were in an unrealized loss position at March 31, 2019 represent an other-than-temporary impairment. The Corporation does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities at a loss.

The following tables present a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses which have been recognized in earnings for the trust preferred securities in the CDO portfolio held and not intended to be sold for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
(in thousands)	2019			2018
Balance of credit-related OTTI at January 1	$	2,646		$	2,958
Reduction for increases in cash flows expected to be collected		(49	)		(55	)
Balance of credit-related OTTI at March 31	$	2,597		$	2,903

12

The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2019 are shown in the following table. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2019
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	227	$	228
Due after one year through five years		16,768		16,614
Due after five years through ten years		21,799		21,388
Due after ten years		29,366		26,303
		68,160		64,533
Commercial mortgage-backed agencies		38,141		36,976
Collateralized mortgage obligations		35,564		35,005
Total available for sale	$	141,865	$	136,514
Held to Maturity:
Due after one year through five years	$	8,363	$	8,556
Due after five years through ten years		7,691		7,899
Due after ten years		14,674		16,600
		30,728		33,055
Residential mortgage-backed agencies		45,312		44,660
Commercial mortgage-backed agencies		15,745		15,958
Collateralized mortgage obligations		3,753		3,691
Total held to maturity	$	95,538	$	97,364

Note 5 – Loans and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio at March 31, 2019 and December 31, 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Total
March 31, 2019
Individually evaluated for impairment	$	4,351	$	8,013	$	27	$	3,943	$	24	$	16,358
Collectively evaluated for impairment	$	295,115	$	115,313	$	109,392	$	434,664	$	33,776	$	988,260
Total loans	$	299,466	$	123,326	$	109,419	$	438,607	$	33,800	$	1,004,618
December 31, 2018
Individually evaluated for impairment	$	5,239	$	693	$	17	$	4,616	$	10	$	10,575
Collectively evaluated for impairment	$	301,682	$	117,667	$	111,449	$	432,291	$	34,050	$	997,139
Total loans	$	306,921	$	118,360	$	111,466	$	436,907	$	34,060	$	1,007,714

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 then segregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied, non-farm, and 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 segregated 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. A&D loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan is made. 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 segregated into two classes: amortizing term loans, which are primarily first lien loans and home equity lines of credit, which are generally second liens. The consumer loan segment consists primarily of installment loans (direct and indirect) and overdraft lines of credit connected with customer deposit accounts.

13

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. The portion of a specific allocation of the allowance for loan losses that management believes is associated with a pending event that could trigger loss in the short-term will be classified in the Doubtful category. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in the commercial segments at origination and on an ongoing basis. The Bank’s experienced Credit Quality and Loan Review Departments perform an annual review of all commercial relationships of $500,000 or greater. Confirmation of the appropriate risk grade is included as part of the review process on an ongoing basis. The Credit Quality and Loan Review Departments continually review and assess loans within the portfolio. In addition, the Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or criticized non-consumer loans greater than $500,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

14

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard within the internal risk rating system at March 31, 2019 and December 31, 2018:

(in thousands)	Pass		Special Mention		Substandard		Total
March 31, 2019
Commercial real estate
Non owner-occupied	$	138,286	$	7,553	$	2,285	$	148,124
All other CRE		144,863		1,738		4,741		151,342
Acquisition and development
1-4 family residential construction		13,949		0		0		13,949
All other A&D		101,567		0		7,810		109,377
Commercial and industrial		105,428		0		3,991		109,419
Residential mortgage
Residential mortgage - term		362,573		0		4,444		367,017
Residential mortgage - home equity		70,154		142		1,294		71,590
Consumer		33,694		4		102		33,800
Total	$	970,514	$	9,437	$	24,667	$	1,004,618
December 31, 2018
Commercial real estate
Non owner-occupied	$	145,260	$	2,904	$	2,348	$	150,512
All other CRE		149,076		1,752		5,581		156,409
Acquisition and development
1-4 family residential construction		16,003		0		0		16,003
All other A&D		94,428		7,378		551		102,357
Commercial and industrial		107,174		3,703		589		111,466
Residential mortgage
Residential mortgage - term		359,305		0		4,703		364,008
Residential mortgage - home equity		71,666		143		1,090		72,899
Consumer		33,952		4		104		34,060
Total	$	976,864	$	15,884	$	14,966	$	1,007,714

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. A loan is considered to be past due when a payment remains unpaid 30 days past its contractual due date. For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection. All non-accrual loans are considered to be impaired. Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

15

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2019 and December 31, 2018:

(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due and Accruing		Non-Accrual		Total Loans
March 31, 2019
Commercial real estate
Non owner-occupied	$	147,980	$	0	$	0	$	0	$	0	$	144	$	148,124
All other CRE		149,687		127		26		0		153		1,502		151,342
Acquisition and development
1-4 family residential construction		13,834		115		0		0		115		0		13,949
All other A&D		101,644		258		0		0		258		7,475		109,377
Commercial and industrial		108,266		1,116		10		0		1,126		27		109,419
Residential mortgage
Residential mortgage - term		363,383		1,887		271		8		2,166		1,468		367,017
Residential mortgage - home equity		70,040		527		100		0		627		923		71,590
Consumer		33,556		172		48		0		220		24		33,800
Total	$	988,390	$	4,202	$	455	$	8	$	4,665	$	11,563	$	1,004,618
December 31, 2018
Commercial real estate
Non owner-occupied	$	150,339	$	0	$	0	$	0	$	0	$	173	$	150,512
All other CRE		153,977		464		0		0		464		1,968		156,409
Acquisition and development
1-4 family residential construction		16,003		0		0		0		0		0		16,003
All other A&D		94,540		197		7,411		62		7,670		147		102,357
Commercial and industrial		111,436		29		1		0		30		0		111,466
Residential mortgage
Residential mortgage - term		360,073		302		1,359		363		2,024		1,911		364,008
Residential mortgage - home equity		71,611		461		114		0		575		713		72,899
Consumer		33,832		140		73		5		218		10		34,060
Total	$	991,811	$	1,593	$	8,958	$	430	$	10,981	$	4,922	$	1,007,714

Non-accrual loans totaled $11.6 million at March 31, 2019, compared to $4.9 million at December 31, 2018. The increase in non-accrual balances at March 31, 2019 was primarily due to entering a forbearance agreement with one large A&D loan totaling $7.0 million during the quarter. At December 31, 2018, it was expected that this loan would be paid off by a prospective buyer. In first quarter of 2019, the buyer declined to pursue the transaction and, subsequently, the Company entered into a forbearance agreement and placed the loan on non-accrual. Non-accrual loans that have been subject to partial charge-offs totaled $.2 million at March 31, 2019, compared to $.3 million at December 31, 2018. Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $.1 million at March 31, 2019 and $.3 million at December 31, 2018.

Accruing loans past due 30 days or more decreased to .46% of the loan portfolio at March 31, 2019, compared to 1.09% at December 31, 2018. The decrease for the first three months of 2019 was primarily due to the movement of one large A&D loan to non-accrual in the first quarter 2019.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement, for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies-Loss Contingencies, for loans collectively evaluated for impairment, as well as the Interagency Policy Statement on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the allocated portion of the Bank’s ALL. In the second quarter of 2015, management determined that it would be prudent to establish an unallocated portion of the ALL to protect the Bank from other risks associated with the loan portfolio that may not be specifically identifiable.

16

The following table summarizes the primary segments of the ALL at March 31, 2019 and December 31, 2018, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
March 31, 2019
Individually evaluated for impairment	$	12	$	720	$	0	$	71	$	4	$	0	$	807
Collectively evaluated for impairment	$	2,763	$	1,618	$	1,125	$	4,426	$	309	$	500	$	10,741
Total ALL	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
December 31, 2018
Individually evaluated for impairment	$	13	$	25	$	0	$	106	$	0	$	0	$	144
Collectively evaluated for impairment	$	2,767	$	1,696	$	1,187	$	4,438	$	315	$	500	$	10,903
Total ALL	$	2,780	$	1,721	$	1,187	$	4,544	$	315	$	500	$	11,047

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

17

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at March 31, 2019 and December 31, 2018:

	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(in thousands)	Recorded Investment		Related Allowances		Recorded Investment		Recorded Investment		Unpaid Principal Balance
March 31, 2019
Commercial real estate
Non owner-occupied	$	120	$	12	$	144	$	264	$	8,458
All other CRE		0		0		4,087		4,087		4,087
Acquisition and development
1-4 family residential construction		0		0		310		310		310
All other A&D		7,666		720		37		7,703		7,774
Commercial and industrial		0		0		27		27		2,241
Residential mortgage
Residential mortgage - term		1,219		62		1,802		3,021		3,244
Residential mortgage – home equity		171		9		751		922		935
Consumer		15		4		9		24		24
Total impaired loans	$	9,191	$	807	$	7,167	$	16,358	$	27,073
December 31, 2018
Commercial real estate
Non owner-occupied	$	121	$	13	$	173	$	294	$	8,488
All other CRE		0		0		4,945		4,945		4,945
Acquisition and development
1-4 family residential construction		0		0		316		316		316
All other A&D		230		25		147		377		525
Commercial and industrial		0		0		17		17		2,231
Residential mortgage
Residential mortgage - term		993		106		2,910		3,903		4,130
Residential mortgage – home equity		0		0		713		713		726
Consumer		0		0		10		10		10
Total impaired loans	$	1,344	$	144	$	9,231	$	10,575	$	21,371

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer pools currently utilize a rolling 12 quarters, while Commercial pools currently utilize a rolling eight quarters.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. “Pass” pools for commercial and residential real estate are further segmented based upon the geographic location of the underlying collateral. There are seven geographic regions utilized – six that represent the Bank’s lending footprint and a seventh for all out-of-market credits. Different economic environments and resultant credit risks exist in each region that are acknowledged in the assignment of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

18

Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are: (a) national and local economic trends and conditions; (b) levels of and trends in delinquency rates and non-accrual loans; (c) trends in volumes and terms of loans; (d) effects of changes in lending policies; (e) experience, ability, and depth of lending staff; (f) value of underlying collateral; and (g) concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Residential mortgage and consumer loans are charged off after they are 120 days contractually past due. All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral. The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy. There may be circumstances where, due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized. This specific allocation may be either charged off or removed depending upon the outcome of the pending event. Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. Loans with partial charge-offs generally remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL.

The following tables present the activity in the ALL for the three-month periods ended March 31, 2019 and 2018:

(in thousands)	Commercial Real Estate			Acquisition and Development			Commercial and Industrial			Residential Mortgage			Consumer			Unallocated		Total
ALL balance at January 1, 2019	$	2,780		$	1,721		$	1,187		$	4,544		$	315		$	500	$	11,047
Charge-offs		0			(29	)		0			(12	)		(68	)		0		(109	)
Recoveries		29			12			51			108			61			0		261
Provision		(34	)		634			(113	)		(143	)		5			0		349
ALL balance at March 31, 2019	$	2,775		$	2,338		$	1,125		$	4,497		$	313		$	500	$	11,548
ALL balance at January 1, 2018	$	3,699		$	1,257		$	869		$	3,444		$	203		$	500	$	9,972
Charge-offs		0			(91	)		0			(154	)		(68	)		0		(313	)
Recoveries		59			214			18			38			35			0		364
Provision		218			(220	)		(27	)		350			126			0		447
ALL balance at March 31, 2018	$	3,976		$	1,160		$	860		$	3,678		$	296		$	500	$	10,470

The ALL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

19

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

	Three months ended						Three months ended
	March 31, 2019						March 31, 2018
(in thousands)	Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis		Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis
Commercial real estate
Non owner-occupied	$	280	$	3	$	0	$	2,660	$	4	$	66
All other CRE		4,516		38		0		5,142		49		56
Acquisition and development
1-4 family residential construction		313		5		0		527		6		0
All other A&D		4,040		3		0		426		3		0
Commercial and industrial		22		0		0		493		5		0
Residential mortgage
Residential mortgage - term		3,462		28		8		3,595		32		0
Residential mortgage – home equity		818		0		0		627		0		7
Consumer		17		0		0		28		0		0
Total	$	13,468	$	77	$	8	$	13,498	$	99	$	129

The Bank modifies loan terms in the normal course of business. Among other reasons, modifications might be made in an effort to retain the loan relationship, to remain competitive in the current interest rate environment and/or to re-amortize or extend the loan’s term to better match the loan’s payment stream with the borrower’s cash flow. A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e., experiencing financial difficulties). The Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations.

When the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment amount, amortization period, and/or maturity date) are modified in such a way as to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms are offered only for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time the loan is restructured in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status. The Bank’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. Accordingly, 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. If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months. TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure. Loans may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months.

The volume and type of TDR activity is considered in the assessment of the local economic trends’ qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment.

20

There were 14 loans totaling $4.2 million and 16 loans totaling $4.9 million that were classified as TDRs at March 31, 2019 and December 31, 2018, respectively. The following tables present the volume and recorded investment at that time of modification of TDRs by class and type of modification that occurred during the periods indicated:

	Temporary Rate Modification				Extension of Maturity				Modification of Payment and Other Terms
(in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Three months ended March 31, 2019
Commercial real estate
Non owner-occupied		0	$	0		0	$	0		0	$	0
All other CRE		0		0		0		0		0		0
Acquisition and development
1-4 family residential construction		0		0		0		0		0		0
All other A&D		0		0		0		0		1		227
Commercial and industrial		0		0		0		0		0		0
Residential mortgage
Residential mortgage – term		0		0		0		0		1		243
Residential mortgage – home equity		0		0		0		0		0		0
Consumer		0		0		0		0		0		0
Total		0	$	0		0	$	0		2	$	470

During the three months ended March 31, 2019, there were no new TDRs but two existing TDRs that had reached their modification maturity dates were re-modified. These re-modifications did not impact the ALL. During the three months ended March 31, 2019, there were no payment defaults.

During the three months ended March 31, 2018, there were no new TDRs, no modifications on existing TDRs and no payment defaults.

21

Note 6 - Other Real Estate Owned

The following table presents the components of other real estate owned (“OREO”) at March 31, 2019 and December 31, 2018:

(in thousands)	March 31, 2019		December 31, 2018
Commercial real estate	$	2,083	$	2,599
Acquisition and development		3,137		3,218
Commercial and industrial		0		24
Residential mortgage		947		757
Total OREO	$	6,167	$	6,598

The following table presents the activity in the OREO valuation allowance for the three-month periods ended March 31, 2019 and 2018:

	For the Three months Ended
	March 31,
(in thousands)	2019			2018
Balance beginning of period	$	1,988		$	2,740
Fair value write-down		117			295
Sales of OREO		(739	)		(124	)
Balance at end of period	$	1,366		$	2,911

The following table presents the components of OREO expenses, net, for the three-month periods ended March 31, 2019 and 2018:

	For the Three months Ended
	March 31,
(in thousands)	2019			2018
Gains on real estate, net	$	(30	)	$	(20	)
Fair value write-down, net		117			295
Expenses, net		75			148
Rental and other income		(19	)		(38	)
Total OREO expense, net	$	143		$	385

Note 7 – 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.

22

The Corporation measures fair values based on the fair value hierarchy established in ASC Paragraph 820-10-35-37. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of inputs that may be used to measure fair value under the hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities. This level is the most reliable source of valuation.

Level 2: Quoted prices that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). It also includes inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Several sources are utilized for valuing these assets, including a contracted valuation service, Standard & Poor’s (“S&P”) evaluations and pricing services, and other valuation matrices.

Level 3: Prices or valuation techniques that require inputs that are both significant to the valuation assumptions and not readily observable in the market (i.e. supported with little or no market activity). Level 3 instruments are valued based on the best available data, some of which is internally developed, and consider risk premiums that a market participant would require.

The level established within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 1, 2 or 3 are recorded at fair value at the beginning of the reporting period.

Management believes that the Corporation’s valuation techniques are appropriate and consistent with the techniques used by other market participants. However, the use of different methodologies and assumptions could result in a different estimate of fair values at the reporting date. The valuation techniques used by the Corporation to measure, on a recurring and non-recurring basis, the fair value of assets as of March 31, 2019 are discussed in the paragraphs that follow.

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 is determined using a market approach. As of March 31, 2019, the U.S. Government agencies, residential and commercial mortgage-backed securities, collateralized mortgage obligations, and state and political subdivisions bonds, excluding the TIF 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 the Corporation has historically transacted both purchases and sales of investment securities. The TIF bonds are classified as Level 3 within the valuation hierarchy as they are not openly traded.

The CDO segment, which consists of pooled trust preferred securities issued by banks, thrifts and insurance companies, is classified as Level 3 within the valuation hierarchy. At March 31, 2019, the Corporation owned nine pooled trust preferred securities with an amortized cost of $18.4 million and a fair value of $15.2 million. As of March 31, 2019, the market for these securities is not active and the markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive, as few CDOs have been issued since 2007. There are currently very few market participants who are willing to effect transactions in these securities. The market values for these securities or any securities other than those issued or guaranteed by the U.S. Department of the Treasury (the “Treasury”) are depressed relative to historical levels. Therefore, in the current market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issue. Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at March 31, 2019, (b) an income valuation approach technique (i.e. present value) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than a market approach, and (c) the CDO segment is appropriately classified within Level 3 of the valuation hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

23

Management relies on an independent third party to prepare both the evaluations of OTTI as well as the fair value determinations for its CDO portfolio. Management believes that the valuations are adequately reflected at March 31, 2019.

The approach used by the third party to determine fair value involved several steps, which included detailed credit and structural evaluation of each piece of collateral in each bond, projection of default, recovery and prepayment/amortization probabilities for each piece of collateral in the bond, and discounted cash flow modeling. The discount rate methodology used by the third party combines a baseline current market yield for comparable corporate and structured credit products with adjustments based on evaluations of the differences found in structure and risks associated with actual and projected credit performance of each CDO being valued.  Currently, the only active and liquid trading market that exists is for stand-alone trust preferred securities, with a limited market for highly-rated CDO securities that are more senior in the capital structure than the securities in the CDO portfolio.  Therefore, adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments.

Derivative financial instruments (Cash flow hedge) – The Corporation’s open derivative positions are interest rate swap agreements. Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Corporation has considered counterparty credit risk in the valuation of its interest rate swap assets.

Impaired loans – Loans included in the table below are those that are considered impaired with a specific allocation or with a partial charge-off, 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.

Other real estate owned – OREO included in the table below are considered impaired with specific write-downs. Fair value of other real estate owned is 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.

24

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)	Fair Value at March 31, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	15,152	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	8,087	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.8%)
Other Real Estate Owned	$	786	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 14.6%)

(in thousands)	Fair Value at December 31, 2018		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	15,277	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	1,316	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.8%)
Other Real Estate Owned	$	2,707	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 13.5%)

NOTE:

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

25

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2019 and December 31, 2018 are as follows:

			Fair Value Measurements at March 31, 2019 Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	03/31/2019		(Level 1)	(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,464		$	29,464
Commercial mortgage-backed agencies	$	36,976		$	36,976
Collateralized mortgage obligations	$	35,005		$	35,005
Obligations of states and political subdivisions	$	19,917		$	19,917
Collateralized debt obligations	$	15,152				$	15,152
Financial Derivatives	$	612		$	612
Non-recurring:
Impaired loans	$	8,087				$	8,087
Other real estate owned	$	786				$	786

			Fair Value Measurements at December 31, 2018 Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	12/31/2018		(Level 1)	(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,026		$	29,026
Commercial mortgage-backed agencies	$	37,752		$	37,752
Collateralized mortgage obligations	$	35,704		$	35,704
Obligations of states and political subdivisions	$	19,882		$	19,882
Collateralized debt obligations	$	15,277				$	15,277
Financial Derivative	$	1,043		$	1,043
Non-recurring:
Impaired loans	$	1,316				$	1,316
Other real estate owned	$	2,707				$	2,707

There were no transfers of assets between any of the fair value hierarchy for the three-month periods ended March 31, 2019 or 2018.

26

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the three-month periods ended March 31, 2019 and 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance January 1, 2019	$	15,277
Total losses realized/unrealized:
Included in other comprehensive income		(125	)
Ending balance March 31, 2019	$	15,152

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance January 1, 2018	$	14,920
Total gains realized/unrealized:
Included in other comprehensive income		1,057
Ending balance March 31, 2018	$	15,977

Gains (realized and unrealized) included in earnings for the periods identified above are reported in the Consolidated Statement of Operations in Other Operating Income. There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the three-month periods ended March 31, 2019 and 2018.

The disclosed fair values 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.

27

The following tables present fair value information about financial instruments, whether or not recognized in the Consolidated 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 Consolidated Statement of Financial Condition are as follows:

	March 31, 2019				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	$	53,112	$	53,112	$	53,112
Interest bearing deposits in banks		892		892		892
Investment securities - AFS		136,514		136,514			$	121,362	$	15,152
Investment securities - HTM		95,538		97,364				80,764		16,600
Restricted bank stock		4,373		4,373				4,373
Loans, net		993,070		971,274						971,274
Financial derivatives		612		612				612
Accrued interest receivable		4,268		4,268				4,268
Financial Liabilities:
Deposits – non-maturity		874,296		874,296				874,296
Deposits – time deposits		256,316		257,122				257,122
Short-term borrowed funds		39,695		39,695				39,695
Long-term borrowed funds		100,929		102,508				102,508
Accrued interest payable		490		490				490
Off balance sheet financial instruments		0		0		0

28

	December 31, 2018				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	$	22,187	$	22,187	$	22,187
Interest bearing deposits in banks		1,354		1,354		1,354
Investment securities - AFS		137,641		137,641			$	122,364	$	15,277
Investment securities - HTM		94,010		93,760				80,780		12,980
Restricted bank stock		5,394		5,394				5,394
Loans, net		996,667		967,198						967,198
Financial derivative		1,043		1,043				1,043
Accrued interest receivable		4,175		4,175				4,175
Financial Liabilities:
Deposits- non-maturity		815,858		815,858				815,858
Deposits- time deposits		251,669		252,146				252,146
Short-term borrowed funds		77,707		77,707				77,707
Long-term borrowed funds		100,929		102,590				102,590
Accrued interest payable		455		455				455
Off balance sheet financial instruments		0		0		0

29

Note 8 – Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2018 and the three-month period ended March 31, 2019:

(in thousands)	Investment securities- with OTTI AFS			Investment securities- all other AFS			Investment securities- HTM			Cash Flow Hedge			Pension Plan			SERP			Total
Accumulated OCL, net:
Balance – January 1, 2018	$	(2,939	)	$	(2,979	)	$	(1,347	)	$	582		$	(17,066	)	$	(844	)	$	(24,593	)
Other comprehensive income/(loss) before reclassifications		1,194			(540	)		0			191			(1,833	)		202			(786	)
Amounts reclassified from accumulated other comprehensive loss		(154	)		(82	)		216			0			882			114			976
Balance – December 31, 2018	$	(1,899	)	$	(3,601	)	$	(1,131	)	$	773		$	(18,017	)	$	(528	)	$	(24,403	)
Other comprehensive income/(loss) before reclassifications		(44	)		901			0			(315	)		1,933			0			2,475
Amounts reclassified from accumulated other comprehensive loss		(36	)		4			55			0			196			21			240
Balance - March 31, 2019	$	(1,979	)	$	(2,696	)	$	(1,076	)	$	458		$	(15,888	)	$	(507	)	$	(21,688	)

30

The following tables present the components of other comprehensive income/(loss) for the three-month periods ended March 31, 2019 and 2018:

Components of Other Comprehensive Income (in thousands)	Before Tax Amount			Tax (Expense) Benefit			Net
For the three months ended March 31, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(60	)	$	16		$	(44	)
Less:  accretable yield recognized in income		49			(13	)		36
Net unrealized losses on investments with OTTI		(109	)		29			(80	)
Available for sale securities – all other:
Unrealized holding gains		1,236			(335	)		901
Less:  losses recognized in income		(6	)		2			(4	)
Net unrealized gains on all other AFS securities		1,242			(337	)		905
Held to maturity securities:
Unrealized holding gains		0			0			0
Less:  amortization recognized in income		(75	)		20			(55	)
Net unrealized gains on HTM securities		75			(20	)		55
Cash flow hedges:
Unrealized holding losses		(432	)		117			(315	)
Pension Plan:
Unrealized net actuarial gain		2,652			(719	)		1,933
Less: amortization of unrecognized loss		(269	)		73			(196	)
Net pension plan liability adjustment		2,921			(792	)		2,129
SERP:
Unrealized net actuarial loss		0			0			0
Less: amortization of unrecognized loss		(29	)		7			(22	)
Less: amortization of prior service costs		1			0			1
Net SERP liability adjustment		28			(7	)		21
Other comprehensive income	$	3,725		$	(1,010	)	$	2,715

31

Components of Other Comprehensive Income (in thousands)	Before Tax Amount			Tax (Expense) Benefit			Net
For the three months ended March 31, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	939		$	(254	)	$	685
Less:  accretable yield recognized in income		55			(15	)		40
Net unrealized gains on investments with OTTI		884			(239	)		645
Available for sale securities – all other:
Unrealized holding losses		(1,487	)		402			(1,085	)
Less:  losses recognized in income		(9	)		2			(7	)
Net unrealized losses on all other AFS securities		(1,478	)		400			(1,078	)
Held to maturity securities:
Unrealized holding gains		0			0			0
Less:  amortization recognized in income		(76	)		31			(45	)
Net unrealized gains on HTM securities		76			(31	)		45
Cash flow hedges:
Unrealized holding gains		607			(164	)		443
Pension Plan:
Unrealized net actuarial gain		707			(191	)		516
Less: amortization of unrecognized loss		(300	)		81			(219	)
Less: amortization of prior service costs		(2	)		1			(1	)
Net pension plan liability adjustment		1,009			(273	)		736
SERP:
Unrealized net actuarial loss		0			0			0
Less: amortization of unrecognized loss		(41	)		11			(30	)
Less: amortization of prior service costs		1			0			1
Net SERP liability adjustment		40			(11	)		29
Other comprehensive income	$	1,138		$	(318	)	$	820

32

The following table presents the details of amount reclassified from accumulated other comprehensive loss for the three-month periods ended March 31, 2019 and 2018:

Amounts Reclassified from Accumulated Other Comprehensive Loss (in thousands)	For the three months ended March 31, 2019			For the three months ended March 31, 2018			Affected Line Item in the Statement Where Net Income is Presented
Net unrealized gains on investment securities with OTTI:
Accretable yield		49			55		Interest income on taxable investment securities
Taxes		(13	)		(15	)	Provision for income tax expense
	$	36		$	40		Net of tax
Net unrealized losses on available for sale investment securities - all others:
Losses on calls	$	(6	)	$	(9	)	Net gains
Taxes		2			2		Provision for income tax expense
	$	(4	)	$	(7	)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(75	)	$	(76	)	Interest income on taxable investment securities
Taxes		20			31		Provision for income tax expense
	$	(55	)	$	(45	)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(269	)	$	(300	)	Other Expense
Amortization of prior service costs		0			(2	)	Salaries and employee benefits
Taxes		73			82		Provision for income tax expense
	$	(196	)	$	(220	)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(29	)	$	(41	)	Other Expense
Amortization of prior service costs		1			1		Salaries and employee benefits
Taxes		7			11		Provision for income tax expense
	$	(21	)	$	(29	)	Net of tax
Total reclassifications for the period	$	(240	)	$	(261	)	Net of tax

33

Note 9 – Leases

On January 1, 2019, the Corporation adopted Accounting Standards Update (“ASU”) 20016-02, “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. The adoption of Topic 842 affected the accounting treatment for operating lease agreements in which the Corporation is the lessee.

Lessee Accounting

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 now classified as operating leases and, therefore, were previously not recognized on the Corporation’s Consolidated Statement of Financial Condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the Consolidated Statement of Financial Condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The following table represents the Consolidated Statement of Financial Condition classification of the Corporation’s ROU assets and lease liabilities. The Corporation elected not to include short-term leases (i.e., leases with remaining terms of 12 months or less), or equipment leases that were deemed immaterial on the Consolidated Statement of Financial Condition.

(in thousands)	March 31, 2019
Lease Right-of Use Assets
Operating lease right-of-use assets	$	2,665
Lease Liabilities
Operating lease liabilities	$	3,250

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 March 31, 2019:

	March 31, 2019
Weighted-average remaining lease term
Operating leases		9.01 years
Weighted-average discount rate
Operating leases		5.09	%

The Corporation elected, for all classes of underlying assets, to separate lease and non-lease components. Total operating lease expense for the three months ended March 31, 2019 was $.1 million. Short-term lease expense was $24 thousand for the three months ended March 31, 2019.

34

Future minimum payments for operating leases with initial or remaining terms of one year or more at March 31, 2019 were as follows:

(in thousands)	Operating Leases
2019 (remainder of year)	$	343
2020		467
2021		466
2022		459
2023		393
Thereafter		1,983
Total future minimum lease payments		4,111
Amounts representing interest		(861	)
Present value of net future minimum lease payments	$	3,250

Note 10 –Borrowed Funds

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

(Dollars in thousands)	Three months ended March 31, 2019			Year ended December 31, 2018
Short-term Correspondent Bank Advance:
Overnight borrowings, weighted average interest rate of 2.70% at December 31, 2018	$	0		$	40,000
Securities sold under agreements to repurchase:
Outstanding at end of period	$	39,695		$	37,707
Weighted average interest rate at end of period		0.66	%		0.24	%
Maximum amount outstanding as of any month end	$	40,579		$	55,648
Average amount outstanding	$	37,624		$	44,045
Approximate weighted average rate during the period		0.69	%		0.20	%

At March 31, 2019, the repurchase agreements were secured by $52.1 million in investment securities issued by government related agencies. A minimum of 102% of fair value is pledged against account balances.

At March 31, 2019, the long-term FHLB advances were secured by $214.4 million in loans.

35

Note 11 – Employee Benefit Plans

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

Pension	For the three months ended
	March 31,
(in thousands)	2019			2018
Service cost	$	67		$	81
Interest cost		437			397
Expected return on assets		(764	)		(810	)
Amortization of net actuarial loss		269			300
Amortization of prior service cost		0			2
Net pension credit included in employee benefits and other expense	$	9		$	(30	)

Defined Benefit SERP	For the three months ended
	March 31,
(in thousands)	2019			2018
Service cost	$	24		$	28
Interest cost		82			75
Amortization of recognized loss		29			41
Amortization of prior service cost		(1	)		(1	)
Net Defined Benefit SERP expense included in employee benefits and other expense	$	134		$	143

The service cost component of net periodic benefit cost is included in salaries and benefits and all other components of net periodic benefit cost are included in other noninterest expense in the Consolidated Statement of Operations for the Corporation’s Pension and Defined Benefit SERP plans.

The Pension Plan is a noncontributory defined benefit pension plan that covers our employees who were hired prior to the freeze and others who were grandfathered into the 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 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 (a) their ages, at their closest birthday, plus bi) 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 are managed through discretionary contributions to the First United Corporation 401(k) Profit Sharing Plan (the “401(k) Plan”).

The Bank established the Defined Benefit SERP in 2001 as an unfunded supplemental executive retirement plan. 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. Concurrent with the establishment of the Defined Benefit SERP, the Bank acquired Bank Owned Life Insurance (“BOLI”) policies on the senior management personnel and officers of the Bank. The benefits resulting from the favorable tax treatment accorded the earnings on the BOLI policies are intended to provide a source of funds for the future payment of the Defined Benefit SERP benefits as well as other employee benefit costs.

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.

The Corporation will assess the need for future annual contributions to the pension plan based upon its funded status and an evaluation of the future benefits to be provided thereunder. A contribution of $2.0 million was made to the pension plan during the first three months of 2019. The Corporation expects to fund the annual projected benefit payments for the Defined Benefit SERP from operations.

36

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

In January 2017, the Board of Directors approved discretionary contributions to four participants totaling $112,780. The contributions had a two-year vesting period that ended at December 31, 2018. In January 2018, the Board approved discretionary contributions to four participants totaling $119,252. The contributions have a two-year vesting period. The Corporation recorded $14,906 of the related compensation for the first three months of 2019 and 2018. In January 2019, the Board of Directors of First United Corporation approved discretionary contributions to four participants totaling $123,179. The contributions also have a two-year vesting period. The Corporation recorded $18,788 of related compensation expense for the first three months of 2019.

Note 12 - Equity Compensation Plan Information

At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation 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).

Stock-based awards were made to non-employee directors in May 2018 pursuant to First United Corporation’s director compensation policy. Each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $10,000 to be paid, at the director’s election, in cash or additional shares of common stock. In 2018, a total of 12,936 fully-vested shares of common stock were issued to directors, which had a grant date fair market value of $20.63 per share. Director stock compensation expense was $66,717 for the three months ended March 31, 2019 and $53,558 for the three months ended March 31, 2018.

37

Note 13 – Letters of Credit and Off Balance Sheet Liabilities

The Corporation does 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.  Generally, the Bank’s letters of credit are issued with expiration dates within one year.  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 these commitments.  The Bank had $3.6 million of outstanding standby letters of credit at March 31, 2019 and $3.4 million at December 31, 2018. Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required by the letters of credit.  Management does not believe that the amount of the liability associated with guarantees under standby letters of credit outstanding at March 31, 2019 and December 31, 2018 is material.

Note 14 – Derivative Financial Instruments

As a part of managing interest rate risk, the Bank entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated these 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 loss.

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. These contracts are a three-year $5.0 million contract that matures on June 17, 2019, a five-year $5.0 million contract that matures on March 17, 2021, a seven-year $5.0 million contract that matures on March 17, 2023 and a 10-year $15.0 million contract maturing March 17, 2026.

The fair value of the interest rate swap contracts was $.6 million and $1.0 million at March 31, 2019 and December 31, 2018, respectively.

For the three months ended March 31, 2019, the Corporation recorded a decrease in the value of the derivatives of $.4 million and the related deferred tax of $117 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges. ASC Subtopic 815-30 requires this amount to be reclassified to earnings if the hedge becomes ineffective or is terminated. There was no hedge ineffectiveness recorded for the three months ended March 31, 2019. The Corporation does not expect any losses relating to these hedges to be reclassified into earnings within the next 12 months.

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of March 31, 2019.

38

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three- months ended March 31, 2019 and 2018.

Derivative in Cash Flow Hedging
Relationships

(in thousands)	Amount of gain or (loss) recognized in OCI on derivative (effective portion)			Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) (a)		Amount of gain or (loss) recognized in income or derivative (ineffective portion and amount excluded from effectiveness testing) (b)
Interest rate contracts:
Three months ended:
March 31, 2019	$	(315	)	$	0	$	0
March 31, 2018		443			0		0

Notes:

(a) Reported as interest expense

(b) Reported as other income

Note 15 – Assets and Liabilities Subject to Enforceable Master Netting Arrangements

Interest Rate Swap Agreements

The Corporation has entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities as a part of managing interest rate risk. The swap agreements have been designated as cash flow hedges, and accordingly, the fair value of the interest rate swap contracts is reported in Other Assets on the Consolidated Statement of Financial Condition. The swap agreements were entered into with a third-party financial institution. The Corporation is party to master netting arrangements with its financial institution counterparty; however, the Corporation does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, in the form of cash and investment securities, are pledged by the Corporation as the counterparty with net liability positions in accordance with contract thresholds. See Note 14 to the Consolidated Financial Statements for more information.

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Bank enters into agreements under which it sells interests in U.S. securities to certain customers subject to an obligation to repurchase, and on the part of the customers to resell, such interests. Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets. As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities. The obligation to repurchase the securities is reflected as a liability in the Consolidated Statement of Condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. There is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities. In addition, as the Bank does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements. The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Bank be in default (i.e. fails to repurchase the U.S. securities on the maturity date of the agreement). The investment security collateral, maintained at 102% of the borrowing, is held by a third party financial institution in the counterparty’s custodial account.

39

The following table presents the assets and liabilities subject to an enforceable master netting arrangement or repurchase agreements at March 31, 2019 and December 31, 2018.

									Gross Amounts Not Offset in the Statement of Condition
(in thousands)	Gross Amounts of Recognized (Assets)/ Liabilities			Gross Amounts Offset in the Statement of Condition		Net Amounts of (Assets)/ Liabilities Presented in the Statement of Condition			Financial Instruments			Cash Collateral Pledged		Net Amount
March 31, 2019
Interest Rate Swap Agreements	$	(612	)	$	0	$	(612	)	$	612		$	0	$	0
Repurchase Agreements	$	39,695		$	0	$	39,695		$	(39,695	)	$	0	$	0
December 31, 2018
Interest Rate Swap Agreements	$	(1,043	)	$	0	$	(1,043	)	$	1,043		$	0	$	0
Repurchase Agreements	$	37,707		$	0	$	37,707		$	(37,707	)	$	0	$	0

Note 16 – Adoption of New Accounting Standards and Effects of New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 is intended to improve financial reporting about leasing transactions by requiring organizations that lease assets – referred to as “lessees” – to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. From the lessee’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. The guidance also eliminates the current real estate-specific provision and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs. With respect to lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. In applying this guidance, entities will also need to determine whether an arrangement contains a lease or service agreement. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The amendments will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for the Corporation for annual and interim periods after December 15, 2018. The Corporation adopted ASU 2016-02 effective January 1, 2019. See Note 9 for additional details.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements.  ASU 2018-10 provides improvements related to ASU 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements.  The amendments affect narrow aspects of the guidance issued in ASU 2016-02.  ASU 2018-11 allows entities adopting ASU 2016-02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met.  

The Corporation elected the optional transition method permitted by ASU 2018-11.  Under this method, an entity shall recognize and measure leases that exist at the application date and prior comparative periods are not adjusted.  In addition, the Corporation elected the package of practical expedients to leases that commenced before the effective date:

1.	An entity need not reassess whether any expired or existing contracts contain leases.
2.	An entity need not reassess the lease classification for any expired or existing leases.
3.	An entity need not reassess initial direct costs for any existing leases.

40

The Corporation also elected the practical expedient, which must be applied consistently to all leases, to use hindsight in determining the lease term and in assessing impairment of our right-of-use assets.  The Corporation recorded a ROU asset in the amount of approximately $2.7 million and a lease liability in the amount of approximately $3.3 million on the Consolidated Statement of Financial Condition upon adoption on January 1, 2019.  The adoption did not have a material impact to the Consolidated Statements of Income or Cash Flows.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 is intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 is effective for the Corporation for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Corporation adopted ASU 2017-12 effective January 1, 2019. The adoption did not have a material impact on the Corporation’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments.  It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchases financial assets with credit deterioration since their origination.  The new model referred to as current expected credit losses (“CECL”) model, will apply to: (a) financial assets subject to credit losses and measured at amortized cost; and (b) certain off-balance sheet credit exposures.  This includes loans, held to maturity debt securities, loan commitments, financial guarantees and net investments in leases as well as reinsurance and trade receivables.  The estimate of expected credit losses should consider historical information, current information, and supportable forecasts, including estimates of prepayments.  ASU 2016-13 is effective for the Corporation for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  Management currently intends to adopt the guidance on January 1, 2020 and is assessing the impact of this guidance on the Corporation’s financial condition and results of operations.  Management has formed a focus group consisting of multiple members from areas, including credit, finance, loan servicing, reporting, and information systems.The Corporation is planning to complete its data and model validation analyses during the first half of 2019, with parallel processing of our existing allowance for loan losses model with the CECL model for two to three quarters prior to implementation.  Currently, the focus group has identified 11 loan segments for all data which has been populated and internally validated within the model.  During 2019, the Corporation is focused on testing methodologies and refining assumptions.  Concurrent with this, the Corporation is also focused on researching and resolving interpretive accounting issues in the ASU, contemplating various related accounting policies, developing processes and related controls, and considering various reporting disclosures. In December 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (the “FDIC”) approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.  The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.” The ASU does not change the qualitative assessment, however, it removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. ASU 2017-04 is effective for the Corporation for annual periods beginning after December 15, 2019, and interim periods within those annual periods. The Corporation is evaluating the provisions of ASU 2017-04 but believes that its adoption will not have a material impact on the Corporation’s financial condition or results of operations.

41

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis is intended as a review of material changes in and significant factors affecting the financial condition and results of operations of First United Corporation and its consolidated subsidiaries for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and the notes thereto contained in Item 1 of Part I of this report, as well as the audited consolidated financial statements and related notes included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

Unless the context clearly suggests otherwise, references in this report to “us”, “we”, “our”, and “the Corporation” are to First United Corporation and its consolidated subsidiaries.

FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Readers of this report should be aware of the speculative nature of “forward-looking statements.” Statements that are not historical in nature, including those that include the words “anticipate”, “estimate”, “should”, “expect”, “believe”, “intend”, and similar expressions, are based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, and they are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this report; general economic, market, or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of our loan and investment portfolios; our ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond our control. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or if substantially realized, will have the expected consequences on our business or operations. These and other risks are discussed in detail in the periodic reports that First United Corporation files with the Securities and Exchange Commission (the “SEC”) (see Item 1A of Part II of this report for further information). Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise.

FIRST UNITED CORPORATION

First United Corporation is a Maryland corporation chartered in 1985 and a bank holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the Bank Holding Company Act of 1956, as amended. 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”), both Connecticut statutory business trusts. Until September 14, 2018 when it was canceled, the Corporation also served as the parent company to First United Statutory Trust III, a Delaware statutory business trust (“Trust III” and together with Trust I and Trust II, the “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.

At March 31, 2019, the Corporation’s total assets were $1.4 billion, net loans were $993.1 million, and deposits were $1.1 billion. Shareholders’ equity at March 31, 2019 was $122.4 million.

The Corporation maintains an Internet site at www.mybank.com on which it makes available, free of charge, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.

42

ESTIMATES AND CRITICAL ACCOUNTING POLICIES

This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. (See Note 1 of the Notes to Consolidated Financial Statements included in Item 8 of Part II of First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018). On an on-going basis, management evaluates estimates, including those related to loan losses and intangible assets, other-than-temporary impairment (“OTTI”) of investment securities, income taxes, fair value of investments and pension plan assumptions. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect our more significant judgments and estimates used in the preparation of the consolidated financial statements.

Management does not believe that any material changes in our critical accounting policies have occurred since December 31, 2018.

Allowance for Loan Losses

One of our most important accounting policies is that related to the monitoring of the loan portfolio. A variety of estimates impact the carrying value of the loan portfolio, including the calculation of the allowance for loan losses (the “ALL”), the valuation of underlying collateral, the timing of loan charge-offs and the placement of loans on non-accrual status. The ALL is established and maintained at a level that management believes is adequate to cover losses resulting from the inability of borrowers to make required payment on loans. Estimates for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio, current and historical trends in delinquencies and charge-offs, and changes in the size and composition of the loan portfolio. The analysis also requires consideration of the economic climate and outlook, including the economic conditions specific to Western Maryland and Northeastern West Virginia, changes in lending rates, political conditions, and legislation impacting the banking industry. Because the calculation of the ALL relies on management’s estimates and judgments relating to inherently uncertain events, actual results may differ from management’s estimates.

Goodwill and Other Intangible Assets

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other, establishes standards for the amortization of acquired intangible assets and impairment assessment of goodwill.  The $11.0 million recorded as goodwill at March 31, 2019 is primarily related to the Bank’s 2003 acquisition of Huntington National Bank branches and is not subject to periodic amortization. 

Goodwill arising from business combinations represents the value attributable to unidentifiable intangible elements in the business acquired. 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 its net assets, including goodwill.  If the estimated current fair value of the reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded. Otherwise, additional testing is performed, and to the extent such additional testing results in a conclusion that the carrying value of goodwill exceeds its implied fair value, an impairment loss is recognized.

Our goodwill relates to value inherent in the banking business, and that value is dependent upon our ability to provide quality, cost effective services in a highly competitive local market.  This ability relies upon continuing investments in processing systems, the development of value-added service features and the ease of use of our services.  As such, goodwill value is ultimately supported by revenue that is driven by the volume of business transacted.  A decline in earnings as a result of a lack of growth or the inability to deliver cost effective services over sustained periods can lead to impairment of goodwill, which could adversely impact earnings in future periods.  ASC Topic 350 requires an annual evaluation of goodwill for impairment.  The determination of whether or not these assets are impaired involves significant judgments and estimates. 

43

Accounting for Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes. Under this guidance, deferred taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Increases or decreases in the value of deferred tax assets and liabilities due to a change in tax rates are recognized as income or expense, respectively, in the period that includes the date on which the change becomes effective.

Management regularly reviews the carrying amount of the Corporation’s net deferred tax assets to determine if the establishment of a valuation allowance is necessary. If management determines, based on the available evidence, that it is more likely than not that all or a portion of our net deferred tax assets will not be realized in future periods, then a deferred tax valuation allowance will be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets. In evaluating this available evidence, management considers, among other things, historical performance, expectations of future earnings, the ability to carry back losses to recoup taxes previously paid, length of statutory carry forward periods, experience with utilization of operating loss and tax credit carry forwards not expiring, tax planning strategies and timing of reversals of temporary differences. Significant judgment is required in assessing future earnings trends and the timing of reversals of temporary differences. Management’s evaluation is based on current tax laws as well as management’s expectations of future performance.

Management expects that our adherence to the required accounting guidance may result in increased volatility in quarterly and annual effective income tax rates because of changes in judgment or measurement including changes in actual and forecasted income before taxes, tax laws and regulations, and tax planning strategies.

Other-Than-Temporary Impairment of Investment Securities

Management systematically evaluates securities for impairment on a quarterly basis. Based upon application of accounting guidance for subsequent measurement in ASC Topic 320, Investments – Debt and Equity Securities (Section 320-10-35), management assesses whether (a) the Corporation has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery. If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components. The first is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses, which are recognized in other comprehensive loss. In estimating OTTI losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35). This process is described more fully in the Investment Securities section of the Consolidated Balance Sheet Review.

Fair Value of Investments

We have determined the fair value of our investment securities in accordance with the requirements 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 measures the fair market values of its investments based on the fair value hierarchy established in Topic 820. The determination of fair value of investments and other assets is discussed further in Note 7 to the consolidated financial statements presented elsewhere in this report.

44

Pension Plan Assumptions

Our pension plan costs are calculated using actuarial concepts, as discussed within the requirements of ASC Topic 715, Compensation – Retirement Benefits. Pension expense and the determination of our projected pension liability are based upon two critical assumptions: (a) the discount rate; and (b) the expected return on plan assets. We evaluate each of these critical assumptions annually. Other assumptions impact the determination of pension expense and the projected liability including the primary employee demographics, such as retirement patterns, employee turnover, mortality rates, and estimated employer compensation increases. These factors, along with the critical assumptions, are carefully reviewed by management each year in consultation with our pension plan consultants and actuaries. Further information about our pension plan assumptions, the plan’s funded status, and other plan information is included in Note 11 to the consolidated financial statements presented elsewhere in this report.

SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data for the three-month periods ended March 31, 2019 and 2018 and is qualified in its entirety by the detailed information and unaudited financial statements, including the notes thereto, included elsewhere in this quarterly report.

	As of or for the three months ended March 31,
	2019			2018
Per Share Data
Basic and diluted net income per common share	$	0.44		$	0.35
Basic and diluted book value per common share	$	17.27		$	15.73
Significant Ratios
Return on Average Assets (a)		0.91	%		0.76	%
Return on Average Equity (a)		10.49	%		9.13	%
Average Equity to Average Assets		8.68	%		8.34	%

 Note: ^(a) Annualized

RESULTS OF OPERATIONS

Overview

Consolidated net income was $3.2 million for the first three months of 2019, compared to $2.5 million for the same period of 2018. Basic and diluted net income per common share for the first three months of 2019 were both $.44, compared to basic and diluted net income per common share of $.35 for the same period of 2018. The increase in earnings was primarily due to an increase in net interest income of $.8 million and a $.1 million decrease in provision for loan loss expense. Other operating income remained flat for the first three months of 2019 when compared to the same time period of 2018. We saw slight increases in wealth management income, bank owned life insurance (“BOLI”) income and debit card income, offset by a slight decline in service charge income, particularly non-sufficient funds income. Other operating expenses also remained flat for the first three months of 2019 whwn compared to the first three months of 2018. Salaries and benefits increased $.4 million due to new hires and merit increases in 2018 and increased life and health insurance costs related to increased claims. Equipment, occupancy and data processing expenses increased $.3 million in the first quarter of 2019. These increases were offset by decreases in other real estate owned (“OREO”) expenses due to valuation allowance write-downs on properties in the first quarter of 2018 and a decrease in other miscellaneous expenses such as marketing, dues and licenses, contract labor, and miscellaneous loan fees. The net interest margin for the first three months of 2019 and the first three months of 2018, on a fully tax equivalent (“FTE”) basis, were relatively stable at 3.72% and 3.68%, respectively.

The provision for loan losses was $.3 million for the three months ended March 31, 2019 and $.4 million for the three months ended March 31, 2018. The slight decline was due to reduced historical loss factors and reduced loan growth offset by a specific reserve placed on a large A&D loan in the first quarter of 2019. Specific allocations have been made for impaired loans where management has determined that the collateral supporting the loans is not adequate to cover the loan balance, and the qualitative factors affecting the ALL have been adjusted based on the current economic environment and the characteristics of the loan portfolio.

45

Net interest income increased $.8 million during the first three months of 2019 over the same period in 2018 due to a $1.7 million increase in interest income, offset by a $.9 million increase in interest expense. The increase in interest income was due to increases of $1.7 million in interest and fees on loans and $.1 million in interest income on investments. The increase in interest and fees on loans was due primarily to an increase in the rate earned of 23 basis points attributable to loans repricing, new loans booked at higher rates and increased balances related to the strong loan growth in 2018. The increase in investment interest income was due primarily to an increase in the rate earned of 5 basis points related to increased rates on the Collateralized Debt Obligation (“CDO”) portfolio.

Interest expense on our interest-bearing liabilities increased by $.9 million during the three months ended March 31, 2019 when compared to the same period of 2018 due primarily to increased rates on our deposit products in 2018 in response to the rising rate environment.

Other operating income remained flat during the first three months of 2019 when compared to the same period of 2018. Slight increases in wealth management income, BOLI income and debit card income were offset by a slight decline in service charge income.

Other operating expenses also remained flat for the first three months of 2019 when compared to the first three months of 2018. Salaries and benefits increased $.4 million due to new hires and merit increases in 2018 and increased life and health insurance costs related to increased claims. Equipment, occupancy and data processing expenses increased $.3 million in the first quarter of 2019. These increases were offset by decreases in OREO expenses due to valuation allowance write-downs on properties in the first quarter of 2018, a decrease in professional services due to one-time charges in the first quarter of 2018, and a decrease in other miscellaneous expenses such as marketing, dues and licenses, contract labor and miscellaneous loan fees.

Net Interest Income

Net interest income is the largest source of operating revenue and is the difference between the interest earned on interest-earning assets and the interest expense incurred on interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to an FTE basis to facilitate performance comparisons between taxable and tax-exempt assets. FTE income is determined by increasing tax-exempt income by an amount equal to the federal income taxes that would have been paid if this income were taxable at the statutorily applicable rate.

46

The following table sets forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
	2019								2018
(dollars in thousands)	Average Balance			Interest		Average Yield/Rate			Average Balance			Interest		Average Yield/Rate
Assets
Loans	$	1,006,612		$	12,203		4.92	%	$	907,968		$	10,493		4.69	%
Investment Securities:
Taxable		204,047			1,467		2.92	%		219,143			1,447		2.68	%
Non taxable		27,654			500		7.33	%		18,789			425		9.17	%
Total		231,701			1,967		3.22	%		237,932			1,872		3.17	%
Federal funds sold		17,070			45		1.07	%		34,385			125		1.47	%
Interest-bearing deposits with other banks		1,479			5		1.37	%		2,654			5		0.69	%
Other interest earning assets		4,744			85		7.27	%		5,048			66		5.30	%
Total earning assets		1,261,606			14,305		4.60	%		1,187,987			12,561		4.28	%
Allowance for loan losses		(11,314	)							(10,564	)
Non-earning assets		133,874								138,358
Total Assets	$	1,384,166							$	1,315,781
Liabilities and Shareholders’ Equity
Interest-bearing demand deposits	$	160,085		$	129		0.33	%	$	173,155		$	29		0.07	%
Interest-bearing  money markets		253,451			505		0.81	%		222,994			155		0.28	%
Savings deposits		158,467			73		0.19	%		160,208			44		0.11	%
Time deposits:
Less than $100k		103,695			315		1.23	%		110,274			263		0.98	%
$100k or more		150,293			749		2.02	%		117,337			365		1.26	%
Short-term borrowings		48,963			103		0.85	%		47,179			30		0.25	%
Long-term borrowings		100,929			852		3.42	%		117,540			894		3.08	%
Total interest-bearing liabilities		975,883			2,726		1.13	%		948,687			1,780		0.76	%
Non-interest-bearing deposits		265,494								238,459
Other liabilities		22,630								18,816
Shareholders’ Equity		120,159								109,819
Total Liabilities and Shareholders’ Equity	$	1,384,166							$	1,315,781
Net interest income and spread				$	11,579		3.47	%				$	10,781		3.52	%
Net interest margin							3.72	%							3.68	%

Note:

(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2019 and 2018. Non-GAAP interest income on a fully taxable equivalent was $233 and $199, respectively.

(2) Net interest margin is calculated as net interest income divided by average earning assets.

(3) The average yields on investments are based on amortized cost.

Net interest income, on an FTE basis, increased $.8 million (7.4%) during the first three months of 2019 over the same period in 2018 due to a $1.7 million (13.9%) increase in interest income, offset by a $.9 million (53.1%) increase in interest expense. The net interest margin for the first three months of 2019 was 3.72%, compared to 3.68% for the first three months of 2018.

Comparing the first three months of 2019 to the same period of 2018, the increase in interest income was due to increases of $1.7 million in interest and fees on loans and $.1 million in interest income on investments. The increase in interest and fees on loans was due primarily to an increase in the rate earned of 23 basis points attributable to loans repricing, new loans booked at higher rates and increased balances related to the strong loan growth in 2018. The increase in investment interest income was due primarily to an increase in the rate earned of 5 basis points related to increased rates on the CDO portfolio.

47

Interest expense on our interest-bearing liabilities increased by $.9 million during the three months ended March 31, 2019 when compared to the same period of 2018 due primarily to increased rates on our deposit products in 2018 in response to the rising rate environment.

The average balance on interest-bearing deposits increased by $42.0 million when comparing the first quarter of 2019 to the same period of 2018. The rate paid on these deposits increased by 43 basis points during the same time due to the rising interest rate environment. The rate paid on short-term borrowings increased by 60 basis points, as pricing on overnight borrowings increased throughout 2018. The average balance on long-term borrowings decreased by $16.6 million as a result of the repayment of two FHLB advances totaling $5.0 million at their maturity in January 2018 and the shift of $15.0 million of an FHLB advance from long-term to short-term borrowings at its maturity in April 2018.

The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the three-month periods ended March 31, 2019 and 2018:

	2019 Compared to 2018
(in thousands and tax equivalent basis)	Volume			Rate			Net
Interest Income:
Loans	$	1,156		$	554		$	1,710
Taxable Investments		(101	)		121			20
Non-taxable Investments		203			(128	)		75
Federal funds sold		(63	)		(17	)		(80	)
Interest-bearing deposits		(2	)		2			0
Other interest earning assets		(4	)		23			19
Total interest income		1,189			555			1,744
Interest Expense:
Interest-bearing demand deposits		(2	)		102			100
Interest-bearing money markets		86			264			350
Savings deposits		(1	)		30			29
Time deposits less than $100		(16	)		68			52
Time deposits $100 or more		104			280			384
Short-term borrowings		1			72			73
Long-term borrowings		(128	)		86			(42	)
Total interest expense		44			902			946
Net interest income	$	1,145		$	(347	)	$	798

Note:

(1) The change in interest income/expense due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.

48

Provision for Loan Losses

The provision for loan losses was $.3 million for the three months ended March 31, 2019 and $.4 million for the three months ended March 31, 2018. The slight decline was due to reduced historical loss factors and reduced loan growth, offset by a specific reserve placed on a large A&D loan in the first quarter of 2019.

Other Operating Income

Other operating income, exclusive of gains, increased $31 thousand during the first three months of 2019 when compared to the same period of 2018. Slight increases in wealth management income, BOLI income and debit card income were offset by a slight decline in service charge on deposit accounts and other service charge income.

Net gains of $14 thousand were reported in other income for the first three months of 2019, compared to net gains of $34 thousand during the same period of 2018.

The following table shows the major components of other operating income for the three-month periods ended March 31, 2019 and 2018, exclusive of net gains:

	Income as % of Total Other Operating Income
	For the three months ended
	March 31,
	2019				2018
Service charges on deposit accounts	$	519	14	%	$	563	16	%
Other service charges		208	6	%		229	6	%
Trust department		1,715	46	%		1,664	45	%
Debit card Income		600	16	%		553	15	%
Bank owned life insurance		303	8	%		299	8	%
Brokerage commissions		238	7	%		245	7	%
Other income		124	3	%		123	3	%
	$	3,707	100	%	$	3,676	100	%

Other Operating Expenses

Other operating expenses remained flat for the first three months of 2019 when compared to the first three months of 2018. Salaries and benefits increased $.4 million due to new hires and merit increases in 2018 and increased life and health insurance costs related to increased claims. Equipment, occupancy and data processing expenses increased $.3 million in the first quarter of 2019. These increases were offset by decreases in OREO expenses due to valuation allowance write-downs on properties in the first quarter of 2018, a decrease in professional services due to one-time charges in the first quarter of 2018, and a decrease in other miscellaneous expenses such as marketing, dues and licenses, contract labor and miscellaneous loan fees.

49

The composition of other operating expenses for the three-month periods ended March 31, 2019 and 2018 is illustrated in the following table:

	Expense as % of Total Other Operating Expenses
	For the three months ended
	March 31,
	2019				2018
Salaries and employee benefits	$	6,218	58	%	$	5,808	54	%
FDIC premiums		111	1	%		133	1	%
Equipment		883	8	%		683	6	%
Occupancy		712	7	%		638	6	%
Data processing		941	9	%		932	9	%
Professional Services		204	2	%		336	3	%
Contract Labor		156	2	%		176	2	%
Line rentals		217	2	%		211	2	%
Other real estate owned		143	1	%		385	4	%
Other		1,105	10	%		1,389	13	%
	$	10,690	100	%	$	10,691	100	%

Provision for Income Taxes

In reporting interim financial information, income tax provisions should be determined under the procedures set forth in ASC Topic 740, Income Taxes (Section 740-270-30). This guidance provides that at the end of each interim period, an entity should make its best estimate of the effective tax rate expected to be applicable for the full fiscal year. The rate so determined should be used in providing for income taxes on a current year-to-date basis. The effective tax rate should reflect anticipated investment tax credits, capital gains rates, and other available tax planning alternatives. In arriving at this effective tax rate, however, no effect should be included for the tax related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect in reports for the interim period or for the fiscal year.

The effective tax rate for the first three months of 2019 was 21.8%, compared to an effective tax rate of 20.5% for the first three months of 2018.

FINANCIAL CONDITION

Balance Sheet Overview

Total assets were $1.4 billion at March 31, 2019, an increase of $32.4 million when compared to December 31, 2018. During the first three months of 2019, cash and interest-bearing deposits in other banks increased $30.5 million, the investment portfolio increased $.4 million and gross loans decreased $3.1 million. The increase in cash was due to strong deposit growth, offset by the full repayment of $40.0 million in overnight borrowings at December 31, 2018. Premises and equipment declined slightly by $.2 million due to normal depreciation on our assets during the first quarter. The Bank continues the renovations of its branch locations for the re-branding efforts that began in 2016. OREO balances decreased $.4 million due to sales of properties in the first quarter of 2019. An operating lease right of use asset of $2.7 million was booked in the first quarter of 2019 upon the adoption of a new lease accounting standard (see note 9 to the Consolidated Financial Statements). Other assets increased by $4.9 million, primarily due to the increase in the pension asset related to the $2.0 million contribution made to the plan in the first quarter of 2019. Total liabilities increased $27.1 million. This increase was attributable to the strong deposit growth of $63.1 million, offset by a decline in short-term borrowings of $38.0 million. The deposit growth during the first quarter of 2019 enabled us to fully repay the $40.0 million in overnight borrowings with correspondent banks that was on our balance sheet at December 31, 2018. Our Treasury Management product increased by $2.0 million as we continue to build new relationships in this product. A $3.3 million operating lease liability was booked upon the adoption of the lease accounting standard in the first quarter of 2019. Total shareholders’ equity increased $5.3 million due to the increase in retained earnings and the decline in accumulated other comprehensive loss.

50

Loan Portfolio

The following table presents the composition of our loan portfolio at the dates indicated:

(dollars in thousands)	March 31, 2019				December 31, 2018
Commercial real estate	$	299,466	30	%	$	306,921	31	%
Acquisition and development		123,326	12	%		118,360	12	%
Commercial and industrial		109,419	11	%		111,466	11	%
Residential mortgage		438,607	44	%		436,907	43	%
Consumer		33,800	3	%		34,060	3	%
Total Loans	$	1,004,618	100	%	$	1,007,714	100	%

Comparing March 31, 2019 to December 31, 2018, outstanding loans decreased $3.1 million (.31%). Commercial real estate (“CRE”) loans decreased $7.5 million due primarily to the payoff of balances for several large credits in the first quarter of 2019. Acquisition and development (“A&D”) loans increased $5.0 million due to several new relationships. Commercial and industrial (“C&I”) loans decreased $2.0 million. Residential mortgages increased $1.7 million, primarily due to new loans booked in purchase and construction loans in the in-house adjustable rate mortgage (“ARM”) products. The consumer portfolio decreased slightly by $.3 million as monthly amortization was greater than new production booked during the first quarter of 2019. Approximately 27% of the commercial loan portfolio was collateralized by real estate at both March 31, 2019 and December 31, 2018.

51

Risk Elements of Loan Portfolio

The following table presents the risk elements of our loan portfolio at the dates indicated. Management is not aware of any potential problem loans other than those listed in this table or discussed below.

(dollars in thousands)	March 31, 2019		% of Applicable Portfolio			December 31, 2018		% of Applicable Portfolio
Non-accrual loans:
Commercial real estate	$	1,646		0.55	%	$	2,141		0.70	%
Acquisition and development		7,475		6.06	%		147		0.10	%
Commercial and industrial		27		0.02	%		0		0.00	%
Residential mortgage		2,391		0.55	%		2,624		0.60	%
Consumer		24		0.07	%		10		0.00	%
Total non-accrual loans	$	11,563		1.15	%	$	4,922		0.49	%
Accruing Loans Past Due 90 days or more:
Acquisition and development		0					62
Residential mortgage		8					363
Consumer		0					5
Total loans past due 90 days or more	$	8				$	430
Total non-accrual and accruing loans past due 90 days or more	$	11,571				$	5,352
Restructured Loans (TDRs):
Performing	$	3,986				$	4,633
Non-accrual (included above)		225					231
Total TDRs	$	4,211				$	4,864
Other real estate owned	$	6,167				$	6,598
Impaired loans without a valuation allowance	$	7,167				$	9,231
Impaired loans with a valuation allowance		9,191					1,344
Total impaired loans	$	16,358				$	10,575
Valuation allowance related to impaired loans	$	807				$	144

Performing loans considered to be impaired (including performing troubled debt restructurings, or TDRs), as defined and identified by management, amounted to $5.0 million at March 31, 2019 and $4.9 million at December 31, 2018. Loans are identified as impaired when, based on current information and events, management determines that we will be unable to collect all amounts due according to contractual terms. These loans consist primarily of A&D loans and CRE loans. The fair values are generally determined based upon independent third- party appraisals of the collateral or discounted cash flows based upon the expected proceeds. Specific allocations have been made where management believes there is insufficient collateral to repay the loan balance if liquidated and there is no secondary source of repayment available.

52

The following table presents the details of impaired loans that are TDRs by class at March 31, 2019 and December 31, 2018:

	March 31, 2019				December 31, 2018
(in thousands)	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Performing
Commercial real estate
Non owner-occupied		3	$	352		3	$	356
All other CRE		1		2,353		2		2,555
Acquisition and development
1-4 family residential construction		1		310		1		230
All other A&D		1		227		1		316
Commercial and industrial		0		0		0		0
Residential mortgage
Residential mortgage – term		6		744		7		1,176
Residential mortgage – home equity		0		0		0		0
Consumer		0		0		0		0
Total performing		12	$	3,986		14	$	4,633
Non-accrual
Commercial real estate
Non owner-occupied		0	$	0		0	$	0
All other CRE		0		0		0		0
Acquisition and development
1-4 family residential construction		0		0		0		0
All other A&D		0		0		0		0
Commercial and industrial		0		0		0		0
Residential mortgage
Residential mortgage – term		2		225		2		231
Residential mortgage – home equity		0		0		0		0
Consumer		0		0		0		0
Total non-accrual		2		225		2		231
Total TDRs		14	$	4,211		16	$	4,864

The level of TDRs decreased $.7 million during the three months ended March 31, 2019. There were two accruing loans totaling $.6 million that were repaid in the first quarter of 2019. Additionally, $.1 million in net principal payments were received during the same time period.

Allowance and Provision for Loan Losses

The ALL is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The ALL is also based on estimates, and actual losses will vary from current estimates. These estimates are reviewed quarterly, and as adjustments, either positive or negative, become necessary, a corresponding increase or decrease is made in the ALL. The methodology used to determine the adequacy of the ALL is consistent with prior years. An estimate for probable losses related to unfunded lending commitments, such as letters of credit and binding but unfunded loan commitments is also prepared. This estimate is computed in a manner similar to the methodology described above, adjusted for the probability of actually funding the commitment.

53

The following table presents a summary of the activity in the ALL for the three months ended March 31:

(dollars in thousands)	2019			2018
Balance, January 1	$	11,047		$	9,972
Charge-offs:
Acquisition and development		(29	)		(91	)
Residential mortgage		(12	)		(154	)
Consumer		(68	)		(68	)
Total charge-offs		(109	)		(313	)
Recoveries:
Commercial real estate		29			59
Acquisition and development		12			214
Commercial and industrial		51			18
Residential mortgage		108			38
Consumer		61			35
Total recoveries		261			364
Net credit recoveries		152			51
Provision for loan losses		349			447
Balance at end of period	$	11,548		$	10,470
Allowance for loan losses to gross loans outstanding (as %)		1.15	%		1.12	%
Net recoveries to average loans outstanding during the period, annualized (as %)		0.06	%		0.02	%

The ALL was $11.5 million at March 31, 2019 and $11.0 million at December 31, 2018. The provision for loan losses for the first three months of 2019 was $.3 million, compared to $.4 million for the first three months of 2018. Net recoveries of $.2 million were recorded for the three months ended March 31, 2019, and $.1 million was recorded for the three months ended March 31, 2018. The ratio of the ALL to loans outstanding was 1.15% at March 31, 2019, 1.10% at December 31, 2018, and 1.12% at March 31, 2018.

The ratio of net recoveries to average loans for the three months ended March 31, 2019 was an annualized .06%, compared to .02% for the same period in 2018 and a net charge-off to average loans of .11% for the year ended December 31, 2018. The CRE portfolio had an annualized net recovery rate of .04% as of March 31, 2019, compared to a net charge-off rate of .33% as of December 31, 2018. The A&D loans had an annualized net charge-off rate of .06% as of March 31, 2019, compared to a net recovery rate of .15% as of December 31, 2018. The C&I loans had a net recovery rate of .18% as of March 31, 2019, compared to a net recovery rate of .06% as of December 31, 2018. The residential mortgage ratios were a net recovery rate of .09% as of March 31, 2019, compared to a net charge-off rate of .01% as of December 31, 2018. The consumer loan ratios were net charge-off rates of .08% and .95% as of March 31, 2019 and December 31, 2018, respectively.

Management believes that the ALL at March 31, 2019 is adequate to provide for probable losses inherent in our loan portfolio. Amounts that will be recorded for the provision for loan losses in future periods will depend upon trends in the loan balances, including the composition of the loan portfolio, changes in loan quality and loss experience trends, potential recoveries on previously charged-off loans and changes in other qualitative factors. Management also applies interest rate risk, collateral value and debt service sensitivity analyses to the Commercial real estate loan portfolio and obtains new appraisals on specific loans under defined parameters to assist in the determination of the periodic provision for loan losses.

54

Investment Securities

At March 31, 2019, the total amortized cost basis of the available-for-sale investment portfolio was $141.9 million, compared to a fair value of $136.5 million. Unrealized gains and losses on securities available-for-sale are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $95.5 million, compared to a fair value of $97.4 million.

The following table presents the composition of our securities portfolio at amortized cost and fair values at the dates indicated:

	March 31, 2019							December 31, 2018
	Amortized		Fair Value		FV as %			Amortized		Fair Value		FV as %
(dollars in thousands)	Cost		(FV)		of Total			Cost		(FV)		of Total
Securities Available-for-Sale:
U.S. government agencies	$	30,000	$	29,464		21	%	$	30,000	$	29,026		21	%
Commercial mortgage-backed agencies		38,141		36,976		27	%		39,013		37,752		27	%
Collateralized mortgage obligations		35,564		35,005		26	%		36,669		35,704		26	%
Obligations of state and political subdivisions		19,798		19,917		15	%		20,083		19,882		15	%
Collateralized debt obligations		18,362		15,152		11	%		18,358		15,277		11	%
Total available for sale	$	141,865	$	136,514		100	%	$	144,123	$	137,641		100	%
Securities Held to Maturity:
U.S. government agencies	$	16,054	$	16,455		17	%	$	16,017	$	16,137		17	%
Residential mortgage-backed agencies		45,312		44,660		46	%		46,491		45,210		48	%
Commercial mortgage-backed agencies		15,745		15,958		16	%		15,821		15,828		17	%
Collateralized mortgage obligations		3,753		3,691		4	%		3,761		3,605		4	%
Obligations of state and political subdivisions		14,674		16,600		17	%		11,920		12,980		14	%
Total held to maturity	$	95,538	$	97,364		100	%	$	94,010	$	93,760		100	%

Total investment securities available-for-sale decreased by $1.1 million since December 31, 2018. At March 31, 2019, the securities classified as available-for-sale included a net unrealized loss of $5.4 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.

As discussed in Note 7 to the consolidated financial statements presented elsewhere in this report, the Corporation measures fair market values based on the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Level 3 prices or valuation techniques require inputs that are both significant to the valuation assumptions and are not readily observable in the market (i.e. supported with little or no market activity). These Level 3 instruments are valued based on both observable and unobservable inputs derived from the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

Approximately $121.4 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $2.1 million at March 31, 2019. The remaining $15.2 million of the securities available-for-sale represents the entire CDO portfolio, which was valued using significant unobservable inputs (Level 3 assets). The $3.2 million in net unrealized losses associated with this portfolio relates to 9 pooled trust preferred securities that comprise the CDO portfolio. Net unrealized losses of $2.1 million represent non-credit related OTTI charges on seven of the securities, while $1.1 million of unrealized losses relates to two securities which have had no credit related OTTI.

55

The following table provides a summary of the trust preferred securities in the CDO portfolio and the credit status of these securities as of March 31, 2019:

 

The terms of the debentures underlying trust preferred securities allow the issuer of the debentures to defer interest payments for up to 20 quarters, and, in such case, the terms of the related trust preferred securities allow their issuers to defer dividend payments for up to 20 quarters. Some of the issuers of the trust preferred securities in our investment portfolio have defaulted and/or deferred payments ranging from 6.18% to 15.47% of the total collateral balances underlying the securities. The securities were designed to include structural features that provide investors with credit enhancement or support to provide default protection by subordinated tranches. These features include over-collateralization of the notes or subordination, excess interest or spread which will redirect funds in situations where collateral is insufficient, and a specified order of principal payments. There are securities in our portfolio that are under-collateralized, which does represent additional stress on our tranche. However, in these cases, the terms of the securities require excess interest to be redirected from subordinate tranches as credit support, which provides additional support to our investment.

Management systematically evaluates securities for impairment on a quarterly basis. Based upon application of ASC Topic 320 (Section 320-10-35), management must assess whether (a) the Corporation has the intent to sell the security and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery. If neither applies, then declines in the fair value of securities below their cost that are considered other-than-temporary declines are split into two components. The first is the loss attributable to declining credit quality. Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made. The second component consists of all other losses. The other losses are recognized in other comprehensive income. In estimating OTTI charges, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the security, (4) changes in the rating of a security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future. Due to the duration and the significant market value decline in the pooled trust preferred securities held in our portfolio, we performed more extensive testing on these securities for purposes of evaluating whether or not an OTTI has occurred.

The market for these securities as of March 31, 2019 is not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive, as no new CDOs have been issued since 2007. There are currently very few market participants who are willing to effect transactions in these securities. The market values for these securities, or any securities other than those issued or guaranteed by the U.S. Department of the Treasury (the “Treasury”), are very depressed relative to historical levels. Therefore, in the current market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issue. Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at March 31, 2019, (b) an income valuation approach technique (i.e. present value) that maximizes the use of relevant unobservable inputs and minimizes the use of observable inputs will be equally or more representative of fair value than a market approach, and (c) the CDO segment is appropriately classified within Level 3 of the valuation hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

56

Management relies on an independent third party to prepare both the evaluations of OTTI and the fair value determinations for the CDO portfolio. Management does not believe that there were any material differences in the OTTI evaluations and pricing between December 31, 2018 and March 31, 2019.

The approach used by the third party to determine fair value involved several steps, which included detailed credit and structural evaluation of each piece of collateral in each bond, projection of default, recovery and prepayment/amortization probabilities for each piece of collateral in the bond, and discounted cash flow modeling. The discount rate methodology used by the third party combines a baseline current market yield for comparable corporate and structured credit products with adjustments based on evaluations of the differences found in structure and risks associated with actual and projected credit performance of each CDO being valued.  Currently, the only active and liquid trading market that exists is for stand-alone trust preferred securities, with a limited market for highly-rated CDO securities that are more senior in the capital structure than the securities in the CDO portfolio.  Therefore, adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments.

Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that no securities had credit-related OTTI during the first three months of 2019.

Deposits

The following table presents the composition of our deposits at the dates indicated:

(dollars in thousands)	March 31, 2019				December 31, 2018
Non-interest bearing demand deposits:
Retail	$	288,213	26	%	$	262,250	25	%
Interest-bearing deposits:
Demand		160,571	14	%		163,334	15	%
Money Market:
Retail		263,803	23	%		234,038	22	%
Savings deposits		161,709	14	%		156,236	15	%
Time deposits less than $100,000:
Retail		99,730	9	%		99,088	9	%
Time deposits $100,000 or more:
Retail		131,586	12	%		127,581	12	%
Brokered		25,000	2	%		25,000	2	%
Total Deposits	$	1,130,612	100	%	$	1,067,527	100	%

Total deposits increased $63.1 million during the first three months of 2019 when compared to deposits at December 31, 2018. During the first three months of 2019, non-interest bearing deposits increased $26.0 million. This growth was driven by our retail market, as we continued to grow existing relationships as well as engage new relationships. Traditional savings accounts increased $5.5 million due to continued growth in our Prime Saver product. Total demand deposits decreased $2.8 million and total money market accounts increased $29.8 million due to increased balances in our ICS money market account related to our retail market. Time deposits less than $100,000 increased slightly by $.6 million and time deposits greater than $100,000 increased $4.0 million. In the fourth quarter of 2018, two short-term brokered CDs were purchased to shift $25.0 million of overnight borrowings as a tool to lock in pricing and manage interest rate risk. These brokered CDs have maturities of less than 18 months.

57

Borrowed Funds

The following table presents the composition of our borrowings at the dates indicated:

	March 31,		December 31,
(in thousands)	2019		2018
Fed Funds Purchased	$	0	$	40,000
Securities sold under agreements to repurchase		39,695		37,707
Total short-term borrowings	$	39,695	$	77,707
FHLB advances	$	70,000	$	70,000
Junior subordinated debt		30,929		30,929
Total long-term borrowings	$	100,929	$	100,929

Total short-term borrowings decreased by $38.0 million during the first three months of 2019. This decrease was due to a decrease in overnight borrowings of $40.0 million due to the strong deposit growth to repay the borrowings. Long-term borrowings remained constant during the first three months of 2019.

Liquidity Management

Liquidity is a financial institution’s capability to meet customer demands for deposit withdrawals while funding all credit-worthy loans. The factors that determine the institution’s liquidity are:

· Reliability and stability of core deposits;

· Cash flow structure and pledging status of investments; and

· Potential for unexpected loan demand.

We actively manage our liquidity position through regular meetings of a sub-committee of executive management, known as the Treasury Team, which looks forward 12 months at 30-day intervals. The measurement is based upon the projection of funds sold or purchased position, along with ratios and trends developed to measure dependence on purchased funds and core growth. Monthly reviews by management and quarterly reviews by the Asset and Liability Committee under prescribed policies and procedures are designed to ensure that we will maintain adequate levels of available funds.

It is our policy to manage our affairs so that liquidity needs are fully satisfied through normal Bank operations. That is, the Bank will manage its liquidity to minimize the need to make unplanned sales of assets or to borrow funds under emergency conditions. The Bank will use funding sources where the interest cost is relatively insensitive to market changes in the short run (periods of one year or less) to satisfy operating cash needs. The remaining normal funding will come from interest-sensitive liabilities, either deposits or borrowed funds. When the marginal cost of needed wholesale funding is lower than the cost of raising this funding in the retail markets, the Corporation may supplement retail funding with external funding sources such as:

1. Unsecured Fed Funds lines of credit with upstream correspondent banks (M&T Bank, Pacific Coast Banker’s Bank (“PCBB”), PNC Financial Services (“PNC”), Atlantic Community Bankers Bank, Community Bankers Bank, SunTrust and Zions National Bank).

2. Secured advances with the FHLB of Atlanta, which are collateralized by eligible one to four family residential mortgage loans, home equity lines of credit, commercial real estate loans, various securities and pledged cash.

3. Secured line of credit with the Fed Discount Window for use in borrowing funds up to 90 days, using municipal securities as collateral.

4. Brokered deposits, including CDs and money market funds, provide a method to generate deposits quickly. These deposits are strictly rate driven but often provide the most cost effective means of funding growth.

5. One Way Buy CDARS/ICS funding – a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly.

58

Management believes that we have adequate liquidity available to respond to current and anticipated liquidity demands and is not aware of any trends or demands, commitments, events or uncertainties that are likely to materially affect our ability to maintain liquidity at satisfactory levels.

Market Risk and Interest Sensitivity

Our primary market risk is interest rate fluctuation. Interest rate risk results primarily from the traditional banking activities that we engage in, such as gathering deposits and extending loans. Many factors, including economic and financial conditions, movements in interest rates and consumer preferences affect the difference between the interest earned on our assets and the interest paid on our liabilities. Interest rate sensitivity refers to the degree that earnings will be impacted by changes in the prevailing level of interest rates. Interest rate risk arises from mismatches in the repricing or maturity characteristics between interest-bearing assets and liabilities. Management seeks to minimize fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates. Management uses interest sensitivity gap analysis and simulation models to measure and manage these risks. The interest rate sensitivity gap analysis assigns each interest-earning asset and interest-bearing liability to a time frame reflecting its next repricing or maturity date. The differences between total interest-sensitive assets and liabilities at each time interval represent the interest sensitivity gap for that interval. A positive gap generally indicates that rising interest rates during a given interval will increase net interest income, as more assets than liabilities will reprice. A negative gap position would benefit us during a period of declining interest rates.

At March 31, 2019, we were asset sensitive.

Our interest rate risk management goals are:

· Ensure that the Board of Directors and senior management will provide effective oversight and ensure that risks are adequately identified, measured, monitored and controlled;

· Enable dynamic measurement and management of interest rate risk;

· Select strategies that optimize our ability to meet our long-range financial goals while maintaining interest rate risk within policy limits established by the Board of Directors;

· Use both income and market value oriented techniques to select strategies that optimize the relationship between risk and return; and

· Establish interest rate risk exposure limits for fluctuation in net interest income (“NII”), net income and economic value of equity.

In order to manage interest sensitivity risk, management formulates guidelines regarding asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These guidelines are based on management’s outlook regarding future interest rate movements, the state of the regional and national economy, and other financial and business risk factors. Management uses computer simulations to measure the effect on net interest income of various interest rate scenarios. Key assumptions used in the computer simulations include cash flows and maturities of interest rate sensitive assets and liabilities, changes in asset volumes and pricing, and management’s capital plans. This modeling reflects interest rate changes and the related impact on net interest income over specified periods.

We evaluate the effect of a change in interest rates of +/-100 basis points to +/-400 basis points on both NII and Net Portfolio Value (“NPV”) / Economic Value of Equity (“EVE”). We concentrate on NII rather than net income as long as NII remains the significant contributor to net income.

NII modeling allows management to view how changes in interest rates will affect the spread between the yield paid on assets and the cost of deposits and borrowed funds. Unlike traditional Gap modeling, NII modeling takes into account the different degree to which installments in the same repricing period will adjust to a change in interest rates. It also allows the use of different assumptions in a falling versus a rising rate environment. The period considered by the NII modeling is the next eight quarters.

NPV / EVE modeling focuses on the change in the market value of equity. NPV / EVE is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, NPV / EVE modeling takes a longer-term view of interest rate risk. This complements the shorter-term view of the NII modeling.

59

Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. These measures are typically based upon a relatively brief period, usually one year. They do not necessarily indicate the long-term prospects or economic value of the institution.

Based on the simulation analysis performed at March 31, 2019 and December 31, 2018, management estimated the following changes in net interest income, assuming the indicated rate changes:

(Dollars in thousands)	March 31, 2019			December 31, 2018
+400 basis points	$	2,230		$	(1,939	)
+300 basis points	$	1,853		$	(1,284	)
+200 basis points	$	1,452		$	(652	)
+100 basis points	$	820		$	(163	)
-100 basis points	$	(2,079	)	$	(4,007	)

This estimate is based on assumptions that may be affected by unforeseeable changes in the general interest rate environment and any number of unforeseeable factors. Rates on different assets and liabilities within a single maturity category adjust to changes in interest rates to varying degrees and over varying periods of time. The relationships between lending rates and rates paid on purchased funds are not constant over time. Management can respond to current or anticipated market conditions by lengthening or shortening the Bank’s sensitivity through loan repricings or changing its funding mix. The rate of growth in interest-free sources of funds will influence the level of interest-sensitive funding sources. In addition, the absolute level of interest rates will affect the volume of earning assets and funding sources. As a result of these limitations, the interest-sensitive gap is only one factor to be considered in estimating the net interest margin.

Management believes that no material changes in our market risks, our procedures used to evaluate and mitigate those risks, or our actual or simulated sensitivity positions have occurred since December 31, 2018. Our NII simulation analysis as of December 31, 2018 is included in Item 7 of Part II Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2018 under the heading “Market Risk and Interest Sensitivity.

Impact of Inflation – Our assets and liabilities are primarily monetary in nature, and as such, future changes in prices do not affect the obligations to pay or receive fixed and determinable amounts of money. During inflationary periods, monetary assets lose value in terms of purchasing power and monetary liabilities have corresponding purchasing power gains. The concept of purchasing power is not an adequate indicator of the impact of inflation on financial institutions because it does not incorporate changes in our earnings.

Capital Resources

We require capital to fund loans, satisfy our obligations under the Bank’s letters of credit, meet the deposit withdrawal demands of the Bank’s customers, and satisfy our other monetary obligations. To the extent that deposits are not adequate to fund our capital requirements, we can rely on the funding sources identified above under the heading “Liquidity Management”. At March 31, 2019, the Bank had $100.0 million available through unsecured lines of credit with correspondent banks, $4.2 million available through a secured line of credit with the Fed Discount Window and approximately $144.4 million available through the FHLB. Management is not aware of any demands, commitments, events or uncertainties that are likely to materially affect our ability to meet our future capital requirements.

In addition to operational requirements, the Bank and the Corporation are subject to risk-based capital regulations, which were adopted and are monitored by federal banking regulators. These regulations are used to evaluate capital adequacy and require an analysis of an institution’s asset risk profile and off-balance sheet exposures, such as unused loan commitments and stand-by letters of credit.

On July 2, 2013, the FRB approved final rules that substantially amended the regulatory risk-based capital rules applicable to First United Corporation. The Federal Deposit Insurance Corporation subsequently approved the same rules which apply to the Bank. The final rules implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act and were implemented as of March 31, 2015. 

60

The Basel III capital rules include new risk-based capital and leverage ratios, which will be phased in from 2015 to 2019, and which refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Corporation under the final rules are: (a) a new common equity Tier 1 capital ratio of 4.5%; (b) a Tier 1 capital ratio of 6% (increased from 4%); (c) a total capital ratio of 8% (unchanged from current rules); and (d) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

The Basel III capital final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that no longer qualify as Tier 1 capital, some of which will be phased out over time. Under the final rules, the effects of certain accumulated other comprehensive items are not excluded; however, banking organizations like the Corporation and the Bank that are not considered “advanced approaches” banking organizations may make a one-time permanent election to continue to exclude these items. The Corporation and the Bank made this election in their first quarter 2015 regulatory filings in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of the Corporation’s available-for-sale securities portfolio. Additionally, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Corporation) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 (such as the Corporation’s TPS Debentures) in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

The Basel III capital rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions if their capital levels begin to show signs of weakness. These revisions were effective January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions are required to meet the following capital level requirements in order to qualify as “well capitalized”: (a) a new common equity Tier 1 capital ratio of 6.5%; (b) a Tier 1 capital ratio of 8% (increased from 6%); (c) a total capital ratio of 10% (unchanged from current rules); and (d) a Tier 1 leverage ratio of 5% (increased from 4%).

The Basel III capital rules set forth certain changes for the calculation of risk-weighted assets. These changes include (a) an increased number of credit risk exposure categories and risk weights; (b) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (c) revisions to recognition of credit risk mitigation; (d) rules for risk weighting of equity exposures and past due loans, and (e) revised capital treatment for derivatives and repo-style transactions.

Regulators may require higher capital ratios when warranted by the particular circumstances or risk profile of a given banking organization. In the current regulatory environment, banking organizations must stay well capitalized in order to receive favorable regulatory treatment on acquisition and other expansion activities and favorable risk-based deposit insurance assessments. Our capital policy establishes guidelines meeting these regulatory requirements and takes into consideration current or anticipated risks as well as potential future growth opportunities.

61

The following table presents our capital ratios:

	March 31, 2019			December 31, 2018			Required for Capital Adequacy Purposes			Required to be Well Capitalized
Total Capital (to risk-weighted assets)
Consolidated		16.40	%		15.91	%		8.00	%		10.00	%
First United Bank & Trust		15.72	%		15.43	%		8.00	%		10.00	%
Tier 1 Capital (to risk-weighted assets)
Consolidated		15.30	%		14.87	%		6.00	%		8.00	%
First United Bank & Trust		14.59	%		14.35	%		6.00	%		8.00	%
Common Equity Tier 1 Capital (to risk-weighted assets)
Consolidated		12.83	%		12.45	%		4.50	%		6.50	%
First United Bank & Trust		14.59	%		14.35	%		4.50	%		6.50	%
Tier 1 Capital (to average assets)
Consolidated		11.56	%		11.47	%		4.00	%		5.00	%
First United Bank & Trust		10.78	%		10.70	%		4.00	%		5.00	%

Contractual Obligations, Commitments and Off-Balance Sheet Arrangements

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. Comparing March 31, 2019 to December 31, 2018, short-term borrowings decreased $40.0 million due to the full repayment of overnight borrowings that were included in the December 31, 2018 balances.

Commitments

Loan commitments are made to accommodate the financial needs of our customers. Letters of credit commit us to make payments on behalf of customers when certain specified future events occur. The credit risks inherent in loan commitments and letters of credit are essentially the same as those involved in extending loans to customers, and these arrangements are subject to our normal credit policies. We are not a party to any other off-balance sheet arrangements.

Commitments to extend credit in the form of consumer, commercial and business at the dates indicated were as follows:

(in thousands)	March 31, 2019		December 31, 2018
Residential Mortgage - home equity	$	51,150	$	49,294
Residential Mortgage - construction		4,805		6,790
Commercial		59,415		63,668
Consumer - personal credit lines		3,987		3,847
Standby letters of credit		3,599		3,391
Total	$	122,956	$	126,990

62

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information required by this item is included in Item 2 of Part I of this report under the caption “Market Risk and Interest Sensitivity” and in Item 7 of Part II of First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 under the heading “Market Risk and Interest Sensitivity” both of which are incorporated in this Item 3 by reference.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 with the SEC, such as this Quarterly Report, is recorded, processed, summarized and reported within the periods specified in those rules and forms, and that such information is accumulated and communicated to our management, including First United Corporation’s principal executive officer (“PEO”) and its principal financial officer (“PFO”), as appropriate, to allow for timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

An evaluation of the effectiveness of these disclosure controls as of March 31, 2019 was carried out under the supervision and with the participation of management, including the PEO and the PFO. Based on that evaluation, management, including the PEO and the PFO, has concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

During the quarter ended March 31, 2019, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

63

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

The risks and uncertainties to which our financial condition and operations are subject are discussed in detail in Item 1A of Part I of First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018. Management does not believe that any material changes in our risk factors have occurred since they were last disclosed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The exhibits filed or furnished with this quarterly report are listed in the following Exhibit Index.

Exhibit	Description
10.1	First United Bank & Trust Amended and Restated Defined Benefit Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.1 to the Corporation’s Current Report on Form 8-K filed on February 1, 2019)
10.2	Form of Amended and Restated Participation Agreement under the Defined Benefit Supplement Executive Retirement Plan (incorporated by reference to Exhibit 10.2 to the Corporation’s Current Report on Form 8-K filed on February 1, 2019)
31.1	Certifications of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
31.2	Certifications of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
32	Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith)
101.INS	XBRL Instance Document (filed herewith)
101.SCH	XBRL Taxonomy Extension Schema (filed herewith)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF	XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB	XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase (filed herewith)

64

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST UNITED CORPORATION
Date:     May 7, 2019	/s/ Carissa L. Rodeheaver
	Carissa L. Rodeheaver, CPA, CFP
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
Date      May 7, 2019	/s/ Tonya K. Sturm
	Tonya K. Sturm, Senior Vice President,
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

65

EX-31.1

Exhibit 31.1

Certifications of the Principal Executive Officer

Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Carissa L. Rodeheaver, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of First United Corporation;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:     May 7, 2019	/s/ Carissa L. Rodeheaver
	Carissa L. Rodeheaver, CPA, CFP
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certifications of the Principal Financial Officer

Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Tonya K. Sturm, certify that:

1.            I have reviewed this quarterly report on Form 10-Q of First United Corporation;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date     May 7, 2019	/s/ Tonya K. Sturm
	Tonya K. Sturm, Senior Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

EX-32

Exhibit 32

Certification of Periodic Report

Pursuant to 18 U.S.C. § Section 1350

As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to, and for purposes only of, 18 U.S.C. § 1350, each of the undersigned hereby certifies that (i) the Quarterly Report of First United Corporation on Form 10-Q for the quarter ended March 31, 2019 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of First United Corporation.

Date:     May 7, 2019	/s/ Carissa L. Rodeheaver
	Carissa L. Rodeheaver, CPA, CFP
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
Date:     May 7, 2019	/s/ Tonya K. Sturm
	Tonya K. Sturm, Senior Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 30, 2019
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Entity Registrant Name	FIRST UNITED CORP/MD/
Entity Central Index Key	0000763907
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		7,088,987
Trading Symbol	func
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1

XML

Consolidated Statement of Financial Condition - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 53,112	$ 22,187
Interest bearing deposits in banks	892	1,354
Cash and cash equivalents	54,004	23,541
Investment securities - available-for-sale (at fair value)	136,514	137,641
Investment securities - held to maturity (fair value $97,364 at March 31, 2019 and $93,760 at December 31, 2018)	95,538	94,010
Restricted investment in bank stock, at cost	4,373	5,394
Loans	1,004,618	1,007,714
Allowance for loan losses	(11,548)	(11,047)
Net loans	993,070	996,667
Premises and equipment, net	37,616	37,855
Goodwill and other intangible assets, net	11,004	11,004
Bank owned life insurance	43,620	43,317
Deferred tax assets	6,835	7,844
Other real estate owned	6,167	6,598
Operating lease right-of-use asset	2,665	0
Accrued interest receivable and other assets	25,495	20,645
Total Assets	1,416,901	1,384,516
Liabilities:
Non-interest bearing deposits	288,213	262,250
Interest bearing deposits	842,399	805,277
Total deposits	1,130,612	1,067,527
Short-term borrowings	39,695	77,707
Long-term borrowings	100,929	100,929
Operating lease liability	3,250	0
Accrued interest payable and other liabilities	19,377	20,649
Dividends payable	639	638
Total Liabilities	1,294,502	1,267,450
Shareholders' Equity:
Common Stock - par value $.01 per share; Authorized 25,000 shares; issued and outstanding 7,089 shares at March 31, 2019 and 7,087 at December 31, 2018	71	71
Surplus	32,027	31,921
Retained earnings	111,989	109,477
Accumulated other comprehensive loss	(21,688)	(24,403)
Total Shareholders' Equity	122,399	117,066
Total Liabilities and Shareholders' Equity	$ 1,416,901	$ 1,384,516

XML

Consolidated Statement of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Consolidated Statements of Financial Condition [Abstract]
Held-to-maturity securities, fair value	$ 97,364	$ 93,760
Common Stock, Par or Stated Value Per Share	$ 0.01	$ 0.01
Common Stock, Shares Authorized	25,000,000	25,000,000
Common Stock, Shares, Issued	7,089,000	7,087,000
Common Stock, Shares, Outstanding	7,089,000	7,087,000

XML

Consolidated Statement of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest income
Interest and fees on loans	$ 12,190	$ 10,481
Interest on investment securities: Taxable	1,467	1,447
Interest on investment securities: Exempt from federal income tax	280	238
Total investment income	1,747	1,685
Other	135	196
Total interest income	14,072	12,362
Interest expense
Interest on deposits	1,771	856
Interest on short-term borrowings	103	30
Interest on long-term borrowings	852	894
Total interest expense	2,726	1,780
Net interest income	11,346	10,582
Provision for loan losses	349	447
Net interest income after provision for loan losses	10,997	10,135
Other operating income
Net gains	14	34
Total other income	3,707	3,676
Total other operating income	3,721	3,710
Other operating expenses
Salaries and employee benefits	6,218	5,808
FDIC premiums	111	133
Equipment	883	683
Occupancy	712	638
Data processing	941	932
Professional Services	204	336
Contract Labor	156	176
Line rentals	217	211
Other real estate owned	143	385
Other	1,105	1,389
Total other operating expenses	10,690	10,691
Income before income tax expense	4,028	3,154
Provision for income tax expense	877	648
Net Income	3,151	2,506
Net Income Available to Common Shareholders	$ 3,151	$ 2,506
Basic and diluted net income per common share	$ 0.44	$ 0.35
Weighted average number of basic and diluted shares outstanding	7,088	7,067
Dividends declared per common share	$ 0.09	$ 0.09
Service Charges [Member]
Other operating income
Noninterest income	$ 519	$ 563
Other Service Charges [Member]
Other operating income
Noninterest income	208	229
Trust Department [Member]
Other operating income
Noninterest income	1,715	1,664
Debit Card Income [Member]
Other operating income
Noninterest income	600	553
Bank Owned Life Insurance [Member]
Other operating income
Revenue not From contract with customer	303	299
Brokerage Commissions [Member]
Other operating income
Noninterest income	238	245
Other Service [Member]
Other operating income
Revenue not From contract with customer	$ 124	$ 123

XML

Consolidated Statement of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statement of Comprehensive Income [Abstract]
Net Income	$ 3,151	$ 2,506
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized (losses)/gains on investments with OTTI	(80)	645
Net unrealized gains/(losses) on all other AFS securities	905	(1,078)
Net unrealized gains on HTM securities	55	45
Net unrealized (losses)/gains on cash flow hedges	(315)	443
Net unrealized gains on pension	2,129	736
Net unrealized gains on SERP	21	29
Other comprehensive income, net of tax	2,715	820
Comprehensive income	$ 5,866	$ 3,326

XML

Consolidated Statement of Changes in Shareholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Total
Balance at Dec. 31, 2017	$ 71	$ 31,553	$ 101,359	$ (24,593)	$ 108,390
Net income			2,506		2,506
Other comprehensive income				820	820
Stock based compensation		53			53
Common stock dividend declared			(635)		(635)
Balance at Mar. 31, 2018	71	31,606	103,230	(23,773)	111,134
Balance at Dec. 31, 2018	71	31,921	109,477	(24,403)	117,066
Net income			3,151		3,151
Other comprehensive income				2,715	2,715
Stock based compensation		67			67
Common stock issued		39			39
Common stock dividend declared			(639)		(639)
Balance at Mar. 31, 2019	$ 71	$ 32,027	$ 111,989	$ (21,688)	$ 122,399

XML

Consolidated Statement of Changes in Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statement of Changes in Shareholders' Equity [Abstract]
Common stock dividend declared per share (in dollars per share)	$ 0.09	$ 0.09

XML

Consolidated Statement of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Operating activities
Net income	$ 3,151	$ 2,506
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	349	447
Depreciation	756	548
Stock compensation	67	53
Gains on sales of other real estate owned	(30)	(20)
Write-downs of other real estate owned	117	295
Originations of loans held for sale	(2,630)	(5,137)
Proceeds from sale of loans held for sale	2,627	5,330
Gains from sale of loans held for sale	(20)	(43)
Net amortization of investment securities discounts and premiums- AFS	3	8
Net (accretion)/amortization of investment securities discounts and premiums- HTM	(12)	28
Losses on sales/calls of investment securities - available-for-sale	6	9
Earnings on bank owned life insurance	(303)	(299)
Amortization of deferred loan fees	(141)	(156)
Amortization of operating lease right-of-use asset	65	0
Increase in accrued interest receivable and other assets	(1,824)	(799)
Increase in deferred tax benefit	(1)	(512)
Decrease in operating lease liability	(67)	0
(Decrease)/increase in accrued interest payable and other liabilities	(1,116)	967
Net cash provided by operating activities	997	3,225
Investing activities
Proceeds from maturities/calls of investment securities available-for-sale	2,249	1,659
Proceeds from maturities/calls of investment securities held-to-maturity	1,238	1,726
Purchases of investment securities available-for-sale	0	(1,405)
Purchases of investment securities held-to-maturity	(2,754)	0
Proceeds from sales of other real estate owned	859	470
Net decrease/(increase) in FHLB stock	1,021	(148)
Net decrease/(increase) in loans	2,897	(19,868)
Purchases of loans	0	(25,168)
Purchases of premises and equipment	(517)	(2,220)
Net cash provided by/(used in) investing activities	4,993	(44,954)
Financing activities
Net increase/(decrease) in deposits	63,085	(21,527)
Proceeds from sale of common stock	39	0
Cash dividends on common stock	(639)	(635)
Net (decrease)/increase in short-term borrowings	(38,012)	6,365
Payments on long-term borrowings	0	(5,000)
Net cash provided by/(used in) financing activities	24,473	(20,797)
Increase/(decrease) in cash and cash equivalents	30,463	(62,526)
Cash and cash equivalents at beginning of the year	23,541	83,752
Cash and cash equivalents at end of period	54,004	21,226
Supplemental information
Interest paid	2,691	1,737
Taxes paid	100	0
Non-cash investing activities:
Transfers from loans to other real estate owned	515	118
Initial recognition of operating lease right-of-use assets	2,730	0
Initial recognition of operating lease liabilities	$ 3,317	$ 0

XML

Basis of Presentation

3 Months Ended

Mar. 31, 2019

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements of First United Corporation and its consolidated subsidiaries, including First United Bank & Trust (the “Bank”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information, as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 270, Interim Reporting, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all the information and footnotes required for annual financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation, consisting of normal recurring items, have been included.  Operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year or for any future interim period.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.  For purposes of comparability, certain prior period amounts have been reclassified to conform to the 2019 presentation.  Such reclassifications had no impact on net income or equity.

As used in these notes, the term “the Corporation” refers to First United Corporation and, unless the context clearly requires otherwise, its consolidated subsidiaries.

The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of March 31, 2019 for items that should potentially be recognized or disclosed in these financial statements.

XML

Earnings Per Common Share

3 Months Ended

Mar. 31, 2019

Earnings Per Common Share [Abstract]

Earnings Per Common Share

Note 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.  No common stock equivalents were outstanding at March 31, 2019.

The following tables set forth the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
	2019					2018
			Average	Per Share				Average	Per Share
(in thousands, except for per share amount)	Income		Shares	Amount		Income		Shares	Amount
Basic and Diluted Earnings Per Share:
Net income	$	3,151	7,088	$	0.44	$	2,506	7,067	$	0.35

XML

Net Gains

3 Months Ended

Mar. 31, 2019

Net Gains/(Losses) [Abstract]

Net Gains

Note 3 – Net Gains

The following table summarizes the gain/(loss) activity for the three-month periods ended March 31, 2019 and 2018:

	Three months ended
	March 31,
(in thousands)	2019		2018
Net gains/(losses):
Available-for-sale securities:
Realized losses		(6)		(9)
Gains on sale of consumer loans		20		43
Net gains:	$	14	$	34

XML

Investments

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

Investments

Note 4 – Investments

The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.

The amortized cost of debt securities classified as available-for-sale 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 following table shows a comparison of amortized cost and fair values of investment securities at March 31, 2019 and December 31, 2018:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
March 31, 2019
Available for Sale:
U.S. government agencies	$	30,000	$	0	$	536	$	29,464	$	0
Commercial mortgage-backed agencies		38,141		0		1,165		36,976		0
Collateralized mortgage obligations		35,564		0		559		35,005		0
Obligations of states and political subdivisions		19,798		213		94		19,917		0
Collateralized debt obligations		18,362		0		3,210		15,152		(2,075)
Total available for sale	$	141,865	$	213	$	5,564	$	136,514	$	(2,075)
Held to Maturity:
U.S. government agencies	$	16,054	$	401	$	0	$	16,455	$	0
Residential mortgage-backed agencies		45,312		15		667		44,660		0
Commercial mortgage-backed agencies		15,745		213		0		15,958		0
Collateralized mortgage obligations		3,753		0		62		3,691		0
Obligations of states and political subdivisions		14,674		1,974		48		16,600		0
Total held to maturity	$	95,538	$	2,603	$	777	$	97,364	$	0
December 31, 2018
Available for Sale:
U.S. government agencies	$	30,000	$	0	$	974	$	29,026	$	0
Commercial mortgage-backed agencies		39,013		0		1,261		37,752		0
Collateralized mortgage obligations		36,669		0		965		35,704		0
Obligations of states and political subdivisions		20,083		132		333		19,882		0
Collateralized debt obligations		18,358		0		3,081		15,277		(1,966)
Total available for sale	$	144,123	$	132	$	6,614	$	137,641	$	(1,966)
Held to Maturity:
U.S. government agencies	$	16,017	$	120	$	0	$	16,137	$	0
Residential mortgage-backed agencies		46,491		6		1,287		45,210		0
Commercial mortgage-backed agencies		15,821		75		68		15,828		0
Collateralized mortgage obligations		3,761		0		156		3,605		0
Obligations of states and political subdivisions		11,920		1,156		96		12,980		0
Total held to maturity	$	94,010	$	1,357	$	1,607	$	93,760	$	0

Proceeds from sales/calls of available for sale securities and the realized gains and losses are as follows:

	Three months ended
	March 31,
(in thousands)	2019		2018
Proceeds	$	260	$	235
Realized gains		0		0
Realized losses		6		9

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at March 31, 2019 and December 31, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 months						12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments		Fair Value		Unrealized Losses		Number of Investments
March 31, 2019
Available for Sale:
U.S. government agencies	$	0	$	0		0	$	29,464	$	536		5
Commercial mortgage-backed agencies		0		0		0		36,976		1,165		8
Collateralized mortgage obligations		171		1		1		34,834		558		8
Obligations of states and political subdivisions		115		1		1		5,278		93		4
Collateralized debt obligations		5,949		478		4		9,201		2,732		5
Total available for sale	$	6,235	$	480		6	$	115,753	$	5,084		30
Held to Maturity:
Residential mortgage-backed agencies		3,623		15		2		36,833		652		26
Collateralized mortgage obligations		0		0		0		3,691		62		1
Obligations of states and political subdivisions		2,247		48		1		0		0		0
Total held to maturity	$	5,870	$	63		3	$	40,524	$	714		27

December 31, 2018
Available for Sale:
U.S. government agencies	$	0	$	0	0	$	29,026	$	974	5
Commercial mortgage-backed agencies		0		0	0		37,752		1,261	8
Collateralized mortgage obligations		232		1	1		35,472		964	8
Obligations of states and political subdivisions		3,310		48	5		11,068		285	8
Collateralized debt obligations		5,987		438	4		9,290		2,643	5
Total available for sale	$	9,529	$	487	10	$	122,608	$	6,127	34
Held to Maturity:
Residential mortgage-backed agencies	$	3,605	$	51	2	$	41,448	$	1,236	29
Commercial mortgage-backed agencies		0		0	0		7,656		68	1
Collateralized mortgage obligations		0		0	0		3,605		156	1
Obligations of states and political subdivisions		0		0	0		2,199		96	1
Total held to maturity	$	3,605	$	51	2	$	54,908	$	1,556	32

Management systematically evaluates securities for impairment on a quarterly basis.  Based upon application of accounting guidance for subsequent measurement in ASC Topic 320 (ASC Section 320-10-35), management assesses whether (a) the Corporation has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery.  If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components.  The first is the loss attributable to declining credit quality.  Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made.  The second component consists of all other losses, which are recognized in other comprehensive loss.  In estimating other than temporary impairment (“OTTI”) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future.  Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35).  Further discussion about the evaluation of securities for impairment can be found in Item 2 of Part I of this report under the heading “Investment Securities”.

Management believes that the valuation of certain securities is a critical accounting policy that requires significant estimates in preparation of the Corporation’s consolidated financial statements.  Management utilizes an independent third party to prepare both the impairment valuations and fair value determinations for the Corporation’s collateralized debt obligation (“CDO”) portfolio consisting of pooled trust preferred securities.  See Note 7 for a discussion of the methodology used by management to determine the fair values of these securities.  Based upon a review of credit quality and the cash flow tests performed by the independent third party, management determined that there were no securities that had credit-related non-cash OTTI charges during the first three months of 2019. 

The Corporation does not believe that the investment securities that were in an unrealized loss position at March 31, 2019 represent an other-than-temporary impairment.  The Corporation does not intend to sell nor is it anticipated that it would be required to sell any of its impaired investment securities at a loss. 

The following tables present a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses which have been recognized in earnings for the trust preferred securities in the CDO portfolio held and not intended to be sold for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
(in thousands)	2019		2018
Balance of credit-related OTTI at January 1	$	2,646	$	2,958
Reduction for increases in cash flows expected to be collected		(49)		(55)
Balance of credit-related OTTI at March 31	$	2,597	$	2,903

The amortized cost and estimated fair value of securities by contractual maturity at March 31, 2019 are shown in the following table.  Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	March 31, 2019
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	227	$	228
Due after one year through five years		16,768		16,614
Due after five years through ten years		21,799		21,388
Due after ten years		29,366		26,303
		68,160		64,533
Commercial mortgage-backed agencies		38,141		36,976
Collateralized mortgage obligations		35,564		35,005
Total available for sale	$	141,865	$	136,514
Held to Maturity:
Due after one year through five years	$	8,363	$	8,556
Due after five years through ten years		7,691		7,899
Due after ten years		14,674		16,600
		30,728		33,055
Residential mortgage-backed agencies		45,312		44,660
Commercial mortgage-backed agencies		15,745		15,958
Collateralized mortgage obligations		3,753		3,691
Total held to maturity	$	95,538	$	97,364

XML

Loans and Related Allowance for Loan Losses

3 Months Ended

Mar. 31, 2019

Loans and Related Allowance for Loan Losses [Abstract]

Loans and Related Allowance for Loan Losses

Note 5 – Loans and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio at March 31, 2019 and December 31, 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Total
March 31, 2019
Individually evaluated for impairment	$	4,351	$	8,013	$	27	$	3,943	$	24	$	16,358
Collectively evaluated for impairment	$	295,115	$	115,313	$	109,392	$	434,664	$	33,776	$	988,260
Total loans	$	299,466	$	123,326	$	109,419	$	438,607	$	33,800	$	1,004,618
December 31, 2018
Individually evaluated for impairment	$	5,239	$	693	$	17	$	4,616	$	10	$	10,575
Collectively evaluated for impairment	$	301,682	$	117,667	$	111,449	$	432,291	$	34,050	$	997,139
Total loans	$	306,921	$	118,360	$	111,466	$	436,907	$	34,060	$	1,007,714

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 then segregated into two classes. Non-owner occupied CRE loans, which include loans secured by non-owner occupied, non-farm, and 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 segregated 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.  A&D loans have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan is made.  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 segregated into two classes:  amortizing term loans, which are primarily first lien loans and home equity lines of credit, which are generally second liens.  The consumer loan segment consists primarily of installment loans (direct and indirect) 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.   The portion of a specific allocation of the allowance for loan losses that management believes is associated with a pending event that could trigger loss in the short-term will be classified in the Doubtful category.  Any portion of a loan that has been charged off is placed in the Loss category. 

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  The Bank’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in the commercial segments at origination and on an ongoing basis.  The Bank’s experienced Credit Quality and Loan Review Departments perform an annual review of all commercial relationships of $500,000 or greater.  Confirmation of the appropriate risk grade is included as part of the review process on an ongoing basis.  The Credit Quality and Loan Review Departments continually review and assess loans within the portfolio.  In addition, the Bank engages an external consultant to conduct loan reviews on at least an annual basis. Generally, the external consultant reviews commercial relationships greater than $1,000,000 and/or criticized non-consumer loans greater than $500,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance. 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard within the internal risk rating system at March 31, 2019 and December 31, 2018:

(in thousands)	Pass		Special Mention		Substandard		Total
March 31, 2019
Commercial real estate
Non owner-occupied	$	138,286	$	7,553	$	2,285	$	148,124
All other CRE		144,863		1,738		4,741		151,342
Acquisition and development
1-4 family residential construction		13,949		0		0		13,949
All other A&D		101,567		0		7,810		109,377
Commercial and industrial		105,428		0		3,991		109,419
Residential mortgage
Residential mortgage - term		362,573		0		4,444		367,017
Residential mortgage - home equity		70,154		142		1,294		71,590
Consumer		33,694		4		102		33,800
Total	$	970,514	$	9,437	$	24,667	$	1,004,618
December 31, 2018
Commercial real estate
Non owner-occupied	$	145,260	$	2,904	$	2,348	$	150,512
All other CRE		149,076		1,752		5,581		156,409
Acquisition and development
1-4 family residential construction		16,003		0		0		16,003
All other A&D		94,428		7,378		551		102,357
Commercial and industrial		107,174		3,703		589		111,466
Residential mortgage
Residential mortgage - term		359,305		0		4,703		364,008
Residential mortgage - home equity		71,666		143		1,090		72,899
Consumer		33,952		4		104		34,060
Total	$	976,864	$	15,884	$	14,966	$	1,007,714

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.  A loan is considered to be past due when a payment remains unpaid 30 days past its contractual due date.  For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection.  All non-accrual loans are considered to be impaired.  Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. 

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2019 and December 31, 2018:

(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due and Accruing		Non-Accrual		Total Loans
March 31, 2019
Commercial real estate
Non owner-occupied	$	147,980	$	0	$	0	$	0	$	0	$	144	$	148,124
All other CRE		149,687		127		26		0		153		1,502		151,342
Acquisition and development
1-4 family residential construction		13,834		115		0		0		115		0		13,949
All other A&D		101,644		258		0		0		258		7,475		109,377
Commercial and industrial		108,266		1,116		10		0		1,126		27		109,419
Residential mortgage
Residential mortgage - term		363,383		1,887		271		8		2,166		1,468		367,017
Residential mortgage - home equity		70,040		527		100		0		627		923		71,590
Consumer		33,556		172		48		0		220		24		33,800
Total	$	988,390	$	4,202	$	455	$	8	$	4,665	$	11,563	$	1,004,618
December 31, 2018
Commercial real estate
Non owner-occupied	$	150,339	$	0	$	0	$	0	$	0	$	173	$	150,512
All other CRE		153,977		464		0		0		464		1,968		156,409
Acquisition and development
1-4 family residential construction		16,003		0		0		0		0		0		16,003
All other A&D		94,540		197		7,411		62		7,670		147		102,357
Commercial and industrial		111,436		29		1		0		30		0		111,466
Residential mortgage
Residential mortgage - term		360,073		302		1,359		363		2,024		1,911		364,008
Residential mortgage - home equity		71,611		461		114		0		575		713		72,899
Consumer		33,832		140		73		5		218		10		34,060
Total	$	991,811	$	1,593	$	8,958	$	430	$	10,981	$	4,922	$	1,007,714

Non-accrual loans totaled $11.6 million at March 31, 2019, compared to $4.9 million at December 31, 2018.  The increase in non-accrual balances at March 31, 2019 was primarily due to entering a forbearance agreement with one large A&D loan totaling $7.0 million during the quarter.  At December 31, 2018, it was expected that this loan would be paid off by a prospective buyer.  In the first quarter of 2019, the buyer declined to pursue the transaction and, subsequently, the Company entered into a forbearance agreement and placed the loan on non-accrual.  Non-accrual loans that have been subject to partial charge-offs totaled $.2 million at March 31, 2019, compared to $.3 million at December 31, 2018.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $.1 million at March 31, 2019 and $.3 million at December 31, 2018.

Accruing loans past due 30 days or more decreased to .46% of the loan portfolio at March 31, 2019, compared to 1.09% at December 31, 2018.  The decrease for the first three months of 2019 was primarily due to the movement of one large A&D loan to non-accrual in the first quarter 2019.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35, Receivables-Overall-Subsequent Measurement, for loans individually evaluated for impairment and ASC Subtopic 450-20, Contingencies-Loss Contingencies, for loans collectively evaluated for impairment, as well as the Interagency Policy Statement on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the allocated portion of the Bank’s ALL.  In the second quarter of 2015, management determined that it would be prudent to establish an unallocated portion of the ALL to protect the Bank from other risks associated with the loan portfolio that may not be specifically identifiable.

The following table summarizes the primary segments of the ALL at March 31, 2019 and December 31, 2018, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment: 

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer			Unallocated	Total
March 31, 2019
Individually evaluated for impairment	$	12	$	720	$	0	$	71	$	4	$	0	$	807
Collectively evaluated for impairment	$	2,763	$	1,618	$	1,125	$	4,426	$	309	$	500	$	10,741
Total ALL	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
December 31, 2018
Individually evaluated for impairment	$	13	$	25	$	0	$	106	$	0	$	0	$	144
Collectively evaluated for impairment	$	2,767	$	1,696	$	1,187	$	4,438	$	315	$	500	$	10,903
Total ALL	$	2,780	$	1,721	$	1,187	$	4,544	$	315	$	500	$	11,047

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

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at March 31, 2019 and December 31, 2018:

		Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(in thousands)		Recorded Investment		Related Allowances		Recorded Investment		Recorded Investment		Unpaid Principal Balance
March 31, 2019
Commercial real estate
Non owner-occupied	$	120	$	12	$	144	$	264	$	8,458
All other CRE		0		0		4,087		4,087		4,087
Acquisition and development
1-4 family residential construction		0		0		310		310		310
All other A&D		7,666		720		37		7,703		7,774
Commercial and industrial		0		0		27		27		2,241
Residential mortgage
Residential mortgage - term		1,219		62		1,802		3,021		3,244
Residential mortgage – home equity		171		9		751		922		935
Consumer		15		4		9		24		24
Total impaired loans	$	9,191	$	807	$	7,167	$	16,358	$	27,073
December 31, 2018
Commercial real estate
Non owner-occupied	$	121	$	13	$	173	$	294	$	8,488
All other CRE		0		0		4,945		4,945		4,945
Acquisition and development
1-4 family residential construction		0		0		316		316		316
All other A&D		230		25		147		377		525
Commercial and industrial		0		0		17		17		2,231
Residential mortgage
Residential mortgage - term		993		106		2,910		3,903		4,130
Residential mortgage – home equity		0		0		713		713		726
Consumer		0		0		10		10		10
Total impaired loans	$	1,344	$	144	$	9,231	$	10,575	$	21,371

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors. 

The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis.  Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level.  A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer pools currently utilize a rolling 12 quarters, while Commercial pools currently utilize a rolling eight quarters. 

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. “Pass” pools for commercial and residential real estate are further segmented based upon the geographic location of the underlying collateral.  There are seven geographic regions utilized – six that represent the Bank’s lending footprint and a seventh for all out-of-market credits.  Different economic environments and resultant credit risks exist in each region that are acknowledged in the assignment of qualitative factors.  Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are:  (a) national and local economic trends and conditions; (b) levels of and trends in delinquency rates and non-accrual loans; (c) trends in volumes and terms of loans; (d) effects of changes in lending policies; (e) experience, ability, and depth of lending staff; (f) value of underlying collateral; and (g) concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.  Residential mortgage and consumer loans are charged off after they are 120 days contractually past due.  All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral.  The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy.   There may be circumstances where, due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized.  This specific allocation may be either charged off or removed depending upon the outcome of the pending event.  Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. Loans with partial charge-offs generally remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL.

The following tables present the activity in the ALL for the three-month periods ended March 31, 2019 and 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer			Unallocated	Total
ALL balance at January 1, 2019	$	2,780	$	1,721	$	1,187	$	4,544	$	315	$	500	$	11,047
Charge-offs		0		(29)		0		(12)		(68)		0		(109)
Recoveries		29		12		51		108		61		0		261
Provision		(34)		634		(113)		(143)		5		0		349
ALL balance at March 31, 2019	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
ALL balance at January 1, 2018	$	3,699	$	1,257	$	869	$	3,444	$	203	$	500	$	9,972
Charge-offs		0		(91)		0		(154)		(68)		0		(313)
Recoveries		59		214		18		38		35		0		364
Provision		218		(220)		(27)		350		126		0		447
ALL balance at March 31, 2018	$	3,976	$	1,160	$	860	$	3,678	$	296	$	500	$	10,470

The ALL is based on estimates, and actual losses may vary from current estimates.   Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

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

	Three months ended						Three months ended
	March 31, 2019						March 31, 2018
(in thousands)	Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis		Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis
Commercial real estate
Non owner-occupied	$	280	$	3	$	0	$	2,660	$	4	$	66
All other CRE		4,516		38		0		5,142		49		56
Acquisition and development
1-4 family residential construction		313		5		0		527		6		0
All other A&D		4,040		3		0		426		3		0
Commercial and industrial		22		0		0		493		5		0
Residential mortgage
Residential mortgage - term		3,462		28		8		3,595		32		0
Residential mortgage – home equity		818		0		0		627		0		7
Consumer		17		0		0		28		0		0
Total	$	13,468	$	77	$	8	$	13,498	$	99	$	129

The Bank modifies loan terms in the normal course of business.  Among other reasons, modifications might be made in an effort to retain the loan relationship, to remain competitive in the current interest rate environment and/or to re-amortize or extend the loan’s term to better match the loan’s payment stream with the borrower’s cash flow.  A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e., experiencing financial difficulties). The Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations.

When the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment amount, amortization period, and/or maturity date) are modified in such a way as to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy.  If a borrower’s hardship is thought to be temporary, then modified terms are offered only for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time the loan is restructured in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. 

All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status.  The Bank’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.  Accordingly, 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.  If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months.  TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure.  Loans may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months.

The volume and type of TDR activity is considered in the assessment of the local economic trends’ qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment.

There were 14 loans totaling $4.2 million and 16 loans totaling $4.9 million that were classified as TDRs at March 31, 2019 and December 31, 2018, respectively.  The following tables present the volume and recorded investment at that time of modification of TDRs by class and type of modification that occurred during the periods indicated:

	Temporary Rate Modification			Extension of Maturity			Modification of Payment and Other Terms
(in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Three months ended March 31, 2019
Commercial real estate
Non owner-occupied	0	$	0	0	$	0	0	$	0
All other CRE	0		0	0		0	0		0
Acquisition and development
1-4 family residential construction	0		0	0		0	0		0
All other A&D	0		0	0		0	1		227
Commercial and industrial	0		0	0		0	0		0
Residential mortgage
Residential mortgage – term	0		0	0		0	1		243
Residential mortgage – home equity	0		0	0		0	0		0
Consumer	0		0	0		0	0		0
Total	0	$	0	0	$	0	2	$	470

During the three months ended March 31, 2019, there were no new TDRs but two existing TDRs that had reached their modification maturity dates were re-modified.  These re-modifications did not impact the ALL.  During the three months ended March 31, 2019, there were no payment defaults.

During the three months ended March 31, 2018, there were no new TDRs, no modifications on existing TDRs and no payment defaults.

XML

Other Real Estate Owned

3 Months Ended

Mar. 31, 2019

Other Real Estate Owned [Abstract]

Other Real Estate Owned

Note 6 - Other Real Estate Owned

The following table presents the components of other real estate owned (“OREO”) at March 31, 2019 and December 31, 2018:

(in thousands)	March 31, 2019		December 31, 2018
Commercial real estate	$	2,083	$	2,599
Acquisition and development		3,137		3,218
Commercial and industrial		0		24
Residential mortgage		947		757
Total OREO	$	6,167	$	6,598

The following table presents the activity in the OREO valuation allowance for the three-month periods ended March 31, 2019 and 2018:

	For the Three months Ended
	March 31,
(in thousands)	2019		2018
Balance beginning of period	$	1,988	$	2,740
Fair value write-down		117		295
Sales of OREO		(739)		(124)
Balance at end of period	$	1,366	$	2,911

The following table presents the components of OREO expenses, net, for the three-month periods ended March 31, 2019 and 2018:

	For the Three months Ended
	March 31,
(in thousands)	2019		2018
Gains on real estate, net	$	(30)	$	(20)
Fair value write-down, net		117		295
Expenses, net		75		148
Rental and other income		(19)		(38)
Total OREO expense, net	$	143	$	385

XML

Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2019

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 7 – 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 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.

Management believes that the Corporation’s valuation techniques are appropriate and consistent with the techniques used by other market participants.  However, the use of different methodologies and assumptions could result in a different estimate of fair values at the reporting date.  The valuation techniques used by the Corporation to measure, on a recurring and non-recurring basis, the fair value of assets as of March 31, 2019 are discussed in the paragraphs that follow. 

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 is determined using a market approach.  As of March 31, 2019, the U.S. Government agencies, residential and commercial mortgage-backed securities, collateralized mortgage obligations, and state and political subdivisions bonds, excluding the TIF 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 the Corporation has historically transacted both purchases and sales of investment securities.  The TIF bonds are classified as Level 3 within the valuation hierarchy as they are not openly traded.

The CDO segment, which consists of pooled trust preferred securities issued by banks, thrifts and insurance companies, is classified as Level 3 within the valuation hierarchy.  At March 31, 2019, the Corporation owned nine pooled trust preferred securities with an amortized cost of $18.4 million and a fair value of $15.2 million. As of March 31, 2019, the market for these securities is not active and the markets for similar securities are also not active.  The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which these securities trade and then by a significant decrease in the volume of trades relative to historical levels.  The new issue market is also inactive, as few CDOs have been issued since 2007.  There are currently very few market participants who are willing to effect transactions in these securities.  The market values for these securities or any securities other than those issued or guaranteed by the U.S. Department of the Treasury (the “Treasury”) are depressed relative to historical levels.  Therefore, in the current market, a low market price for a particular bond may only provide evidence of stress in the credit markets in general rather than being an indicator of credit problems with a particular issue.  Given the conditions in the current debt markets and the absence of observable transactions in the secondary and new issue markets, management has determined that (a) the few observable transactions and market quotations that are available are not reliable for the purpose of obtaining fair value at March 31, 2019, (b) an income valuation approach technique (i.e. present value) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than a market approach, and (c) the CDO segment is appropriately classified within Level 3 of the valuation hierarchy because management determined that significant adjustments were required to determine fair value at the measurement date.

Management relies on an independent third party to prepare both the evaluations of OTTI as well as the fair value determinations for its CDO portfolio. Management believes that the valuations are adequately reflected at March 31, 2019.

The approach used by the third party to determine fair value involved several steps, which included detailed credit and structural evaluation of each piece of collateral in each bond, projection of default, recovery and prepayment/amortization probabilities for each piece of collateral in the bond, and discounted cash flow modeling. The discount rate methodology used by the third party combines a baseline current market yield for comparable corporate and structured credit products with adjustments based on evaluations of the differences found in structure and risks associated with actual and projected credit performance of each CDO being valued.  Currently, the only active and liquid trading market that exists is for stand-alone trust preferred securities, with a limited market for highly-rated CDO securities that are more senior in the capital structure than the securities in the CDO portfolio.  Therefore, adjustments to the baseline discount rate are also made to reflect the additional leverage found in structured instruments.

Derivative financial instruments (Cash flow hedge)–The Corporation’s open derivative positions are interest rate swap agreements.  Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management.   The Corporation has considered counterparty credit risk in the valuation of its interest rate swap assets. 

Impaired loans – Loans included in the table below are those that are considered impaired with a specific allocation or with a partial charge-off, 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. 

Other real estate owned – OREO included in the table below are considered impaired with specific write-downs.  Fair value of other real estate owned is 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 Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)		Fair Value at March 31, 2019	Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	15,152	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	8,087	Market Comparable Properties	Marketability Discount	10.0% - 15.0%(1)               (weighted avg 12.8%)
Other Real Estate Owned	$	786	Market Comparable Properties	Marketability Discount	10.0% - 15.0%(1)               (weighted avg 14.6%)
(in thousands)		Fair Value at December 31, 2018	Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	15,277	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	1,316	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1)               (weighted avg 12.8%)
Other Real Estate Owned	$	2,707	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1)               (weighted avg 13.5%)

NOTE:

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

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2019 and December 31, 2018 are as follows:

			Fair Value Measurements at March 31, 2019 Using
		Assets Measured at Fair Value	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)		03/31/2019	(Level 1)		(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,464		$	29,464
Commercial mortgage-backed agencies	$	36,976		$	36,976
Collateralized mortgage obligations	$	35,005		$	35,005
Obligations of states and political subdivisions	$	19,917		$	19,917
Collateralized debt obligations	$	15,152				$	15,152
Financial Derivatives	$	612		$	612
Non-recurring:
Impaired loans	$	8,087				$	8,087
Other real estate owned	$	786				$	786

			Fair Value Measurements at December 31, 2018 Using
		Assets Measured at Fair Value	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)		12/31/2018	(Level 1)		(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,026		$	29,026
Commercial mortgage-backed agencies	$	37,752		$	37,752
Collateralized mortgage obligations	$	35,704		$	35,704
Obligations of states and political subdivisions	$	19,882		$	19,882
Collateralized debt obligations	$	15,277				$	15,277
Financial Derivative	$	1,043		$	1,043
Non-recurring:
Impaired loans	$	1,316				$	1,316
Other real estate owned	$	2,707				$	2,707

There were no transfers of assets between any of the fair value hierarchy for the three-month periods ended March 31, 2019 or 2018.

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the three-month periods ended March 31, 2019 and 2018:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)		Investment Securities Available for Sale
Beginning balance January 1, 2019	$	15,277
Total losses realized/unrealized:
Included in other comprehensive income		(125)
Ending balance March 31, 2019	$	15,152

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)		Investment Securities Available for Sale
Beginning balance January 1, 2018	$	14,920
Total gains realized/unrealized:
Included in other comprehensive income		1,057
Ending balance March 31, 2018	$	15,977

Gains (realized and unrealized) included in earnings for the periods identified above are reported in the Consolidated Statement of Operations in Other Operating Income.  There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the three-month periods ended March 31, 2019 and 2018.

The disclosed fair values 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 tables present fair value information about financial instruments, whether or not recognized in the Consolidated 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 Consolidated Statement of Financial Condition are as follows:

	March 31, 2019					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	$	53,112	$	53,112	$	53,112
Interest bearing deposits in banks		892		892		892
Investment securities - AFS		136,514		136,514			$	121,362	$	15,152
Investment securities - HTM		95,538		97,364				80,764		16,600
Restricted bank stock		4,373		4,373				4,373
Loans, net		993,070		971,274						971,274
Financial derivatives		612		612				612
Accrued interest receivable		4,268		4,268				4,268
Financial Liabilities:
Deposits – non-maturity		874,296		874,296				874,296
Deposits – time deposits		256,316		257,122				257,122
Short-term borrowed funds		39,695		39,695				39,695
Long-term borrowed funds		100,929		102,508				102,508
Accrued interest payable		490		490				490
Off balance sheet financial instruments		0		0		0

	December 31, 2018					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	$	22,187	$	22,187	$	22,187
Interest bearing deposits in banks		1,354		1,354		1,354
Investment securities - AFS		137,641		137,641			$	122,364	$	15,277
Investment securities - HTM		94,010		93,760				80,780		12,980
Restricted bank stock		5,394		5,394				5,394
Loans, net		996,667		967,198						967,198
Financial derivative		1,043		1,043				1,043
Accrued interest receivable		4,175		4,175				4,175
Financial Liabilities:
Deposits- non-maturity		815,858		815,858				815,858
Deposits- time deposits		251,669		252,146				252,146
Short-term borrowed funds		77,707		77,707				77,707
Long-term borrowed funds		100,929		102,590				102,590
Accrued interest payable		455		455				455
Off balance sheet financial instruments		0		0		0

XML

Accumulated Other Comprehensive Loss

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

Note 8 – Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2018 and the three-month period ended March 31, 2019:

(in thousands)	Investment securities- with OTTI AFS		Investment securities- all other AFS			Investment securities- HTM	Cash Flow Hedge		Pension Plan		SERP		Total
Accumulated OCL, net:
Balance – January 1, 2018	$	(2,939)	$	(2,979)	$	(1,347)	$	582	$	(17,066)	$	(844)	$	(24,593)
Other comprehensive income/(loss) before reclassifications		1,194		(540)		0		191		(1,833)		202		(786)
Amounts reclassified from accumulated other comprehensive loss		(154)		(82)		216		0		882		114		976
Balance – December 31, 2018	$	(1,899)	$	(3,601)	$	(1,131)	$	773	$	(18,017)	$	(528)	$	(24,403)
Other comprehensive income/(loss) before reclassifications		(44)		901		0		(315)		1,933		0		2,475
Amounts reclassified from accumulated other comprehensive loss		(36)		4		55		0		196		21		240
Balance - March 31, 2019	$	(1,979)	$	(2,696)	$	(1,076)	$	458	$	(15,888)	$	(507)	$	(21,688)

The following tables present the components of other comprehensive income/(loss) for the three-month periods ended March 31, 2019 and 2018:

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the three months ended March 31, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(60)	$	16	$	(44)
Less:  accretable yield recognized in income		49		(13)		36
Net unrealized losses on investments with OTTI		(109)		29		(80)
Available for sale securities – all other:
Unrealized holding gains		1,236		(335)		901
Less:  losses recognized in income		(6)		2		(4)
Net unrealized gains on all other AFS securities		1,242		(337)		905
Held to maturity securities:
Unrealized holding gains		0		0		0
Less:  amortization recognized in income		(75)		20		(55)
Net unrealized gains on HTM securities		75		(20)		55
Cash flow hedges:
Unrealized holding losses		(432)		117		(315)
Pension Plan:
Unrealized net actuarial gain		2,652		(719)		1,933
Less: amortization of unrecognized loss		(269)		73		(196)
Net pension plan liability adjustment		2,921		(792)		2,129
SERP:
Unrealized net actuarial loss		0		0		0
Less: amortization of unrecognized loss		(29)		7		(22)
Less: amortization of prior service costs		1		0		1
Net SERP liability adjustment		28		(7)		21
Other comprehensive income	$	3,725	$	(1,010)	$	2,715

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the three months ended March 31, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	939	$	(254)	$	685
Less:  accretable yield recognized in income		55		(15)		40
Net unrealized gains on investments with OTTI		884		(239)		645
Available for sale securities – all other:
Unrealized holding losses		(1,487)		402		(1,085)
Less:  losses recognized in income		(9)		2		(7)
Net unrealized losses on all other AFS securities		(1,478)		400		(1,078)
Held to maturity securities:
Unrealized holding gains		0		0		0
Less:  amortization recognized in income		(76)		31		(45)
Net unrealized gains on HTM securities		76		(31)		45
Cash flow hedges:
Unrealized holding gains		607		(164)		443
Pension Plan:
Unrealized net actuarial gain		707		(191)		516
Less: amortization of unrecognized loss		(300)		81		(219)
Less: amortization of prior service costs		(2)		1		(1)
Net pension plan liability adjustment		1,009		(273)		736
SERP:
Unrealized net actuarial loss		0		0		0
Less: amortization of unrecognized loss		(41)		11		(30)
Less: amortization of prior service costs		1		0		1
Net SERP liability adjustment		40		(11)		29
Other comprehensive income	$	1,138	$	(318)	$	820

The following table presents the details of amount reclassified from accumulated other comprehensive loss for the three-month periods ended March 31, 2019 and 2018:

Amounts Reclassified from Accumulated Other Comprehensive Loss (in thousands)	For the three months ended March 31, 2019		For the three months ended March 31, 2018		Affected Line Item in the Statement Where Net Income is Presented
Net unrealized gains on investment securities with OTTI:
Accretable yield		49		55	Interest income on taxable investment securities
Taxes		(13)		(15)	Provision for income tax expense
	$	36	$	40	Net of tax
Net unrealized losses on available for sale investment securities - all others:
Losses on calls	$	(6)	$	(9)	Net gains
Taxes		2		2	Provision for income tax expense
	$	(4)	$	(7)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(75)	$	(76)	Interest income on taxable investment securities
Taxes		20		31	Provision for income tax expense
	$	(55)	$	(45)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(269)	$	(300)	Other Expense
Amortization of prior service costs		0		(2)	Salaries and employee benefits
Taxes		73		82	Provision for income tax expense
	$	(196)	$	(220)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(29)	$	(41)	Other Expense
Amortization of prior service costs		1		1	Salaries and employee benefits
Taxes		7		11	Provision for income tax expense
	$	(21)	$	(29)	Net of tax
Total reclassifications for the period	$	(240)	$	(261)	Net of tax

XML

Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Note 9 – Leases

On January 1, 2019, the Corporation adopted Accounting Standards Update (“ASU”) 20016-02, “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. The adoption of Topic 842 affected the accounting treatment for operating lease agreements in which the Corporation is the lessee.

Lessee Accounting

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 now classified as operating leases and, therefore, were previously not recognized on the Corporation’s Consolidated Statement of Financial Condition. With the adoption of Topic 842, operating lease agreements are required to be recognized on the Consolidated Statement of Financial Condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

The following table represents the Consolidated Statement of Financial Condition classification of the Corporation’s ROU assets and lease liabilities. The Corporation elected not to include short-term leases (i.e., leases with remaining terms of 12 months or less), or equipment leases that were deemed immaterial on the Consolidated Statement of Financial Condition.

(in thousands)		March 31, 2019
Lease Right-of Use Assets
Operating lease right-of-use assets	$	2,665
Lease Liabilities
Operating lease liabilities	$	3,250

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 March 31, 2019:

	March 31, 2019
Weighted-average remaining lease term
Operating leases	9.01 years
Weighted-average discount rate
Operating leases	5.09%

The Corporation elected, for all classes of underlying assets, to separate lease and non-lease components.  Total operating lease expense for the three months ended March 31, 2019 was $.1 million.  Short-term lease expense was $24 thousand for the three months ended March 31, 2019. 

Future minimum payments for operating leases with initial or remaining terms of one year or more at March 31, 2019 were as follows:

(in thousands)		Operating Leases
2019 (remainder of year)	$	343
2020		467
2021		466
2022		459
2023		393
Thereafter		1,983
Total future minimum lease payments		4,111
Amounts representing interest		(861)
Present value of net future minimum lease payments	$	3,250

XML

Borrowed Funds

3 Months Ended

Mar. 31, 2019

Borrowed Funds [Abstract]

Borrowed Funds

Note 10 –Borrowed Funds

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

(Dollars in thousands)	Three months ended March 31, 2019		Year ended December 31, 2018
Short-term Correspondent Bank Advance:
Overnight borrowings, weighted average interest rate of 2.70% at December 31, 2018	$	0	$	40,000
Securities sold under agreements to repurchase:
Outstanding at end of period	$	39,695	$	37,707
Weighted average interest rate at end of period		0.66%		0.24%
Maximum amount outstanding as of any month end	$	40,579	$	55,648
Average amount outstanding	$	37,624	$	44,045
Approximate weighted average rate during the period		0.69%		0.20%

At March 31, 2019, the repurchase agreements were secured by $52.1 million in investment securities issued by government related agencies.  A minimum of 102% of fair value is pledged against account balances.

At March 31, 2019, the long-term FHLB advances were secured by $214.4 million in loans.

XML

Employee Benefit Plans

3 Months Ended

Mar. 31, 2019

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 11 – Employee Benefit Plans

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

Pension	For the three months ended
	March 31,
(in thousands)	2019		2018
Service cost	$	67	$	81
Interest cost		437		397
Expected return on assets		(764)		(810)
Amortization of net actuarial loss		269		300
Amortization of prior service cost		0		2
Net pension credit included in employee benefits and other expense	$	9	$	(30)

Defined Benefit SERP	For the three months ended
	March 31,
(in thousands)	2019		2018
Service cost	$	24	$	28
Interest cost		82		75
Amortization of recognized loss		29		41
Amortization of prior service cost		(1)		(1)
Net Defined Benefit SERP expense included in employee benefits and other expense	$	134	$	143

The service cost component of net periodic benefit cost is included in salaries and benefits and all other components of net periodic benefit cost are included in other noninterest expense in the Consolidated Statement of Operations for the Corporation’s Pension and Defined Benefit SERP plans. 

The Pension Plan is a noncontributory defined benefit pension plan that covers our employees who were hired prior to the freeze and others who were grandfathered into the 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 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 (a) their ages, at their closest birthday, plus bi) 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 are managed through discretionary contributions to the First United Corporation 401(k) Profit Sharing Plan (the “401(k) Plan”).

The Bank established the Defined Benefit SERP in 2001 as an unfunded supplemental executive retirement plan.  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.  Concurrent with the establishment of the Defined Benefit SERP, the Bank acquired Bank Owned Life Insurance (“BOLI”) policies on the senior management personnel and officers of the Bank.  The benefits resulting from the favorable tax treatment accorded the earnings on the BOLI policies are intended to provide a source of funds for the future payment of the Defined Benefit SERP benefits as well as other employee benefit costs. 

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.

The Corporation will assess the need for future annual contributions to the pension plan based upon its funded status and an evaluation of the future benefits to be provided thereunder.  A contribution of $2.0 million was made to the pension plan during the first three months of 2019.  The Corporation expects to fund the annual projected benefit payments for the Defined Benefit SERP from operations.

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

In January 2017, the Board of Directors approved discretionary contributions to four participants totaling $112,780.  The contributions had a two-year vesting period that ended at December 31, 2018.  In January 2018, the Board approved discretionary contributions to four participants totaling $119,252.  The contributions have a two-year vesting period.   The Corporation recorded $14,906 of the related compensation for the first three months of 2019 and 2018.  In January 2019, the Board of Directors of First United Corporation approved discretionary contributions to four participants totaling $123,179.  The contributions also have a two-year vesting period.  The Corporation recorded $18,788 of related compensation expense for the first three months of 2019.

XML

Equity Compensation Plan Information

3 Months Ended

Mar. 31, 2019

Equity Compensation Plan Information [Abstract]

Equity Compensation Plan Information

Note 12 - Equity Compensation Plan Information

At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation 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).

Stock-based awards were made to non-employee directors in May 2018 pursuant to First United Corporation’s director compensation policy.  Each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $10,000 to be paid, at the director’s election, in cash or additional shares of common stock.  In 2018, a total of 12,936 fully-vested shares of common stock were issued to directors, which had a grant date fair market value of $20.63 per share.  Director stock compensation expense was $66,717 for the three months ended March 31, 2019 and $53,558 for the three months ended March 31, 2018.

XML

Letters of Credit and Off Balance Sheet Liabilities

3 Months Ended

Mar. 31, 2019

Letters of Credit and Off Balance Sheet Liabilities [Abstract]

Letters of Credit and Off Balance Sheet Liabilities

Note 13 – Letters of Credit and Off Balance Sheet Liabilities

The Corporation does 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.  Generally, the Bank’s letters of credit are issued with expiration dates within one year.  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 these commitments.  The Bank had $3.6 million of outstanding standby letters of credit at March 31, 2019 and $3.4 million at December 31, 2018.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payment required by the letters of credit.  Management does not believe that the amount of the liability associated with guarantees under standby letters of credit outstanding at March 31, 2019 and December 31, 2018 is material. 

XML

Derivative Financial Instruments

3 Months Ended

Mar. 31, 2019

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 14 – Derivative Financial Instruments

As a part of managing interest rate risk, the Bank entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated these 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 loss. 

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.  These contracts are a three-year $5.0 million contract that matures on June 17, 2019, a five-year $5.0 million contract that matures on March 17, 2021, a seven-year $5.0 million contract that matures on March 17, 2023 and a 10-year $15.0 million contract maturing March 17, 2026.

The fair value of the interest rate swap contracts was $.6 million and $1.0 million at March 31, 2019 and December 31, 2018, respectively.

For the three months ended March 31, 2019, the Corporation recorded a decrease in the value of the derivatives of $.4 million and the related deferred tax of $117 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.  ASC Subtopic 815-30 requires this amount to be reclassified to earnings if the hedge becomes ineffective or is terminated.  There was no hedge ineffectiveness recorded for the three months ended March 31, 2019.  The Corporation does not expect any losses relating to these hedges to be reclassified into earnings within the next 12 months.

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of March 31, 2019.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three- months ended March 31, 2019 and 2018.

Derivative in Cash Flow Hedging Relationships
(in thousands)	Amount of gain or (loss) recognized in OCI on derivative (effective portion)		Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) (a)		Amount of gain or (loss) recognized in income or derivative (ineffective portion and amount excluded from effectiveness testing) (b)
Interest rate contracts:
Three months ended:
March 31, 2019	$	(315)	$	0	$	0
March 31, 2018		443		0		0

Notes:

(a) Reported as interest expense

(b) Reported as other income

XML

Assets and Liabilities Subject to Enforceable Master Netting Arrangements

3 Months Ended

Mar. 31, 2019

Assets and Liabilities Subject to Enforceable Master Netting Arrangements [Abstract]

Assets and Liabilities Subject to Enforceable Master Netting Arrangements

Note 15 – Assets and Liabilities Subject to Enforceable Master Netting Arrangements

Interest Rate Swap Agreements

The Corporation has entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities as a part of managing interest rate risk.  The swap agreements have been designated as cash flow hedges, and accordingly, the fair value of the interest rate swap contracts is reported in Other Assets on the Consolidated Statement of Financial Condition.  The swap agreements were entered into with a third-party financial institution.  The Corporation is party to master netting arrangements with its financial institution counterparty; however, the Corporation does not offset assets and liabilities under these arrangements for financial statement presentation purposes.  The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract.  Collateral, in the form of cash and investment securities, are pledged by the Corporation as the counterparty with net liability positions in accordance with contract thresholds.  See Note 14 to the Consolidated Financial Statements for more information.

Securities Sold Under Agreements to Repurchase (“Repurchase Agreements”)

The Bank enters into agreements under which it sells interests in U.S. securities to certain customers subject to an obligation to repurchase, and on the part of the customers to resell, such interests.  Under these arrangements, the Bank may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Bank to repurchase the assets.  As a result, these repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities.  The obligation to repurchase the securities is reflected as a liability in the Consolidated Statement of Condition, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts.  There is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities.  In addition, as the Bank does not enter into reverse repurchase agreements, there is no such offsetting to be done with the repurchase agreements.  The right of setoff for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Bank be in default (i.e. fails to repurchase the U.S. securities on the maturity date of the agreement).  The investment security collateral, maintained at 102% of the borrowing, is held by a third party financial institution in the counterparty’s custodial account.

The following table presents the assets and liabilities subject to an enforceable master netting arrangement or repurchase agreements at March 31, 2019 and December 31, 2018.

							Gross Amounts Not Offset in the Statement of Condition
(In thousands)	Gross Amounts of Recognized (Assets)/ Liabilities		Gross Amounts Offset in the Statement of Condition		Net Amounts of (Assets)/ Liabilities Presented in the Statement of Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
March 31, 2019
Interest Rate Swap Agreements	$	(612)	$	0	$	(612)	$	612	$	0	$	0
Repurchase Agreements	$	39,695	$	0	$	39,695	$	(39,695)	$	0	$	0
December 31, 2018
Interest Rate Swap Agreements	$	(1,043)	$	0	$	(1,043)	$	1,043	$	0	$	0
Repurchase Agreements	$	37,707	$	0	$	37,707	$	(37,707)	$	0	$	0

XML

Adoption of New Accounting Standards and Effects of New Accounting Pronouncements

3 Months Ended

Mar. 31, 2019

Adoption of New Accounting Standards and Effects of New Accounting Pronouncements [Abstract]

Adoption of New Accounting Standards and Effects of New Accounting Pronouncements

Note 16 – Adoption of New Accounting Standards and Effects of New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  ASU 2016-02 is intended to improve financial reporting about leasing transactions by requiring organizations that lease assets – referred to as “lessees” – to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases.  From the lessee’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. The guidance also eliminates the current real estate-specific provision and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs. With respect to lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. In applying this guidance, entities will also need to determine whether an arrangement contains a lease or service agreement. Disclosures are required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.  The amendments will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.  ASU 2016-02 is effective for the Corporation for annual and interim periods after December 15, 2018.  The Corporation adopted ASU 2016-02 effective January 1, 2019.  See Note 9 for additional details.

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements.  ASU 2018-10 provides improvements related to ASU 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements.  The amendments affect narrow aspects of the guidance issued in ASU 2016-02.  ASU 2018-11 allows entities adopting ASU  2016-02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  ASU 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met.  

The Corporation elected the optional transition method permitted by ASU 2018-11.  Under this method, an entity shall recognize and measure leases that exist at the application date and prior comparative periods are not adjusted.  In addition, the Corporation elected the package of practical expedients to leases that commenced before the effective date:

1.	An entity need not reassess whether any expired or existing contracts contain leases.
2.	An entity need not reassess the lease classification for any expired or existing leases.
3.	An entity need not reassess initial direct costs for any existing leases.

The Corporation also elected the practical expedient, which must be applied consistently to all leases, to use hindsight in determining the lease term and in assessing impairment of our right-of-use assets.  The Corporation recorded a ROU asset in the amount of approximately $2.7 million and a lease liability in the amount of approximately $3.3 million on the Consolidated Statement of Financial Condition upon adoption on January 1, 2019.  The adoption did not have a material impact to the Consolidated Statements of Income or Cash Flows.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.  ASU 2017-12 is intended to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  ASU 2017-12 is effective for the Corporation for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.  The Corporation adopted ASU 2017-12 effective January 1, 2019.  The adoption did not have a material impact on the Corporation’s Consolidated Financial Statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  ASU 2016-13 introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments.  It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchases financial assets with credit deterioration since their origination.  The new model referred to as current expected credit losses (“CECL”) model, will apply to: (a) financial assets subject to credit losses and measured at amortized cost; and (b) certain off-balance sheet credit exposures.  This includes loans, held to maturity debt securities, loan commitments, financial guarantees and net investments in leases as well as reinsurance and trade receivables.  The estimate of expected credit losses should consider historical information, current information, and supportable forecasts, including estimates of prepayments.  ASU 2016-13 is effective for the Corporation for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  Management currently intends to adopt the guidance on January 1, 2020 and is assessing the impact of this guidance on the Corporation’s financial condition and results of operations.  Management has formed a focus group consisting of multiple members from areas, including credit, finance, loan servicing, reporting, and information systems.The Corporation is planning to complete its data and model validation analyses during the first half of 2019, with parallel processing of our existing allowance for loan losses model with the CECL model for two to three quarters prior to implementation.  Currently, the focus group has identified 11 loan segments for all data which has been populated and internally validated within the model.  During 2019, the Corporation is focused on testing methodologies and refining assumptions.  Concurrent with this, the Corporation is also focused on researching and resolving interpretive accounting issues in the ASU, contemplating various related accounting policies, developing processes and related controls, and considering various reporting disclosures.  In December 2018, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (the “FDIC”) approved a final rule to address changes to credit loss accounting under GAAP, including banking organizations’ implementation of CECL.  The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.

In January 2017, the FASB issued ASU 2017-04, Intangibles- Goodwill and Other (Topic 350):  Simplifying the Test for Goodwill Impairment.  ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test.  Instead, if “the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.”  The ASU does not change the qualitative assessment, however, it removes the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test.  ASU 2017-04 is effective for the Corporation for annual periods beginning after December 15, 2019, and interim periods within those annual periods.  The Corporation is evaluating the provisions of ASU 2017-04 but believes that its adoption will not have a material impact on the Corporation’s financial condition or results of operations.

XML

Earnings Per Common Share (Policy)

3 Months Ended

Mar. 31, 2019

Earnings Per Common Share [Abstract]

Earnings Per Common Share Policy

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.  No common stock equivalents were outstanding at March 31, 2019.

XML

Investments (Policy)

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

Investments

Management systematically evaluates securities for impairment on a quarterly basis.  Based upon application of accounting guidance for subsequent measurement in ASC Topic 320 (ASC Section 320-10-35), management assesses whether (a) the Corporation has the intent to sell a security being evaluated and (b) it is more likely than not that the Corporation will be required to sell the security prior to its anticipated recovery.  If neither applies, then declines in the fair values of securities below their cost that are considered other-than-temporary declines are split into two components.  The first is the loss attributable to declining credit quality.  Credit losses are recognized in earnings as realized losses in the period in which the impairment determination is made.  The second component consists of all other losses, which are recognized in other comprehensive loss.  In estimating other than temporary impairment (“OTTI”) losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) adverse conditions specifically related to the security, an industry, or a geographic area, (3) the historic and implied volatility of the fair value of the security, (4) changes in the rating of the security by a rating agency, (5) recoveries or additional declines in fair value subsequent to the balance sheet date, (6) failure of the issuer of the security to make scheduled interest or principal payments, and (7) the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future.  Management also monitors cash flow projections for securities that are considered beneficial interests under the guidance of ASC Subtopic 325-40, Investments – Other – Beneficial Interests in Securitized Financial Assets, (ASC Section 325-40-35).  Further discussion about the evaluation of securities for impairment can be found in Item 2 of Part I of this report under the heading “Investment Securities”.

XML

Loans and Related Allowance for Loan Losses (Policy)

3 Months Ended

Mar. 31, 2019

Loans and Related Allowance for Loan Losses [Abstract]

Loan Status

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.  A loan is considered to be past due when a payment remains unpaid 30 days past its contractual due date.  For all loan segments, the accrual of interest is discontinued when principal or interest is delinquent for 90 days or more unless the loan is well-secured and in the process of collection.  All non-accrual loans are considered to be impaired.  Interest payments received on non-accrual loans are applied as a reduction of the loan principal balance.  Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.  The Corporation’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition. 

Allowance for Loan Losses

The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis.  Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level.  A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer pools currently utilize a rolling 12 quarters, while Commercial pools currently utilize a rolling eight quarters. 

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. “Pass” pools for commercial and residential real estate are further segmented based upon the geographic location of the underlying collateral.  There are seven geographic regions utilized – six that represent the Bank’s lending footprint and a seventh for all out-of-market credits.  Different economic environments and resultant credit risks exist in each region that are acknowledged in the assignment of qualitative factors.  Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are:  (a) national and local economic trends and conditions; (b) levels of and trends in delinquency rates and non-accrual loans; (c) trends in volumes and terms of loans; (d) effects of changes in lending policies; (e) experience, ability, and depth of lending staff; (f) value of underlying collateral; and (g) concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.  Residential mortgage and consumer loans are charged off after they are 120 days contractually past due.  All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral.  The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy.   There may be circumstances where, due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized.  This specific allocation may be either charged off or removed depending upon the outcome of the pending event.  Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. Loans with partial charge-offs generally remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL.

Troubled Debt Restructure

A modified loan is considered to be a TDR when the Bank has determined that the borrower is troubled (i.e., experiencing financial difficulties). The Bank evaluates the probability that the borrower will be in payment default on any of its debt obligations in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations.

When the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment amount, amortization period, and/or maturity date) are modified in such a way as to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy.  If a borrower’s hardship is thought to be temporary, then modified terms are offered only for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time the loan is restructured in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. 

All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status.  The Bank’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.  Accordingly, 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.  If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months.  TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure.  Loans may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months.

The volume and type of TDR activity is considered in the assessment of the local economic trends’ qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment.

XML

Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Common Share [Abstract]

Basic and Diluted Earnings Per Share

The following tables set forth the calculation of basic and diluted earnings per common share for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
	2019					2018
			Average	Per Share				Average	Per Share
(in thousands, except for per share amount)	Income		Shares	Amount		Income		Shares	Amount
Basic and Diluted Earnings Per Share:
Net income	$	3,151	7,088	$	0.44	$	2,506	7,067	$	0.35

XML

Net Gains (Tables)

3 Months Ended

Mar. 31, 2019

Net Gains/(Losses) [Abstract]

Net Gains/(Losses)

The following table summarizes the gain/(loss) activity for the three-month periods ended March 31, 2019 and 2018:

	Three months ended
	March 31,
(in thousands)	2019		2018
Net gains/(losses):
Available-for-sale securities:
Realized losses		(6)		(9)
Gains on sale of consumer loans		20		43
Net gains:	$	14	$	34

XML

Investments (Tables)

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

Unrealized Gain (Loss) on Investments

The following table shows a comparison of amortized cost and fair values of investment securities at March 31, 2019 and December 31, 2018:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
March 31, 2019
Available for Sale:
U.S. government agencies	$	30,000	$	0	$	536	$	29,464	$	0
Commercial mortgage-backed agencies		38,141		0		1,165		36,976		0
Collateralized mortgage obligations		35,564		0		559		35,005		0
Obligations of states and political subdivisions		19,798		213		94		19,917		0
Collateralized debt obligations		18,362		0		3,210		15,152		(2,075)
Total available for sale	$	141,865	$	213	$	5,564	$	136,514	$	(2,075)
Held to Maturity:
U.S. government agencies	$	16,054	$	401	$	0	$	16,455	$	0
Residential mortgage-backed agencies		45,312		15		667		44,660		0
Commercial mortgage-backed agencies		15,745		213		0		15,958		0
Collateralized mortgage obligations		3,753		0		62		3,691		0
Obligations of states and political subdivisions		14,674		1,974		48		16,600		0
Total held to maturity	$	95,538	$	2,603	$	777	$	97,364	$	0
December 31, 2018
Available for Sale:
U.S. government agencies	$	30,000	$	0	$	974	$	29,026	$	0
Commercial mortgage-backed agencies		39,013		0		1,261		37,752		0
Collateralized mortgage obligations		36,669		0		965		35,704		0
Obligations of states and political subdivisions		20,083		132		333		19,882		0
Collateralized debt obligations		18,358		0		3,081		15,277		(1,966)
Total available for sale	$	144,123	$	132	$	6,614	$	137,641	$	(1,966)
Held to Maturity:
U.S. government agencies	$	16,017	$	120	$	0	$	16,137	$	0
Residential mortgage-backed agencies		46,491		6		1,287		45,210		0
Commercial mortgage-backed agencies		15,821		75		68		15,828		0
Collateralized mortgage obligations		3,761		0		156		3,605		0
Obligations of states and political subdivisions		11,920		1,156		96		12,980		0
Total held to maturity	$	94,010	$	1,357	$	1,607	$	93,760	$	0

Proceeds from Sales and Realized Gains and Losses

Proceeds from sales/calls of available for sale securities and the realized gains and losses are as follows:

	Three months ended
	March 31,
(in thousands)	2019		2018
Proceeds	$	260	$	235
Realized gains		0		0
Realized losses		6		9

Gross Unrealized Losses and Fair Values of Securities

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at March 31, 2019 and December 31, 2018, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 months						12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments		Fair Value		Unrealized Losses		Number of Investments
March 31, 2019
Available for Sale:
U.S. government agencies	$	0	$	0		0	$	29,464	$	536		5
Commercial mortgage-backed agencies		0		0		0		36,976		1,165		8
Collateralized mortgage obligations		171		1		1		34,834		558		8
Obligations of states and political subdivisions		115		1		1		5,278		93		4
Collateralized debt obligations		5,949		478		4		9,201		2,732		5
Total available for sale	$	6,235	$	480		6	$	115,753	$	5,084		30
Held to Maturity:
Residential mortgage-backed agencies		3,623		15		2		36,833		652		26
Collateralized mortgage obligations		0		0		0		3,691		62		1
Obligations of states and political subdivisions		2,247		48		1		0		0		0
Total held to maturity	$	5,870	$	63		3	$	40,524	$	714		27

December 31, 2018
Available for Sale:
U.S. government agencies	$	0	$	0	0	$	29,026	$	974	5
Commercial mortgage-backed agencies		0		0	0		37,752		1,261	8
Collateralized mortgage obligations		232		1	1		35,472		964	8
Obligations of states and political subdivisions		3,310		48	5		11,068		285	8
Collateralized debt obligations		5,987		438	4		9,290		2,643	5
Total available for sale	$	9,529	$	487	10	$	122,608	$	6,127	34
Held to Maturity:
Residential mortgage-backed agencies	$	3,605	$	51	2	$	41,448	$	1,236	29
Commercial mortgage-backed agencies		0		0	0		7,656		68	1
Collateralized mortgage obligations		0		0	0		3,605		156	1
Obligations of states and political subdivisions		0		0	0		2,199		96	1
Total held to maturity	$	3,605	$	51	2	$	54,908	$	1,556	32

Non-Cash OTTI Credit Losses Recognized in Earnings

The following tables present a cumulative roll-forward of the amount of non-cash OTTI charges related to credit losses which have been recognized in earnings for the trust preferred securities in the CDO portfolio held and not intended to be sold for the three-month periods ended March 31, 2019 and 2018:

	Three months ended March 31,
(in thousands)	2019		2018
Balance of credit-related OTTI at January 1	$	2,646	$	2,958
Reduction for increases in cash flows expected to be collected		(49)		(55)
Balance of credit-related OTTI at March 31	$	2,597	$	2,903

Amortized Cost and Fair Values Classified by Contractual Maturity Date

	March 31, 2019
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	227	$	228
Due after one year through five years		16,768		16,614
Due after five years through ten years		21,799		21,388
Due after ten years		29,366		26,303
		68,160		64,533
Commercial mortgage-backed agencies		38,141		36,976
Collateralized mortgage obligations		35,564		35,005
Total available for sale	$	141,865	$	136,514
Held to Maturity:
Due after one year through five years	$	8,363	$	8,556
Due after five years through ten years		7,691		7,899
Due after ten years		14,674		16,600
		30,728		33,055
Residential mortgage-backed agencies		45,312		44,660
Commercial mortgage-backed agencies		15,745		15,958
Collateralized mortgage obligations		3,753		3,691
Total held to maturity	$	95,538	$	97,364

XML

Loans and Related Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2019

Loans and Related Allowance for Loan Losses [Abstract]

Primary Segments of the Loan Portfolio

The following table summarizes the primary segments of the loan portfolio at March 31, 2019 and December 31, 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Total
March 31, 2019
Individually evaluated for impairment	$	4,351	$	8,013	$	27	$	3,943	$	24	$	16,358
Collectively evaluated for impairment	$	295,115	$	115,313	$	109,392	$	434,664	$	33,776	$	988,260
Total loans	$	299,466	$	123,326	$	109,419	$	438,607	$	33,800	$	1,004,618
December 31, 2018
Individually evaluated for impairment	$	5,239	$	693	$	17	$	4,616	$	10	$	10,575
Collectively evaluated for impairment	$	301,682	$	117,667	$	111,449	$	432,291	$	34,050	$	997,139
Total loans	$	306,921	$	118,360	$	111,466	$	436,907	$	34,060	$	1,007,714

Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention and Substandard within the internal risk rating system at March 31, 2019 and December 31, 2018:

(in thousands)	Pass		Special Mention		Substandard		Total
March 31, 2019
Commercial real estate
Non owner-occupied	$	138,286	$	7,553	$	2,285	$	148,124
All other CRE		144,863		1,738		4,741		151,342
Acquisition and development
1-4 family residential construction		13,949		0		0		13,949
All other A&D		101,567		0		7,810		109,377
Commercial and industrial		105,428		0		3,991		109,419
Residential mortgage
Residential mortgage - term		362,573		0		4,444		367,017
Residential mortgage - home equity		70,154		142		1,294		71,590
Consumer		33,694		4		102		33,800
Total	$	970,514	$	9,437	$	24,667	$	1,004,618
December 31, 2018
Commercial real estate
Non owner-occupied	$	145,260	$	2,904	$	2,348	$	150,512
All other CRE		149,076		1,752		5,581		156,409
Acquisition and development
1-4 family residential construction		16,003		0		0		16,003
All other A&D		94,428		7,378		551		102,357
Commercial and industrial		107,174		3,703		589		111,466
Residential mortgage
Residential mortgage - term		359,305		0		4,703		364,008
Residential mortgage - home equity		71,666		143		1,090		72,899
Consumer		33,952		4		104		34,060
Total	$	976,864	$	15,884	$	14,966	$	1,007,714

Loan Portfolio Summarized by the Past Due Status

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2019 and December 31, 2018:

(in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due and Accruing		Non-Accrual		Total Loans
March 31, 2019
Commercial real estate
Non owner-occupied	$	147,980	$	0	$	0	$	0	$	0	$	144	$	148,124
All other CRE		149,687		127		26		0		153		1,502		151,342
Acquisition and development
1-4 family residential construction		13,834		115		0		0		115		0		13,949
All other A&D		101,644		258		0		0		258		7,475		109,377
Commercial and industrial		108,266		1,116		10		0		1,126		27		109,419
Residential mortgage
Residential mortgage - term		363,383		1,887		271		8		2,166		1,468		367,017
Residential mortgage - home equity		70,040		527		100		0		627		923		71,590
Consumer		33,556		172		48		0		220		24		33,800
Total	$	988,390	$	4,202	$	455	$	8	$	4,665	$	11,563	$	1,004,618
December 31, 2018
Commercial real estate
Non owner-occupied	$	150,339	$	0	$	0	$	0	$	0	$	173	$	150,512
All other CRE		153,977		464		0		0		464		1,968		156,409
Acquisition and development
1-4 family residential construction		16,003		0		0		0		0		0		16,003
All other A&D		94,540		197		7,411		62		7,670		147		102,357
Commercial and industrial		111,436		29		1		0		30		0		111,466
Residential mortgage
Residential mortgage - term		360,073		302		1,359		363		2,024		1,911		364,008
Residential mortgage - home equity		71,611		461		114		0		575		713		72,899
Consumer		33,832		140		73		5		218		10		34,060
Total	$	991,811	$	1,593	$	8,958	$	430	$	10,981	$	4,922	$	1,007,714

Primary Segments of the Allowance for Loan Loss

The following table summarizes the primary segments of the ALL at March 31, 2019 and December 31, 2018, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment: 

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer			Unallocated	Total
March 31, 2019
Individually evaluated for impairment	$	12	$	720	$	0	$	71	$	4	$	0	$	807
Collectively evaluated for impairment	$	2,763	$	1,618	$	1,125	$	4,426	$	309	$	500	$	10,741
Total ALL	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
December 31, 2018
Individually evaluated for impairment	$	13	$	25	$	0	$	106	$	0	$	0	$	144
Collectively evaluated for impairment	$	2,767	$	1,696	$	1,187	$	4,438	$	315	$	500	$	10,903
Total ALL	$	2,780	$	1,721	$	1,187	$	4,544	$	315	$	500	$	11,047

Impaired Loans and Related Interest Income by Loan Portfolio Class

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at March 31, 2019 and December 31, 2018:

		Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(in thousands)		Recorded Investment		Related Allowances		Recorded Investment		Recorded Investment		Unpaid Principal Balance
March 31, 2019
Commercial real estate
Non owner-occupied	$	120	$	12	$	144	$	264	$	8,458
All other CRE		0		0		4,087		4,087		4,087
Acquisition and development
1-4 family residential construction		0		0		310		310		310
All other A&D		7,666		720		37		7,703		7,774
Commercial and industrial		0		0		27		27		2,241
Residential mortgage
Residential mortgage - term		1,219		62		1,802		3,021		3,244
Residential mortgage – home equity		171		9		751		922		935
Consumer		15		4		9		24		24
Total impaired loans	$	9,191	$	807	$	7,167	$	16,358	$	27,073
December 31, 2018
Commercial real estate
Non owner-occupied	$	121	$	13	$	173	$	294	$	8,488
All other CRE		0		0		4,945		4,945		4,945
Acquisition and development
1-4 family residential construction		0		0		316		316		316
All other A&D		230		25		147		377		525
Commercial and industrial		0		0		17		17		2,231
Residential mortgage
Residential mortgage - term		993		106		2,910		3,903		4,130
Residential mortgage – home equity		0		0		713		713		726
Consumer		0		0		10		10		10
Total impaired loans	$	1,344	$	144	$	9,231	$	10,575	$	21,371

Allowance for Loan Losses Summarized by Loan Portfolio Segments

The following tables present the activity in the ALL for the three-month periods ended March 31, 2019 and 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer			Unallocated	Total
ALL balance at January 1, 2019	$	2,780	$	1,721	$	1,187	$	4,544	$	315	$	500	$	11,047
Charge-offs		0		(29)		0		(12)		(68)		0		(109)
Recoveries		29		12		51		108		61		0		261
Provision		(34)		634		(113)		(143)		5		0		349
ALL balance at March 31, 2019	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
ALL balance at January 1, 2018	$	3,699	$	1,257	$	869	$	3,444	$	203	$	500	$	9,972
Charge-offs		0		(91)		0		(154)		(68)		0		(313)
Recoveries		59		214		18		38		35		0		364
Provision		218		(220)		(27)		350		126		0		447
ALL balance at March 31, 2018	$	3,976	$	1,160	$	860	$	3,678	$	296	$	500	$	10,470

Average of Impaired Loans and Related Interest Income by Loan Portfolio Class

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

	Three months ended						Three months ended
	March 31, 2019						March 31, 2018
(in thousands)	Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis		Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis
Commercial real estate
Non owner-occupied	$	280	$	3	$	0	$	2,660	$	4	$	66
All other CRE		4,516		38		0		5,142		49		56
Acquisition and development
1-4 family residential construction		313		5		0		527		6		0
All other A&D		4,040		3		0		426		3		0
Commercial and industrial		22		0		0		493		5		0
Residential mortgage
Residential mortgage - term		3,462		28		8		3,595		32		0
Residential mortgage – home equity		818		0		0		627		0		7
Consumer		17		0		0		28		0		0
Total	$	13,468	$	77	$	8	$	13,498	$	99	$	129

Modification of Troubled Debt Restructuring by Class

There were 14 loans totaling $4.2 million and 16 loans totaling $4.9 million that were classified as TDRs at March 31, 2019 and December 31, 2018, respectively.  The following tables present the volume and recorded investment at that time of modification of TDRs by class and type of modification that occurred during the periods indicated:

	Temporary Rate Modification			Extension of Maturity			Modification of Payment and Other Terms
(in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Three months ended March 31, 2019
Commercial real estate
Non owner-occupied	0	$	0	0	$	0	0	$	0
All other CRE	0		0	0		0	0		0
Acquisition and development
1-4 family residential construction	0		0	0		0	0		0
All other A&D	0		0	0		0	1		227
Commercial and industrial	0		0	0		0	0		0
Residential mortgage
Residential mortgage – term	0		0	0		0	1		243
Residential mortgage – home equity	0		0	0		0	0		0
Consumer	0		0	0		0	0		0
Total	0	$	0	0	$	0	2	$	470

XML

Other Real Estate Owned (Tables)

3 Months Ended

Mar. 31, 2019

Other Real Estate Owned [Abstract]

Schedule of Real Estate Properties Comprising OREO

The following table presents the components of other real estate owned (“OREO”) at March 31, 2019 and December 31, 2018:

(in thousands)	March 31, 2019		December 31, 2018
Commercial real estate	$	2,083	$	2,599
Acquisition and development		3,137		3,218
Commercial and industrial		0		24
Residential mortgage		947		757
Total OREO	$	6,167	$	6,598

Other Real Estate, Roll Forward

The following table presents the activity in the OREO valuation allowance for the three-month periods ended March 31, 2019 and 2018:

	For the Three months Ended
	March 31,
(in thousands)	2019		2018
Balance beginning of period	$	1,988	$	2,740
Fair value write-down		117		295
Sales of OREO		(739)		(124)
Balance at end of period	$	1,366	$	2,911

Schedule of Components of Other Real Estate Owned Expense

The following table presents the components of OREO expenses, net, for the three-month periods ended March 31, 2019 and 2018:

	For the Three months Ended
	March 31,
(in thousands)	2019		2018
Gains on real estate, net	$	(30)	$	(20)
Fair value write-down, net		117		295
Expenses, net		75		148
Rental and other income		(19)		(38)
Total OREO expense, net	$	143	$	385

XML

Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value of Financial Instruments [Abstract]

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques

For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)		Fair Value at March 31, 2019	Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	15,152	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	8,087	Market Comparable Properties	Marketability Discount	10.0% - 15.0%(1)               (weighted avg 12.8%)
Other Real Estate Owned	$	786	Market Comparable Properties	Marketability Discount	10.0% - 15.0%(1)               (weighted avg 14.6%)
(in thousands)		Fair Value at December 31, 2018	Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	15,277	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	1,316	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1)               (weighted avg 12.8%)
Other Real Estate Owned	$	2,707	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1)               (weighted avg 13.5%)

NOTE:

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

Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2019 and December 31, 2018 are as follows:

			Fair Value Measurements at March 31, 2019 Using
		Assets Measured at Fair Value	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)		03/31/2019	(Level 1)		(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,464		$	29,464
Commercial mortgage-backed agencies	$	36,976		$	36,976
Collateralized mortgage obligations	$	35,005		$	35,005
Obligations of states and political subdivisions	$	19,917		$	19,917
Collateralized debt obligations	$	15,152				$	15,152
Financial Derivatives	$	612		$	612
Non-recurring:
Impaired loans	$	8,087				$	8,087
Other real estate owned	$	786				$	786

			Fair Value Measurements at December 31, 2018 Using
		Assets Measured at Fair Value	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)		12/31/2018	(Level 1)		(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,026		$	29,026
Commercial mortgage-backed agencies	$	37,752		$	37,752
Collateralized mortgage obligations	$	35,704		$	35,704
Obligations of states and political subdivisions	$	19,882		$	19,882
Collateralized debt obligations	$	15,277				$	15,277
Financial Derivative	$	1,043		$	1,043
Non-recurring:
Impaired loans	$	1,316				$	1,316
Other real estate owned	$	2,707				$	2,707

Reconciliation of Fair Valued Assets Measured on a Recurring Basis

The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the three-month periods ended March 31, 2019 and 2018:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)		Investment Securities Available for Sale
Beginning balance January 1, 2019	$	15,277
Total losses realized/unrealized:
Included in other comprehensive income		(125)
Ending balance March 31, 2019	$	15,152

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)		Investment Securities Available for Sale
Beginning balance January 1, 2018	$	14,920
Total gains realized/unrealized:
Included in other comprehensive income		1,057
Ending balance March 31, 2018	$	15,977

Fair Value by Balance Sheet Grouping

The following tables present fair value information about financial instruments, whether or not recognized in the Consolidated 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 Consolidated Statement of Financial Condition are as follows:

	March 31, 2019					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	$	53,112	$	53,112	$	53,112
Interest bearing deposits in banks		892		892		892
Investment securities - AFS		136,514		136,514			$	121,362	$	15,152
Investment securities - HTM		95,538		97,364				80,764		16,600
Restricted bank stock		4,373		4,373				4,373
Loans, net		993,070		971,274						971,274
Financial derivatives		612		612				612
Accrued interest receivable		4,268		4,268				4,268
Financial Liabilities:
Deposits – non-maturity		874,296		874,296				874,296
Deposits – time deposits		256,316		257,122				257,122
Short-term borrowed funds		39,695		39,695				39,695
Long-term borrowed funds		100,929		102,508				102,508
Accrued interest payable		490		490				490
Off balance sheet financial instruments		0		0		0

	December 31, 2018					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	$	22,187	$	22,187	$	22,187
Interest bearing deposits in banks		1,354		1,354		1,354
Investment securities - AFS		137,641		137,641			$	122,364	$	15,277
Investment securities - HTM		94,010		93,760				80,780		12,980
Restricted bank stock		5,394		5,394				5,394
Loans, net		996,667		967,198						967,198
Financial derivative		1,043		1,043				1,043
Accrued interest receivable		4,175		4,175				4,175
Financial Liabilities:
Deposits- non-maturity		815,858		815,858				815,858
Deposits- time deposits		251,669		252,146				252,146
Short-term borrowed funds		77,707		77,707				77,707
Long-term borrowed funds		100,929		102,590				102,590
Accrued interest payable		455		455				455
Off balance sheet financial instruments		0		0		0

XML

Accumulated Other Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Loss [Abstract]

Schedule of Accumulated Other Comprehensive Loss

The following table presents the changes in each component of accumulated other comprehensive loss for the 12 months ended December 31, 2018 and the three-month period ended March 31, 2019:

(in thousands)	Investment securities- with OTTI AFS		Investment securities- all other AFS			Investment securities- HTM	Cash Flow Hedge		Pension Plan		SERP		Total
Accumulated OCL, net:
Balance – January 1, 2018	$	(2,939)	$	(2,979)	$	(1,347)	$	582	$	(17,066)	$	(844)	$	(24,593)
Other comprehensive income/(loss) before reclassifications		1,194		(540)		0		191		(1,833)		202		(786)
Amounts reclassified from accumulated other comprehensive loss		(154)		(82)		216		0		882		114		976
Balance – December 31, 2018	$	(1,899)	$	(3,601)	$	(1,131)	$	773	$	(18,017)	$	(528)	$	(24,403)
Other comprehensive income/(loss) before reclassifications		(44)		901		0		(315)		1,933		0		2,475
Amounts reclassified from accumulated other comprehensive loss		(36)		4		55		0		196		21		240
Balance - March 31, 2019	$	(1,979)	$	(2,696)	$	(1,076)	$	458	$	(15,888)	$	(507)	$	(21,688)

Components of Comprehensive Income

The following tables present the components of other comprehensive income/(loss) for the three-month periods ended March 31, 2019 and 2018:

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the three months ended March 31, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(60)	$	16	$	(44)
Less:  accretable yield recognized in income		49		(13)		36
Net unrealized losses on investments with OTTI		(109)		29		(80)
Available for sale securities – all other:
Unrealized holding gains		1,236		(335)		901
Less:  losses recognized in income		(6)		2		(4)
Net unrealized gains on all other AFS securities		1,242		(337)		905
Held to maturity securities:
Unrealized holding gains		0		0		0
Less:  amortization recognized in income		(75)		20		(55)
Net unrealized gains on HTM securities		75		(20)		55
Cash flow hedges:
Unrealized holding losses		(432)		117		(315)
Pension Plan:
Unrealized net actuarial gain		2,652		(719)		1,933
Less: amortization of unrecognized loss		(269)		73		(196)
Net pension plan liability adjustment		2,921		(792)		2,129
SERP:
Unrealized net actuarial loss		0		0		0
Less: amortization of unrecognized loss		(29)		7		(22)
Less: amortization of prior service costs		1		0		1
Net SERP liability adjustment		28		(7)		21
Other comprehensive income	$	3,725	$	(1,010)	$	2,715

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the three months ended March 31, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	939	$	(254)	$	685
Less:  accretable yield recognized in income		55		(15)		40
Net unrealized gains on investments with OTTI		884		(239)		645
Available for sale securities – all other:
Unrealized holding losses		(1,487)		402		(1,085)
Less:  losses recognized in income		(9)		2		(7)
Net unrealized losses on all other AFS securities		(1,478)		400		(1,078)
Held to maturity securities:
Unrealized holding gains		0		0		0
Less:  amortization recognized in income		(76)		31		(45)
Net unrealized gains on HTM securities		76		(31)		45
Cash flow hedges:
Unrealized holding gains		607		(164)		443
Pension Plan:
Unrealized net actuarial gain		707		(191)		516
Less: amortization of unrecognized loss		(300)		81		(219)
Less: amortization of prior service costs		(2)		1		(1)
Net pension plan liability adjustment		1,009		(273)		736
SERP:
Unrealized net actuarial loss		0		0		0
Less: amortization of unrecognized loss		(41)		11		(30)
Less: amortization of prior service costs		1		0		1
Net SERP liability adjustment		40		(11)		29
Other comprehensive income	$	1,138	$	(318)	$	820

Reclassification Out of Accumulated Other Comprehensive Income

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the three months ended March 31, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	939	$	(254)	$	685
Less:  accretable yield recognized in income		55		(15)		40
Net unrealized gains on investments with OTTI		884		(239)		645
Available for sale securities – all other:
Unrealized holding losses		(1,487)		402		(1,085)
Less:  losses recognized in income		(9)		2		(7)
Net unrealized losses on all other AFS securities		(1,478)		400		(1,078)
Held to maturity securities:
Unrealized holding gains		0		0		0
Less:  amortization recognized in income		(76)		31		(45)
Net unrealized gains on HTM securities		76		(31)		45
Cash flow hedges:
Unrealized holding gains		607		(164)		443
Pension Plan:
Unrealized net actuarial gain		707		(191)		516
Less: amortization of unrecognized loss		(300)		81		(219)
Less: amortization of prior service costs		(2)		1		(1)
Net pension plan liability adjustment		1,009		(273)		736
SERP:
Unrealized net actuarial loss		0		0		0
Less: amortization of unrecognized loss		(41)		11		(30)
Less: amortization of prior service costs		1		0		1
Net SERP liability adjustment		40		(11)		29
Other comprehensive income	$	1,138	$	(318)	$	820

The following table presents the details of amount reclassified from accumulated other comprehensive loss for the three-month periods ended March 31, 2019 and 2018:

Amounts Reclassified from Accumulated Other Comprehensive Loss (in thousands)	For the three months ended March 31, 2019		For the three months ended March 31, 2018		Affected Line Item in the Statement Where Net Income is Presented
Net unrealized gains on investment securities with OTTI:
Accretable yield		49		55	Interest income on taxable investment securities
Taxes		(13)		(15)	Provision for income tax expense
	$	36	$	40	Net of tax
Net unrealized losses on available for sale investment securities - all others:
Losses on calls	$	(6)	$	(9)	Net gains
Taxes		2		2	Provision for income tax expense
	$	(4)	$	(7)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(75)	$	(76)	Interest income on taxable investment securities
Taxes		20		31	Provision for income tax expense
	$	(55)	$	(45)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(269)	$	(300)	Other Expense
Amortization of prior service costs		0		(2)	Salaries and employee benefits
Taxes		73		82	Provision for income tax expense
	$	(196)	$	(220)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(29)	$	(41)	Other Expense
Amortization of prior service costs		1		1	Salaries and employee benefits
Taxes		7		11	Provision for income tax expense
	$	(21)	$	(29)	Net of tax
Total reclassifications for the period	$	(240)	$	(261)	Net of tax

XML

Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Lease Right of Use Assets and Lease Liabilities

The following table represents the Consolidated Statement of Financial Condition classification of the Corporation’s ROU assets and lease liabilities. The Corporation elected not to include short-term leases (i.e., leases with remaining terms of 12 months or less), or equipment leases that were deemed immaterial on the Consolidated Statement of Financial Condition.

(in thousands)		March 31, 2019
Lease Right-of Use Assets
Operating lease right-of-use assets	$	2,665
Lease Liabilities
Operating lease liabilities	$	3,250

Weighted-Average Lease Term and Discount Rate, Operating Leases

The following table presents the weighted-average lease term and discount rate for operating leases at March 31, 2019:

	March 31, 2019
Weighted-average remaining lease term
Operating leases	9.01 years
Weighted-average discount rate
Operating leases	5.09%

Future Minimum Payments for Operating Leases

Future minimum payments for operating leases with initial or remaining terms of one year or more at March 31, 2019 were as follows:

(in thousands)		Operating Leases
2019 (remainder of year)	$	343
2020		467
2021		466
2022		459
2023		393
Thereafter		1,983
Total future minimum lease payments		4,111
Amounts representing interest		(861)
Present value of net future minimum lease payments	$	3,250

XML

Borrowed Funds (Tables)

3 Months Ended

Mar. 31, 2019

Borrowed Funds [Abstract]

Summary of Short Term Borrowings

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

(Dollars in thousands)	Three months ended March 31, 2019		Year ended December 31, 2018
Short-term Correspondent Bank Advance:
Overnight borrowings, weighted average interest rate of 2.70% at December 31, 2018	$	0	$	40,000
Securities sold under agreements to repurchase:
Outstanding at end of period	$	39,695	$	37,707
Weighted average interest rate at end of period		0.66%		0.24%
Maximum amount outstanding as of any month end	$	40,579	$	55,648
Average amount outstanding	$	37,624	$	44,045
Approximate weighted average rate during the period		0.69%		0.20%

XML

Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2019

Employee Benefit Plans [Abstract]

Components of the Net Periodic Pension Plan Cost

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

Pension	For the three months ended
	March 31,
(in thousands)	2019		2018
Service cost	$	67	$	81
Interest cost		437		397
Expected return on assets		(764)		(810)
Amortization of net actuarial loss		269		300
Amortization of prior service cost		0		2
Net pension credit included in employee benefits and other expense	$	9	$	(30)

Defined Benefit SERP	For the three months ended
	March 31,
(in thousands)	2019		2018
Service cost	$	24	$	28
Interest cost		82		75
Amortization of recognized loss		29		41
Amortization of prior service cost		(1)		(1)
Net Defined Benefit SERP expense included in employee benefits and other expense	$	134	$	143

XML

Derivative Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2019

Derivative Financial Instruments [Abstract]

Impact of Derivative Financial Instruments

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three- months ended March 31, 2019 and 2018.

Derivative in Cash Flow Hedging Relationships
(in thousands)	Amount of gain or (loss) recognized in OCI on derivative (effective portion)		Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion) (a)		Amount of gain or (loss) recognized in income or derivative (ineffective portion and amount excluded from effectiveness testing) (b)
Interest rate contracts:
Three months ended:
March 31, 2019	$	(315)	$	0	$	0
March 31, 2018		443		0		0

Notes:

(a) Reported as interest expense

(b) Reported as other income

XML

Assets and Liabilities Subject to Enforceable Master Netting Arrangements (Tables)

3 Months Ended

Mar. 31, 2019

Assets and Liabilities Subject to Enforceable Master Netting Arrangements [Abstract]

Schedule of Liabilities Subject to an Enforceable Master Netting Arrangement or Repurchase Agreements

The following table presents the assets and liabilities subject to an enforceable master netting arrangement or repurchase agreements at March 31, 2019 and December 31, 2018.

							Gross Amounts Not Offset in the Statement of Condition
(In thousands)	Gross Amounts of Recognized (Assets)/ Liabilities		Gross Amounts Offset in the Statement of Condition		Net Amounts of (Assets)/ Liabilities Presented in the Statement of Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
March 31, 2019
Interest Rate Swap Agreements	$	(612)	$	0	$	(612)	$	612	$	0	$	0
Repurchase Agreements	$	39,695	$	0	$	39,695	$	(39,695)	$	0	$	0
December 31, 2018
Interest Rate Swap Agreements	$	(1,043)	$	0	$	(1,043)	$	1,043	$	0	$	0
Repurchase Agreements	$	37,707	$	0	$	37,707	$	(37,707)	$	0	$	0

XML

Earnings Per Common Share (Basic and Diluted Earnings Per Common Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Common Share [Abstract]
Net Income	$ 3,151	$ 2,506
Net income available to common shareholders	$ 3,151	$ 2,506
Weighted average number of basic and diluted shares outstanding	7,088	7,067
Basic and diluted net income per common share	$ 0.44	$ 0.35

XML

Net Gains (Schedule of Net Gains) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net Gains/(Losses) [Abstract]
Realized losses	$ (6)	$ (9)
Gains on sale of consumer loans	20	43
Net gains:	$ 14	$ 34

XML

Investments (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 5,084	$ 6,127
US government agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	536	974
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	1,165	1,261
Collateralized mortgage obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	558	964
Obligations of states and political subdivisions [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	93	285
Collateralized debt obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 2,732	$ 2,643

XML

Investments (Unrealized Gain (Loss) on Investments) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule of Investments [Line Items]
Amortized Cost	$ 141,865	$ 144,123
Gross Unrealized Gains	213	132
Gross Unrealized Losses	5,564	6,614
Investment securities - available-for-sale (at fair value)	136,514	137,641
OTTI in AOCI	(2,075)	(1,966)
Held-to-maturity amortized cost	95,538	94,010
Held-to-maturity Gross Unrealized Gains	2,603	1,357
Held-to-maturity gross unrealized losses	777	1,607
Investment securities - HTM	97,364	93,760
Held-to-maturity OTTI in AOCI	0	0
US government agencies [Member]
Schedule of Investments [Line Items]
Amortized Cost	30,000	30,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	536	974
Investment securities - available-for-sale (at fair value)	29,464	29,026
OTTI in AOCI	0	0
Held-to-maturity amortized cost	16,054	16,017
Held-to-maturity Gross Unrealized Gains	401	120
Held-to-maturity gross unrealized losses	0	0
Investment securities - HTM	16,455	16,137
Held-to-maturity OTTI in AOCI	0	0
Residential mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity amortized cost	45,312	46,491
Held-to-maturity Gross Unrealized Gains	15	6
Held-to-maturity gross unrealized losses	667	1,287
Investment securities - HTM	44,660	45,210
Held-to-maturity OTTI in AOCI	0	0
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Amortized Cost	38,141	39,013
Gross Unrealized Gains	0	0
Gross Unrealized Losses	1,165	1,261
Investment securities - available-for-sale (at fair value)	36,976	37,752
OTTI in AOCI	0	0
Held-to-maturity amortized cost	15,745	15,821
Held-to-maturity Gross Unrealized Gains	213	75
Held-to-maturity gross unrealized losses	0	68
Investment securities - HTM	15,958	15,828
Held-to-maturity OTTI in AOCI	0	0
Collateralized mortgage obligations [Member]
Schedule of Investments [Line Items]
Amortized Cost	35,564	36,669
Gross Unrealized Gains	0	0
Gross Unrealized Losses	559	965
Investment securities - available-for-sale (at fair value)	35,005	35,704
OTTI in AOCI	0	0
Held-to-maturity amortized cost	3,753	3,761
Held-to-maturity Gross Unrealized Gains	0	0
Held-to-maturity gross unrealized losses	62	156
Investment securities - HTM	3,691	3,605
Held-to-maturity OTTI in AOCI	0	0
Obligations of states and political subdivisions [Member]
Schedule of Investments [Line Items]
Amortized Cost	19,798	20,083
Gross Unrealized Gains	213	132
Gross Unrealized Losses	94	333
Investment securities - available-for-sale (at fair value)	19,917	19,882
OTTI in AOCI	0	0
Held-to-maturity amortized cost	14,674	11,920
Held-to-maturity Gross Unrealized Gains	1,974	1,156
Held-to-maturity gross unrealized losses	48	96
Investment securities - HTM	16,600	12,980
Held-to-maturity OTTI in AOCI	0	0
Collateralized debt obligations [Member]
Schedule of Investments [Line Items]
Amortized Cost	18,362	18,358
Gross Unrealized Gains	0	0
Gross Unrealized Losses	3,210	3,081
Investment securities - available-for-sale (at fair value)	15,152	15,277
OTTI in AOCI	$ (2,075)	$ (1,966)

XML

Investments (Proceeds from Sales of Securities and Realized Gains and Losses) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Investments [Abstract]
Proceeds	$ 260	$ 235
Realized gains	0	0
Realized losses	$ 6	$ 9

XML

Investments (Gross Unrealized Losses and Fair Values of Securities) (Details) $ in Thousands	Mar. 31, 2019 USD ($) item	Dec. 31, 2018 USD ($) item
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 6,235	$ 9,529
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 480	$ 487
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	6,000	10,000
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 115,753	$ 122,608
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 5,084	$ 6,127
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	30,000	34,000
Held-to-maturity securities, continuous unrealized loss position, less than twelve months, fair value	$ 5,870	$ 3,605
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss	$ 63	$ 51
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	3	2
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value	$ 40,524	$ 54,908
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss	$ 714	$ 1,556
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	27	32
US government agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 0	$ 0
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 0	$ 0
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	0	0
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 29,464	$ 29,026
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 536	$ 974
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	5	5
Residential mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity securities, continuous unrealized loss position, less than twelve months, fair value	$ 3,623	$ 3,605
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss	$ 15	$ 51
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	2	2
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value	$ 36,833	$ 41,448
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss	$ 652	$ 1,236
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	26	29
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 0	$ 0
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 0	$ 0
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	0	0
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 36,976	$ 37,752
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 1,165	$ 1,261
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	8	8
Held-to-maturity securities, continuous unrealized loss position, less than twelve months, fair value		$ 0
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss		$ 0
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, Number of Investments | item		0
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value		$ 7,656
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss		$ 68
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item		1
Collateralized mortgage obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 171	$ 232
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 1	$ 1
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	1	1
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 34,834	$ 35,472
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 558	$ 964
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	8	8
Held-to-maturity securities, continuous unrealized loss position, less than twelve months, fair value	$ 0	$ 0
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss	$ 0	$ 0
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	0	0
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value	$ 3,691	$ 3,605
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss	$ 62	$ 156
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	1	1
Obligations of states and political subdivisions [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 115	$ 3,310
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 1	$ 48
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	1	5
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 5,278	$ 11,068
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 93	$ 285
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	4	8
Held-to-maturity securities, continuous unrealized loss position, less than twelve months, fair value	$ 2,247	$ 0
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss	$ 48	$ 0
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	1	0
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value	$ 0	$ 2,199
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss	$ 0	$ 96
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	0	1
Collateralized debt obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 5,949	$ 5,987
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 478	$ 438
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	4	4
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 9,201	$ 9,290
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 2,732	$ 2,643
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	5	5

XML

Investments (Non-Cash OTTI Credit Losses Recognized in Earnings) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Investments [Abstract]
Balance of credit-related OTTI, beginning	$ 2,646	$ 2,958
Reduction for increases in cash flows expected to be collected	(49)	(55)
Balance of credit-related OTTI, ending	$ 2,597	$ 2,903

XML

Investments (Amortized Cost and Fair Values Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule of Investments [Line Items]
Amortized Cost: Due in one year or less	$ 227
Amortized Cost: Due after one year through five years	16,768
Amortized Cost: Due after five years through ten years	21,799
Amortized Cost: Due after ten years	29,366
Amortized Cost: Sub Total	68,160
Fair Value: Due in one year or less	228
Fair Value: Due after one year through five years	16,614
Fair Value: Due after five years through ten years	21,388
Fair Value: Due after ten years	26,303
Available For Sale Debt Maturities Fair Value Sub Total	64,533
Available-for-sale Securities, Amortized Cost Basis	141,865	$ 144,123
Available-for-sale Securities	136,514	137,641
Amortized Cost: Due after one year through five years, Held to maturity	8,363
Amortized Cost: Due after five years through ten years, Held to maturity	7,691
Amortized Cost: Due after ten years, Held to maturity	14,674
Amortized Cost: Total, Held to maturity	30,728
Fair Value: Due after one year through five years, Held to maturity	8,556
Fair Value: Due after five years through ten years, Held to maturity	7,899
Fair Value: Due after ten years, Held to maturity	16,600
Fair Value: Total, Held to maturity	33,055
Held-to-maturity securities	95,538	94,010
Held-to-maturity securities, fair value	97,364	93,760
Residential mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity securities	45,312	46,491
Held-to-maturity securities, fair value	44,660	45,210
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost Basis	38,141	39,013
Available-for-sale Securities	36,976	37,752
Held-to-maturity securities	15,745	15,821
Held-to-maturity securities, fair value	15,958	15,828
Collateralized mortgage obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost Basis	35,564	36,669
Available-for-sale Securities	35,005	35,704
Held-to-maturity securities	3,753	3,761
Held-to-maturity securities, fair value	$ 3,691	$ 3,605

XML

Loans and Related Allowance for Loan Losses (Narrative) (Details)	3 Months Ended	12 Months Ended
	Mar. 31, 2019 USD ($) loan contract	Dec. 31, 2018 USD ($) loan
Financing Receivable, Modifications [Line Items]
Commercial amount benchmark minimum for internal annual review	$ 500,000
Commercial amount benchmark minimum for annual review by independent reviewer	1,000,000
Commercial amount benchmark minimum criticized relationships for annual review by independent reviewer	500,000
Increase in non-accrual status	$ 7,000,000
Percentage of loan portfolio	0.46%	1.09%
Nonaccrual loans	$ 11,563,000	$ 4,922,000
Financing receivable, modifications, number of contracts | loan	14	16
Financing receivable, modifications, recorded investment	$ 4,200,000	$ 4,900,000
Partial Charge Off [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	$ 200,000	300,000
New TDR [Member]
Financing Receivable, Modifications [Line Items]
Financing receivable, modifications, number of contracts | contract	0
Foreclosure 1-4 Family Real Estate Properties [Member]
Financing Receivable, Modifications [Line Items]
Loans secured by real estate properties in process of foreclosure	$ 100,000	300,000
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	144,000	173,000
Commercial and industrial [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	$ 27,000	$ 0

XML

Loans and Related Allowance for Loan Losses (Primary Segments of the Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 16,358	$ 10,575
Collectively evaluated for impairment	988,260	997,139
Total Loans	1,004,618	1,007,714
Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	27	17
Collectively evaluated for impairment	109,392	111,449
Total Loans	109,419	111,466
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	4,351	5,239
Collectively evaluated for impairment	295,115	301,682
Total Loans	299,466	306,921
Acquisition and Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	8,013	693
Collectively evaluated for impairment	115,313	117,667
Total Loans	123,326	118,360
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	3,943	4,616
Collectively evaluated for impairment	434,664	432,291
Total Loans	438,607	436,907
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	24	10
Collectively evaluated for impairment	33,776	34,050
Total Loans	$ 33,800	$ 34,060

XML

Loans and Related Allowance for Loan Losses (Classes of the Loan Portfolio Summarized by the Aggregate Risk Rating) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,004,618	$ 1,007,714
Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	148,124	150,512
Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	151,342	156,409
Acquisition and development- 1-4 family residential construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	13,949	16,003
Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	109,377	102,357
Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	109,419	111,466
Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	367,017	364,008
Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	71,590	72,899
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	33,800	34,060
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	970,514	976,864
Pass [Member] | Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	138,286	145,260
Pass [Member] | Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	144,863	149,076
Pass [Member] | Acquisition and development- 1-4 family residential construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	13,949	16,003
Pass [Member] | Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	101,567	94,428
Pass [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	105,428	107,174
Pass [Member] | Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	362,573	359,305
Pass [Member] | Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	70,154	71,666
Pass [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	33,694	33,952
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	9,437	15,884
Special Mention [Member] | Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,553	2,904
Special Mention [Member] | Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,738	1,752
Special Mention [Member] | Acquisition and development- 1-4 family residential construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	0	0
Special Mention [Member] | Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	0	7,378
Special Mention [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	0	3,703
Special Mention [Member] | Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	0	0
Special Mention [Member] | Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	142	143
Special Mention [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4	4
Substandard [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	24,667	14,966
Substandard [Member] | Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,285	2,348
Substandard [Member] | Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,741	5,581
Substandard [Member] | Acquisition and development- 1-4 family residential construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	0	0
Substandard [Member] | Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,810	551
Substandard [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,991	589
Substandard [Member] | Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,444	4,703
Substandard [Member] | Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,294	1,090
Substandard [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 102	$ 104

XML

Loans and Related Allowance for Loan Losses (Loan Portfolio Summarized by the Past Due Status) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 988,390	$ 991,811
Total Past Due and Still Accruing	4,665	10,981
Non-Accrual	11,563	4,922
Total Loans	1,004,618	1,007,714
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	4,202	1,593
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	455	8,958
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	8	430
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	147,980	150,339
Total Past Due and Still Accruing	0	0
Non-Accrual	144	173
Total Loans	148,124	150,512
Commercial real estate- non owner-occupied [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Commercial real estate- non owner-occupied [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Commercial real estate- non owner-occupied [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Commercial real estate- all other CRE [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	149,687	153,977
Total Past Due and Still Accruing	153	464
Non-Accrual	1,502	1,968
Total Loans	151,342	156,409
Commercial real estate- all other CRE [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	127	464
Commercial real estate- all other CRE [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	26	0
Commercial real estate- all other CRE [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	13,834	16,003
Total Past Due and Still Accruing	115	0
Non-Accrual	0	0
Total Loans	13,949	16,003
Acquisition and development- 1-4 family residential construction [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	115	0
Acquisition and development- 1-4 family residential construction [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Acquisition and development- 1-4 family residential construction [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Acquisition and development- All other A&D [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	101,644	94,540
Total Past Due and Still Accruing	258	7,670
Non-Accrual	7,475	147
Total Loans	109,377	102,357
Acquisition and development- All other A&D [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	258	197
Acquisition and development- All other A&D [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	7,411
Acquisition and development- All other A&D [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	62
Commercial and industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	108,266	111,436
Total Past Due and Still Accruing	1,126	30
Non-Accrual	27	0
Total Loans	109,419	111,466
Commercial and industrial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	1,116	29
Commercial and industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	10	1
Commercial and industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Residential mortgage- term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	363,383	360,073
Total Past Due and Still Accruing	2,166	2,024
Non-Accrual	1,468	1,911
Total Loans	367,017	364,008
Residential mortgage- term [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	1,887	302
Residential mortgage- term [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	271	1,359
Residential mortgage- term [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	8	363
Residential mortgage- home equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	70,040	71,611
Total Past Due and Still Accruing	627	575
Non-Accrual	923	713
Total Loans	71,590	72,899
Residential mortgage- home equity [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	527	461
Residential mortgage- home equity [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	100	114
Residential mortgage- home equity [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	0	0
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	33,556	33,832
Total Past Due and Still Accruing	220	218
Non-Accrual	24	10
Total Loans	33,800	34,060
Consumer [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	172	140
Consumer [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	48	73
Consumer [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Recorded Investment Past Due	$ 0	$ 5

XML

Loans and Related Allowance for Loan Losses (Primary Segments of the Allowance for Loan Loss) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	$ 807	$ 144
Collectively evaluated for impairment	10,741	10,903
Total allowance for loan losses	11,548	11,047	$ 10,470	$ 9,972
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	12	13
Collectively evaluated for impairment	2,763	2,767
Total allowance for loan losses	2,775	2,780	3,976	3,699
Acquisition and Development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	720	25
Collectively evaluated for impairment	1,618	1,696
Total allowance for loan losses	2,338	1,721	1,160	1,257
Commercial and industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	1,125	1,187
Total allowance for loan losses	1,125	1,187	860	869
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	71	106
Collectively evaluated for impairment	4,426	4,438
Total allowance for loan losses	4,497	4,544	3,678	3,444
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	4	0
Collectively evaluated for impairment	309	315
Total allowance for loan losses	313	315	296	203
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	0	0
Collectively evaluated for impairment	500	500
Total allowance for loan losses	$ 500	$ 500	$ 500	$ 500

XML

Loans and Related Allowance for Loan Losses (Impaired Loans and Related Interest Income by Loan Portfolio Class) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	$ 9,191	$ 1,344
Impaired Loans with Specific Allowance: Related Allowance	807	144
Impaired Loans with No Specific Allowance: Recorded Investment	7,167	9,231
Total Impaired Loans: Recorded Investment	16,358	10,575
Total Impaired Loans: Unpaid Principal Balance	27,073	21,371
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	120	121
Impaired Loans with Specific Allowance: Related Allowance	12	13
Impaired Loans with No Specific Allowance: Recorded Investment	144	173
Total Impaired Loans: Recorded Investment	264	294
Total Impaired Loans: Unpaid Principal Balance	8,458	8,488
Commercial real estate- all other CRE [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	0	0
Impaired Loans with Specific Allowance: Related Allowance	0	0
Impaired Loans with No Specific Allowance: Recorded Investment	4,087	4,945
Total Impaired Loans: Recorded Investment	4,087	4,945
Total Impaired Loans: Unpaid Principal Balance	4,087	4,945
Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	0	0
Impaired Loans with Specific Allowance: Related Allowance	0	0
Impaired Loans with No Specific Allowance: Recorded Investment	310	316
Total Impaired Loans: Recorded Investment	310	316
Total Impaired Loans: Unpaid Principal Balance	310	316
Acquisition and development- All other A&D [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	7,666	230
Impaired Loans with Specific Allowance: Related Allowance	720	25
Impaired Loans with No Specific Allowance: Recorded Investment	37	147
Total Impaired Loans: Recorded Investment	7,703	377
Total Impaired Loans: Unpaid Principal Balance	7,774	525
Commercial and industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	0	0
Impaired Loans with Specific Allowance: Related Allowance	0	0
Impaired Loans with No Specific Allowance: Recorded Investment	27	17
Total Impaired Loans: Recorded Investment	27	17
Total Impaired Loans: Unpaid Principal Balance	2,241	2,231
Residential mortgage- term [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	1,219	993
Impaired Loans with Specific Allowance: Related Allowance	62	106
Impaired Loans with No Specific Allowance: Recorded Investment	1,802	2,910
Total Impaired Loans: Recorded Investment	3,021	3,903
Total Impaired Loans: Unpaid Principal Balance	3,244	4,130
Residential mortgage- home equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	171	0
Impaired Loans with Specific Allowance: Related Allowance	9	0
Impaired Loans with No Specific Allowance: Recorded Investment	751	713
Total Impaired Loans: Recorded Investment	922	713
Total Impaired Loans: Unpaid Principal Balance	935	726
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	15	0
Impaired Loans with Specific Allowance: Related Allowance	4	0
Impaired Loans with No Specific Allowance: Recorded Investment	9	10
Total Impaired Loans: Recorded Investment	24	10
Total Impaired Loans: Unpaid Principal Balance	$ 24	$ 10

XML

Loans and Related Allowance for Loan Losses (Allowance for Loan Losses Summarized by Loan Portfolio Segments) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	$ 11,047	$ 9,972
Charge-offs	(109)	(313)
Recoveries	261	364
Provision for loan losses	349	447
ALL Ending Balance	11,548	10,470
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	2,780	3,699
Charge-offs	0	0
Recoveries	29	59
Provision for loan losses	(34)	218
ALL Ending Balance	2,775	3,976
Acquisition and Development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	1,721	1,257
Charge-offs	(29)	(91)
Recoveries	12	214
Provision for loan losses	634	(220)
ALL Ending Balance	2,338	1,160
Commercial and industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	1,187	869
Charge-offs	0	0
Recoveries	51	18
Provision for loan losses	(113)	(27)
ALL Ending Balance	1,125	860
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	4,544	3,444
Charge-offs	(12)	(154)
Recoveries	108	38
Provision for loan losses	(143)	350
ALL Ending Balance	4,497	3,678
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	315	203
Charge-offs	(68)	(68)
Recoveries	61	35
Provision for loan losses	5	126
ALL Ending Balance	313	296
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	500	500
Charge-offs	0	0
Recoveries	0	0
Provision for loan losses	0	0
ALL Ending Balance	$ 500	$ 500

XML

Loans and Related Allowance for Loan Losses (Average of Impaired Loans and Related Interest Income by Loan Portfolio Class) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Financing Receivable, Impaired [Line Items]
Average Investment	$ 13,468	$ 13,498
Interest income recognized on an accrual basis	77	99
Interest income recognized on a cash basis	8	129
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	280	2,660
Interest income recognized on an accrual basis	3	4
Interest income recognized on a cash basis	0	66
Commercial real estate- all other CRE [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	4,516	5,142
Interest income recognized on an accrual basis	38	49
Interest income recognized on a cash basis	0	56
Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	313	527
Interest income recognized on an accrual basis	5	6
Interest income recognized on a cash basis	0	0
Acquisition and development- All other A&D [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	4,040	426
Interest income recognized on an accrual basis	3	3
Interest income recognized on a cash basis	0	0
Commercial and industrial [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	22	493
Interest income recognized on an accrual basis	0	5
Interest income recognized on a cash basis	0	0
Residential mortgage- term [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	3,462	3,595
Interest income recognized on an accrual basis	28	32
Interest income recognized on a cash basis	8	0
Residential mortgage- home equity [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	818	627
Interest income recognized on an accrual basis	0	0
Interest income recognized on a cash basis	0	7
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	17	28
Interest income recognized on an accrual basis	0	0
Interest income recognized on a cash basis	$ 0	$ 0

XML

Loans and Related Allowance for Loan Losses (Modification of Troubled Debt Restructuring by Class) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) contract
Temporary Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Commercial real estate- non owner-occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Commercial real estate- all other CRE [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Acquisition and development- All other A&D [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Commercial and industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Residential mortgage- term [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Residential mortgage- home equity [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Temporary Rate Modification [Member] | Consumer [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Commercial real estate- non owner-occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Commercial real estate- all other CRE [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Acquisition and development- All other A&D [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Commercial and industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Residential mortgage- term [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Residential mortgage- home equity [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Extended Maturity [Member] | Consumer [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Modification Of Payment And Other Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	2
Recorded Investment | $	$ 470
Modification Of Payment And Other Terms [Member] | Commercial real estate- non owner-occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Modification Of Payment And Other Terms [Member] | Commercial real estate- all other CRE [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Modification Of Payment And Other Terms [Member] | Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Modification Of Payment And Other Terms [Member] | Acquisition and development- All other A&D [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1
Recorded Investment | $	$ 227
Modification Of Payment And Other Terms [Member] | Commercial and industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Modification Of Payment And Other Terms [Member] | Residential mortgage- term [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1
Recorded Investment | $	$ 243
Modification Of Payment And Other Terms [Member] | Residential mortgage- home equity [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0
Modification Of Payment And Other Terms [Member] | Consumer [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	0
Recorded Investment | $	$ 0

XML

Other Real Estate Owned (Schedule of Real Estate Properties Comprising OREO) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Total OREO	$ 6,167	$ 6,598
Commercial Real Estate OREO [Member]
Total OREO	2,083	2,599
Acquisition and Development [Member]
Total OREO	3,137	3,218
Commercial and Industrial [Member]
Total OREO	0	24
Residential Mortgage [Member]
Total OREO	$ 947	$ 757

XML

Other Real Estate Owned (Other Real Estate, Roll Forward) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Other Real Estate Owned [Abstract]
Beginning Balance	$ 1,988	$ 2,740
Fair value write-down	117	295
Sales of OREO	(739)	(124)
Ending Balance	$ 1,366	$ 2,911

XML

Other Real Estate Owned (Schedule of Components of OREO) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Other Real Estate Owned [Abstract]
Gains on sales of other real estate owned	$ (30)	$ (20)
Fair value write-down, net	117	295
Expenses, net	75	148
Rental and other income	(19)	(38)
Total OREO expense, net	$ 143	$ 385

XML

Fair Value of Financial Instruments (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) security	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost	$ 141,865		$ 144,123
Available-for-sale Securities	136,514		137,641
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net	0	$ 0
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount	0	0
Fair Value, Assets, Level 2 to Level 1 Transfers, Amount	$ 0	$ 0
Collateralized debt obligations [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Acquired Trust Preferred Securities, Number of Securities | security	9
Amortized Cost	$ 18,362		18,358
Available-for-sale Securities	$ 15,152		$ 15,277

XML

Fair Value of Financial Instruments (Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques) (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
		Mar. 31, 2019		Dec. 31, 2018
Investment Securities - available for sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Recurring		$ 15,152		$ 15,277
Fair Value Measurements, Significant Assumptions		Discount Rate		Discount Rate
Valuation Technique		Discounted Cash Flow		Discounted Cash Flow
Fair Value Input, Unobservable Input Value, Description		Range of LIBOR+ 4.50%
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 8,087		$ 1,316
Fair Value Measurements, Significant Assumptions		Marketability Discount		Marketability Discount
Valuation Technique		Market Comparable Properties		Market Comparable Properties
Fair Value Inputs, Comparability Adjustments, Weighted Average		12.80%		12.80%
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 786		$ 2,707
Fair Value Measurements, Significant Assumptions		Marketability Discount		Marketability Discount
Valuation Technique		Market Comparable Properties		Market Comparable Properties
Fair Value Inputs, Comparability Adjustments, Weighted Average		14.60%		13.50%
Minimum [Member] | Investment Securities - available for sale [Member] | London Interbank Offered Rate (LIBOR) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Discount Rate		4.50%		4.50%
Minimum [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments	[1]	10.00%		10.00%
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments	[1]	10.00%		10.00%
Maximum [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments	[1]	15.00%		15.00%
Maximum [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments		15.00%	[1]	15.00%

[1] Range would include discounts taken since appraisal and estimated values

XML

Fair Value of Financial Instruments (Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 136,514	$ 137,641
Financial Derivative	612	1,043
Impaired Financing Receivable, Recorded Investment	16,358	10,575
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Recorded Investment	8,087	1,316
Other Real Estate	786	2,707
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Derivative	612	1,043
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired Financing Receivable, Recorded Investment	8,087	1,316
Other Real Estate	786	2,707
US government agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	29,464	29,026
US government agencies [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	29,464	29,026
US government agencies [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	29,464	29,026
Commercial mortgage-backed agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	36,976	37,752
Commercial mortgage-backed agencies [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	36,976	37,752
Commercial mortgage-backed agencies [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	36,976	37,752
Collateralized mortgage obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	35,005	35,704
Collateralized mortgage obligations [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	35,005	35,704
Collateralized mortgage obligations [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	35,005	35,704
Obligations of states and political subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	19,917	19,882
Obligations of states and political subdivisions [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	19,917	19,882
Obligations of states and political subdivisions [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	19,917	19,882
Collateralized debt obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	15,152	15,277
Collateralized debt obligations [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	15,152	15,277
Collateralized debt obligations [Member] | Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	15,152	15,277
Financial Derivatives [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Derivative	612	1,043
Financial Derivatives [Member] | Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Derivative	$ 612	$ 1,043

XML

Fair Value of Financial Instruments (Reconciliation of Fair Valued Assets Measured on a Recurring Basis) (Details) - Collateralized debt obligations [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	$ 15,277	$ 14,920
Included in other comprehensive income	(125)	1,057
Ending Balance	$ 15,152	$ 15,977

XML

Fair Value of Financial Instruments (Fair Value by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	$ 53,112	$ 22,187
Interest bearing deposits in banks	892	1,354
Investment securities - AFS	136,514	137,641
Investment securities - HTM	97,364	93,760
Restricted bank stock	4,373	5,394
Loans, net	971,274	967,198
Financial derivatives	612	1,043
Accrued interest receivable	4,268	4,175
Deposits - non-maturity	874,296	815,858
Deposits - time deposits	257,122	252,146
Short-term borrowed funds	39,695	77,707
Long-term borrowed funds	102,508	102,590
Accrued interest payable	490	455
Off balance sheet financial instruments	0	0
Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	53,112	22,187
Interest bearing deposits in banks	892	1,354
Investment securities - AFS	136,514	137,641
Investment securities - HTM	95,538	94,010
Restricted bank stock	4,373	5,394
Loans, net	993,070	996,667
Financial derivatives	612	1,043
Accrued interest receivable	4,268	4,175
Deposits - non-maturity	874,296	815,858
Deposits - time deposits	256,316	251,669
Short-term borrowed funds	39,695	77,707
Long-term borrowed funds	100,929	100,929
Accrued interest payable	490	455
Off balance sheet financial instruments	0	0
Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	53,112	22,187
Interest bearing deposits in banks	892	1,354
Off balance sheet financial instruments	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities - AFS	121,362	122,364
Investment securities - HTM	80,764	80,780
Restricted bank stock	4,373	5,394
Financial derivatives	612	1,043
Accrued interest receivable	4,268	4,175
Deposits - non-maturity	874,296	815,858
Deposits - time deposits	257,122	252,146
Short-term borrowed funds	39,695	77,707
Long-term borrowed funds	102,508	102,590
Accrued interest payable	490	455
Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities - AFS	15,152	15,277
Investment securities - HTM	16,600	12,980
Loans, net	$ 971,274	$ 967,198

XML

Accumulated Other Comprehensive Loss (Schedule of Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Beginning balance	$ (24,403)
Balance	117,066	$ 108,390
Ending balance	(21,688)	(24,403)
Balance	122,399	117,066
Investment securities- with OTTI [Member]
Balance	(1,899)	(2,939)
Other comprehensive income/(loss) before reclassifications	(44)	1,194
Amounts reclassified from accumulated other comprehensive income (loss)	(36)	(154)
Balance	(1,979)	(1,899)
Investment Securities -All Other AFS [Member]
Balance	(3,601)	(2,979)
Other comprehensive income/(loss) before reclassifications	901	(540)
Amounts reclassified from accumulated other comprehensive income (loss)	4	(82)
Balance	(2,696)	(3,601)
Investment Securities HTM [Member]
Balance	(1,131)	(1,347)
Other comprehensive income/(loss) before reclassifications	0	0
Amounts reclassified from accumulated other comprehensive income (loss)	55	216
Balance	(1,076)	(1,131)
Cash Flow Hedge (OCI) [Member]
Balance	773	582
Other comprehensive income/(loss) before reclassifications	(315)	191
Amounts reclassified from accumulated other comprehensive income (loss)	0	0
Balance	458	773
Pension Plan [Member]
Balance	(18,017)	(17,066)
Other comprehensive income/(loss) before reclassifications	1,933	(1,833)
Amounts reclassified from accumulated other comprehensive income (loss)	196	882
Balance	(15,888)	(18,017)
SERP [Member]
Balance	(528)	(844)
Other comprehensive income/(loss) before reclassifications	0	202
Amounts reclassified from accumulated other comprehensive income (loss)	21	114
Balance	(507)	(528)
Accumulated Other Comprehensive Loss [Member]
Balance	(24,403)	(24,593)
Other comprehensive income/(loss) before reclassifications	2,475	(786)
Amounts reclassified from accumulated other comprehensive income (loss)	240	976
Balance	$ (21,688)	$ (24,403)

XML

Accumulated Other Comprehensive Loss (Components of Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Available for sale securities - all other: Net unrealized losses on all other AFS securities, Net of tax	$ 905	$ (1,078)
Cash flow hedges: Unrealized holding gains, Before Tax	(432)	607
Cash flow hedges: Unrealized holding gains, Tax Effect	117	(164)
Cash flow hedges: Unrealized holding gains, Net of Tax	(315)	443
Unrealized net actuarial gain (loss), Net of Tax	2,129	736
Other comprehensive income, Before tax amount	3,725	1,138
Other comprehensive income, Tax (expense) benefit	(1,010)	(318)
Other comprehensive income, Net	2,715	820
Investment securities- with OTTI [Member]
Available for sale (AFS) securities with OTTI: Unrealized holding gains, Before tax amount	(60)	939
Available for sale (AFS) securities with OTTI: Unrealized holding gains, Tax effect	16	(254)
Available for sale (AFS) securities with OTTI: Unrealized holding gains, Net of tax	(44)	685
Available for sale (AFS) securities with OTTI: Less: accretable yield recognized in income	49	55
Available for sale (AFS) securities with OTTI: Less: accretable yield recognized in income, Tax effect	(13)	(15)
Other than temporary impairment losses, investments, reclassification adjustment of noncredit portion included in net income, Available for sale securities, Net of tax	36	40
Available for sale (AFS) securities with OTTI: Net unrealized gains on investments with OTTI, Before tax amount	(109)	884
Available for sale (AFS) securities with OTTI: Net unrealized gains on investments with OTTI, Tax effect	29	(239)
Available for sale (AFS) securities with OTTI: Net unrealized gains on investments with OTTI, Net of tax	(80)	645
Investment Securities -All Other AFS [Member]
Securities: Unrealized holding losses, Before tax	1,236	(1,487)
Securities: Unrealized holding losses, Tax effect	(335)	402
Securities: Unrealized holding losses, Net of tax	901	(1,085)
Securities: Less: gains recognized in income, Before tax	(6)	(9)
Securities: Less: gains recognized in income, Tax effect	2	2
Securities: gains recognized in income, Net of tax	(4)	(7)
Available for sale securities: Net unrealized losses on all other AFS securities, Before Tax	1,242	(1,478)
Available for sale securities: Net unrealized losses on all other AFS securities, Tax effect	(337)	400
Available for sale securities - all other: Net unrealized losses on all other AFS securities, Net of tax	905	(1,078)
Investment Securities HTM [Member]
Securities: Unrealized holding losses, Before tax	0	0
Securities: Unrealized holding losses, Tax effect	0	0
Securities: Unrealized holding losses, Net of tax	0	0
Securities: Less: gains recognized in income, Before tax	(75)	(76)
Securities: Less: gains recognized in income, Tax effect	20	31
Securities: gains recognized in income, Net of tax	(55)	(45)
Held to maturity securities: Net unrealized losses on all HTM securities, Before tax	75	76
Held to maturity securities: Net unrealized losses on all HTM securities, Tax	(20)	(31)
Held to maturity securities: Net unrealized losses on all HTM securities, After tax	55	45
Pension Plan [Member]
Unrealized net actuarial gain (loss), Before Tax	2,652	707
Unrealized net actuarial gain (loss), Tax Effect	(719)	(191)
Unrealized net actuarial gain (loss), Net of Tax	1,933	516
Net plan liability adjustment, Before Tax	2,921	1,009
Net plan liability adjustment, Tax Effect	(792)	(273)
Net plan liability adjustment, Net of Tax	2,129	736
SERP [Member]
Unrealized net actuarial gain (loss), Before Tax	0	0
Unrealized net actuarial gain (loss), Tax Effect	0	0
Unrealized net actuarial gain (loss), Net of Tax	0	0
Net plan liability adjustment, Before Tax	28	40
Net plan liability adjustment, Tax Effect	(7)	(11)
Net plan liability adjustment, Net of Tax	21	29
Amortization of unrecognized loss [Member] | Pension Plan [Member]
Less: amortization of unrecognized net gain (loss), Before Tax	(269)	(300)
Less: amortization of unrecognized net gain (loss), Tax Effect	73	81
Less: amortization of unrecognized net gain (loss), Net of Tax	(196)	(219)
Amortization of Unrecognized Gain [Member] | SERP [Member]
Less: amortization of unrecognized net gain (loss), Before Tax	(29)	(41)
Less: amortization of unrecognized net gain (loss), Tax Effect	7	11
Less: amortization of unrecognized net gain (loss), Net of Tax	(22)	(30)
Amortization of prior service costs [Member] | Pension Plan [Member]
Less: amortization of prior service costs, Before Tax		(2)
Less: amortization of prior service costs, Tax Effect		1
Less: amortization of prior service costs, Net of Tax		(1)
Amortization of prior service costs [Member] | SERP [Member]
Less: amortization of prior service costs, Before Tax	1	1
Less: amortization of prior service costs, Tax Effect	0	0
Less: amortization of prior service costs, Net of Tax	$ 1	$ 1

XML

Accumulated Other Comprehensive Loss (Schedule of Reclassifications From Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gains/(losses) - other	$ 14	$ 34
Tax (expense) benefit	(877)	(648)
Net income	3,151	2,506
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net income	(240)	(261)
Investment securities- with OTTI [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest income (expense) on investment securities: taxable	49	55
Tax (expense) benefit	(13)	(15)
Net income	36	40
Investment Securities -All Other AFS [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gains/(losses) - other	(6)	(9)
Tax (expense) benefit	2	2
Net income	(4)	(7)
Investment Securities HTM [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest income (expense) on investment securities: taxable	(75)	(76)
Tax (expense) benefit	20	31
Net income	(55)	(45)
Pension Plan [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Tax (expense) benefit	73	82
Net income	(196)	(220)
Pension Plan [Member] | Amortization of unrecognized loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	(269)	(300)
Pension Plan [Member] | Amortization of prior service costs [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	0	(2)
SERP [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Tax (expense) benefit	7	11
Net income	(21)	(29)
SERP [Member] | Amortization of unrecognized loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	(29)	(41)
SERP [Member] | Amortization of prior service costs [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	$ 1	$ 1

XML

Leases (Statement of Financial Condition) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease right-of-use asset	$ 2,665	$ 0
Operating lease liability	$ 3,250	$ 0

XML

Leases - (Quantitative information) (Details)	3 Months Ended
	Mar. 31, 2019
Leases [Abstract]
Weighted-average remaining lease term - Operating leases	9 years 4 days
Weighted-average discount rate - Operating leases	5.09%

XML

Leases - (Expenses) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Total operating lease expense	$ 100
Short-term lease expense	$ 24

XML

Leases - (Future minimum payments) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Future minimum payments
2019	$ 343
2020	467
2021	466
2022	459
2023	393
Thereafter	1,983
Total future minimum lease	4,111
Amount representing interest	(861)
Present value of net future minimum lease payments	$ 3,250	$ 0

XML

Borrowed Funds (Narrative) (Details) $ in Millions	Mar. 31, 2019 USD ($)
Borrowed Funds [Abstract]
Repurchase agreements secured by available for sale securities	$ 52.1
FHLB advances secured by loans receivable	$ 214.4
Minimum fair value percentage pledged against account balances	102

XML

Borrowed Funds (Summary of Short Term Borrowings) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Overnight borrowings, interest rate		2.70%
Outstanding at end of period	$ 39,695	$ 77,707
Short-term FHLB Advance [Member]
Overnight borrowings	0	40,000
Securities Sold under Agreements to Repurchase [Member]
Outstanding at end of period	$ 39,695	$ 37,707
Weighted average interest rate	0.66%	0.24%
Maximum amount outstanding as of any month end	$ 40,579	$ 55,648
Average amount outstanding	$ 37,624	$ 44,045
Approximate weighted average rate during the period	0.69%	0.20%

XML

Employee Benefit Plans (Narrative) (Details) - USD ($)	1 Months Ended			3 Months Ended
	Jan. 31, 2019	Jan. 31, 2018	Jan. 31, 2017	Mar. 31, 2019	Mar. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Discretionary contribution, percent of participant's base salary				15.00%
Vesting period of employer discretionary contribution				2 years
Defined benefit plan participation expense				$ 14,906	$ 14,906
Four Employees [Member]
Defined Benefit Plan Disclosure [Line Items]
Vesting period of employer discretionary contribution	2 years	2 years	2 years
Employer discretionary contribution	$ 123,179	$ 119,252	$ 112,780
Defined benefit plan participation expense				$ 18,788
Pension [Member]
Defined Benefit Plan Disclosure [Line Items]
Plan modification description				Effective April 30, 2010, the Pension Plan was amended, resulting in a "soft freeze", the effect of which prohibits new entrants into the 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 (a) their ages, at their closest birthday, plus bi) 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 are managed through discretionary contributions to the First United Corporation 401(k) Profit Sharing Plan (the "401(k) Plan").
Employer discretionary contribution				$ 2,000,000

XML

Employee Benefit Plans (Components of the Net Periodic Pension Plan Cost) (Pension) (Details) - Pension [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 67	$ 81
Interest cost	437	397
Expected return on assets	(764)	(810)
Amortization of net actuarial loss	269	300
Amortization of prior service cost	0	2
Net pension expense/(credit) included in employee benefits	$ 9	$ (30)

XML

Employee Benefit Plans (Components of the Net Periodic Pension Plan Cost) (SERP) (Details) - SERP [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 24	$ 28
Interest cost	82	75
Amortization of recognized (gain)/ loss	29	41
Amortization of prior service cost	(1)	(1)
Net pension expense/(credit) included in employee benefits	$ 134	$ 143

XML

Equity Compensation Plan Information (Narrative) (Details) - USD ($)	1 Months Ended	3 Months Ended		12 Months Ended
	May 31, 2018	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Deferred compensation arrangement with individual, description		Stock-based awards were made to non-employee directors in May 2018 pursuant to First United Corporation's director compensation policy. Each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $10,000 to be paid, at the director's election, in cash or additional shares of common stock.
Director [Member]
Issued fully-vested common stock shares				12,936
Per share fair market value of issued fully vested common stock shares				$ 20.63
Shares issued to Director	1,000
Cash paid to Director	$ 10,000
Director stock compensation expense		$ 66,717	$ 53,558
Maximum [Member]
Maximum issuance of common stock options		325,000

XML

Letters of Credit and Off Balance Sheet Liabilities (Narrative) (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Letters of Credit and Off Balance Sheet Liabilities [Abstract]
Outstanding standby letters of credit	$ 3.6	$ 3.4

XML

Derivative Financial Instruments (Narrative) (Details) $ in Thousands	1 Months Ended	3 Months Ended
	Mar. 31, 2016 USD ($) contract	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Derivative [Line Items]
Decrease in fair value of derivatives		$ 400
Deferred tax asset on gain on derivative		$ 117
Cash flow hedge ineffectiveness		0
Interest Rate Swap [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 30,000
Number of interest rate swap contracts | contract	4
Interest rate swap fair value		$ 600	$ 1,000
Swap Contract - 3-Year $5 million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 5,000
Derivative, maturity date	Jun. 17, 2019
Swap Contract - 5-Year $5 million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 5,000
Derivative, maturity date	Mar. 17, 2021
Swap Contract - 10-Year $15 million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 15,000
Derivative, maturity date	Mar. 17, 2026
Swap Contract- 7 year $5 Million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 5,000
Derivative, maturity date	Mar. 17, 2023

XML

Derivative Financial Instruments (Impact Of Derivative Financial Instruments) (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Derivative Financial Instruments [Abstract]
Amount of gain or (loss) recognized in OCI on derivative (effective portion)		$ (315)	$ 443
Amount of gain or (loss) reclassified from accumulated OCI into income (effective portion)	[1]	0	0
Amount of gain or (loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)		$ 0	$ 0

[1] Reported as interest expense

XML

Assets and Liabilities Subject to Enforceable Master Netting Agreements (Schedule of Liabilities Subject to an Enforceable Master Netting Arrangement or Repurchase Agreements) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investment security collateral as a percentage of borrowing	102.00%
Interest Rate Swap [Member]
Gross Amounts of Recognized (Assets)/Liabilities	$ (612)	$ (1,043)
Gross Amounts Offset in the Statement of Condition	0	0
Net Amounts of (Assets)/Liabilities Presented in the Statement of Condition	(612)	(1,043)
Gross Amounts Not Offset in the Statement of Condition: Financial Instruments	612	1,043
Gross Amounts Not Offset in the Statement of Condition: Cash Collateral Pledged	0	0
Net Amount	0	0
Repurchase Agreements [Member]
Gross Amounts of Recognized (Assets)/Liabilities	39,695	37,707
Gross Amounts Offset in the Statement of Condition	0	0
Net Amounts of (Assets)/Liabilities Presented in the Statement of Condition	39,695	37,707
Gross Amounts Not Offset in the Statement of Condition: Financial Instruments	(39,695)	(37,707)
Gross Amounts Not Offset in the Statement of Condition: Cash Collateral Pledged	0	0
Net Amount	$ 0	$ 0

XML

Adoption of New Accounting Standards and Effects of New Accounting Pronouncements (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Operating lease right-of-use asset	$ 2,665		$ 0
Operating lease liability	$ 3,250		$ 0
Restatement Adjustment [Member] | ASU 2016-02 [Member]
Operating lease right-of-use asset		$ 2,700
Operating lease liability		$ 3,300