10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

        For quarterly period ended June 30, 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 incorporation or organization)	(I. R. S. Employer Identification No.)
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 ☑   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 ☑   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 ☑
Non-accelerated filer ☐	Smaller reporting company ☑
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 ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 7,105,775 shares of common stock, par value $.01 per share, as of July 31, 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 – June 30, 2019 and December 31, 2018	3
	Consolidated Statement of Operations – for the six and three months ended June 30, 2019 and 2018	4
	Consolidated Statement of Comprehensive Income – for the six and three months ended June 30, 2019 and 2018	6
	Consolidated Statement of Changes in Shareholders’ Equity – for three months ended March 31, June 30, 2019 and 2018	7
	Consolidated Statement of Cash Flows – for the six months ended June 30, 2019 and 2018	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	64
Item 4.	Controls and Procedures	64
PART II. OTHER INFORMATION		65
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	65
SIGNATURES		66

2

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

FIRST UNITED CORPORATION

Consolidated Statement of Financial Condition

(In thousands, except per share data)

	June 30, 2019		December 31, 2018
	(Unaudited)
Assets
Cash and due from banks	$	38,584	$	22,187
Interest bearing deposits in banks		405		1,354
Cash and cash equivalents		38,989		23,541
Investment securities – available for sale (at fair value)		135,809		137,641
Investment securities – held to maturity (fair value $102,503at June 30, 2019 and $93,760 at December 31, 2018)		97,499		94,010
Restricted investment in bank stock, at cost		4,415		5,394
Loans		1,003,616		1,007,714
Allowance for loan losses		(11,976)		(11,047)
Net loans		991,640		996,667
Premises and equipment, net		38,138		37,855
Goodwill and other intangible assets, net		11,004		11,004
Bank owned life insurance		43,908		43,317
Deferred tax assets		6,208		7,844
Other real estate owned		5,531		6,598
Operating lease right-of-use asset		2,594		—
Accrued interest receivable and other assets		29,894		20,645
Total Assets	$	1,405,629	$	1,384,516
Liabilities and Shareholders’ Equity
Liabilities:
Non-interest bearing deposits	$	281,307	$	262,250
Interest bearing deposits		841,774		805,277
Total deposits		1,123,081		1,067,527
Short-term borrowings		31,155		77,707
Long-term borrowings		100,929		100,929
Operating lease liability		3,177		—
Accrued interest payable and other liabilities		20,492		20,649
Dividends payable		640		638
Total Liabilities		1,279,474		1,267,450
Shareholders’ Equity:
Common Stock – par value $.01 per share; Authorized 25,000 shares; issued and outstanding 7,106 shares at June 30, 2019 and 7,087 at December 31, 2018		71		71
Surplus		32,133		31,921
Retained earnings		113,951		109,477
Accumulated other comprehensive loss		(20,000)		(24,403)
Total Shareholders’ Equity		126,155		117,066
Total Liabilities and Shareholders’ Equity	$	1,405,629	$	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)

	Six Months Ended
	June 30,
	2019		2018
	(Unaudited)
Interest income
Interest and fees on loans	$	24,686	$	21,408
Interest on investment securities
Taxable		2,917		2,921
Exempt from federal income tax		522		473
Total investment income		3,439		3,394
Other		358		284
Total interest income		28,483		25,086
Interest expense
Interest on deposits		3,736		1,784
Interest on short-term borrowings		131		124
Interest on long-term borrowings		1,743		1,728
Total interest expense		5,610		3,636
Net interest income		22,873		21,450
Provision for loan losses		682		716
Net interest income after provision for loan losses		22,191		20,734
Other operating income
Net gains		44		181
Service charges on deposit accounts		1,074		1,120
Other service charges		433		440
Trust department		3,547		3,305
Debit card income		1,276		1,201
Bank owned life insurance		591		584
Brokerage commissions		441		551
Other		254		210
Total other income		7,616		7,411
Total other operating income		7,660		7,592
Other operating expenses
Salaries and employee benefits		12,364		12,038
FDIC premiums		294		303
Equipment		1,819		1,436
Occupancy		1,418		1,252
Data processing		1,995		1,843
Professional services		522		643
Contract labor		331		337
Line rentals		415		430
Other real estate owned		929		493
Other		2,344		2,541
Total other operating expenses		22,431		21,316
Income before income tax expense		7,420		7,010
Provision for income tax expense		1,667		1,488
Net Income	$	5,753	$	5,522
Basic and diluted net income per common share	$	0.81	$	0.78
Weighted average number of basic and diluted shares outstanding		7,094		7,072
Dividends declared per common share	$	0.18	$	0.18

See accompanying notes to the consolidated financial statements

4

FIRST UNITED CORPORATION

Consolidated Statement of Operations

(In thousands, except per share data)

	Three Months Ended
	June 30,
	2019		2018
	(Unaudited)
Interest income
Interest and fees on loans	$	12,496	$	10,927
Interest on investment securities
Taxable		1,450		1,474
Exempt from federal income tax		242		235
Total investment income		1,692		1,709
Other		223		88
Total interest income		14,411		12,724
Interest expense
Interest on deposits		1,965		928
Interest on short-term borrowings		28		94
Interest on long-term borrowings		891		834
Total interest expense		2,884		1,856
Net interest income		11,527		10,868
Provision for loan losses		333		269
Net interest income after provision for loan losses		11,194		10,599
Other operating income
Net gains		30		147
Service charges on deposit accounts		555		557
Other service charges		225		211
Trust department		1,832		1,641
Debit card income		676		648
Bank owned life insurance		288		285
Brokerage commissions		203		306
Other		130		87
Total other income		3,909		3,735
Total other operating income		3,939		3,882
Other operating expenses
Salaries and employee benefits		6,146		6,119
FDIC premiums		183		170
Equipment		936		753
Occupancy		706		614
Data processing		1,054		911
Professional services		318		307
Contract labor		175		161
Line rentals		198		219
Other real estate owned		786		108
Other		1,239		1,263
Total other operating expenses		11,741		10,625
Income before income tax expense		3,392		3,856
Provision for income tax expense		790		840
Net Income	$	2,602	$	3,016
Basic and diluted net income per common share	$	0.37	$	0.43
Weighted average number of basic and diluted shares outstanding		7,100		7,077
Dividends declared per common share	$	0.09	$	0.09

See accompanying notes to the consolidated financial statements

5

FIRST UNITED CORPORATION

Consolidated Statement of Comprehensive Income

(In thousands)

	Six Months Ended
	June 30,
	2019		2018
Comprehensive Income (in thousands)	(Unaudited)
Net Income	$	5,753	$	5,522
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized (losses)/gains on investments with OTTI		(274)		1,590
Net unrealized gains/(losses) on all other AFS securities		2,482		(1,308)
Net unrealized gains on HTM securities		118		83
Net unrealized (losses)/gains on cash flow hedges		(801)		551
Net unrealized gains/(losses) on pension		2,836		(794)
Net unrealized gains on SERP		42		58
Other comprehensive income, net of tax		4,403		180
Comprehensive income	$	10,156	$	5,702

See accompanying notes to the consolidated financial statements

FIRST UNITED CORPORATION

Consolidated Statement of Comprehensive Income

(In thousands)

	Three Months Ended
	June 30,
	2019		2018
Comprehensive Income (in thousands)	(Unaudited)
Net Income	$	2,602	$	3,016
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized (losses)/gains on investments with OTTI		(194)		945
Net unrealized gains/(losses) on all other AFS securities		1,577		(230)
Net unrealized gains on HTM securities		63		38
Net unrealized (losses)/gains on cash flow hedges		(486)		108
Net unrealized gains/(losses) on pension		707		(1,530)
Net unrealized gains on SERP		21		29
Other comprehensive income/(loss), net of tax		1,688		(640)
Comprehensive income	$	4,290	$	2,376

See accompanying notes to the consolidated financial statements

6

FIRST UNITED CORPORATION

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands, except per share data)

	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
Net income						2,602				2,602
Other comprehensive income								1,688		1,688
Stock based compensation				67						67
Common stock issued				39						39
Common stock dividend declared - $.09 per share						(640)				(640)
Balance at June 30, 2019	$	71	$	32,133	$	113,951	$	(20,000)	$	126,155

FIRST UNITED CORPORATION

Consolidated Statement of Changes in Shareholders’ Equity

(In thousands, except per share data)

	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
Net income						3,016				3,016
Other comprehensive loss								(640)		(640)
Stock based compensation				63						63
Common stock issued				40						40
Common stock dividend declared - $.09 per share						(639)				(639)
Balance at June 30, 2018	$	71	$	31,709	$	105,607	$	(24,413)	$	112,974

See accompanying notes to the consolidated financial statements

7

FIRST UNITED CORPORATION

Consolidated Statement of Cash Flows

(In thousands)

	Six Months Ended
	June 30,
	2019		2018
	(Unaudited)
Operating activities
Net income	$	5,753	$	5,522
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		682		716
Depreciation		1,529		1,117
Stock compensation		134		116
Gains on sales of other real estate owned		(11)		(183)
Write-downs of other real estate owned		828		478
Originations of loans held for sale		(6,122)		(7,166)
Proceeds from sale of loans held for sale		5,861		6,820
Gains from sale of loans held for sale		(45)		(55)
Losses on disposal of fixed assets		1		—
Net (accretion)/amortization of investment securities discounts and premiums- AFS		(2)		27
Net amortization of investment securities discounts and premiums- HTM		20		40
Gains on sales/calls of investment securities – available-for-sale		—		(126)
Earnings on bank owned life insurance		(591)		(584)
Amortization of deferred loan fees		(336)		(358)
Amortization of operating lease right-of-use asset		136		—
Increase in accrued interest receivable and other assets		(5,138)		(1,673)
Increase in deferred tax benefit		(2)		(744)
Decrease in operating lease liability		(140)		—
(Decrease)/increase in accrued interest payable and other liabilities		(666)		2,203
Net cash provided by operating activities		1,891		6,150
Investing activities
Proceeds from maturities/calls of investment securities available-for-sale		4,228		6,058
Proceeds from maturities/calls of investment securities held-to-maturity		3,323		3,297
Proceeds from sales of investment securities available-for-sale		5,378		—
Purchases of investment securities available-for-sale		(4,744)		(1,405)
Purchases of investment securities held-to-maturity		(6,832)		—
Proceeds from sales of other real estate owned		870		1,637
Net decrease in FHLB stock		979		872
Net decrease/(increase) in loans		4,367		(23,969)
Purchases of loans		—		(25,168)
Purchases of premises and equipment		(1,813)		(5,413)
Net cash provided by/(used in) investing activities		5,756		(44,091)
Financing activities
Net increase in deposits		55,554		1,730
Proceeds from sale of common stock		78		40
Cash dividends on common stock		(1,279)		(1,274)
Net decrease in short-term borrowings		(46,552)		(916)
Payments on long-term borrowings		—		(20,000)
Net cash provided by/(used in) financing activities		7,801		(20,420)
Increase/(decrease) in cash and cash equivalents		15,448		(58,361)
Cash and cash equivalents at beginning of the year		23,541		83,752
Cash and cash equivalents at end of period	$	38,989	$	25,391
Supplemental information
Interest paid	$	5,562	$	3,506
Taxes paid	$	671	$	—
Non-cash investing activities:
Transfers from loans to other real estate owned	$	620	$	294
Initial recognition of operating lease right-of-use assets	$	2,730	$	—
Initial recognition of operating lease liabilities	$	3,317	$	—

See accompanying notes to the consolidated financial statements

8

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 8-03 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 six and three-month periods ended June 30, 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 June 30, 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 June 30, 2019.

The following tables set forth the calculation of basic and diluted earnings per common share for the six- and three-month periods ended June 30, 2019 and 2018:

	Six months ended June 30,
	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	$	5,753	7,094	$	0.81	$	5,522	7,072	$	0.78

	Three months ended June 30,
	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	$	2,602	7,100	$	0.37	$	3,016	7,077	$	0.43

9

Note 3 – Net Gains

The following table summarizes the gain/(loss) activity for the six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Net gains/(losses):
Available-for-sale securities:
Realized gains	$	73	$	145	$	73	$	145
Realized losses		(73)		(19)		(67)		(10)
Gains on sale of consumer loans		45		55		25		12
Losses on disposal of fixed assets		(1)		—		(1)		—
Net gains	$	44	$	181	$	30	$	147

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. 

10

The following table shows a comparison of amortized cost and fair values of investment securities at June 30, 2019 and December 31, 2018:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
June 30, 2019
Available for Sale:
U.S. government agencies	$	30,000	$	—	$	167	$	29,833	$	—
Commercial mortgage-backed agencies		42,487		143		284		42,346		—
Collateralized mortgage obligations		34,010		179		62		34,127		—
Obligations of states and political subdivisions		14,379		252		—		14,631		—
Collateralized debt obligations		18,387		—		3,515		14,872		(2,341)
Total available for sale	$	139,263	$	574	$	4,028	$	135,809	$	(2,341)
Held to Maturity:
U.S. government agencies	$	16,090	$	624	$	—	$	16,714	$	—
Residential mortgage-backed agencies		47,320		237		345		47,212		—
Commercial mortgage-backed agencies		15,672		429		—		16,101		—
Collateralized mortgage obligations		3,577		5		—		3,582		—
Obligations of states and political subdivisions		14,840		4,054		—		18,894		—
Total held to maturity	$	97,499	$	5,349	$	345	$	102,503	$	—
December 31, 2018
Available for Sale:
U.S. government agencies	$	30,000	$	—	$	974	$	29,026	$	—
Commercial mortgage-backed agencies		39,013		—		1,261		37,752		—
Collateralized mortgage obligations		36,669		—		965		35,704		—
Obligations of states and political subdivisions		20,083		132		333		19,882		—
Collateralized debt obligations		18,358		—		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	$	—	$	16,137	$	—
Residential mortgage-backed agencies		46,491		6		1,287		45,210		—
Commercial mortgage-backed agencies		15,821		75		68		15,828		—
Collateralized mortgage obligations		3,761		—		156		3,605		—
Obligations of states and political subdivisions		11,920		1,156		96		12,980		—
Total held to maturity	$	94,010	$	1,357	$	1,607	$	93,760	$	—

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

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Proceeds	$	5,668	$	500	$	5,408	$	265
Realized gains		73		145		73		145
Realized losses		73		19		67		10

11

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at June 30, 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
June 30, 2019
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	29,833	$	167	5
Commercial mortgage-backed agencies		—		—	—		18,918		284	5
Collateralized mortgage obligations		—		—	—		8,250		62	2
Collateralized debt obligations		5,848		612	4		9,024		2,903	5
Total available for sale	$	5,848	$	612	4	$	66,025	$	3,416	17
Held to Maturity:
Residential mortgage-backed agencies	$	5,287	$	16	2	$	19,088	$	329	20
Total held to maturity	$	5,287	$	16	2	$	19,088	$	329	20
December 31, 2018
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	29,026	$	974	5
Commercial mortgage-backed agencies		—		—	—		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		—		—	—		7,656		68	1
Collateralized mortgage obligations		—		—	—		3,605		156	1
Obligations of states and political subdivisions		—		—	—		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 component 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 six months of 2019. 

12

The Corporation does not believe that the investment securities that were in an unrealized loss position at June 30, 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 six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended
	June 30,
(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		(99)		(207)
Balance of credit-related OTTI at June 30	$	2,547	$	2,751

	Three Months Ended
	June 30,
(in thousands)	2019		2018
Balance of credit-related OTTI at April 1	$	2,597	$	2,903
Reduction for increases in cash flows expected to be collected		(50)		(152)
Balance of credit-related OTTI at June 30	$	2,547	$	2,751

The amortized cost and estimated fair value of securities by contractual maturity at June 30, 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.

	June 30, 2019
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	225	$	225
Due after one year through five years		16,763		16,718
Due after five years through ten years		17,968		17,876
Due after ten years		27,810		24,517
		62,766		59,336
Commercial mortgage-backed agencies		42,487		42,346
Collateralized mortgage obligations		34,010		34,127
Total available for sale	$	139,263	$	135,809
Held to Maturity:
Due after one year through five years	$	16,090	$	16,714
Due after ten years		14,840		18,894
		30,930		35,608
Residential mortgage-backed agencies		47,320		47,212
Commercial mortgage-backed agencies		15,672		16,101
Collateralized mortgage obligations		3,577		3,582
Total held to maturity	$	97,499	$	102,503

13

Note 5 – Loans and Related Allowance for Loan Losses

The following table summarizes the primary segments of the loan portfolio at June 30, 2019 and December 31, 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Total
June 30, 2019
Individually evaluated for impairment	$	5,778	$	8,144	$	27	$	3,787	$	7	$	17,743
Collectively evaluated for impairment	$	294,054	$	110,582	$	108,244	$	438,482	$	34,511	$	985,873
Total loans	$	299,832	$	118,726	$	108,271	$	442,269	$	34,518	$	1,003,616
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 Portfolio Risk 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 Portfolio Risk Management 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 June 30, 2019 and December 31, 2018:

(in thousands)	Pass		Special Mention		Substandard		Total
June 30, 2019
Commercial real estate
Non owner-occupied	$	137,348	$	7,457	$	2,012	$	146,817
All other CRE		145,127		1,721		6,167		153,015
Acquisition and development
1-4 family residential construction		10,301		—		—		10,301
All other A&D		100,490		—		7,935		108,425
Commercial and industrial		104,496		—		3,775		108,271
Residential mortgage
Residential mortgage - term		367,344		—		4,250		371,594
Residential mortgage - home equity		69,142		141		1,392		70,675
Consumer		34,413		4		101		34,518
Total	$	968,661	$	9,323	$	25,632	$	1,003,616
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		—		—		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		—		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 June 30, 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
June 30, 2019
Commercial real estate
Non owner-occupied	$	146,684	$	—	$	—	$	—	$	—	$	133	$	146,817
All other CRE		147,818		2,116		—		—		2,116		3,081		153,015
Acquisition and development
1-4 family residential construction		10,301		—		—		—		—		—		10,301
All other A&D		100,702		—		74		34		108		7,615		108,425
Commercial and industrial		108,158		—		86		—		86		27		108,271
Residential mortgage
Residential mortgage - term		368,467		138		1,464		197		1,799		1,328		371,594
Residential mortgage - home equity		69,403		241		25		79		345		927		70,675
Consumer		34,375		94		35		7		136		7		34,518
Total	$	985,908	$	2,589	$	1,684	$	317	$	4,590	$	13,118	$	1,003,616
December 31, 2018
Commercial real estate
Non owner-occupied	$	150,339	$	—	$	—	$	—	$	—	$	173	$	150,512
All other CRE		153,977		464		—		—		464		1,968		156,409
Acquisition and development
1-4 family residential construction		16,003		—		—		—		—		—		16,003
All other A&D		94,540		197		7,411		62		7,670		147		102,357
Commercial and industrial		111,436		29		1		—		30		—		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		—		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 $13.1 million at June 30, 2019, compared to $4.9 million at December 31, 2018.  The increase in non-accrual balances at June 30, 2019 was primarily due to entering a forbearance agreement with one large A&D loan totaling $7.0 million during the first quarter 2019.  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 Corporation entered into a forbearance agreement and placed the loan on non-accrual. During the second quarter of 2019, two additional CRE credits were added to non-accrual.  Non-accrual loans that have been subject to partial charge-offs totaled $.2 million at June 30, 2019, compared to $.3 million at December 31, 2018.  For the six months ended June 30, 2019, $1.7 million in specific allocations have been made related to the A&D portfolio.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $.2 million at June 30, 2019 and $.3 million at December 31, 2018. 

Accruing loans past due 30 days or more decreased to .46% of the loan portfolio at June 30, 2019, compared to 1.09% at December 31, 2018.  The decrease for the first six months of 2019 was primarily related to one large relationship in the commercial A&D portfolio that moved to non-accrual status in the first quarter of 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.

16

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 June 30, 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
June 30, 2019
Individually evaluated for impairment	$	11	$	1,728	$	—	$	65	$	—	$	—	$	1,804
Collectively evaluated for impairment	$	2,724	$	1,566	$	1,147	$	3,916	$	319	$	500	$	10,172
Total ALL	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
December 31, 2018
Individually evaluated for impairment	$	13	$	25	$	—	$	106	$	—	$	—	$	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 June 30, 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
June 30, 2019
Commercial real estate
Non owner-occupied	$	119	$	11	$	133	$	252	$	8,445
All other CRE		—		—		5,526		5,526		5,526
Acquisition and development
1-4 family residential construction		—		—		304		304		304
All other A&D		7,805		1,728		35		7,840		7,907
Commercial and industrial		—		—		27		27		2,241
Residential mortgage
Residential mortgage – term		1,205		56		1,655		2,860		3,063
Residential mortgage – home equity		171		9		756		927		941
Consumer		—		—		7		7		7
Total impaired loans	$	9,300	$	1,804	$	8,443	$	17,743	$	28,434
December 31, 2018
Commercial real estate
Non owner-occupied	$	121	$	13	$	173	$	294	$	8,488
All other CRE		—		—		4,945		4,945		4,945
Acquisition and development
1-4 family residential construction		—		—		316		316		316
All other A&D		230		25		147		377		525
Commercial and industrial		—		—		17		17		2,231
Residential mortgage
Residential mortgage – term		993		106		2,910		3,903		4,130
Residential mortgage – home equity		—		—		713		713		726
Consumer		—		—		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. Most “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.

18

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 six- and three-month periods ended June 30, 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		—		(29)		(5)		(86)		(136)		—		(256)
Recoveries		30		111		76		195		91		—		503
Provision		(75)		1,491		(111)		(672)		49		—		682
ALL balance at June 30, 2019	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
ALL balance at January 1, 2018	$	3,699	$	1,257	$	869	$	3,444	$	203	$	500	$	9,972
Charge-offs		(889)		(98)		(10)		(240)		(175)		—		(1,412)
Recoveries		60		258		31		65		79		—		493
Provision		433		(245)		(104)		475		157		—		716
ALL balance at June 30, 2018	$	3,303	$	1,172	$	786	$	3,744	$	264	$	500	$	9,769

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
ALL balance at April 1, 2019	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
Charge-offs		—		—		(5)		(74)		(68)		—		(147)
Recoveries		1		99		25		87		30		—		242
Provision		(41)		857		2		(529)		44		—		333
ALL balance at June 30, 2019	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
ALL balance at April 1, 2018	$	3,976	$	1,160	$	860	$	3,678	$	296	$	500	$	10,470
Charge-offs		(889)		(7)		(10)		(86)		(107)		—		(1,099)
Recoveries		1		44		13		27		44		—		129
Provision		215		(25)		(77)		125		31		—		269
ALL balance at June 30, 2018	$	3,303	$	1,172	$	786	$	3,744	$	264	$	500	$	9,769

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:

	Six months ended						Six months ended
	June 30, 2019						June 30, 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	$	270	$	6	$	—	$	813	$	7	$	66
All other CRE		4,853		76		—		6,625		99		56
Acquisition and development
1-4 family residential construction		310		9		—		457		12		—
All other A&D		5,306		6		—		276		6		—
Commercial and industrial		24		—		—		305		10		—
Residential mortgage
Residential mortgage – term		3,261		53		10		3,487		62		—
Residential mortgage – home equity		854		—		2		553		—		7
Consumer		14		—		—		23		—		—
Total	$	14,892	$	150	$	12	$	12,539	$	196	$	129

	Three months ended						Three months ended
	June 30, 2019						June 30, 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	$	258	$	3	$	—	$	1,258	$	3	$	—
All other CRE		4,807		38		—		5,726		50		—
Acquisition and development
1-4 family residential construction		307		4		—		492		6		—
All other A&D		7,772		3		—		340		3		—
Commercial and industrial		27		—		—		311		5		—
Residential mortgage
Residential mortgage – term		2,941		25		2		3,529		30		—
Residential mortgage – home equity		925		—		2		614		—		—
Consumer		16		—		—		24		—		—
Total	$	17,053	$	73	$	4	$	12,294	$	97	$	—

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 troubled debt restructuring (“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

20

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 13 loans totaling $4.0 million and 16 loans totaling $4.9 million that were classified as TDRs at June 30, 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
Six months ended June 30, 2019
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	—	$	—
All other CRE	—		—	—		—	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	1		227
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	1		243
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	—	$	—	2	$	470
	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
Six months ended June 30, 2018
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	1	$	126
All other CRE	—		—	1		179	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	—		—
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	—		—
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	1	$	179	1	$	126

During the six months ended June 30, 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 six months ended June 30, 2019, there were no payment defaults.

During the six months ended June 30, 2018, 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 six months ended June 30, 2018, there were no payment defaults.

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	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 June 30, 2018
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	1	$	126
All other CRE	—		—	1		179	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	—		—
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	—		—
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	1	$	179	1	$	126

During the three months ended June 30, 2019, there were no new TDRs, no modifications on existing TDRs and no payment defaults.

During the three months ended June 30, 2018, 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 second quarter of 2018, there were no payment defaults.

Note 6 - Other Real Estate Owned

The following table presents the components of other real estate owned (“OREO”) at June 30, 2019 and December 31, 2018:

(in thousands)	June 30, 2019		December 31, 2018
Commercial real estate	$	1,902	$	2,599
Acquisition and development		2,598		3,218
Commercial and industrial		—		24
Residential mortgage		1,031		757
Total OREO	$	5,531	$	6,598

The following table presents the activity in the OREO valuation allowance for the six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Balance beginning of period	$	1,988	$	2,740	$	1,366	$	2,911
Fair value write-down		828		478		711		183
Sales of OREO		(803)		(271)		(64)		(147)
Balance at end of period	$	2,013	$	2,947	$	2,013	$	2,947

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The following table presents the components of OREO expenses, net, for the six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
(Gains)/losses on real estate, net	$	(11)	$	(183)	$	19	$	(163)
Fair value write-down, net		828		478		711		183
Expenses, net		166		272		91		124
Rental and other income		(54)		(74)		(35)		(36)
Total OREO expense, net	$	929	$	493	$	786	$	108

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 June 30, 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 June 30, 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

23

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 June 30, 2019, the Corporation owned nine pooled trust preferred securities with an amortized cost of $18.4 million and a fair value of $14.9 million. As of June 30, 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 June 30, 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 June 30, 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.  

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For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)	Fair Value at June 30, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	14,872	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	7,234	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.8%)
Other Real Estate Owned	$	2,949	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.4%)
(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

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For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2019 and December 31, 2018 are as follows:

			Fair Value Measurements at June 30, 2019 Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	06/30/2019		(Level 1)	(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,833		$	29,833
Commercial mortgage-backed agencies	$	42,346		$	42,346
Collateralized mortgage obligations	$	34,127		$	34,127
Obligations of states and political subdivisions	$	14,631		$	14,631
Collateralized debt obligations	$	14,872				$	14,872
Financial Derivatives	$	(55)		$	(55)
Non-recurring:
Impaired loans	$	7,234				$	7,234
Other real estate owned	$	2,949				$	2,949

			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 six-month periods ended June 30, 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 six and three-month periods ended June 30, 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		(405)
Ending balance June 30, 2019	$	14,872

	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		1,227
Ending balance June 30, 2018	$	16,147

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance April 1, 2019	$	15,152
Total losses realized/unrealized:
Included in other comprehensive income		(280)
Ending balance June 30, 2019	$	14,872

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance April 1, 2018	$	15,977
Total gains realized/unrealized:
Included in other comprehensive income		170
Ending balance June 30, 2018	$	16,147

Gains/losses (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 six- and three-month periods ended June 30, 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:

	June 30, 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	$	38,584	$	38,584	$	38,584
Interest bearing deposits in banks		405		405		405
Investment securities - AFS		135,809		135,809			$	120,937	$	14,872
Investment securities - HTM		97,499		102,503				83,609		18,894
Restricted bank stock		4,415		4,415				4,415
Loans, net		991,640		976,051						976,051
Accrued interest receivable		4,083		4,083				4,083
Financial Liabilities:
Deposits - non-maturity		861,832		861,832				861,832
Deposits - time deposits		261,249		262,533				262,533
Financial derivatives		55		55				55
Short-term borrowed funds		31,155		31,155				31,155
Long-term borrowed funds		100,929		103,214				103,214
Accrued interest payable		503		503				503

	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

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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 periods ended March 31, 2019 and June 30, 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)		—		191		(1,833)		202		(786)
Amounts reclassified from   accumulated other   comprehensive loss		(154)		(82)		216		—		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		—		(315)		1,933		—		2,475
Amounts reclassified from   accumulated other   comprehensive loss		(36)		4		55		—		196		21		240
Balance - March 31, 2019	$	(1,979)	$	(2,696)	$	(1,076)	$	458	$	(15,888)	$	(507)	$	(21,688)
Other comprehensive   income/(loss) before   reclassifications		(157)		1,581		—		(486)		511		—		1,449
Amounts reclassified from   accumulated other   comprehensive loss		(37)		(4)		63		—		196		21		239
Balance - June 30, 2019	$	(2,173)	$	(1,119)	$	(1,013)	$	(28)	$	(15,181)	$	(486)	$	(20,000)

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The following tables present the components of other comprehensive income/(loss) for the six- and three-month periods ended June 30, 2019 and 2018:

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Six months ended June 30, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(276)	$	75	$	(201)
Less:  accretable yield recognized in income		99		(26)		73
Net unrealized losses on investments with OTTI		(375)		101		(274)
Available for sale securities – all other:
Unrealized holding gains		3,405		(923)		2,482
Net unrealized gains on all other AFS securities		3,405		(923)		2,482
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(161)		43		(118)
Net unrealized gains on HTM securities		161		(43)		118
Cash flow hedges:
Unrealized holding losses		(1,098)		297		(801)
Pension Plan:
Unrealized net actuarial gain		3,353		(909)		2,444
Less: amortization of unrecognized loss		(538)		146		(392)
Net pension plan liability adjustment		3,891		(1,055)		2,836
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(58)		15		(43)
Less: amortization of prior service costs		1		—		1
Net SERP liability adjustment		57		(15)		42
Other comprehensive income	$	6,041	$	(1,638)	$	4,403

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Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Six months ended June 30, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	2,432	$	(658)	$	1,774
Less:  gains recognized in income		145		(39)		106
Less:  accretable yield recognized in income		107		(29)		78
Net unrealized gains on investments with OTTI		2,180		(590)		1,590
Available for sale securities – all other:
Unrealized holding losses		(1,812)		490		(1,322)
Less:  losses recognized in income		(19)		5		(14)
Net unrealized losses on all other AFS securities		(1,793)		485		(1,308)
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(114)		31		(83)
Net unrealized gains on HTM securities		114		(31)		83
Cash flow hedges:
Unrealized holding gains		755		(204)		551
Pension Plan:
Unrealized net actuarial loss		(1,692)		457		(1,235)
Less: amortization of unrecognized loss		(600)		162		(438)
Less: amortization of prior service costs		(4)		1		(3)
Net pension plan liability adjustment		(1,088)		294		(794)
SERP:
Less: amortization of unrecognized loss		(81)		22		(59)
Less: amortization of prior service costs		1		—		1
Net SERP liability adjustment		80		(22)		58
Other comprehensive income	$	248	$	(68)	$	180

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Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Three months ended June 30, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(216)	$	59	$	(157)
Less:  accretable yield recognized in income		50		(13)		37
Net unrealized losses on investments with OTTI		(266)		72		(194)
Available for sale securities – all other:
Unrealized holding gains		2,169		(588)		1,581
Less:  gains recognized in income		6		(2)		4
Net unrealized gains on all other AFS securities		2,163		(586)		1,577
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(86)		23		(63)
Net unrealized gains on HTM securities		86		(23)		63
Cash flow hedges:
Unrealized holding losses		(666)		180		(486)
Pension Plan:
Unrealized net actuarial gain		701		(190)		511
Less: amortization of unrecognized loss		(269)		73		(196)
Net pension plan liability adjustment		970		(263)		707
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(29)		8		(21)
Net SERP liability adjustment		29		(8)		21
Other comprehensive income	$	2,316	$	(628)	$	1,688

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Components of Other Comprehensive Loss (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Three months ended June 30, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	1,493	$	(404)	$	1,089
Less:  gains recognized in income		145		(39)		106
Less:  accretable yield recognized in income		52		(14)		38
Net unrealized gains on investments with OTTI		1,296		(351)		945
Available for sale securities – all other:
Unrealized holding losses		(325)		88		(237)
Less:  losses recognized in income		(10)		3		(7)
Net unrealized losses on all other AFS securities		(315)		85		(230)
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(52)		14		(38)
Net unrealized gains on HTM securities		52		(14)		38
Cash flow hedges:
Unrealized holding gains		148		(40)		108
Pension Plan:
Unrealized net actuarial loss		(2,399)		648		(1,751)
Less: amortization of unrecognized loss		(300)		81		(219)
Less: amortization of prior service costs		(2)		—		(2)
Net pension plan liability adjustment		(2,097)		567		(1,530)
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(40)		11		(29)
Net SERP liability adjustment		40		(11)		29
Other comprehensive loss	$	(876)	$	236	$	(640)

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The following table presents the details of amount reclassified from accumulated other comprehensive loss for the six- and three-month periods ended June 30, 2019 and 2018:

Amounts Reclassified from	Six Months Ended
Accumulated Other Comprehensive Loss	June 30,				Affected Line Item in the Statement
(in thousands)	2019		2018		Where Net Income is Presented
Net unrealized gains on available for sale investment securities with OTTI:
Gains on calls	$	—	$	145	Net gains
Accretable yield		99		107	Interest income on taxable investment securities
Taxes		(26)		(68)	Provision for income tax expense
	$	73	$	184	Net of tax
Net unrealized losses on available for sale investment securities - all others:
Losses on sales	$	—	$	(19)	Net gains
Taxes		—		5	Provision for income tax expense
	$	—	$	(14)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(161)	$	(114)	Interest income on taxable investment securities
Taxes		43		31	Provision for income tax expense
	$	(118)	$	(83)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(538)	$	(600)	Other Expense
Amortization of prior service costs		—		(4)	Salaries and employee benefits
Taxes		146		163	Provision for income tax expense
	$	(392)	$	(441)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(58)	$	(81)	Other Expense
Amortization of prior service costs		1		1	Salaries and employee benefits
Taxes		15		22	Provision for income tax expense
	$	(42)	$	(58)	Net of tax
Total reclassifications for the period	$	(479)	$	(412)	Net of tax

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Amounts Reclassified from	Three Months Ended
Accumulated Other Comprehensive Loss	June 30,				Affected Line Item in the Statement
(in thousands)	2019		2018		Where Net Income is Presented
Net unrealized gains on available for sale investment securities with OTTI:
Gains on calls	$	—	$	145	Net gains
Accretable Yield	$	50	$	52	Interest income on taxable investment securities
Taxes		(13)		(53)	Provision for Income Tax Expense
	$	37	$	144	Net of tax
Net unrealized gains/(losses) on available for sale investment securities - all others:
Gains/(losses) on sales	$	6	$	(10)	Net gains
Taxes		(2)		3	Provision for Income Tax Expense
	$	4	$	(7)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(86)	$	(52)	Interest income on taxable investment securities
Taxes		23		14	Provision for Income Tax Expense
	$	(63)	$	(38)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(269)	$	(300)	Salaries and employee benefits
Amortization of prior service costs		—		(2)	Salaries and employee benefits
Taxes		73		81	Provision for Income Tax Expense
	$	(196)	$	(221)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(29)	$	(41)	Salaries and employee benefits
Taxes		8		11	Provision for Income Tax Expense
	$	(21)	$	(30)	Net of tax
Total reclassifications for the period	$	(239)	$	(152)	Net of tax

Note 9 – Leases

On January 1, 2019, the Corporation adopted Accounting Standards Update (“ASU”) 2016-02, “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)	June 30, 2019
Lease Right-of Use Assets
Operating lease right-of-use assets	$	2,594
Lease Liabilities
Operating lease liabilities	$	3,177

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. 

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The following table presents the weighted-average lease term and discount rate for operating leases at June 30, 2019:

	June 30, 2019
Weighted-average remaining lease term
Operating leases		8.81 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 six months ended June30, 2019 was $.2 million.  Short-term lease expense was $37 thousand for the six months ended June 30, 2019.  Total operating lease expense for the second quarter of 2019 was $.1 million.  Short-term lease expense was $13 thousand for the second quarter of 2019. 

Future minimum payments for operating leases with initial or remaining terms of one year or more at June 30, 2019 were as follows:

(in thousands)	Operating Leases
2019 (remainder of year)	$	229
2020		467
2021		466
2022		459
2023		393
Thereafter		1,983
Total future minimum lease payments		3,997
Amounts representing interest		(820)
Present value of net future minimum lease payments	$	3,177

Note 10 –Borrowed Funds

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

(Dollars in thousands)	Six Months Ended June 30, 2019		Year Ended December 31, 2018
Short-term Correspondent Bank Advance:
Overnight borrowings, weighted average interest rate of 2.70% at December 31, 2018	$	—	$	40,000
Securities sold under agreements to repurchase:
Outstanding at end of period	$	31,155	$	37,707
Weighted average interest rate at end of period		0.35%		0.24%
Maximum amount outstanding as of any month end	$	40,579	$	55,648
Average amount outstanding	$	37,218	$	44,045
Approximate weighted average rate during the period		0.29%		0.20%

At June 30, 2019, the repurchase agreements were secured by $45.0 million in investment securities issued by government related agencies.  A minimum of 102% of fair value is pledged against account balances.

At June 30, 2019, the long-term FHLB advances were secured by $214.0 million in loans.

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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	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Service cost	$	133	$	162	$	66	$	81
Interest cost		874		793		437		396
Expected return on assets		(1,528)		(1,620)		(764)		(810)
Amortization of net actuarial loss		538		600		269		300
Amortization of prior service cost		—		4		—		2
Net pension expense/(credit) included in employee benefits   and other expense	$	17	$	(61)	$	8	$	(31)

Defined Benefit SERP	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Service cost	$	47	$	56	$	23	$	28
Interest cost		165		150		83		75
Amortization of recognized loss		58		81		29		41
Amortization of prior service cost		(1)		(1)		—		—
Net Defined Benefit SERP expense included in   employee benefits and other expense	$	269	$	286	$	135	$	144

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 their (a) ages, at their closest birthday plus (b) 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 six 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),

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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 on 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 $29,812 of the related compensation for the first six months of 2019 and 2018.  The Corporation recorded $14,906 of the related compensation for the second quarters 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 $37,576 of related compensation expense for the first six months of 2019.  The Corporation recorded $18,788 of related compensation for the second quarter 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 2019 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 2019, a total of 14,641 fully-vested shares of common stock were issued to directors, which had a grant date fair market value of $18.30 per share.  Director stock compensation expense was $133,612 for the six months ended June 30, 2019 and $115,889 for the six months ended June 30, 2018. Director stock compensation expense was $66,894 for the second quarter of 2019 and $62,331 for the same period of 2018.

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 $8.6 million of outstanding standby letters of credit at June 30, 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 June 30, 2019 and December 31, 2018 is material. 

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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 include a three-year $5.0 million contract that matured 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 that matures on March 17, 2026.

The fair value of the interest rate swap contracts was $(55) thousand and $1.0 million at June 30, 2019 and December 31, 2018, respectively.

For the six months ended June 30, 2019, the Corporation recorded a decrease in the value of the derivatives of $1.1 million and the related deferred tax of $298 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 six months ended June 30, 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 June 30, 2019.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six- and three-months ended June 30, 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:
Six months ended:
June 30, 2019	$	801	$	—	$	—
June 30, 2018		551		—		—
Three months ended:
June 30, 2019	$	486	$	—	$	—
June 30, 2018		108		—		—

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 or Other Liabilities 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.

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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 June 30, 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
June 30, 2019
Interest Rate Swap Agreements	$	55	$	—	$	55	$	(55)	$	—	$	—
Repurchase Agreements	$	31,155	$	—	$	31,155	$	(31,155)	$	—	$	—
December 31, 2018
Interest Rate Swap Agreements	$	(1,043)	$	—	$	(1,043)	$	1,043	$	—	$	—
Repurchase Agreements	$	37,707	$	—	$	37,707	$	(37,707)	$	—	$	—

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.  

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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 Operations 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.  On July 17, 2019, FASB agreed to issue a proposal to delay CECL implementation deadlines for, among others, smaller reporting companies.  First United Corporation currently qualifies as a small reporting company.  The proposed delayed effective date is January 1, 2023 as opposed to January 1, 2020. The proposal is subject to a 30-day comment period which will begin once the proposal is officially released.

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.

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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 June 30, 2019, the Corporation’s total assets were $1.4 billion, net loans were $991.6 million, and deposits were $1.1 billion.  Shareholders’ equity at June 30, 2019 was $126.2 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.

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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 June 30, 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. 

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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 EquitySecurities (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.

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.

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SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data for the six-month periods ended June 30, 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 Six months ended
	June 30,
	2019		2018
Per Share Data
Basic and diluted net income per common share	$	0.81	$	0.78
Basic and diluted book value per common share	$	17.75	$	15.95
Significant Ratios
Return on Average Assets (a)		0.82%		0.84%
Return on Average Equity (a)		9.39%		9.94%
Average Equity to Average Assets		8.74%		8.47%

Note: (a) Annualized

RESULTS OF OPERATIONS

Overview

Consolidated net income was $5.8 million for the first six months of 2019, compared to $5.5 million for the same period of 2018.  Basic and diluted net income per common share for the first six months of 2019 were both $.81, compared to basic and diluted net income per common share of $.78 for the same period of 2018.The increase in earnings was primarily due to an increase in net interest income of $1.4 million and an increase of $.2 million in other operating income for the first six months of 2019 when compared to the same time period of 2018.  Increases in wealth management income and debit card income were the contributing factors in the increase in other operating income.  These changes were partially offset by a slight decline in service charge income, particularly non-sufficient funds (“NSF”) income and service charges on personal demand deposit accounts.  Other operating expenses increased $1.1 million for the first six months of 2019 as compared to the first six months of 2018.  Salaries and benefits increased $.3 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 $.7 million in the first six months of 2019. These increases were primarily attributable to increased depreciation expense related to the on-going branch renovation projects.  The increase in data processing expenses were related to new services implemented in late 2018 and early 2019.  Other real estate owned (“OREO”) expenses increased $.4 million in the first six months of 2019 due to valuation allowance write-downs on properties.  These changes were offset by a $.3 million decrease in other miscellaneous expenses such as marketing, legal and professional, consulting, dues and licenses, contract labor, trust department expense and miscellaneous loan fees.  The net interest margin for the first six months of 2019 and the first six months of 2018, on a fully tax equivalent (“FTE”) basis, was 3.70% and 3.71%, respectively. 

The provision for loan losses was $.7 million for both the six-month period ended June 30, 2019 and the six-month period ended June 30, 2018.  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.  During the second quarter of 2019, a specific allocation of $1.0 million was made on a non-accrual loan based on the receipt of a new appraisal on the property which was offset by the effect of a decrease in loan balances and a reduction of qualitative factors related to the mortgage pool as a result of the continued improvement in the historical loss factors.

Net interest income increased $1.4 million during the first six months of 2019 over the same period in 2018 due to a $3.4 million increase in interest income, offset by a $2.0 million increase in interest expense.  The increase in interest income was due to increases of $3.3 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 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 related to increased rates on the Collateralized Debt Obligation (“CDO”) portfolio.

Interest expense on our interest-bearing liabilities increased by $2.0 million during the six months ended June 30, 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 six months of 2019 when compared to the same period of 2018.  Slight increases in wealth management incomeand debit card income were offset by a slight decline in service charge income.

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Other operating expenses increased $1.1 million for the first six months of 2019 as compared to the first six months of 2018.  Salaries and benefits increased $.3 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 $.7 million in the first six months of 2019. These increases were primarily attributable to increased depreciation expense as we continue to invest in our branch network and new data processing services. OREO expenses increased $.4 million due to valuation allowance write-downs on properties in the first six months of 2019 as a result of new appraisals and reduced selling prices.  These changes were offset slightly by a decrease in other miscellaneous expenses such as marketing, legal and professional, consulting, dues and licenses, contract labor, trust department expense and miscellaneous loan fees.

Consolidated net income was $2.6 million for the second quarter of 2019, compared to $3.0 million for the same period of 2018.  Basic and diluted net income per common share for the second quarter of 2019 were both $.37, compared to basic and diluted net income per common share of $.43 for the same period of 2018. The decrease in earnings was attributable to increased other operating expenses relating to a $.4 million increase in equipment, occupancy and data processing expenses and a $.7 million increase in OREO expenses due primarily to valuation allowance write-downs on properties as a result of new appraisals and lower selling prices, offset by an increase in net interest income of $.7 million, an increase of $.1 million in wealth management income, and slight increases in service charge and debit card income.  The net interest margin for the second quarter of 2019 and the second quarter of 2018, on an FTE basis, was 3.68%, and 3.73%, respectively. 

The provision for loan losses was $.3 million for both the second quarter of 2019 and the second quarter of 2018.  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.  During the second quarter of 2019, a specific allocation of $1.0 million was made on a non-accrual loan based on the receipt of a new appraisal on the property which was offset by the effect of a decrease in loan balances and a reduction of qualitative factors related to the mortgage pool as a result of the continued improvement in the historical loss factors.

Net interest income increased $.7 million during the second quarter of 2019 over the same period in 2018 due to a $1.7 million increase in interest income, offset by a $1.0 million increase in interest expense.  The increase in interest income was due to increases of $1.6 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 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 related to increased rates on the CDO portfolio.

Interest expense on our interest-bearing liabilities increased by $1.0 million during the second quarter of 2019 when compared to the same period of 2018, due primarily to increased interest expense on deposits that resulted from strong deposit growth in the first quarter as well as the increased rates as we offered product specials and increased pricing on the full relationship customer. 

Other operating income remained stable during the second quarter of 2019 when compared to the same period of 2018.  Slight increases in wealth management incomeand debit card income were offset by a slight decline in service charge income.

Other operating expenses increased for the second quarter of 2019 when compared to the second quarter of 2018.  These increases related to a $.4 million increase in equipment, occupancy and data processing expenses due to increased depreciation expense as discussed above and a $.7 million increase in OREO expenses due to valuation allowance write-downs on properties. 

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. 

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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 six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended
	June 30,
	2019					2018
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate	Average Balance		Interest		Average Yield/Rate
Assets
Loans	$	1,007,010	$	24,712	4.95%	$	923,726	$	21,431	4.68%
Investment Securities:
Taxable		206,683		2,917	2.85%		217,374		2,921	2.71%
Non taxable		26,031		935	7.24%		18,558		847	9.20%
Total		232,714		3,852	3.34%		235,932		3,768	3.22%
Federal funds sold		25,600		190	1.51%		22,581		140	1.25%
Interest-bearing deposits with other banks		1,115		9	1.69%		2,219		9	0.82%
Other interest earning assets		4,560		159	7.03%		5,108		135	5.33%
Total earning assets		1,270,999		28,922	4.59%		1,189,566		25,483	4.32%
Allowance for loan losses		(11,597)					(10,569)
Non-earning assets		142,723					135,448
Total Assets	$	1,402,125				$	1,314,445
Liabilities and Shareholders’ Equity
Interest-bearing demand deposits	$	161,349	$	294	0.37%	$	174,063	$	71	0.08%
Interest-bearing money markets		257,517		1,085	0.85%		216,197		331	0.31%
Savings deposits		160,671		148	0.19%		162,163		90	0.11%
Time deposits:
Less than $100k		104,193		664	1.28%		107,635		523	0.98%
$100k or more		151,990		1,545	2.05%		117,105		769	1.32%
Short-term borrowings		42,864		131	0.62%		50,169		124	0.50%
Long-term borrowings		100,929		1,743	3.48%		111,592		1,728	3.12%
Total interest-bearing liabilities		979,513		5,610	1.15%		938,924		3,636	0.78%
Non-interest-bearing deposits		266,022					245,202
Other liabilities		34,037					19,048
Shareholders’ Equity		122,553					111,271
Total Liabilities and Shareholders’ Equity	$	1,402,125				$	1,314,445
Net interest income and spread			$	23,312	3.44%			$	21,847	3.54%
Net interest margin					3.70%					3.71%

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 $439 and  $397, 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 $1.5 million (6.7%) during the first six months of 2019 over the same period in 2018 due to a $3.4 million (13.5%) increase in interest income, offset by a $2.0 million (54.3%) increase in interest expense.  The net interest margin was 3.70% for first six months of 2019 and 3.71% for the first six months of 2018.

Comparing the first six months of 2019 to the same period of 2018, the increase in interest income was due to increases of $3.3 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 27 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 12 basis points related to increased rates on the CDO portfolio.

Interest expense on our interest-bearing liabilities increased by $2.0 million during the six months ended June 30, 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.   

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The average balance on interest-bearing deposits increased by $58.6 million when comparing the first six months of 2019 to the same period of 2018.  The average rate paid on these deposits increased by 89 basis points during the same time due to the rising interest rate environment.  The average rate paid on short-term borrowings increased by 12 basis points as pricing on overnight borrowings increased throughout 2018.  The average balance on long-term borrowings decreased by $10.7 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. 

	Three Months Ended
	June 30,
	2019					2018
(dollars in thousands)	Average Balance		Interest		Average Yield/Rate	Average Balance		Interest		Average Yield/Rate
Assets
Loans	$	1,007,404	$	12,509	4.98%	$	939,303	$	10,938	4.67%
Investment Securities:
Taxable		209,319		1,450	2.79%		215,604		1,474	2.74%
Non taxable		24,425		435	7.14%		18,328		422	9.24%
Total		233,744		1,885	3.24%		233,932		1,896	3.25%
Federal funds sold		34,037		145	1.72%		10,906		15	0.55%
Interest-bearing deposits with other banks		754		4	2.14%		1,790		4	0.90%
Other interest earning assets		4,379		74	6.79%		5,167		69	5.35%
Total earning assets		1,280,318		14,617	4.58%		1,191,098		12,922	4.35%
Allowance for loan losses		(11,877)					(10,573)
Non-earning assets		146,380					134,236
Total Assets	$	1,414,821				$	1,314,761
Liabilities and Shareholders’ Equity
Interest-bearing demand deposits	$	162,527	$	165	0.41%	$	174,961	$	42	0.10%
Interest-bearing money markets		261,682		580	0.89%		209,801		176	0.34%
Savings deposits		162,850		75	0.19%		164,096		46	0.11%
Time deposits:
Less than $100k		104,668		349	1.34%		105,028		260	0.99%
$100k or more		153,688		796	2.08%		116,873		404	1.39%
Short-term borrowings		36,832		28	0.30%		52,576		94	0.72%
Long-term borrowings		100,929		891	3.55%		105,709		834	3.16%
Total interest-bearing liabilities		983,176		2,884	1.18%		929,044		1,856	0.80%
Non-interest-bearing deposits		266,521					253,713
Other liabilities		40,177					19,280
Shareholders’ Equity		124,947					112,724
Total Liabilities and Shareholders’ Equity	$	1,414,821				$	1,314,761
Net interest income and spread			$	11,733	3.40%			$	11,066	3.55%
Net interest margin					3.68%					3.73%

Note: 

(4) 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 $206 and $198, respectively.

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

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

Net interest income, on an FTE basis, increased $.7 million (6.0%) during the second quarter of 2019 over the same period in 2018 due to a $1.7 million (13.1%) increase in interest income and a $1.0 million (55.4%) increase in interest expense.  The net interest margin for the second quarter of 2019 was 3.68%, compared to 3.73% for the second quarter of 2018.

Comparing the second quarter of 2019 to the same period of 2018, the increase in interest income was primarily due to an increase of $1.6 million in interest and fees on loans.  The increase in interest and fees on loans was due primarily to an increase in the rate earned of 31 basis points attributable to loans repricing at higher rates, new loans booked at higher rates and increased balances related to the strong loan growth in 2018.

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Interest expense on our interest-bearing liabilities increased by $1.0 million during the second quarter of 2019 when compared to the same period of 2018, due primarily to increased interest expense on deposits that resulted from strong deposit growth in the first quarter as well as the increased rates as we offered product specials and increased pricing on the full relationship customer. 

The average balance on interest-bearing deposits increased by $74.7 million when comparing the second quarter of 2019 to the same period of 2018.  The average rate paid on these deposits increased by 45 basis points during the same time due to the rising interest rate environment.  The average rate paid on short-term borrowings decreased by 42 basis points, as the strong deposit growth enabled us to fully repay $40.0 million of overnight borrowings early in the first quarter of 2019.  The average balance on long-term borrowings decreased by $4.8 million as a result of 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 six-month periods ended June 30, 2019 and 2018:

	2019 Compared to 2018
(in thousands and tax equivalent basis)	Volume		Rate		Net
Interest Income:
Loans	$	1,949	$	1,332	$	3,281
Taxable Investments		(145)		141		(4)
Non-taxable Investments		344		(256)		88
Federal funds sold		19		31		50
Interest-bearing deposits		(5)		5		0
Other interest earning assets		(15)		39		24
Total interest income		2,147		1,292		3,439
Interest Expense:
Interest-bearing demand deposits		(5)		228		223
Interest-bearing money markets		64		690		754
Savings deposits		(1)		59		58
Time deposits less than $100		(17)		158		141
Time deposits $100 or more		230		546		776
Short-term borrowings		(18)		25		7
Long-term borrowings		(166)		181		15
Total interest expense		87		1,887		1,974
Net interest income	$	2,060	$	(595)	$	1,465

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.

49

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 June 30, 2019 and 2018:

	2019 Compared to 2018
(in thousands and tax equivalent basis)	Volume		Rate		Net
Interest Income:
Loans	$	795	$	776	$	1,571
Taxable Investments		(43)		19		(24)
Non-taxable Investments		141		(128)		13
Federal funds sold		32		98		130
Interest-bearing deposits		(2)		2		0
Other interest earning assets		(11)		16		5
Total interest income		912		783		1,695
Interest Expense:
Interest-bearing demand deposits		(3)		126		123
Interest-bearing money markets		44		360		404
Savings deposits		0		29		29
Time deposits less than $100		(1)		90		89
Time deposits $100 or more		128		264		392
Short-term borrowings		(28)		(38)		(66)
Long-term borrowings		(38)		95		57
Total interest expense		102		926		1,028
Net interest income	$	810	$	(143)	$	667

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.

50

Provision for Loan Losses

The provision for loan losses was $.7 million for both the six-month period ended June 30, 2019 and the six-month period ended June 30, 2018.  For the six months ended June 30, 2019, specific allocations of $1.7 million were made related to the movement of one large A&D loan totaling $7.0 million to non-accrual during the first 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 Corporation entered into a forbearance agreement and placed the loan on non-accrual and established a $.7 million specific allocation.  During the second quarter of 2019, an additional specific allocation of $1.0 million was made for this loan based on the receipt of a new appraisal on the property which was offset by the effect of a decrease in loan balances and a reduction of qualitative factors related to the mortgage pool as a result of the continued improvement in the historical loss factors.

The provision for loan losses was $.3 million for both the second quarter of 2019 and 2018. During the second quarter of 2019, a specific allocation of $1.0 million was made on a non-accrual loan based on the receipt of a new appraisal on the property which was offset by the effect of a decrease in loan balances and a reduction of qualitative factors related to the mortgage pool as a result of the continued improvement in the historical loss factors.

Other Operating Income

Other operating income, exclusive of gains, increased $.2 million during the first six months of 2019 when compared to the same period of 2018.  The increase resulted from  increases in wealth management income,debit card income and income related to the dissolution of an investment in a title company.

Net gains of $44 thousand were reported in other income for the first six months of 2019, compared to net gains of $181 thousand during the same period of 2018.

Other operating income, exclusive of gains, increased $.2 million during the second quarter of 2019 when compared to the same period of 2018.  This increase was primarily attributable to increased wealth management and debit card income.

Net gains of $30 thousand were reported in other income for the second quarter of 2019, compared to net gains of $147 thousand during the same period of 2018.

The following table shows the major components of other operating income for the six- and three-month periods ended June 30, 2019 and 2018, exclusive of net gains: 

	Income as % of Total Other Operating Income						Income as % of Total Other Operating Income
	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Service charges on deposit accounts	$	1,074	14%	$	1,120	16%	$	555	14%	$	557	15%
Other service charges		433	6%		440	5%		225	6%		211	6%
Trust department		3,547	46%		3,305	45%		1,832	47%		1,641	44%
Debit card Income		1,276	17%		1,201	16%		676	17%		648	17%
Bank owned life insurance		591	8%		584	8%		288	8%		285	8%
Brokerage commissions		441	6%		551	7%		203	5%		306	8%
Other income		254	3%		210	3%		130	3%		87	2%
	$	7,616	100%	$	7,411	100%	$	3,909	100%	$	3,735	100%

Other Operating Expenses

Other operating expenses increased $1.1 million for the first six months of 2019 when compared to the first six months of 2018.  Salaries and benefits increased $.3 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 $.7 million in the first six months of 2019. These increases were primarily attributable to increased depreciation expense as we continue to invest in our branch network and new data processing services. OREO expenses increased $.4 million due to valuation allowance write-downs on properties in the first six months of 2019 as a result of new appraisals and reduced selling prices.  These changes were offset slightly by a decrease in other miscellaneous expenses such as marketing, legal and professional, consulting, dues and licenses, contract labor, trust department expense and miscellaneous loan fees.

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Other operating expenses increased for the second quarter of 2019 when compared to the second quarter of 2018.  These increases related to a $.4 million increase in equipment, occupancy and data processing expenses due to increased depreciation expense as discussed above and a $.7 million increase in OREO expenses due to valuation allowance write-downs on properties. 

The composition of other operating expenses for the six- and three-month periods ended June 30, 2019 and 2018 is illustrated in the following table:

	Expense as % of Total Other Operating Expenses						Expense as % of Total Other Operating Expenses
	Six Months Ended						Three Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Salaries and employee benefits	$	12,364	55%	$	12,038	56%	$	6,146	51%	$	6,119	58%
FDIC premiums		294	1%		303	1%		183	2%		170	2%
Equipment		1,819	8%		1,436	7%		936	8%		753	7%
Occupancy		1,418	6%		1,252	6%		706	6%		614	6%
Data processing		1,995	9%		1,843	9%		1,054	9%		911	8%
Professional Services		522	2%		643	3%		318	3%		307	3%
Contract Labor		331	2%		337	2%		175	1%		161	1%
Line rentals		415	2%		430	2%		198	2%		219	2%
Other real estate owned		929	4%		493	2%		786	7%		108	1%
Other		2,344	11%		2,541	12%		1,239	11%		1,263	12%
	$	22,431	100%	$	21,316	100%	$	11,741	100%	$	10,625	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 six months of 2019 was 22.5%, compared to an effective tax rate of 21.2% for the first six months of 2018.  The increase in the effective tax rate was due to a reduction in tax-exempt income and the low income housing tax credits nearing their maturity.

FINANCIAL CONDITION

Balance Sheet Overview

Total assets increased by $21.1 million to $1.4 billion at June 30, 2019 when compared to assets at December 31, 2018.  During the first six months of 2019, cash and interest-bearing deposits in other banks increased $15.4 million, the investment portfolio increased $1.7 million and gross loans decreased $4.1 million.  The increase in cash was due to strong deposit growth in the first quarter of 2019, offset by the full repayment of $40.0 million in overnight borrowings at December 31, 2018.  Premises and equipment increased slightly by $.3 million due to continued investment in our branch network, offset by normal depreciation during the first six months of 2019.  OREO balances decreased $1.1 million due to $.8 million in sales of properties, $.9 million in valuation allowance write-downs as a result of new appraisals and lower selling prices, offset by additions of new properties of $.6 million.  Other assets increased by $9.3 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 as well as an increase in the market value of the pension assets of $3.8 million and a $2.3 million timing difference due to the delayed receipt of cash from a participation loan payoff at the end of the second quarter. Total liabilities at June 30, 2019 increased $12.0 million when compared to December 31, 2018.  This increase was attributable to the strong deposit growth of $55.6 million in the first six months of 2019, offset by a decline in short-term borrowings of $46.6 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 decreased by $6.6 million as customers utilized cash balances during the second quarter of 2019. Total shareholders’ equity increased $9.1 million due to the increase in retained earnings and the decline in accumulated other comprehensive loss.

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Loan Portfolio

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

(dollars in thousands)	June 30, 2019			December 31, 2018
Commercial real estate	$	299,832	30%	$	306,921	31%
Acquisition and development		118,726	12%		118,360	12%
Commercial and industrial		108,271	11%		111,466	11%
Residential mortgage		442,269	44%		436,907	43%
Consumer		34,518	3%		34,060	3%
Total Loans	$	1,003,616	100%	$	1,007,714	100%

Comparing June 30, 2019 to December 31, 2018, outstanding loans decreased by $4.1 million.   Commercial real estate (“CRE”) loans decreased $7.1 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 slightly by $.4 million due to new production offset by payoffs received in the second quarter. Commercial and industrial (“C&I”) loans decreased $3.2 million due to one large payoff received in the second quarter.  Residential mortgages increased $5.4 million, primarily due to new loans booked in purchase money and construction loans in our in-house adjustable rate mortgage products. The consumer portfolio increased slightly by $.5 million due to increased balances in our student loan portfolio.  Approximately 27% of the commercial loan portfolio was collateralized by real estate at both June 30, 2019 and December 31, 2018.

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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)	June 30, 2019		% of Applicable Portfolio	December 31, 2018		% of Applicable Portfolio
Non-accrual loans:
Commercial real estate	$	3,214	1.07%	$	2,141	0.70%
Acquisition and development		7,615	6.41%		147	0.10%
Commercial and industrial		27	0.02%		—	0.00%
Residential mortgage		2,255	0.51%		2,624	0.60%
Consumer		7	0.02%		10	0.00%
Total non-accrual loans	$	13,118	1.31%	$	4,922	0.49%
Accruing Loans Past Due 90 days or more:
Acquisition and development		34			62
Residential mortgage		276			363
Consumer		7			5
Total loans past due 90 days or more	$	317		$	430
Total non-accrual and accruing loans past due   90 days or more	$	13,435		$	5,352
Restructured Loans (TDRs):
Performing	$	3,823		$	4,633
Non-accrual (included above)		220			231
Total TDRs	$	4,043		$	4,864
Other real estate owned	$	5,531		$	6,598
Impaired loans without a valuation allowance	$	8,443		$	9,231
Impaired loans with a valuation allowance		9,300			1,344
Total impaired loans	$	17,743		$	10,575
Valuation allowance related to impaired loans	$	1,804		$	144

Performing loans considered to be impaired (including performing troubled debt restructurings, or TDRs), as defined and identified by management, amounted to $13.1 million at June 30, 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 increase in impaired loans with a valuation allowance at June 30, 2019 as compared to December 31, 2018 was due to the movement of a $7.0 million A&D loan to non-accrual status in the first quarter of 2019 and specific reserves of $1.7 million as previously discussed.  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.

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The following table presents the details of impaired loans that are TDRs by class at June 30, 2019 and December 31, 2018:

	June 30, 2019			December 31, 2018
(in thousands)	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Performing
Commercial real estate
Non owner-occupied	2	$	239	3	$	356
All other CRE	1		2,324	2		2,555
Acquisition and development
1-4 family residential construction	1		304	1		230
All other A&D	1		225	1		316
Commercial and industrial	—		—	—		—
Residential mortgage
Residential mortgage – term	6		731	7		1,176
Residential mortgage – home equity	—		—	—		—
Consumer	—		—	—		—
Total performing	11	$	3,823	14	$	4,633
Non-accrual
Commercial real estate
Non owner-occupied	—	$	—	—	$	—
All other CRE	—		—	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—
All other A&D	—		—	—		—
Commercial and industrial	—		—	—		—
Residential mortgage
Residential mortgage – term	2		220	2		231
Residential mortgage – home equity	—		—	—		—
Consumer	—		—	—		—
Total non-accrual	2		220	2		231
Total TDRs	13	$	4,043	16	$	4,864

The level of TDRs decreased $.8million during the six months ended June 30, 2019.  Three accruing loans totaling $.7 million were repaid in the first six months 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.

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The following table presents a summary of the activity in the ALL for the six months ended June 30:

(dollars in thousands)	2019		2018
Balance, January 1	$	11,047	$	9,972
Charge-offs:
Commercial real estate		—		(889)
Acquisition and development		(29)		(98)
Commercial and industrial		(5)		(10)
Residential mortgage		(86)		(240)
Consumer		(136)		(175)
Total charge-offs		(256)		(1,412)
Recoveries:
Commercial real estate		30		60
Acquisition and development		111		258
Commercial and industrial		76		31
Residential mortgage		195		65
Consumer		91		79
Total recoveries		503		493
Net credit recoveries/(losses)		247		(919)
Provision for loan losses		682		716
Balance at end of period	$	11,976	$	9,769
Allowance for loan losses to gross loans outstanding (as %)		1.19%		1.04%
Net recoveries/charge-offs to average loans outstanding during the period, annualized (as %)		0.05%		0.20%

The ALL was $12.0 million at June 30, 2019 and $11.0 million at December 31, 2018.  The provision for loan losses was $.7 million for both the first six months of 2019 and the first six months of 2018.  Net recoveries of $.2 million were recorded for the six months ended June 30, 2019, compared to net charge offs of $.9 million for the six months ended June 30, 2018. The ratio of the ALL to loans outstanding was 1.19% at June 30, 2019, 1.10% at December 31, 2018 and 1.04% at June 30, 2018.

The ratio of net recoveries to average loans for the six months ended June 30, 2019 was an annualized .05%, compared to a net charge-off to average loans of .20% for the same period in 2018 and a net charge-off to average loans ratio of .11% for the year ended December 31, 2018.  The CRE portfolio had an annualized net recovery rate of .02% as of June 30, 2019, compared to a net charge-off rate of .33% as of December 31, 2018.  The A&D loans had an annualized net recovery rate of .14% as of June 30, 2019, compared to a net recovery rate of .15% as of December 31, 2018.  The C&I loans had a net recovery rate of .13% as of June 30, 2019, compared to .06% as of December 31, 2018.  The residential mortgage ratios were a net recovery rate of .05% as of June 30, 2019, compared to a net charge-off rate of .01% as of December 31, 2018, and the consumer loan ratios were net charge-off rates of .26% and .95% as of June 30, 2019 and December 31, 2018, respectively. 

Management believes that the ALL at June 30, 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.

Investment Securities

At June 30, 2019, the total amortized cost basis of the available-for-sale investment portfolio was $139.3 million, compared to a fair value of $135.8 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 $97.5 million, compared to a fair value of $102.5 million.

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

	June 30, 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	$	29,833	22%	$	30,000	$	29,026	21%
Commercial mortgage-backed agencies		42,487		42,346	31%		39,013		37,752	27%
Collateralized mortgage obligations		34,010		34,127	25%		36,669		35,704	26%
Obligations of state and political subdivisions		14,379		14,631	11%		20,083		19,882	15%
Collateralized debt obligations		18,387		14,872	11%		18,358		15,277	11%
Total available for sale	$	139,263	$	135,809	100%	$	144,123	$	137,641	100%
Securities Held to Maturity:
U.S. government agencies	$	16,090	$	16,714	16%	$	16,017	$	16,137	17%
Residential mortgage-backed agencies		47,320		47,212	46%		46,491		45,210	48%
Commercial mortgage-backed agencies		15,672		16,101	16%		15,821		15,828	17%
Collateralized mortgage obligations		3,577		3,582	4%		3,761		3,605	4%
Obligations of state and political subdivisions		14,840		18,894	18%		11,920		12,980	14%
Total held to maturity	$	97,499	$	102,503	100%	$	94,010	$	93,760	100%

Total investment securities available-for-sale decreased by $1.8 million since December 31, 2018.  At June 30, 2019, the securities classified as available-for-sale included a net unrealized loss of $3.5 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 $120.9 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized gains of $61 thousand at June 30, 2019.  The remaining $14.9 million of the securities available-for-sale represents the entire CDO portfolio, which was valued using significant unobservable inputs (Level 3 assets).  The $3.5 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 $2.3 million represent non-credit related OTTI charges on seven of the securities, while $1.2 million of unrealized losses relates to two securities which have had no credit related OTTI.

The following table provides a summary of the trust preferred securities in the CDO portfolio and the credit status of these securities as of June 30, 2019:

Level 3 Investment Securities Available for Sale
(Dollars in thousands)
Investment Description		First United Level 3 Investments				Security Credit Status
Deal	Class	Amortized Cost	Fair Market Value	Unrealized Gain/ (Loss)	Lower Credit Rating	Original Collateral	Deferrals/ Defaults as % of Original Collateral	Performing Collateral	Collateral Support	Collateral Support as % of Performing Collateral	Number of Performing Issuers/ Total Issuers
Preferred Term Security XVIII*	C	1,913	1,338	(575)	C	676,565	15.47%	291,560	11,635	3.99%	41 / 57
Preferred Term Security XVIII	C	2,746	2,007	(739)	C	676,565	15.47%	291,560	11,635	3.99%	41 / 57
Preferred Term Security XIX*	C	1,811	1,624	(187)	C	700,535	6.18%	490,262	27,434	5.60%	52 / 57
Preferred Term Security XIX*	C	1,079	975	(104)	C	700,535	6.18%	490,262	27,434	5.60%	52 / 57
Preferred Term Security XIX*	C	2,490	2,274	(216)	C	700,535	6.18%	490,262	27,434	5.60%	52 / 57
Preferred Term Security XIX*	C	1,080	975	(105)	C	700,535	6.18%	490,262	27,434	5.60%	52 / 57
Preferred Term Security XXII*	C-1	1,552	1,269	(283)	C	1,386,600	10.86%	679,548	60,990	8.98%	60 / 74
Preferred Term Security XXII*	C-1	3,879	3,172	(707)	C	1,386,600	10.86%	679,548	60,990	8.98%	60 / 74
Preferred Term Security XXIII	C-1	1,837	1,238	(599)	C	1,467,000	14.79%	720,108	61,624	8.56%	76 / 90
Total Level 3 Securities Available for Sale		18,387	14,872	(3,515)

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

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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 June 30, 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 June 30, 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.

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 June 30, 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 six months of 2019.   

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Deposits

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

(dollars in thousands)	June 30, 2019			December 31, 2018
Non-interest bearing demand deposits:
Retail	$	281,307	25%	$	262,250	25%
Interest-bearing deposits:
Demand		162,182	14%		163,334	15%
Money Market:
Retail		254,949	23%		234,038	22%
Savings deposits		163,394	15%		156,236	15%
Time deposits less than $100,000:
Retail		99,522	9%		99,088	9%
Time deposits $100,000 or more:
Retail		136,727	12%		127,581	12%
Brokered		25,000	2%		25,000	2%
Total Deposits	$	1,123,081	100%	$	1,067,527	100%

Total deposits increased $55.6 million during the first six months of 2019 when compared to deposits at December 31, 2018.  During the first six months of 2019, non-interest bearing deposits increased $19.1 million. This growth was driven by both our retail market and our commercial market, as we continued to grow existing relationships as well as engage new relationships. Traditional savings accounts increased $7.2 million as our Prime Saver product continues to be the savings product of choice.  Total demand deposits decreased $1.2 million and total money market accounts increased $20.9 million due primarily to new balances in our Value money market account introduced in late 2018.  Time deposits less than $100,000 increased $.4 million and time deposits greater than $100,000 increased $9.1 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.

Borrowed Funds

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

(in thousands)	June 30, 2019		December 31, 2018
Fed Funds Purchased	$	—	$	40,000
Securities sold under agreements to repurchase		31,155		37,707
Total short-term borrowings	$	31,155	$	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 $46.6 million during the first six 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 sixmonths 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.

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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.

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 June 30, 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. 

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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 rateswill 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.

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 June 30, 2019 and December 31, 2018, management estimated the following changes in net interest income, assuming the indicated rate changes:

(Dollars in thousands)	June 30, 2019		December 31, 2018
+400 basis points	$	1,064	$	(1,939)
+300 basis points	$	1,018	$	(1,284)
+200 basis points	$	831	$	(652)
+100 basis points	$	498	$	(163)
-100 basis points	$	(1,493)	$	(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 June 30, 2019, the Bank had $115.0 million available through unsecured lines of credit with correspondent banks, $2.1 millionavailable through a secured line of credit with the Fed Discount Window and approximately $144.0 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.

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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. 

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.

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The following table presents our capital ratios as of the dates indicated:

	June 30, 2019	December 31, 2018	Required for Capital Adequacy Purposes	Required to be Well Capitalized
Total Capital (to risk-weighted assets)
Consolidated	16.46%	15.91%	8.00%	10.00%
First United Bank & Trust	15.79%	15.43%	8.00%	10.00%
Tier 1 Capital (to risk-weighted assets)
Consolidated	15.33%	14.87%	6.00%	8.00%
First United Bank & Trust	14.63%	14.35%	6.00%	8.00%
Common Equity Tier 1 Capital (to risk-weighted assets)
Consolidated	12.88%	12.45%	4.50%	6.50%
First United Bank & Trust	14.63%	14.35%	4.50%	6.50%
Tier 1 Capital (to average assets)
Consolidated	11.65%	11.47%	4.00%	5.00%
First United Bank & Trust	10.87%	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 June 30, 2019 to December 31, 2018, short-term borrowings decreased $46.6 million, primarily 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)	June 30, 2019		December 31, 2018
Residential Mortgage - home equity	$	53,239	$	49,294
Residential Mortgage - construction		5,467		6,790
Commercial		58,885		63,668
Consumer - personal credit lines		3,976		3,847
Standby letters of credit		8,579		3,391
Total	$	130,146	$	126,990

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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 June 30, 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 June 30, 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.

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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
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)

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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: August 8, 2019	/s/ Carissa L. Rodeheaver
	Carissa L. Rodeheaver, CPA, CFP
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
Date: August 8, 2019	/s/ Tonya K. Sturm
	Tonya K. Sturm, Senior Vice President,
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

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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: August8, 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: August 8, 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 June 30, 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: August8, 2019	/s/ Carissa L. Rodeheaver
	Carissa L. Rodeheaver, CPA, CFP
	Chairman of the Board, President and Chief Executive Officer
	(Principal Executive Officer)
Date: August8, 2019	/s/ Tonya K. Sturm
	Tonya K. Sturm, Senior Vice President,
	Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Jul. 31, 2019
Document and Entity Information [Abstract]
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Entity Registrant Name	FIRST UNITED CORP/MD/
Entity Central Index Key	0000763907
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,105,775

XML

Consolidated Statement of Financial Condition - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 38,584	$ 22,187
Interest bearing deposits in banks	405	1,354
Cash and cash equivalents	38,989	23,541
Investment securities - available-for-sale (at fair value)	135,809	137,641
Investment securities – held to maturity (fair value $102,503 at June 30, 2019 and $93,760 at December 31, 2018)	97,499	94,010
Restricted investment in bank stock, at cost	4,415	5,394
Loans	1,003,616	1,007,714
Allowance for loan losses	(11,976)	(11,047)
Net loans	991,640	996,667
Premises and equipment, net	38,138	37,855
Goodwill and other intangible assets, net	11,004	11,004
Bank owned life insurance	43,908	43,317
Deferred tax assets	6,208	7,844
Other real estate owned	5,531	6,598
Operating lease right-of-use asset	2,594
Accrued interest receivable and other assets	29,894	20,645
Total Assets	1,405,629	1,384,516
Liabilities:
Non-interest bearing deposits	281,307	262,250
Interest bearing deposits	841,774	805,277
Total deposits	1,123,081	1,067,527
Short-term borrowings	31,155	77,707
Long-term borrowings	100,929	100,929
Operating lease liability	3,177
Accrued interest payable and other liabilities	20,492	20,649
Dividends payable	640	638
Total Liabilities	1,279,474	1,267,450
Shareholders' Equity:
Common Stock – par value $.01 per share; Authorized 25,000 shares; issued and outstanding 7,106 shares at June 30, 2019 and 7,087 at December 31, 2018	71	71
Surplus	32,133	31,921
Retained earnings	113,951	109,477
Accumulated other comprehensive loss	(20,000)	(24,403)
Total Shareholders' Equity	126,155	117,066
Total Liabilities and Shareholders' Equity	$ 1,405,629	$ 1,384,516

XML

Consolidated Statement of Financial Condition (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Consolidated Statement of Financial Condition [Abstract]
Held-to-maturity securities, fair value	$ 102,503	$ 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	7,106,000	7,087,000
Common Stock, Shares, Outstanding	7,106,000	7,087,000

XML

Consolidated Statement of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest income
Interest and fees on loans	$ 12,496	$ 10,927	$ 24,686	$ 21,408
Interest on investment securities: Taxable	1,450	1,474	2,917	2,921
Interest on investment securities: Exempt from federal income tax	242	235	522	473
Total investment income	1,692	1,709	3,439	3,394
Other	223	88	358	284
Total interest income	14,411	12,724	28,483	25,086
Interest expense
Interest on deposits	1,965	928	3,736	1,784
Interest on short-term borrowings	28	94	131	124
Interest on long-term borrowings	891	834	1,743	1,728
Total interest expense	2,884	1,856	5,610	3,636
Net interest income	11,527	10,868	22,873	21,450
Provision for loan losses	333	269	682	716
Net interest income after provision for loan losses	11,194	10,599	22,191	20,734
Other operating income
Net gains	30	147	44	181
Total other income	3,909	3,735	7,616	7,411
Total other operating income	3,939	3,882	7,660	7,592
Other operating expenses
Salaries and employee benefits	6,146	6,119	12,364	12,038
FDIC premiums	183	170	294	303
Equipment	936	753	1,819	1,436
Occupancy	706	614	1,418	1,252
Data processing	1,054	911	1,995	1,843
Professional Services	318	307	522	643
Contract Labor	175	161	331	337
Line rentals	198	219	415	430
Other real estate owned	786	108	929	493
Other	1,239	1,263	2,344	2,541
Total other operating expenses	11,741	10,625	22,431	21,316
Income before income tax expense	3,392	3,856	7,420	7,010
Provision for income tax expense	790	840	1,667	1,488
Net Income	$ 2,602	$ 3,016	$ 5,753	$ 5,522
Basic and diluted net income per common share	$ 0.37	$ 0.43	$ 0.81	$ 0.78
Weighted average number of basic and diluted shares outstanding	7,100,000	7,077,000	7,094,000	7,072,000
Dividends declared per common share	$ 0.09	$ 0.09	$ 0.18	$ 0.18
Service Charges on Deposit Accounts [Member]
Other operating income
Total other income	$ 555	$ 557	$ 1,074	$ 1,120
Other Service Charges [Member]
Other operating income
Total other income	225	211	433	440
Trust Department [Member]
Other operating income
Total other income	1,832	1,641	3,547	3,305
Debit Card Income [Member]
Other operating income
Total other income	676	648	1,276	1,201
Bank Owned Life Insurance [Member]
Other operating income
Total other income	288	285	591	584
Brokerage Commissions [Member]
Other operating income
Total other income	203	306	441	551
Other [Member]
Other operating income
Total other income	$ 130	$ 87	$ 254	$ 210

XML

Consolidated Statement of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Consolidated Statement of Comprehensive Income [Abstract]
Net Income	$ 2,602	$ 3,016	$ 5,753	$ 5,522
Other comprehensive income, net of tax and reclassification adjustments:
Net unrealized (losses)/gains on investments with OTTI	(194)	945	(274)	1,590
Net unrealized gains/(losses) on all other AFS securities	1,577	(230)	2,482	(1,308)
Net unrealized gains on HTM securities	63	38	118	83
Net unrealized (losses)/gains on cash flow hedges	(486)	108	(801)	551
Net unrealized gains/(losses) on pension	707	(1,530)	2,836	(794)
Net unrealized gains on SERP	21	29	42	58
Other comprehensive income/(loss), net of tax	1,688	(640)	4,403	180
Comprehensive income	$ 4,290	$ 2,376	$ 10,156	$ 5,702

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 (loss)				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, 2017	71	31,553	101,359	(24,593)	108,390
Net income					5,522
Other comprehensive income (loss)					180
Balance at Jun. 30, 2018	71	31,709	105,607	(24,413)	112,974
Balance at Mar. 31, 2018	71	31,606	103,230	(23,773)	111,134
Net income			3,016		3,016
Other comprehensive income (loss)				(640)	(640)
Stock based compensation		63			63
Common stock issued		40			40
Common stock dividend declared			(639)		(639)
Balance at Jun. 30, 2018	71	31,709	105,607	(24,413)	112,974
Balance at Dec. 31, 2018	71	31,921	109,477	(24,403)	117,066
Net income			3,151		3,151
Other comprehensive income (loss)				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
Balance at Dec. 31, 2018	71	31,921	109,477	(24,403)	117,066
Net income					5,753
Other comprehensive income (loss)					4,403
Balance at Jun. 30, 2019	71	32,133	113,951	(20,000)	126,155
Balance at Mar. 31, 2019	71	32,027	111,989	(21,688)	122,399
Net income			2,602		2,602
Other comprehensive income (loss)				1,688	1,688
Stock based compensation		67			67
Common stock issued		39			39
Common stock dividend declared			(640)		(640)
Balance at Jun. 30, 2019	$ 71	$ 32,133	$ 113,951	$ (20,000)	$ 126,155

XML

Consolidated Statement of Changes in Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended				6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Consolidated Statement of Changes in Shareholders' Equity [Abstract]
Common stock dividend declared per share (in dollars per share)	$ 0.09	$ 0.09	$ 0.09	$ 0.09	$ 0.18	$ 0.18

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Consolidated Statement of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating activities
Net income	$ 5,753	$ 5,522
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	682	716
Depreciation	1,529	1,117
Stock compensation	134	116
Gains on sales of other real estate owned	(11)	(183)
Write-downs of other real estate owned	828	478
Originations of loans held for sale	(6,122)	(7,166)
Proceeds from sale of loans held for sale	5,861	6,820
Gains from sale of loans held for sale	(45)	(55)
Losses on disposal of fixed assets	1
Net (accretion)/amortization of investment securities discounts and premiums- AFS	(2)	27
Net amortization of investment securities discounts and premiums- HTM	20	40
Gains on sales/calls of investment securities – available-for-sale		(126)
Earnings on bank owned life insurance	(591)	(584)
Amortization of deferred loan fees	(336)	(358)
Amortization of operating lease right-of-use asset	136
Increase in accrued interest receivable and other assets	(5,138)	(1,673)
Increase in deferred tax benefit	(2)	(744)
Decrease in operating lease liability	(140)
(Decrease)/increase in accrued interest payable and other liabilities	(666)	2,203
Net cash provided by operating activities	1,891	6,150
Investing activities
Proceeds from maturities/calls of investment securities available-for-sale	4,228	6,058
Proceeds from maturities/calls of investment securities held-to-maturity	3,323	3,297
Proceeds from sales of investment securities available-for-sale	5,378
Purchases of investment securities available-for-sale	(4,744)	(1,405)
Purchases of investment securities held-to-maturity	(6,832)
Proceeds from sales of other real estate owned	870	1,637
Net decrease in FHLB stock	979	872
Net decrease/(increase) in loans	4,367	(23,969)
Purchase of loans		(25,168)
Purchases of premises and equipment	(1,813)	(5,413)
Net cash provided by/(used in) investing activities	5,756	(44,091)
Financing activities
Net increase in deposits	55,554	1,730
Proceeds from sale of common stock	78	40
Cash dividends on common stock	(1,279)	(1,274)
Net decrease in short-term borrowings	(46,552)	(916)
Payments on long-term borrowings		(20,000)
Net cash provided by/(used in) financing activities	7,801	(20,420)
Increase/(decrease) in cash and cash equivalents	15,448	(58,361)
Cash and cash equivalents at beginning of the year	23,541	83,752
Cash and cash equivalents at end of period	38,989	25,391
Supplemental information
Interest paid	5,562	3,506
Taxes paid	671
Non-cash investing activities:
Transfers from loans to other real estate owned	620	$ 294
Initial recognition of operating lease right-of-use assets	2,730
Initial recognition of operating lease liabilities	$ 3,317

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Basis of Presentation

6 Months Ended

Jun. 30, 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 8-03 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 six and three-month periods ended June 30, 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 June 30, 2019 for items that should potentially be recognized or disclosed in these financial statements.

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Earnings Per Common Share

6 Months Ended

Jun. 30, 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 June 30, 2019.

The following tables set forth the calculation of basic and diluted earnings per common share for the six- and three-month periods ended June 30, 2019 and 2018:

	Six months ended June 30,
	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	$	5,753	7,094	$	0.81	$	5,522	7,072	$	0.78

	Three months ended June 30,
	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	$	2,602	7,100	$	0.37	$	3,016	7,077	$	0.43

XML

Net Gains

6 Months Ended

Jun. 30, 2019

Net Gains [Abstract]

Net Gains

Note 3 – Net Gains

The following table summarizes the gain/(loss) activity for the six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Net gains/(losses):
Available-for-sale securities:
Realized gains	$	73	$	145	$	73	$	145
Realized losses		(73)		(19)		(67)		(10)
Gains on sale of consumer loans		45		55		25		12
Losses on disposal of fixed assets		(1)		—		(1)		—
Net gains	$	44	$	181	$	30	$	147

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Investments

6 Months Ended

Jun. 30, 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 June 30, 2019 and December 31, 2018:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
June 30, 2019
Available for Sale:
U.S. government agencies	$	30,000	$	—	$	167	$	29,833	$	—
Commercial mortgage-backed agencies		42,487		143		284		42,346		—
Collateralized mortgage obligations		34,010		179		62		34,127		—
Obligations of states and political subdivisions		14,379		252		—		14,631		—
Collateralized debt obligations		18,387		—		3,515		14,872		(2,341)
Total available for sale	$	139,263	$	574	$	4,028	$	135,809	$	(2,341)
Held to Maturity:
U.S. government agencies	$	16,090	$	624	$	—	$	16,714	$	—
Residential mortgage-backed agencies		47,320		237		345		47,212		—
Commercial mortgage-backed agencies		15,672		429		—		16,101		—
Collateralized mortgage obligations		3,577		5		—		3,582		—
Obligations of states and political subdivisions		14,840		4,054		—		18,894		—
Total held to maturity	$	97,499	$	5,349	$	345	$	102,503	$	—
December 31, 2018
Available for Sale:
U.S. government agencies	$	30,000	$	—	$	974	$	29,026	$	—
Commercial mortgage-backed agencies		39,013		—		1,261		37,752		—
Collateralized mortgage obligations		36,669		—		965		35,704		—
Obligations of states and political subdivisions		20,083		132		333		19,882		—
Collateralized debt obligations		18,358		—		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	$	—	$	16,137	$	—
Residential mortgage-backed agencies		46,491		6		1,287		45,210		—
Commercial mortgage-backed agencies		15,821		75		68		15,828		—
Collateralized mortgage obligations		3,761		—		156		3,605		—
Obligations of states and political subdivisions		11,920		1,156		96		12,980		—
Total held to maturity	$	94,010	$	1,357	$	1,607	$	93,760	$	—

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

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Proceeds	$	5,668	$	500	$	5,408	$	265
Realized gains		73		145		73		145
Realized losses		73		19		67		10

The following table shows the Corporation’s investment securities with gross unrealized losses and fair values at June 30, 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
June 30, 2019
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	29,833	$	167	5
Commercial mortgage-backed agencies		—		—	—		18,918		284	5
Collateralized mortgage obligations		—		—	—		8,250		62	2
Collateralized debt obligations		5,848		612	4		9,024		2,903	5
Total available for sale	$	5,848	$	612	4	$	66,025	$	3,416	17
Held to Maturity:
Residential mortgage-backed agencies	$	5,287	$	16	2	$	19,088	$	329	20
Total held to maturity	$	5,287	$	16	2	$	19,088	$	329	20
December 31, 2018
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	29,026	$	974	5
Commercial mortgage-backed agencies		—		—	—		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		—		—	—		7,656		68	1
Collateralized mortgage obligations		—		—	—		3,605		156	1
Obligations of states and political subdivisions		—		—	—		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 component 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 six months of 2019. 

The Corporation does not believe that the investment securities that were in an unrealized loss position at June 30, 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 six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended
	June 30,
(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		(99)		(207)
Balance of credit-related OTTI at June 30	$	2,547	$	2,751

	Three Months Ended
	June 30,
(in thousands)	2019		2018
Balance of credit-related OTTI at April 1	$	2,597	$	2,903
Reduction for increases in cash flows expected to be collected		(50)		(152)
Balance of credit-related OTTI at June 30	$	2,547	$	2,751

The amortized cost and estimated fair value of securities by contractual maturity at June 30, 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.

	June 30, 2019
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	225	$	225
Due after one year through five years		16,763		16,718
Due after five years through ten years		17,968		17,876
Due after ten years		27,810		24,517
		62,766		59,336
Commercial mortgage-backed agencies		42,487		42,346
Collateralized mortgage obligations		34,010		34,127
Total available for sale	$	139,263	$	135,809
Held to Maturity:
Due after one year through five years	$	16,090	$	16,714
Due after ten years		14,840		18,894
		30,930		35,608
Residential mortgage-backed agencies		47,320		47,212
Commercial mortgage-backed agencies		15,672		16,101
Collateralized mortgage obligations		3,577		3,582
Total held to maturity	$	97,499	$	102,503

XML

Loans and Related Allowance for Loan Losses

6 Months Ended

Jun. 30, 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 June 30, 2019 and December 31, 2018:

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Total
June 30, 2019
Individually evaluated for impairment	$	5,778	$	8,144	$	27	$	3,787	$	7	$	17,743
Collectively evaluated for impairment	$	294,054	$	110,582	$	108,244	$	438,482	$	34,511	$	985,873
Total loans	$	299,832	$	118,726	$	108,271	$	442,269	$	34,518	$	1,003,616
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 Portfolio Risk 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 Portfolio Risk Management 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 June 30, 2019 and December 31, 2018:

(in thousands)	Pass		Special Mention		Substandard		Total
June 30, 2019
Commercial real estate
Non owner-occupied	$	137,348	$	7,457	$	2,012	$	146,817
All other CRE		145,127		1,721		6,167		153,015
Acquisition and development
1-4 family residential construction		10,301		—		—		10,301
All other A&D		100,490		—		7,935		108,425
Commercial and industrial		104,496		—		3,775		108,271
Residential mortgage
Residential mortgage - term		367,344		—		4,250		371,594
Residential mortgage - home equity		69,142		141		1,392		70,675
Consumer		34,413		4		101		34,518
Total	$	968,661	$	9,323	$	25,632	$	1,003,616
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		—		—		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		—		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 June 30, 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
June 30, 2019
Commercial real estate
Non owner-occupied	$	146,684	$	—	$	—	$	—	$	—	$	133	$	146,817
All other CRE		147,818		2,116		—		—		2,116		3,081		153,015
Acquisition and development
1-4 family residential construction		10,301		—		—		—		—		—		10,301
All other A&D		100,702		—		74		34		108		7,615		108,425
Commercial and industrial		108,158		—		86		—		86		27		108,271
Residential mortgage
Residential mortgage - term		368,467		138		1,464		197		1,799		1,328		371,594
Residential mortgage - home equity		69,403		241		25		79		345		927		70,675
Consumer		34,375		94		35		7		136		7		34,518
Total	$	985,908	$	2,589	$	1,684	$	317	$	4,590	$	13,118	$	1,003,616
December 31, 2018
Commercial real estate
Non owner-occupied	$	150,339	$	—	$	—	$	—	$	—	$	173	$	150,512
All other CRE		153,977		464		—		—		464		1,968		156,409
Acquisition and development
1-4 family residential construction		16,003		—		—		—		—		—		16,003
All other A&D		94,540		197		7,411		62		7,670		147		102,357
Commercial and industrial		111,436		29		1		—		30		—		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		—		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 $13.1 million at June 30, 2019, compared to $4.9 million at December 31, 2018.  The increase in non-accrual balances at June 30, 2019 was primarily due to entering a forbearance agreement with one large A&D loan totaling $7.0 million during the first quarter 2019.  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 Corporation entered into a forbearance agreement and placed the loan on non-accrual. During the second quarter of 2019, two additional CRE credits were added to non-accrual.  Non-accrual loans that have been subject to partial charge-offs totaled $.2 million at June 30, 2019, compared to $.3 million at December 31, 2018.  For the six months ended June 30, 2019, $1.7 million in specific allocations have been made related to the A&D portfolio.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $.2 million at June 30, 2019 and $.3 million at December 31, 2018. 

Accruing loans past due 30 days or more decreased to .46% of the loan portfolio at June 30, 2019, compared to 1.09% at December 31, 2018.  The decrease for the first six months of 2019 was primarily related to one large relationship in the commercial A&D portfolio that moved to non-accrual status in the first quarter of 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 June 30, 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
June 30, 2019
Individually evaluated for impairment	$	11	$	1,728	$	—	$	65	$	—	$	—	$	1,804
Collectively evaluated for impairment	$	2,724	$	1,566	$	1,147	$	3,916	$	319	$	500	$	10,172
Total ALL	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
December 31, 2018
Individually evaluated for impairment	$	13	$	25	$	—	$	106	$	—	$	—	$	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 June 30, 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
June 30, 2019
Commercial real estate
Non owner-occupied	$	119	$	11	$	133	$	252	$	8,445
All other CRE		—		—		5,526		5,526		5,526
Acquisition and development
1-4 family residential construction		—		—		304		304		304
All other A&D		7,805		1,728		35		7,840		7,907
Commercial and industrial		—		—		27		27		2,241
Residential mortgage
Residential mortgage – term		1,205		56		1,655		2,860		3,063
Residential mortgage – home equity		171		9		756		927		941
Consumer		—		—		7		7		7
Total impaired loans	$	9,300	$	1,804	$	8,443	$	17,743	$	28,434
December 31, 2018
Commercial real estate
Non owner-occupied	$	121	$	13	$	173	$	294	$	8,488
All other CRE		—		—		4,945		4,945		4,945
Acquisition and development
1-4 family residential construction		—		—		316		316		316
All other A&D		230		25		147		377		525
Commercial and industrial		—		—		17		17		2,231
Residential mortgage
Residential mortgage – term		993		106		2,910		3,903		4,130
Residential mortgage – home equity		—		—		713		713		726
Consumer		—		—		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. Most “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 six- and three-month periods ended June 30, 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		—		(29)		(5)		(86)		(136)		—		(256)
Recoveries		30		111		76		195		91		—		503
Provision		(75)		1,491		(111)		(672)		49		—		682
ALL balance at June 30, 2019	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
ALL balance at January 1, 2018	$	3,699	$	1,257	$	869	$	3,444	$	203	$	500	$	9,972
Charge-offs		(889)		(98)		(10)		(240)		(175)		—		(1,412)
Recoveries		60		258		31		65		79		—		493
Provision		433		(245)		(104)		475		157		—		716
ALL balance at June 30, 2018	$	3,303	$	1,172	$	786	$	3,744	$	264	$	500	$	9,769

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
ALL balance at April 1, 2019	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
Charge-offs		—		—		(5)		(74)		(68)		—		(147)
Recoveries		1		99		25		87		30		—		242
Provision		(41)		857		2		(529)		44		—		333
ALL balance at June 30, 2019	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
ALL balance at April 1, 2018	$	3,976	$	1,160	$	860	$	3,678	$	296	$	500	$	10,470
Charge-offs		(889)		(7)		(10)		(86)		(107)		—		(1,099)
Recoveries		1		44		13		27		44		—		129
Provision		215		(25)		(77)		125		31		—		269
ALL balance at June 30, 2018	$	3,303	$	1,172	$	786	$	3,744	$	264	$	500	$	9,769

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

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

	Six months ended						Six months ended
	June 30, 2019						June 30, 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	$	270	$	6	$	—	$	813	$	7	$	66
All other CRE		4,853		76		—		6,625		99		56
Acquisition and development
1-4 family residential construction		310		9		—		457		12		—
All other A&D		5,306		6		—		276		6		—
Commercial and industrial		24		—		—		305		10		—
Residential mortgage
Residential mortgage – term		3,261		53		10		3,487		62		—
Residential mortgage – home equity		854		—		2		553		—		7
Consumer		14		—		—		23		—		—
Total	$	14,892	$	150	$	12	$	12,539	$	196	$	129

	Three months ended						Three months ended
	June 30, 2019						June 30, 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	$	258	$	3	$	—	$	1,258	$	3	$	—
All other CRE		4,807		38		—		5,726		50		—
Acquisition and development
1-4 family residential construction		307		4		—		492		6		—
All other A&D		7,772		3		—		340		3		—
Commercial and industrial		27		—		—		311		5		—
Residential mortgage
Residential mortgage – term		2,941		25		2		3,529		30		—
Residential mortgage – home equity		925		—		2		614		—		—
Consumer		16		—		—		24		—		—
Total	$	17,053	$	73	$	4	$	12,294	$	97	$	—

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 troubled debt restructuring (“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 13 loans totaling $4.0 million and 16 loans totaling $4.9 million that were classified as TDRs at June 30, 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
Six months ended June 30, 2019
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	—	$	—
All other CRE	—		—	—		—	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	1		227
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	1		243
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	—	$	—	2	$	470
	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
Six months ended June 30, 2018
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	1	$	126
All other CRE	—		—	1		179	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	—		—
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	—		—
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	1	$	179	1	$	126

During the six months ended June 30, 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 six months ended June 30, 2019, there were no payment defaults.

During the six months ended June 30, 2018, 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 six months ended June 30, 2018, there were no payment defaults.

	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 June 30, 2018
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	1	$	126
All other CRE	—		—	1		179	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	—		—
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	—		—
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	1	$	179	1	$	126

During the three months ended June 30, 2019, there were no new TDRs, no modifications on existing TDRs and no payment defaults.

During the three months ended June 30, 2018, 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 second quarter of 2018, there were no payment defaults.

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Other Real Estate Owned

6 Months Ended

Jun. 30, 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 June 30, 2019 and December 31, 2018:

(in thousands)	June 30, 2019		December 31, 2018
Commercial real estate	$	1,902	$	2,599
Acquisition and development		2,598		3,218
Commercial and industrial		—		24
Residential mortgage		1,031		757
Total OREO	$	5,531	$	6,598

The following table presents the activity in the OREO valuation allowance for the six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Balance beginning of period	$	1,988	$	2,740	$	1,366	$	2,911
Fair value write-down		828		478		711		183
Sales of OREO		(803)		(271)		(64)		(147)
Balance at end of period	$	2,013	$	2,947	$	2,013	$	2,947

The following table presents the components of OREO expenses, net, for the six- and three-month periods ended June 30, 2019 and 2018:

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
(Gains)/losses on real estate, net	$	(11)	$	(183)	$	19	$	(163)
Fair value write-down, net		828		478		711		183
Expenses, net		166		272		91		124
Rental and other income		(54)		(74)		(35)		(36)
Total OREO expense, net	$	929	$	493	$	786	$	108

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 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 June 30, 2019, the Corporation owned nine pooled trust preferred securities with an amortized cost of $18.4 million and a fair value of $14.9 million. As of June 30, 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 June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018, the significant unobservable inputs used in the fair value measurements were as follows:

(in thousands)	Fair Value at June 30, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	14,872	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	7,234	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.8%)
Other Real Estate Owned	$	2,949	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.4%)
(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 June 30, 2019 and December 31, 2018 are as follows:

			Fair Value Measurements at June 30, 2019 Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	06/30/2019		(Level 1)	(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,833		$	29,833
Commercial mortgage-backed agencies	$	42,346		$	42,346
Collateralized mortgage obligations	$	34,127		$	34,127
Obligations of states and political subdivisions	$	14,631		$	14,631
Collateralized debt obligations	$	14,872				$	14,872
Financial Derivatives	$	(55)		$	(55)
Non-recurring:
Impaired loans	$	7,234				$	7,234
Other real estate owned	$	2,949				$	2,949

			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 six-month periods ended June 30, 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 six and three-month periods ended June 30, 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		(405)
Ending balance June 30, 2019	$	14,872

	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		1,227
Ending balance June 30, 2018	$	16,147

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance April 1, 2019	$	15,152
Total losses realized/unrealized:
Included in other comprehensive income		(280)
Ending balance June 30, 2019	$	14,872

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance April 1, 2018	$	15,977
Total gains realized/unrealized:
Included in other comprehensive income		170
Ending balance June 30, 2018	$	16,147

Gains/losses (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 six- and three-month periods ended June 30, 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:

	June 30, 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	$	38,584	$	38,584	$	38,584
Interest bearing deposits in banks		405		405		405
Investment securities - AFS		135,809		135,809			$	120,937	$	14,872
Investment securities - HTM		97,499		102,503				83,609		18,894
Restricted bank stock		4,415		4,415				4,415
Loans, net		991,640		976,051						976,051
Accrued interest receivable		4,083		4,083				4,083
Financial Liabilities:
Deposits - non-maturity		861,832		861,832				861,832
Deposits - time deposits		261,249		262,533				262,533
Financial derivatives		55		55				55
Short-term borrowed funds		31,155		31,155				31,155
Long-term borrowed funds		100,929		103,214				103,214
Accrued interest payable		503		503				503

	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

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 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 periods ended March 31, 2019 and June 30, 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)		—		191		(1,833)		202		(786)
Amounts reclassified from   accumulated other   comprehensive loss		(154)		(82)		216		—		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		—		(315)		1,933		—		2,475
Amounts reclassified from   accumulated other   comprehensive loss		(36)		4		55		—		196		21		240
Balance - March 31, 2019	$	(1,979)	$	(2,696)	$	(1,076)	$	458	$	(15,888)	$	(507)	$	(21,688)
Other comprehensive   income/(loss) before   reclassifications		(157)		1,581		—		(486)		511		—		1,449
Amounts reclassified from   accumulated other   comprehensive loss		(37)		(4)		63		—		196		21		239
Balance - June 30, 2019	$	(2,173)	$	(1,119)	$	(1,013)	$	(28)	$	(15,181)	$	(486)	$	(20,000)

The following tables present the components of other comprehensive income/(loss) for the six- and three-month periods ended June 30, 2019 and 2018:

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Six months ended June 30, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(276)	$	75	$	(201)
Less:  accretable yield recognized in income		99		(26)		73
Net unrealized losses on investments with OTTI		(375)		101		(274)
Available for sale securities – all other:
Unrealized holding gains		3,405		(923)		2,482
Net unrealized gains on all other AFS securities		3,405		(923)		2,482
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(161)		43		(118)
Net unrealized gains on HTM securities		161		(43)		118
Cash flow hedges:
Unrealized holding losses		(1,098)		297		(801)
Pension Plan:
Unrealized net actuarial gain		3,353		(909)		2,444
Less: amortization of unrecognized loss		(538)		146		(392)
Net pension plan liability adjustment		3,891		(1,055)		2,836
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(58)		15		(43)
Less: amortization of prior service costs		1		—		1
Net SERP liability adjustment		57		(15)		42
Other comprehensive income	$	6,041	$	(1,638)	$	4,403

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Six months ended June 30, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	2,432	$	(658)	$	1,774
Less:  gains recognized in income		145		(39)		106
Less:  accretable yield recognized in income		107		(29)		78
Net unrealized gains on investments with OTTI		2,180		(590)		1,590
Available for sale securities – all other:
Unrealized holding losses		(1,812)		490		(1,322)
Less:  losses recognized in income		(19)		5		(14)
Net unrealized losses on all other AFS securities		(1,793)		485		(1,308)
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(114)		31		(83)
Net unrealized gains on HTM securities		114		(31)		83
Cash flow hedges:
Unrealized holding gains		755		(204)		551
Pension Plan:
Unrealized net actuarial loss		(1,692)		457		(1,235)
Less: amortization of unrecognized loss		(600)		162		(438)
Less: amortization of prior service costs		(4)		1		(3)
Net pension plan liability adjustment		(1,088)		294		(794)
SERP:
Less: amortization of unrecognized loss		(81)		22		(59)
Less: amortization of prior service costs		1		—		1
Net SERP liability adjustment		80		(22)		58
Other comprehensive income	$	248	$	(68)	$	180

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Three months ended June 30, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(216)	$	59	$	(157)
Less:  accretable yield recognized in income		50		(13)		37
Net unrealized losses on investments with OTTI		(266)		72		(194)
Available for sale securities – all other:
Unrealized holding gains		2,169		(588)		1,581
Less:  gains recognized in income		6		(2)		4
Net unrealized gains on all other AFS securities		2,163		(586)		1,577
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(86)		23		(63)
Net unrealized gains on HTM securities		86		(23)		63
Cash flow hedges:
Unrealized holding losses		(666)		180		(486)
Pension Plan:
Unrealized net actuarial gain		701		(190)		511
Less: amortization of unrecognized loss		(269)		73		(196)
Net pension plan liability adjustment		970		(263)		707
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(29)		8		(21)
Net SERP liability adjustment		29		(8)		21
Other comprehensive income	$	2,316	$	(628)	$	1,688

Components of Other Comprehensive Loss (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Three months ended June 30, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	1,493	$	(404)	$	1,089
Less:  gains recognized in income		145		(39)		106
Less:  accretable yield recognized in income		52		(14)		38
Net unrealized gains on investments with OTTI		1,296		(351)		945
Available for sale securities – all other:
Unrealized holding losses		(325)		88		(237)
Less:  losses recognized in income		(10)		3		(7)
Net unrealized losses on all other AFS securities		(315)		85		(230)
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(52)		14		(38)
Net unrealized gains on HTM securities		52		(14)		38
Cash flow hedges:
Unrealized holding gains		148		(40)		108
Pension Plan:
Unrealized net actuarial loss		(2,399)		648		(1,751)
Less: amortization of unrecognized loss		(300)		81		(219)
Less: amortization of prior service costs		(2)		—		(2)
Net pension plan liability adjustment		(2,097)		567		(1,530)
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(40)		11		(29)
Net SERP liability adjustment		40		(11)		29
Other comprehensive loss	$	(876)	$	236	$	(640)

The following table presents the details of amount reclassified from accumulated other comprehensive loss for the six- and three-month periods ended June 30, 2019 and 2018:

Amounts Reclassified from	Six Months Ended
Accumulated Other Comprehensive Loss	June 30,				Affected Line Item in the Statement
(in thousands)	2019		2018		Where Net Income is Presented
Net unrealized gains on available for sale investment securities with OTTI:
Gains on calls	$	—	$	145	Net gains
Accretable yield		99		107	Interest income on taxable investment securities
Taxes		(26)		(68)	Provision for income tax expense
	$	73	$	184	Net of tax
Net unrealized losses on available for sale investment securities - all others:
Losses on sales	$	—	$	(19)	Net gains
Taxes		—		5	Provision for income tax expense
	$	—	$	(14)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(161)	$	(114)	Interest income on taxable investment securities
Taxes		43		31	Provision for income tax expense
	$	(118)	$	(83)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(538)	$	(600)	Other Expense
Amortization of prior service costs		—		(4)	Salaries and employee benefits
Taxes		146		163	Provision for income tax expense
	$	(392)	$	(441)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(58)	$	(81)	Other Expense
Amortization of prior service costs		1		1	Salaries and employee benefits
Taxes		15		22	Provision for income tax expense
	$	(42)	$	(58)	Net of tax
Total reclassifications for the period	$	(479)	$	(412)	Net of tax

Amounts Reclassified from	Three Months Ended
Accumulated Other Comprehensive Loss	June 30,				Affected Line Item in the Statement
(in thousands)	2019		2018		Where Net Income is Presented
Net unrealized gains on available for sale investment securities with OTTI:
Gains on calls	$	—	$	145	Net gains
Accretable Yield	$	50	$	52	Interest income on taxable investment securities
Taxes		(13)		(53)	Provision for Income Tax Expense
	$	37	$	144	Net of tax
Net unrealized gains/(losses) on available for sale investment securities - all others:
Gains/(losses) on sales	$	6	$	(10)	Net gains
Taxes		(2)		3	Provision for Income Tax Expense
	$	4	$	(7)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(86)	$	(52)	Interest income on taxable investment securities
Taxes		23		14	Provision for Income Tax Expense
	$	(63)	$	(38)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(269)	$	(300)	Salaries and employee benefits
Amortization of prior service costs		—		(2)	Salaries and employee benefits
Taxes		73		81	Provision for Income Tax Expense
	$	(196)	$	(221)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(29)	$	(41)	Salaries and employee benefits
Taxes		8		11	Provision for Income Tax Expense
	$	(21)	$	(30)	Net of tax
Total reclassifications for the period	$	(239)	$	(152)	Net of tax

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

Note 9 – Leases

On January 1, 2019, the Corporation adopted Accounting Standards Update (“ASU”) 2016-02, “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)	June 30, 2019
Lease Right-of Use Assets
Operating lease right-of-use assets	$	2,594
Lease Liabilities
Operating lease liabilities	$	3,177

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 June 30, 2019:

	June 30, 2019
Weighted-average remaining lease term
Operating leases		8.81 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 six months ended June30, 2019 was $.2 million.  Short-term lease expense was $37 thousand for the six months ended June 30, 2019.  Total operating lease expense for the second quarter of 2019 was $.1 million.  Short-term lease expense was $13 thousand for the second quarter of 2019. 

Future minimum payments for operating leases with initial or remaining terms of one year or more at June 30, 2019 were as follows:

(in thousands)	Operating Leases
2019 (remainder of year)	$	229
2020		467
2021		466
2022		459
2023		393
Thereafter		1,983
Total future minimum lease payments		3,997
Amounts representing interest		(820)
Present value of net future minimum lease payments	$	3,177

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Borrowed Funds

6 Months Ended

Jun. 30, 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)	Six Months Ended June 30, 2019		Year Ended December 31, 2018
Short-term Correspondent Bank Advance:
Overnight borrowings, weighted average interest rate of 2.70% at December 31, 2018	$	—	$	40,000
Securities sold under agreements to repurchase:
Outstanding at end of period	$	31,155	$	37,707
Weighted average interest rate at end of period		0.35%		0.24%
Maximum amount outstanding as of any month end	$	40,579	$	55,648
Average amount outstanding	$	37,218	$	44,045
Approximate weighted average rate during the period		0.29%		0.20%

At June 30, 2019, the repurchase agreements were secured by $45.0 million in investment securities issued by government related agencies.  A minimum of 102% of fair value is pledged against account balances.

At June 30, 2019, the long-term FHLB advances were secured by $214.0 million in loans.

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Employee Benefit Plans

6 Months Ended

Jun. 30, 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	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Service cost	$	133	$	162	$	66	$	81
Interest cost		874		793		437		396
Expected return on assets		(1,528)		(1,620)		(764)		(810)
Amortization of net actuarial loss		538		600		269		300
Amortization of prior service cost		—		4		—		2
Net pension expense/(credit) included in employee benefits   and other expense	$	17	$	(61)	$	8	$	(31)

Defined Benefit SERP	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Service cost	$	47	$	56	$	23	$	28
Interest cost		165		150		83		75
Amortization of recognized loss		58		81		29		41
Amortization of prior service cost		(1)		(1)		—		—
Net Defined Benefit SERP expense included in   employee benefits and other expense	$	269	$	286	$	135	$	144

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 their (a) ages, at their closest birthday plus (b) 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 six 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 on 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 $29,812 of the related compensation for the first six months of 2019 and 2018.  The Corporation recorded $14,906 of the related compensation for the second quarters 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 $37,576 of related compensation expense for the first six months of 2019.  The Corporation recorded $18,788 of related compensation for the second quarter of 2019.

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Equity Compensation Plan Information

6 Months Ended

Jun. 30, 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 2019 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 2019, a total of 14,641 fully-vested shares of common stock were issued to directors, which had a grant date fair market value of $18.30 per share.  Director stock compensation expense was $133,612 for the six months ended June 30, 2019 and $115,889 for the six months ended June 30, 2018. Director stock compensation expense was $66,894 for the second quarter of 2019 and $62,331 for the same period of 2018.

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Letters of Credit and Off Balance Sheet Liabilities

6 Months Ended

Jun. 30, 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 $8.6 million of outstanding standby letters of credit at June 30, 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 June 30, 2019 and December 31, 2018 is material. 

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 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 include a three-year $5.0 million contract that matured 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 that matures onMarch 17, 2026.

The fair value of the interest rate swap contracts was $(55) thousand and $1.0 million at June 30, 2019 and December 31, 2018, respectively.

For the six months ended June 30, 2019, the Corporation recorded a decrease in the value of the derivatives of $1.1 million and the related deferred tax of $298 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 six months ended June 30, 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 June 30, 2019.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six- and three-months ended June 30, 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:
Six months ended:
June 30, 2019	$	801	$	—	$	—
June 30, 2018		551		—		—
Three months ended:
June 30, 2019	$	486	$	—	$	—
June 30, 2018		108		—		—

Notes:

(a) Reported as interest expense

(b) Reported as other income

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Assets and Liabilities Subject to Enforceable Master Netting Arrangements

6 Months Ended

Jun. 30, 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 or Other Liabilities 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 June 30, 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
June 30, 2019
Interest Rate Swap Agreements	$	55	$	—	$	55	$	(55)	$	—	$	—
Repurchase Agreements	$	31,155	$	—	$	31,155	$	(31,155)	$	—	$	—
December 31, 2018
Interest Rate Swap Agreements	$	(1,043)	$	—	$	(1,043)	$	1,043	$	—	$	—
Repurchase Agreements	$	37,707	$	—	$	37,707	$	(37,707)	$	—	$	—

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Adoption of New Accounting Standards and Effects of New Accounting Pronouncements

6 Months Ended

Jun. 30, 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 Operations 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.  On July 17, 2019, FASB agreed to issue a proposal to delay CECL implementation deadlines for, among others, smaller reporting companies.  First United Corporation currently qualifies as a small reporting company.  The proposed delayed effective date is January 1, 2023 as opposed to January 1, 2020. The proposal is subject to a 30-day comment period which will begin once the proposal is officially released.

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.

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Earnings Per Common Share (Policy)

6 Months Ended

Jun. 30, 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 June 30, 2019.

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Investments (Policy)

6 Months Ended

Jun. 30, 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 component 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”.

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Loans and Related Allowance for Loan Losses (Policy)

6 Months Ended

Jun. 30, 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. Most “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 troubled debt restructuring (“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.

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Earnings Per Common Share (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Common Share [Abstract]

Basic and Diluted Earnings Per Common Share

	Six months ended June 30,
	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	$	5,753	7,094	$	0.81	$	5,522	7,072	$	0.78

	Three months ended June 30,
	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	$	2,602	7,100	$	0.37	$	3,016	7,077	$	0.43

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Net Gains (Tables)

6 Months Ended

Jun. 30, 2019

Net Gains [Abstract]

Summary of Net Gain/ (loss) Activity

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Net gains/(losses):
Available-for-sale securities:
Realized gains	$	73	$	145	$	73	$	145
Realized losses		(73)		(19)		(67)		(10)
Gains on sale of consumer loans		45		55		25		12
Losses on disposal of fixed assets		(1)		—		(1)		—
Net gains	$	44	$	181	$	30	$	147

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Investments (Tables)

6 Months Ended

Jun. 30, 2019

Investments [Abstract]

Unrealized Gain (Loss) on Investments

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		OTTI in AOCL
June 30, 2019
Available for Sale:
U.S. government agencies	$	30,000	$	—	$	167	$	29,833	$	—
Commercial mortgage-backed agencies		42,487		143		284		42,346		—
Collateralized mortgage obligations		34,010		179		62		34,127		—
Obligations of states and political subdivisions		14,379		252		—		14,631		—
Collateralized debt obligations		18,387		—		3,515		14,872		(2,341)
Total available for sale	$	139,263	$	574	$	4,028	$	135,809	$	(2,341)
Held to Maturity:
U.S. government agencies	$	16,090	$	624	$	—	$	16,714	$	—
Residential mortgage-backed agencies		47,320		237		345		47,212		—
Commercial mortgage-backed agencies		15,672		429		—		16,101		—
Collateralized mortgage obligations		3,577		5		—		3,582		—
Obligations of states and political subdivisions		14,840		4,054		—		18,894		—
Total held to maturity	$	97,499	$	5,349	$	345	$	102,503	$	—
December 31, 2018
Available for Sale:
U.S. government agencies	$	30,000	$	—	$	974	$	29,026	$	—
Commercial mortgage-backed agencies		39,013		—		1,261		37,752		—
Collateralized mortgage obligations		36,669		—		965		35,704		—
Obligations of states and political subdivisions		20,083		132		333		19,882		—
Collateralized debt obligations		18,358		—		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	$	—	$	16,137	$	—
Residential mortgage-backed agencies		46,491		6		1,287		45,210		—
Commercial mortgage-backed agencies		15,821		75		68		15,828		—
Collateralized mortgage obligations		3,761		—		156		3,605		—
Obligations of states and political subdivisions		11,920		1,156		96		12,980		—
Total held to maturity	$	94,010	$	1,357	$	1,607	$	93,760	$	—

Proceeds from Sales/Calls of Available for Sale Securities and Realized Gains and Losses

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Proceeds	$	5,668	$	500	$	5,408	$	265
Realized gains		73		145		73		145
Realized losses		73		19		67		10

Gross Unrealized Losses and Fair Values of Securities

	Less than 12 months					12 months or more
(in thousands)	Fair Value		Unrealized Losses		Number of Investments	Fair Value		Unrealized Losses		Number of Investments
June 30, 2019
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	29,833	$	167	5
Commercial mortgage-backed agencies		—		—	—		18,918		284	5
Collateralized mortgage obligations		—		—	—		8,250		62	2
Collateralized debt obligations		5,848		612	4		9,024		2,903	5
Total available for sale	$	5,848	$	612	4	$	66,025	$	3,416	17
Held to Maturity:
Residential mortgage-backed agencies	$	5,287	$	16	2	$	19,088	$	329	20
Total held to maturity	$	5,287	$	16	2	$	19,088	$	329	20
December 31, 2018
Available for Sale:
U.S. government agencies	$	—	$	—	—	$	29,026	$	974	5
Commercial mortgage-backed agencies		—		—	—		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		—		—	—		7,656		68	1
Collateralized mortgage obligations		—		—	—		3,605		156	1
Obligations of states and political subdivisions		—		—	—		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

	Six Months Ended
	June 30,
(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		(99)		(207)
Balance of credit-related OTTI at June 30	$	2,547	$	2,751

	Three Months Ended
	June 30,
(in thousands)	2019		2018
Balance of credit-related OTTI at April 1	$	2,597	$	2,903
Reduction for increases in cash flows expected to be collected		(50)		(152)
Balance of credit-related OTTI at June 30	$	2,547	$	2,751

Amortized Cost and Fair Values Classified by Contractual Maturity Date

	June 30, 2019
(in thousands)	Amortized Cost		Fair Value
Contractual Maturity
Available for Sale:
Due in one year or less	$	225	$	225
Due after one year through five years		16,763		16,718
Due after five years through ten years		17,968		17,876
Due after ten years		27,810		24,517
		62,766		59,336
Commercial mortgage-backed agencies		42,487		42,346
Collateralized mortgage obligations		34,010		34,127
Total available for sale	$	139,263	$	135,809
Held to Maturity:
Due after one year through five years	$	16,090	$	16,714
Due after ten years		14,840		18,894
		30,930		35,608
Residential mortgage-backed agencies		47,320		47,212
Commercial mortgage-backed agencies		15,672		16,101
Collateralized mortgage obligations		3,577		3,582
Total held to maturity	$	97,499	$	102,503

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Loans and Related Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2019

Loans and Related Allowance for Loan Losses [Abstract]

Primary Segments of the Loan Portfolio

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Total
June 30, 2019
Individually evaluated for impairment	$	5,778	$	8,144	$	27	$	3,787	$	7	$	17,743
Collectively evaluated for impairment	$	294,054	$	110,582	$	108,244	$	438,482	$	34,511	$	985,873
Total loans	$	299,832	$	118,726	$	108,271	$	442,269	$	34,518	$	1,003,616
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

(in thousands)	Pass		Special Mention		Substandard		Total
June 30, 2019
Commercial real estate
Non owner-occupied	$	137,348	$	7,457	$	2,012	$	146,817
All other CRE		145,127		1,721		6,167		153,015
Acquisition and development
1-4 family residential construction		10,301		—		—		10,301
All other A&D		100,490		—		7,935		108,425
Commercial and industrial		104,496		—		3,775		108,271
Residential mortgage
Residential mortgage - term		367,344		—		4,250		371,594
Residential mortgage - home equity		69,142		141		1,392		70,675
Consumer		34,413		4		101		34,518
Total	$	968,661	$	9,323	$	25,632	$	1,003,616
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		—		—		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		—		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

(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
June 30, 2019
Commercial real estate
Non owner-occupied	$	146,684	$	—	$	—	$	—	$	—	$	133	$	146,817
All other CRE		147,818		2,116		—		—		2,116		3,081		153,015
Acquisition and development
1-4 family residential construction		10,301		—		—		—		—		—		10,301
All other A&D		100,702		—		74		34		108		7,615		108,425
Commercial and industrial		108,158		—		86		—		86		27		108,271
Residential mortgage
Residential mortgage - term		368,467		138		1,464		197		1,799		1,328		371,594
Residential mortgage - home equity		69,403		241		25		79		345		927		70,675
Consumer		34,375		94		35		7		136		7		34,518
Total	$	985,908	$	2,589	$	1,684	$	317	$	4,590	$	13,118	$	1,003,616
December 31, 2018
Commercial real estate
Non owner-occupied	$	150,339	$	—	$	—	$	—	$	—	$	173	$	150,512
All other CRE		153,977		464		—		—		464		1,968		156,409
Acquisition and development
1-4 family residential construction		16,003		—		—		—		—		—		16,003
All other A&D		94,540		197		7,411		62		7,670		147		102,357
Commercial and industrial		111,436		29		1		—		30		—		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		—		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

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
June 30, 2019
Individually evaluated for impairment	$	11	$	1,728	$	—	$	65	$	—	$	—	$	1,804
Collectively evaluated for impairment	$	2,724	$	1,566	$	1,147	$	3,916	$	319	$	500	$	10,172
Total ALL	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
December 31, 2018
Individually evaluated for impairment	$	13	$	25	$	—	$	106	$	—	$	—	$	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

	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
June 30, 2019
Commercial real estate
Non owner-occupied	$	119	$	11	$	133	$	252	$	8,445
All other CRE		—		—		5,526		5,526		5,526
Acquisition and development
1-4 family residential construction		—		—		304		304		304
All other A&D		7,805		1,728		35		7,840		7,907
Commercial and industrial		—		—		27		27		2,241
Residential mortgage
Residential mortgage – term		1,205		56		1,655		2,860		3,063
Residential mortgage – home equity		171		9		756		927		941
Consumer		—		—		7		7		7
Total impaired loans	$	9,300	$	1,804	$	8,443	$	17,743	$	28,434
December 31, 2018
Commercial real estate
Non owner-occupied	$	121	$	13	$	173	$	294	$	8,488
All other CRE		—		—		4,945		4,945		4,945
Acquisition and development
1-4 family residential construction		—		—		316		316		316
All other A&D		230		25		147		377		525
Commercial and industrial		—		—		17		17		2,231
Residential mortgage
Residential mortgage – term		993		106		2,910		3,903		4,130
Residential mortgage – home equity		—		—		713		713		726
Consumer		—		—		10		10		10
Total impaired loans	$	1,344	$	144	$	9,231	$	10,575	$	21,371

Allowance for Loan Losses Summarized by Loan Portfolio Segments

(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		—		(29)		(5)		(86)		(136)		—		(256)
Recoveries		30		111		76		195		91		—		503
Provision		(75)		1,491		(111)		(672)		49		—		682
ALL balance at June 30, 2019	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
ALL balance at January 1, 2018	$	3,699	$	1,257	$	869	$	3,444	$	203	$	500	$	9,972
Charge-offs		(889)		(98)		(10)		(240)		(175)		—		(1,412)
Recoveries		60		258		31		65		79		—		493
Provision		433		(245)		(104)		475		157		—		716
ALL balance at June 30, 2018	$	3,303	$	1,172	$	786	$	3,744	$	264	$	500	$	9,769

(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
ALL balance at April 1, 2019	$	2,775	$	2,338	$	1,125	$	4,497	$	313	$	500	$	11,548
Charge-offs		—		—		(5)		(74)		(68)		—		(147)
Recoveries		1		99		25		87		30		—		242
Provision		(41)		857		2		(529)		44		—		333
ALL balance at June 30, 2019	$	2,735	$	3,294	$	1,147	$	3,981	$	319	$	500	$	11,976
ALL balance at April 1, 2018	$	3,976	$	1,160	$	860	$	3,678	$	296	$	500	$	10,470
Charge-offs		(889)		(7)		(10)		(86)		(107)		—		(1,099)
Recoveries		1		44		13		27		44		—		129
Provision		215		(25)		(77)		125		31		—		269
ALL balance at June 30, 2018	$	3,303	$	1,172	$	786	$	3,744	$	264	$	500	$	9,769

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

	Six months ended						Six months ended
	June 30, 2019						June 30, 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	$	270	$	6	$	—	$	813	$	7	$	66
All other CRE		4,853		76		—		6,625		99		56
Acquisition and development
1-4 family residential construction		310		9		—		457		12		—
All other A&D		5,306		6		—		276		6		—
Commercial and industrial		24		—		—		305		10		—
Residential mortgage
Residential mortgage – term		3,261		53		10		3,487		62		—
Residential mortgage – home equity		854		—		2		553		—		7
Consumer		14		—		—		23		—		—
Total	$	14,892	$	150	$	12	$	12,539	$	196	$	129

	Three months ended						Three months ended
	June 30, 2019						June 30, 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	$	258	$	3	$	—	$	1,258	$	3	$	—
All other CRE		4,807		38		—		5,726		50		—
Acquisition and development
1-4 family residential construction		307		4		—		492		6		—
All other A&D		7,772		3		—		340		3		—
Commercial and industrial		27		—		—		311		5		—
Residential mortgage
Residential mortgage – term		2,941		25		2		3,529		30		—
Residential mortgage – home equity		925		—		2		614		—		—
Consumer		16		—		—		24		—		—
Total	$	17,053	$	73	$	4	$	12,294	$	97	$	—

Modification of Troubled Debt Restructuring by Class

	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
Six months ended June 30, 2019
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	—	$	—
All other CRE	—		—	—		—	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	1		227
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	1		243
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	—	$	—	2	$	470
	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
Six months ended June 30, 2018
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	1	$	126
All other CRE	—		—	1		179	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	—		—
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	—		—
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	1	$	179	1	$	126

During the six months ended June 30, 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 six months ended June 30, 2019, there were no payment defaults.

During the six months ended June 30, 2018, 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 six months ended June 30, 2018, there were no payment defaults.

	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 June 30, 2018
Commercial real estate
Non owner-occupied	—	$	—	—	$	—	1	$	126
All other CRE	—		—	1		179	—		—
Acquisition and development
1-4 family residential construction	—		—	—		—	—		—
All other A&D	—		—	—		—	—		—
Commercial and industrial	—		—	—		—	—		—
Residential mortgage
Residential mortgage – term	—		—	—		—	—		—
Residential mortgage – home equity	—		—	—		—	—		—
Consumer	—		—	—		—	—		—
Total	—	$	—	1	$	179	1	$	126

XML

Other Real Estate Owned (Tables)

6 Months Ended

Jun. 30, 2019

Other Real Estate Owned [Abstract]

Schedule of Real Estate Properties Comprising OREO

(in thousands)	June 30, 2019		December 31, 2018
Commercial real estate	$	1,902	$	2,599
Acquisition and development		2,598		3,218
Commercial and industrial		—		24
Residential mortgage		1,031		757
Total OREO	$	5,531	$	6,598

Other Real Estate, Roll Forward

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Balance beginning of period	$	1,988	$	2,740	$	1,366	$	2,911
Fair value write-down		828		478		711		183
Sales of OREO		(803)		(271)		(64)		(147)
Balance at end of period	$	2,013	$	2,947	$	2,013	$	2,947

Schedule of Components of Other Real Estate Owned Expense

	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
(Gains)/losses on real estate, net	$	(11)	$	(183)	$	19	$	(163)
Fair value write-down, net		828		478		711		183
Expenses, net		166		272		91		124
Rental and other income		(54)		(74)		(35)		(36)
Total OREO expense, net	$	929	$	493	$	786	$	108

XML

Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value of Financial Instruments [Abstract]

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques

(in thousands)	Fair Value at June 30, 2019		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Recurring:
Investment Securities – available for sale	$	14,872	Discounted Cash Flow	Discount Rate	Range of LIBOR+ 4.50%
Non-recurring:
Impaired Loans	$	7,234	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.8%)
Other Real Estate Owned	$	2,949	Market Comparable Properties	Marketability Discount	10.0% - 15.0% (1) (weighted avg 12.4%)
(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:

Range would include discounts taken since appraisal and estimated values

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

			Fair Value Measurements at June 30, 2019 Using
	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets	Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	06/30/2019		(Level 1)	(Level 2)		(Level 3)
Recurring:
Investment securities available-for-sale:
U.S. government agencies	$	29,833		$	29,833
Commercial mortgage-backed agencies	$	42,346		$	42,346
Collateralized mortgage obligations	$	34,127		$	34,127
Obligations of states and political subdivisions	$	14,631		$	14,631
Collateralized debt obligations	$	14,872				$	14,872
Financial Derivatives	$	(55)		$	(55)
Non-recurring:
Impaired loans	$	7,234				$	7,234
Other real estate owned	$	2,949				$	2,949

			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

	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		(405)
Ending balance June 30, 2019	$	14,872

	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		1,227
Ending balance June 30, 2018	$	16,147

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance April 1, 2019	$	15,152
Total losses realized/unrealized:
Included in other comprehensive income		(280)
Ending balance June 30, 2019	$	14,872

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(in thousands)	Investment Securities Available for Sale
Beginning balance April 1, 2018	$	15,977
Total gains realized/unrealized:
Included in other comprehensive income		170
Ending balance June 30, 2018	$	16,147

Fair Value by Balance Sheet Grouping

	June 30, 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	$	38,584	$	38,584	$	38,584
Interest bearing deposits in banks		405		405		405
Investment securities - AFS		135,809		135,809			$	120,937	$	14,872
Investment securities - HTM		97,499		102,503				83,609		18,894
Restricted bank stock		4,415		4,415				4,415
Loans, net		991,640		976,051						976,051
Accrued interest receivable		4,083		4,083				4,083
Financial Liabilities:
Deposits - non-maturity		861,832		861,832				861,832
Deposits - time deposits		261,249		262,533				262,533
Financial derivatives		55		55				55
Short-term borrowed funds		31,155		31,155				31,155
Long-term borrowed funds		100,929		103,214				103,214
Accrued interest payable		503		503				503

	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

XML

Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2019

Accumulated Other Comprehensive Loss [Abstract]

Schedule of Accumulated Other Comprehensive Loss

(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)		—		191		(1,833)		202		(786)
Amounts reclassified from   accumulated other   comprehensive loss		(154)		(82)		216		—		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		—		(315)		1,933		—		2,475
Amounts reclassified from   accumulated other   comprehensive loss		(36)		4		55		—		196		21		240
Balance - March 31, 2019	$	(1,979)	$	(2,696)	$	(1,076)	$	458	$	(15,888)	$	(507)	$	(21,688)
Other comprehensive   income/(loss) before   reclassifications		(157)		1,581		—		(486)		511		—		1,449
Amounts reclassified from   accumulated other   comprehensive loss		(37)		(4)		63		—		196		21		239
Balance - June 30, 2019	$	(2,173)	$	(1,119)	$	(1,013)	$	(28)	$	(15,181)	$	(486)	$	(20,000)

Components of Comprehensive Income

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Six months ended June 30, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(276)	$	75	$	(201)
Less:  accretable yield recognized in income		99		(26)		73
Net unrealized losses on investments with OTTI		(375)		101		(274)
Available for sale securities – all other:
Unrealized holding gains		3,405		(923)		2,482
Net unrealized gains on all other AFS securities		3,405		(923)		2,482
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(161)		43		(118)
Net unrealized gains on HTM securities		161		(43)		118
Cash flow hedges:
Unrealized holding losses		(1,098)		297		(801)
Pension Plan:
Unrealized net actuarial gain		3,353		(909)		2,444
Less: amortization of unrecognized loss		(538)		146		(392)
Net pension plan liability adjustment		3,891		(1,055)		2,836
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(58)		15		(43)
Less: amortization of prior service costs		1		—		1
Net SERP liability adjustment		57		(15)		42
Other comprehensive income	$	6,041	$	(1,638)	$	4,403

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Six months ended June 30, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	2,432	$	(658)	$	1,774
Less:  gains recognized in income		145		(39)		106
Less:  accretable yield recognized in income		107		(29)		78
Net unrealized gains on investments with OTTI		2,180		(590)		1,590
Available for sale securities – all other:
Unrealized holding losses		(1,812)		490		(1,322)
Less:  losses recognized in income		(19)		5		(14)
Net unrealized losses on all other AFS securities		(1,793)		485		(1,308)
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(114)		31		(83)
Net unrealized gains on HTM securities		114		(31)		83
Cash flow hedges:
Unrealized holding gains		755		(204)		551
Pension Plan:
Unrealized net actuarial loss		(1,692)		457		(1,235)
Less: amortization of unrecognized loss		(600)		162		(438)
Less: amortization of prior service costs		(4)		1		(3)
Net pension plan liability adjustment		(1,088)		294		(794)
SERP:
Less: amortization of unrecognized loss		(81)		22		(59)
Less: amortization of prior service costs		1		—		1
Net SERP liability adjustment		80		(22)		58
Other comprehensive income	$	248	$	(68)	$	180

Components of Other Comprehensive Income (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Three months ended June 30, 2019
Available for sale (AFS) securities with OTTI:
Unrealized holding losses	$	(216)	$	59	$	(157)
Less:  accretable yield recognized in income		50		(13)		37
Net unrealized losses on investments with OTTI		(266)		72		(194)
Available for sale securities – all other:
Unrealized holding gains		2,169		(588)		1,581
Less:  gains recognized in income		6		(2)		4
Net unrealized gains on all other AFS securities		2,163		(586)		1,577
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(86)		23		(63)
Net unrealized gains on HTM securities		86		(23)		63
Cash flow hedges:
Unrealized holding losses		(666)		180		(486)
Pension Plan:
Unrealized net actuarial gain		701		(190)		511
Less: amortization of unrecognized loss		(269)		73		(196)
Net pension plan liability adjustment		970		(263)		707
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(29)		8		(21)
Net SERP liability adjustment		29		(8)		21
Other comprehensive income	$	2,316	$	(628)	$	1,688

Components of Other Comprehensive Loss (in thousands)	Before Tax Amount		Tax (Expense) Benefit		Net
For the Three months ended June 30, 2018
Available for sale (AFS) securities with OTTI:
Unrealized holding gains	$	1,493	$	(404)	$	1,089
Less:  gains recognized in income		145		(39)		106
Less:  accretable yield recognized in income		52		(14)		38
Net unrealized gains on investments with OTTI		1,296		(351)		945
Available for sale securities – all other:
Unrealized holding losses		(325)		88		(237)
Less:  losses recognized in income		(10)		3		(7)
Net unrealized losses on all other AFS securities		(315)		85		(230)
Held to maturity securities:
Unrealized holding gains		—		—		—
Less:  amortization recognized in income		(52)		14		(38)
Net unrealized gains on HTM securities		52		(14)		38
Cash flow hedges:
Unrealized holding gains		148		(40)		108
Pension Plan:
Unrealized net actuarial loss		(2,399)		648		(1,751)
Less: amortization of unrecognized loss		(300)		81		(219)
Less: amortization of prior service costs		(2)		—		(2)
Net pension plan liability adjustment		(2,097)		567		(1,530)
SERP:
Unrealized net actuarial loss		—		—		—
Less: amortization of unrecognized loss		(40)		11		(29)
Net SERP liability adjustment		40		(11)		29
Other comprehensive loss	$	(876)	$	236	$	(640)

Schedule of Reclassifications from Accumulated Other Comprehensive Loss

Amounts Reclassified from	Six Months Ended
Accumulated Other Comprehensive Loss	June 30,				Affected Line Item in the Statement
(in thousands)	2019		2018		Where Net Income is Presented
Net unrealized gains on available for sale investment securities with OTTI:
Gains on calls	$	—	$	145	Net gains
Accretable yield		99		107	Interest income on taxable investment securities
Taxes		(26)		(68)	Provision for income tax expense
	$	73	$	184	Net of tax
Net unrealized losses on available for sale investment securities - all others:
Losses on sales	$	—	$	(19)	Net gains
Taxes		—		5	Provision for income tax expense
	$	—	$	(14)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(161)	$	(114)	Interest income on taxable investment securities
Taxes		43		31	Provision for income tax expense
	$	(118)	$	(83)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(538)	$	(600)	Other Expense
Amortization of prior service costs		—		(4)	Salaries and employee benefits
Taxes		146		163	Provision for income tax expense
	$	(392)	$	(441)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(58)	$	(81)	Other Expense
Amortization of prior service costs		1		1	Salaries and employee benefits
Taxes		15		22	Provision for income tax expense
	$	(42)	$	(58)	Net of tax
Total reclassifications for the period	$	(479)	$	(412)	Net of tax

Amounts Reclassified from	Three Months Ended
Accumulated Other Comprehensive Loss	June 30,				Affected Line Item in the Statement
(in thousands)	2019		2018		Where Net Income is Presented
Net unrealized gains on available for sale investment securities with OTTI:
Gains on calls	$	—	$	145	Net gains
Accretable Yield	$	50	$	52	Interest income on taxable investment securities
Taxes		(13)		(53)	Provision for Income Tax Expense
	$	37	$	144	Net of tax
Net unrealized gains/(losses) on available for sale investment securities - all others:
Gains/(losses) on sales	$	6	$	(10)	Net gains
Taxes		(2)		3	Provision for Income Tax Expense
	$	4	$	(7)	Net of tax
Net unrealized losses on held to maturity securities:
Amortization	$	(86)	$	(52)	Interest income on taxable investment securities
Taxes		23		14	Provision for Income Tax Expense
	$	(63)	$	(38)	Net of tax
Net pension plan liability adjustment:
Amortization of unrecognized loss	$	(269)	$	(300)	Salaries and employee benefits
Amortization of prior service costs		—		(2)	Salaries and employee benefits
Taxes		73		81	Provision for Income Tax Expense
	$	(196)	$	(221)	Net of tax
Net SERP liability adjustment:
Amortization of unrecognized loss	$	(29)	$	(41)	Salaries and employee benefits
Taxes		8		11	Provision for Income Tax Expense
	$	(21)	$	(30)	Net of tax
Total reclassifications for the period	$	(239)	$	(152)	Net of tax

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Classification of ROU Assets and Lease Liabilities

(in thousands)	June 30, 2019
Lease Right-of Use Assets
Operating lease right-of-use assets	$	2,594
Lease Liabilities
Operating lease liabilities	$	3,177

Weighted-Average Lease Term and Discount Rate for Operating Leases

	June 30, 2019
Weighted-average remaining lease term
Operating leases		8.81 years
Weighted-average discount rate
Operating leases		5.09%

Future Minimum Payments for Operating Leases

(in thousands)	Operating Leases
2019 (remainder of year)	$	229
2020		467
2021		466
2022		459
2023		393
Thereafter		1,983
Total future minimum lease payments		3,997
Amounts representing interest		(820)
Present value of net future minimum lease payments	$	3,177

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Borrowed Funds (Tables)

6 Months Ended

Jun. 30, 2019

Borrowed Funds [Abstract]

Summary of Short Term Borrowings

(Dollars in thousands)	Six Months Ended June 30, 2019		Year Ended December 31, 2018
Short-term Correspondent Bank Advance:
Overnight borrowings, weighted average interest rate of 2.70% at December 31, 2018	$	—	$	40,000
Securities sold under agreements to repurchase:
Outstanding at end of period	$	31,155	$	37,707
Weighted average interest rate at end of period		0.35%		0.24%
Maximum amount outstanding as of any month end	$	40,579	$	55,648
Average amount outstanding	$	37,218	$	44,045
Approximate weighted average rate during the period		0.29%		0.20%

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Employee Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2019

Pension [Member]

Components of the Net Periodic Pension Plan Cost

Pension	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Service cost	$	133	$	162	$	66	$	81
Interest cost		874		793		437		396
Expected return on assets		(1,528)		(1,620)		(764)		(810)
Amortization of net actuarial loss		538		600		269		300
Amortization of prior service cost		—		4		—		2
Net pension expense/(credit) included in employee benefits   and other expense	$	17	$	(61)	$	8	$	(31)

SERP [Member]

Components of the Net Periodic Pension Plan Cost

Defined Benefit SERP	Six Months Ended				Three Months Ended
	June 30,				June 30,
(in thousands)	2019		2018		2019		2018
Service cost	$	47	$	56	$	23	$	28
Interest cost		165		150		83		75
Amortization of recognized loss		58		81		29		41
Amortization of prior service cost		(1)		(1)		—		—
Net Defined Benefit SERP expense included in   employee benefits and other expense	$	269	$	286	$	135	$	144

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Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

Derivative Financial Instruments [Abstract]

Impact of Derivative Financial Instruments

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:
Six months ended:
June 30, 2019	$	801	$	—	$	—
June 30, 2018		551		—		—
Three months ended:
June 30, 2019	$	486	$	—	$	—
June 30, 2018		108		—		—

Notes:

(a) Reported as interest expense

(b) Reported as other income

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

6 Months Ended

Jun. 30, 2019

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

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

							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
June 30, 2019
Interest Rate Swap Agreements	$	55	$	—	$	55	$	(55)	$	—	$	—
Repurchase Agreements	$	31,155	$	—	$	31,155	$	(31,155)	$	—	$	—
December 31, 2018
Interest Rate Swap Agreements	$	(1,043)	$	—	$	(1,043)	$	1,043	$	—	$	—
Repurchase Agreements	$	37,707	$	—	$	37,707	$	(37,707)	$	—	$	—

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Earnings Per Common Share (Basic and Diluted Earnings Per Common Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Common Share [Abstract]
Net Income	$ 2,602	$ 3,151	$ 3,016	$ 2,506	$ 5,753	$ 5,522
Weighted average number of basic and diluted shares outstanding	7,100,000		7,077,000		7,094,000	7,072,000
Basic and diluted net income per common share	$ 0.37		$ 0.43		$ 0.81	$ 0.78

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Net Gains (Summary of Net Gain/ (loss) Activity) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net Gains [Abstract]
Realized gains	$ 73	$ 145	$ 73	$ 145
Realized losses	(67)	(10)	(73)	(19)
Gains on sale of consumer loans	25	12	45	55
Losses on disposal of fixed assets	(1)		(1)
Net gains	$ 30	$ 147	$ 44	$ 181

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Investments (Unrealized Gain (Loss) on Investments) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Schedule of Investments [Line Items]
Amortized Cost	$ 139,263	$ 144,123
Gross Unrealized Gains	574	132
Gross Unrealized Losses	4,028	6,614
Investment securities - available-for-sale (at fair value)	135,809	137,641
OTTI in AOCI	(2,341)	(1,966)
Held-to-maturity amortized cost	97,499	94,010
Held-to-maturity Gross Unrealized Gains	5,349	1,357
Held-to-maturity gross unrealized losses	345	1,607
Investment securities - HTM	102,503	93,760
US government agencies [Member]
Schedule of Investments [Line Items]
Amortized Cost	30,000	30,000
Gross Unrealized Losses	167	974
Investment securities - available-for-sale (at fair value)	29,833	29,026
Held-to-maturity amortized cost	16,090	16,017
Held-to-maturity Gross Unrealized Gains	624	120
Investment securities - HTM	16,714	16,137
Residential mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity amortized cost	47,320	46,491
Held-to-maturity Gross Unrealized Gains	237	6
Held-to-maturity gross unrealized losses	345	1,287
Investment securities - HTM	47,212	45,210
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Amortized Cost	42,487	39,013
Gross Unrealized Gains	143
Gross Unrealized Losses	284	1,261
Investment securities - available-for-sale (at fair value)	42,346	37,752
Held-to-maturity amortized cost	15,672	15,821
Held-to-maturity Gross Unrealized Gains	429	75
Held-to-maturity gross unrealized losses		68
Investment securities - HTM	16,101	15,828
Collateralized mortgage obligations [Member]
Schedule of Investments [Line Items]
Amortized Cost	34,010	36,669
Gross Unrealized Gains	179
Gross Unrealized Losses	62	965
Investment securities - available-for-sale (at fair value)	34,127	35,704
Held-to-maturity amortized cost	3,577	3,761
Held-to-maturity Gross Unrealized Gains	5
Held-to-maturity gross unrealized losses		156
Investment securities - HTM	3,582	3,605
Obligations of states and political subdivisions [Member]
Schedule of Investments [Line Items]
Amortized Cost	14,379	20,083
Gross Unrealized Gains	252	132
Gross Unrealized Losses		333
Investment securities - available-for-sale (at fair value)	14,631	19,882
Held-to-maturity amortized cost	14,840	11,920
Held-to-maturity Gross Unrealized Gains	4,054	1,156
Held-to-maturity gross unrealized losses		96
Investment securities - HTM	18,894	12,980
Collateralized debt obligations [Member]
Schedule of Investments [Line Items]
Amortized Cost	18,387	18,358
Gross Unrealized Losses	3,515	3,081
Investment securities - available-for-sale (at fair value)	14,872	15,277
OTTI in AOCI	$ (2,341)	$ (1,966)

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Investments (Proceeds from Sales/Calls of Available for Sale Securities and Realized Gains and Losses) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Investments [Abstract]
Proceeds	$ 5,408	$ 265	$ 5,668	$ 500
Realized gains	73	145	73	145
Realized losses	$ 67	$ 10	$ 73	$ 19

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Investments (Gross Unrealized Losses and Fair Values of Securities) (Details) $ in Thousands	Jun. 30, 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	$ 5,848	$ 9,529
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 612	$ 487
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item	4	10
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 66,025	$ 122,608
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 3,416	$ 6,127
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	17	34
Held-to-maturity securities, continuous unrealized loss position, less than twelve months, fair value	$ 5,287	$ 3,605
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss	$ 16	$ 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	$ 19,088	$ 54,908
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss	$ 329	$ 1,556
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	20	32
US government agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 29,833	$ 29,026
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 167	$ 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	$ 5,287	$ 3,605
Held-to-maturity securities, continuous unrealized loss position, less than 12 months, unrealized loss	$ 16	$ 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	$ 19,088	$ 41,448
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss	$ 329	$ 1,236
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	20	29
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 18,918	$ 37,752
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 284	$ 1,261
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	5	8
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		$ 232
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses		$ 1
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item		1
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value	$ 8,250	$ 35,472
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 62	$ 964
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	2	8
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value		$ 3,605
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss		$ 156
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item		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		$ 3,310
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses		$ 48
Available-for-sale securities, continuous unrealized loss position, less than 12 months, Number of Investments | item		5
Available-for-sale securities, continuous unrealized loss position, twelve months or longer, fair value		$ 11,068
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses		$ 285
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item		8
Held-to-maturity securities, continuous unrealized loss position, twelve months or longer, fair value		$ 2,199
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, unrealized loss		$ 96
Held-to-maturity securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item		1
Collateralized debt obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale securities, continuous unrealized loss position, less than twelve months, fair value	$ 5,848	$ 5,987
Available-for-sale securities, continuous unrealized loss position, less than 12 months, unrealized losses	$ 612	$ 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	$ 9,024	$ 9,290
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, unrealized losses	$ 2,903	$ 2,643
Available-for-sale securities, continuous unrealized loss position, 12 months or longer, Number of Investments | item	5	5

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Investments (Non-Cash OTTI Credit Losses Recognized in Earnings) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Investments [Abstract]
Balance of credit-related OTTI, beginning	$ 2,597	$ 2,903	$ 2,646	$ 2,958
Reduction for increases in cash flows expected to be collected	(50)	(152)	(99)	(207)
Balance of credit-related OTTI, ending	$ 2,547	$ 2,751	$ 2,547	$ 2,751

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Investments (Amortized Cost and Fair Values Classified by Contractual Maturity Date) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Schedule of Investments [Line Items]
Amortized Cost: Due in one year or less	$ 225
Amortized Cost: Due after one year through five years	16,763
Amortized Cost: Due after five years through ten years	17,968
Amortized Cost: Due after ten years	27,810
Amortized Cost: Sub Total	62,766
Fair Value: Due in one year or less	225
Fair Value: Due after one year through five years	16,718
Fair Value: Due after five years through ten years	17,876
Fair Value: Due after ten years	24,517
Available For Sale Debt Maturities Fair Value Sub Total	59,336
Available-for-sale Securities, Amortized Cost Basis	139,263	$ 144,123
Available-for-sale Securities	135,809	137,641
Amortized Cost: Due after one year through five years, Held to maturity	16,090
Amortized Cost: Due after ten years, Held to maturity	14,840
Amortized Cost: Total, Held to maturity	30,930
Fair Value: Due after one year through five years, Held to maturity	16,714
Fair Value: Due after ten years, Held to maturity	18,894
Fair Value: Total, Held to maturity	35,608
Held-to-maturity securities	97,499	94,010
Held-to-maturity securities, fair value	102,503	93,760
Residential mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Held-to-maturity securities	47,320	46,491
Held-to-maturity securities, fair value	47,212	45,210
Commercial mortgage-backed agencies [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost Basis	42,487	39,013
Available-for-sale Securities	42,346	37,752
Held-to-maturity securities	15,672	15,821
Held-to-maturity securities, fair value	16,101	15,828
Collateralized mortgage obligations [Member]
Schedule of Investments [Line Items]
Available-for-sale Securities, Amortized Cost Basis	34,010	36,669
Available-for-sale Securities	34,127	35,704
Held-to-maturity securities	3,577	3,761
Held-to-maturity securities, fair value	$ 3,582	$ 3,605

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Loans and Related Allowance for Loan Losses (Narrative) (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019 USD ($) contract	Jun. 30, 2018 USD ($) contract	Jun. 30, 2019 USD ($) loan contract	Jun. 30, 2018 USD ($) 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
Nonaccrual loans	$ 13,118,000		$ 13,118,000		$ 4,922,000
Financing receivable, modifications, number of contracts | loan			13		16
Financing receivable, modifications, recorded investment	4,000,000		$ 4,000,000		$ 4,900,000
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Modifications [Line Items]
Decrease in percentage of accruing loans past due 30 days or more			0.46%		1.09%
Partial Charge Off [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	$ 200,000		$ 200,000		$ 300,000
New TDR [Member]
Financing Receivable, Modifications [Line Items]
Financing receivable, modifications, number of contracts | contract	0	0	0	0
Foreclosure 1-4 Family Real Estate Properties [Member]
Financing Receivable, Modifications [Line Items]
Loans secured by real estate properties in process of foreclosure	$ 200,000		$ 200,000		300,000
Pre Existing TDR [Member]
Financing Receivable, Modifications [Line Items]
Financing receivable, modifications, number of contracts | contract	0	2	2	2
Financing receivable, modifications, recorded investment		$ 0		$ 0
Financing receivable, modifications, subsequent default, recorded investment	$ 0		$ 0
Acquisition and Development (A&D) TDR [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	1,700,000		1,700,000
Increase in non-accrual status			7,000,000
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	133,000		133,000		$ 173,000
Commercial and industrial [Member]
Financing Receivable, Modifications [Line Items]
Nonaccrual loans	$ 27,000		$ 27,000

XML

Loans and Related Allowance for Loan Losses (Primary Segments of the Loan Portfolio) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	$ 17,743	$ 10,575
Collectively evaluated for impairment	985,873	997,139
Total Loans	1,003,616	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	108,244	111,449
Total Loans	108,271	111,466
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	5,778	5,239
Collectively evaluated for impairment	294,054	301,682
Total Loans	299,832	306,921
Acquisition and Development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	8,144	693
Collectively evaluated for impairment	110,582	117,667
Total Loans	118,726	118,360
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	3,787	4,616
Collectively evaluated for impairment	438,482	432,291
Total Loans	442,269	436,907
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Individually evaluated for impairment	7	10
Collectively evaluated for impairment	34,511	34,050
Total Loans	$ 34,518	$ 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	Jun. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,003,616	$ 1,007,714
Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	146,817	150,512
Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	153,015	156,409
Acquisition and development- 1-4 family residential construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	10,301	16,003
Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	108,425	102,357
Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	108,271	111,466
Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	371,594	364,008
Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	70,675	72,899
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,518	34,060
Pass [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	968,661	976,864
Pass [Member] | Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	137,348	145,260
Pass [Member] | Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	145,127	149,076
Pass [Member] | Acquisition and development- 1-4 family residential construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	10,301	16,003
Pass [Member] | Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	100,490	94,428
Pass [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	104,496	107,174
Pass [Member] | Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	367,344	359,305
Pass [Member] | Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	69,142	71,666
Pass [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	34,413	33,952
Special Mention [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	9,323	15,884
Special Mention [Member] | Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,457	2,904
Special Mention [Member] | Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,721	1,752
Special Mention [Member] | Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans		7,378
Special Mention [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans		3,703
Special Mention [Member] | Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	141	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	25,632	14,966
Substandard [Member] | Commercial real estate- non owner-occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,012	2,348
Substandard [Member] | Commercial real estate- all other CRE [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	6,167	5,581
Substandard [Member] | Acquisition and development- All other A&D [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	7,935	551
Substandard [Member] | Commercial and industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,775	589
Substandard [Member] | Residential mortgage- term [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	4,250	4,703
Substandard [Member] | Residential mortgage- home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,392	1,090
Substandard [Member] | Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 101	$ 104

XML

Loans and Related Allowance for Loan Losses (Loan Portfolio Summarized by the Past Due Status) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 985,908	$ 991,811
Total Past Due and Still Accruing	4,590	10,981
Non-Accrual	13,118	4,922
Total Loans	1,003,616	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	2,589	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	1,684	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	317	430
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	146,684	150,339
Non-Accrual	133	173
Total Loans	146,817	150,512
Commercial real estate- all other CRE [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	147,818	153,977
Total Past Due and Still Accruing	2,116	464
Non-Accrual	3,081	1,968
Total Loans	153,015	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	2,116	464
Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	10,301	16,003
Total Loans	10,301	16,003
Acquisition and development- All other A&D [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	100,702	94,540
Total Past Due and Still Accruing	108	7,670
Non-Accrual	7,615	147
Total Loans	108,425	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		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	74	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	34	62
Commercial and industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	108,158	111,436
Total Past Due and Still Accruing	86	30
Non-Accrual	27
Total Loans	108,271	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		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	86	1
Residential mortgage- term [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	368,467	360,073
Total Past Due and Still Accruing	1,799	2,024
Non-Accrual	1,328	1,911
Total Loans	371,594	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	138	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	1,464	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	197	363
Residential mortgage- home equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	69,403	71,611
Total Past Due and Still Accruing	345	575
Non-Accrual	927	713
Total Loans	70,675	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	241	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	25	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	79
Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	34,375	33,832
Total Past Due and Still Accruing	136	218
Non-Accrual	7	10
Total Loans	34,518	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	94	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	35	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	$ 7	$ 5

XML

Loans and Related Allowance for Loan Losses (Primary Segments of the Allowance for Loan Loss) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	$ 1,804		$ 144
Collectively evaluated for impairment	10,172		10,903
Total allowance for loan losses	11,976	$ 11,548	11,047	$ 9,769	$ 10,470	$ 9,972
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	11		13
Collectively evaluated for impairment	2,724		2,767
Total allowance for loan losses	2,735	2,775	2,780	3,303	3,976	3,699
Acquisition and Development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	1,728		25
Collectively evaluated for impairment	1,566		1,696
Total allowance for loan losses	3,294	2,338	1,721	1,172	1,160	1,257
Commercial and industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	1,147		1,187
Total allowance for loan losses	1,147	1,125	1,187	786	860	869
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	65		106
Collectively evaluated for impairment	3,916		4,438
Total allowance for loan losses	3,981	4,497	4,544	3,744	3,678	3,444
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	319		315
Total allowance for loan losses	319	313	315	264	296	203
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	500		500
Total allowance for loan losses	$ 500	$ 500	$ 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	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	$ 9,300	$ 1,344
Impaired Loans with Specific Allowance: Related Allowance	1,804	144
Impaired Loans with No Specific Allowance: Recorded Investment	8,443	9,231
Total Impaired Loans: Recorded Investment	17,743	10,575
Total Impaired Loans: Unpaid Principal Balance	28,434	21,371
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	119	121
Impaired Loans with Specific Allowance: Related Allowance	11	13
Impaired Loans with No Specific Allowance: Recorded Investment	133	173
Total Impaired Loans: Recorded Investment	252	294
Total Impaired Loans: Unpaid Principal Balance	8,445	8,488
Commercial real estate- all other CRE [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Specific Allowance: Recorded Investment	5,526	4,945
Total Impaired Loans: Recorded Investment	5,526	4,945
Total Impaired Loans: Unpaid Principal Balance	5,526	4,945
Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Specific Allowance: Recorded Investment	304	316
Total Impaired Loans: Recorded Investment	304	316
Total Impaired Loans: Unpaid Principal Balance	304	316
Acquisition and development- All other A&D [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	7,805	230
Impaired Loans with Specific Allowance: Related Allowance	1,728	25
Impaired Loans with No Specific Allowance: Recorded Investment	35	147
Total Impaired Loans: Recorded Investment	7,840	377
Total Impaired Loans: Unpaid Principal Balance	7,907	525
Commercial and industrial [Member]
Financing Receivable, Impaired [Line Items]
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	1,205	993
Impaired Loans with Specific Allowance: Related Allowance	56	106
Impaired Loans with No Specific Allowance: Recorded Investment	1,655	2,910
Total Impaired Loans: Recorded Investment	2,860	3,903
Total Impaired Loans: Unpaid Principal Balance	3,063	4,130
Residential mortgage- home equity [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with Specific Allowance: Recorded Investment	171
Impaired Loans with Specific Allowance: Related Allowance	9
Impaired Loans with No Specific Allowance: Recorded Investment	756	713
Total Impaired Loans: Recorded Investment	927	713
Total Impaired Loans: Unpaid Principal Balance	941	726
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Impaired Loans with No Specific Allowance: Recorded Investment	7	10
Total Impaired Loans: Recorded Investment	7	10
Total Impaired Loans: Unpaid Principal Balance	$ 7	$ 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		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	$ 11,548	$ 10,470	$ 11,047	$ 9,972
Charge-offs	(147)	(1,099)	(256)	(1,412)
Recoveries	242	129	503	493
Provision for loan losses	333	269	682	716
ALL Ending Balance	11,976	9,769	11,976	9,769
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	2,775	3,976	2,780	3,699
Charge-offs		(889)		(889)
Recoveries	1	1	30	60
Provision for loan losses	(41)	215	(75)	433
ALL Ending Balance	2,735	3,303	2,735	3,303
Acquisition and Development [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	2,338	1,160	1,721	1,257
Charge-offs		(7)	(29)	(98)
Recoveries	99	44	111	258
Provision for loan losses	857	(25)	1,491	(245)
ALL Ending Balance	3,294	1,172	3,294	1,172
Commercial and industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	1,125	860	1,187	869
Charge-offs	(5)	(10)	(5)	(10)
Recoveries	25	13	76	31
Provision for loan losses	2	(77)	(111)	(104)
ALL Ending Balance	1,147	786	1,147	786
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	4,497	3,678	4,544	3,444
Charge-offs	(74)	(86)	(86)	(240)
Recoveries	87	27	195	65
Provision for loan losses	(529)	125	(672)	475
ALL Ending Balance	3,981	3,744	3,981	3,744
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	313	296	315	203
Charge-offs	(68)	(107)	(136)	(175)
Recoveries	30	44	91	79
Provision for loan losses	44	31	49	157
ALL Ending Balance	319	264	319	264
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
ALL Beginning Balance	500	500	500	500
ALL Ending Balance	$ 500	$ 500	$ 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		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Financing Receivable, Impaired [Line Items]
Average Investment	$ 17,053	$ 12,294	$ 14,892	$ 12,539
Interest income recognized on an accrual basis	73	97	150	196
Interest income recognized on a cash basis	4		12	129
Commercial real estate- non owner-occupied [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	258	1,258	270	813
Interest income recognized on an accrual basis	3	3	6	7
Interest income recognized on a cash basis				66
Commercial real estate- all other CRE [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	4,807	5,726	4,853	6,625
Interest income recognized on an accrual basis	38	50	76	99
Interest income recognized on a cash basis				56
Acquisition and development- 1-4 family residential construction [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	307	492	310	457
Interest income recognized on an accrual basis	4	6	9	12
Acquisition and development- All other A&D [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	7,772	340	5,306	276
Interest income recognized on an accrual basis	3	3	6	6
Commercial and industrial [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	27	311	24	305
Interest income recognized on an accrual basis		5		10
Residential mortgage- term [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	2,941	3,529	3,261	3,487
Interest income recognized on an accrual basis	25	30	53	62
Interest income recognized on a cash basis	2		10
Residential mortgage- home equity [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	925	614	854	553
Interest income recognized on a cash basis	2		2	7
Consumer [Member]
Financing Receivable, Impaired [Line Items]
Average Investment	$ 16	$ 24	$ 14	$ 23

XML

Loans and Related Allowance for Loan Losses (Modification of Troubled Debt Restructuring by Class) (Details) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2018 USD ($) contract	Jun. 30, 2019 USD ($) contract	Jun. 30, 2018 USD ($) contract
Extended Maturity [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1		1
Recorded Investment | $	$ 179		$ 179
Extended Maturity [Member] | Commercial real estate- all other CRE [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1		1
Recorded Investment | $	$ 179		$ 179
Modification Of Payment And Other Terms [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	2	1
Recorded Investment | $	$ 126	$ 470	$ 126
Modification Of Payment And Other Terms [Member] | Commercial real estate- non owner-occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1		1
Recorded Investment | $	$ 126		$ 126
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] | Residential mortgage- term [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract		1
Recorded Investment | $		$ 243

XML

Other Real Estate Owned (Schedule of Real Estate Properties Comprising OREO) (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Total OREO	$ 5,531	$ 6,598
Commercial Real Estate OREO [Member]
Total OREO	1,902	2,599
Acquisition and Development [Member]
Total OREO	2,598	3,218
Commercial and Industrial [Member]
Total OREO		24
Residential Mortgage [Member]
Total OREO	$ 1,031	$ 757

XML

Other Real Estate Owned (Other Real Estate, Roll Forward) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Other Real Estate Owned [Abstract]
Beginning Balance	$ 1,366	$ 2,911	$ 1,988	$ 2,740
Fair value write-down	711	183	828	478
Sales of OREO	(64)	(147)	(803)	(271)
Ending Balance	$ 2,013	$ 2,947	$ 2,013	$ 2,947

XML

Other Real Estate Owned (Schedule of Components of OREO) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Other Real Estate Owned [Abstract]
Gains on sales of other real estate owned	$ 19	$ (163)	$ (11)	$ (183)
Fair value write-down, net	711	183	828	478
Expenses, net	91	124	166	272
Rental and other income	(35)	(36)	(54)	(74)
Total OREO expense, net	$ 786	$ 108	$ 929	$ 493

XML

Fair Value of Financial Instruments (Narrative) (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) security	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Amortized Cost	$ 139,263,000		$ 139,263,000		$ 144,123,000
Available-for-sale Securities	135,809,000		135,809,000		137,641,000
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net			0	$ 0
Gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets	0	$ 0	0	0
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount	0	0	0	0
Fair Value, Assets, Level 2 to Level 1 Transfers, Amount	0	$ 0	$ 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	18,387,000		$ 18,387,000		18,358,000
Available-for-sale Securities	$ 14,872,000		$ 14,872,000		$ 15,277,000

XML

Fair Value of Financial Instruments (Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques) (Details) - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands		6 Months Ended		12 Months Ended
		Jun. 30, 2019		Dec. 31, 2018
Investment Securities - available for sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Input, Unobservable Input Value, Description		Range of LIBOR+ 4.50%
Investment Securities - available for sale [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure		$ 14,872		$ 15,277
Fair Value Measurements, Significant Assumptions		Discount Rate		DiscountRate
Valuation Technique		DiscountedCash Flow		DiscountedCash Flow
Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure		$ 7,234		$ 1,316
Fair Value Measurements, Significant Assumptions		MarketabilityDiscount		MarketabilityDiscount
Valuation Technique		Market ComparableProperties		Market ComparableProperties
Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure		$ 2,949		$ 2,707
Fair Value Measurements, Significant Assumptions		MarketabilityDiscount		MarketabilityDiscount
Valuation Technique		Market ComparableProperties		Market ComparableProperties
Minimum [Member] | Investment Securities - available for sale [Member] | London Interbank Offered Rate (LIBOR) [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value input discount rate		4.50%		4.50%
Minimum [Member] | Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments, Weighted Average	[1]	10.00%		10.00%
Minimum [Member] | Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments, Weighted Average	[1]	10.00%		10.00%
Maximum [Member] | Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments, Weighted Average	[1]	15.00%		15.00%
Maximum [Member] | Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments, Weighted Average		15.00%	[1]	15.00%
Weighted Average [Member] | Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments, Weighted Average		12.80%		12.80%
Weighted Average [Member] | Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value Inputs, Comparability Adjustments, Weighted Average		12.40%		13.50%

[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	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	$ 135,809	$ 137,641
Financial Derivative		(1,043)
Impaired Financing Receivable, Recorded Investment	17,743	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	7,234	1,316
Other Real Estate	2,949	2,707
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial Derivative		(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	7,234	1,316
Other Real Estate	2,949	2,707
US government agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	29,833	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	29,833	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	29,833	29,026
Commercial mortgage-backed agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	42,346	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	42,346	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	42,346	37,752
Collateralized mortgage obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	34,127	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	34,127	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	34,127	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	14,631	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	14,631	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	14,631	19,882
Collateralized debt obligations [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities	14,872	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	14,872	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	14,872	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	(55)	(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	$ (55)	$ (1,043)

XML

Fair Value of Financial Instruments (Reconciliation of Fair Valued Assets Measured on a Recurring Basis) (Details) - Collateralized debt obligations [Member] - Fair Value, Inputs, Level 3 [Member] - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	$ 15,152	$ 15,977	$ 15,277	$ 14,920
Total gains (losses) realized/unrealized: Included in other comprehensive income	(280)	170	(405)	1,227
Ending Balance	$ 14,872	$ 16,147	$ 14,872	$ 16,147

XML

Fair Value of Financial Instruments (Fair Value by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	$ 38,584	$ 22,187
Interest bearing deposits in banks	405	1,354
Investment securities - AFS	135,809	137,641
Investment securities - HTM	102,503	93,760
Restricted bank stock	4,415	5,394
Loans, net	976,051	967,198
Financial derivatives		1,043
Accrued interest receivable	4,083	4,175
Deposits - non-maturity	861,832	815,858
Deposits - time deposits	262,533	252,146
Financial derivatives	55
Short-term borrowed funds	31,155	77,707
Long-term borrowed funds	103,214	102,590
Accrued interest payable	503	455
Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	38,584	22,187
Interest bearing deposits in banks	405	1,354
Investment securities - AFS	135,809	137,641
Investment securities - HTM	97,499	94,010
Restricted bank stock	4,415	5,394
Loans, net	991,640	996,667
Financial derivatives		1,043
Accrued interest receivable	4,083	4,175
Deposits - non-maturity	861,832	815,858
Deposits - time deposits	261,249	251,669
Financial derivatives	55
Short-term borrowed funds	31,155	77,707
Long-term borrowed funds	100,929	100,929
Accrued interest payable	503	455
Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and due from banks	38,584	22,187
Interest bearing deposits in banks	405	1,354
Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities - AFS	120,937	122,364
Investment securities - HTM	83,609	80,780
Restricted bank stock	4,415	5,394
Financial derivatives		1,043
Accrued interest receivable	4,083	4,175
Deposits - non-maturity	861,832	815,858
Deposits - time deposits	262,533	252,146
Financial derivatives	55
Short-term borrowed funds	31,155	77,707
Long-term borrowed funds	103,214	102,590
Accrued interest payable	503	455
Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities - AFS	14,872	15,277
Investment securities - HTM	18,894	12,980
Loans, net	$ 976,051	$ 967,198

XML

Accumulated Other Comprehensive Loss (Schedule of Accumulated Other Comprehensive Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Beginning balance		$ (24,403)
Balance	$ 122,399	117,066	$ 108,390
Ending balance	(20,000)		(24,403)
Balance	126,155	122,399	117,066
Investment securities- with OTTI AFS [Member]
Balance	(1,979)	(1,899)	(2,939)
Other comprehensive income/(loss) before reclassifications	(157)	(44)	1,194
Amounts reclassified from accumulated other comprehensive loss	(37)	(36)	(154)
Balance	(2,173)	(1,979)	(1,899)
Investment Securities -All Other AFS [Member]
Balance	(2,696)	(3,601)	(2,979)
Other comprehensive income/(loss) before reclassifications	1,581	901	(540)
Amounts reclassified from accumulated other comprehensive loss	(4)	4	(82)
Balance	(1,119)	(2,696)	(3,601)
Investment Securities HTM [Member]
Balance	(1,076)	(1,131)	(1,347)
Amounts reclassified from accumulated other comprehensive loss	63	55	216
Balance	(1,013)	(1,076)	(1,131)
Cash Flow Hedge [Member]
Balance	458	773	582
Other comprehensive income/(loss) before reclassifications	(486)	(315)	191
Balance	(28)	458	773
Pension Plan [Member]
Balance	(15,888)	(18,017)	(17,066)
Other comprehensive income/(loss) before reclassifications	511	1,933	(1,833)
Amounts reclassified from accumulated other comprehensive loss	196	196	882
Balance	(15,181)	(15,888)	(18,017)
SERP [Member]
Balance	(507)	(528)	(844)
Other comprehensive income/(loss) before reclassifications			202
Amounts reclassified from accumulated other comprehensive loss	21	21	114
Balance	(486)	(507)	(528)
Accumulated Other Comprehensive Loss [Member]
Balance	(21,688)	(24,403)	(24,593)
Other comprehensive income/(loss) before reclassifications	1,449	2,475	(786)
Amounts reclassified from accumulated other comprehensive loss	239	240	976
Balance	$ (20,000)	$ (21,688)	$ (24,403)

XML

Accumulated Other Comprehensive Loss (Components of Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Available for sale securities - all other: Net unrealized losses on all other AFS securities, Net of tax	$ 1,577	$ (230)	$ 2,482	$ (1,308)
Cash flow hedges: Unrealized holding gains, Before Tax	(666)	148	(1,098)	755
Cash flow hedges: Unrealized holding gains, Tax Effect	180	(40)	297	(204)
Cash flow hedges: Unrealized holding gains, Net of Tax	(486)	108	(801)	551
Unrealized net actuarial loss, Net of Tax	707	(1,530)	2,836	(794)
Other comprehensive income, Before tax amount	2,316	(876)	6,041	248
Other comprehensive income, Tax (expense) benefit	(628)	236	(1,638)	(68)
Other comprehensive income, Net	1,688	(640)	4,403	180
Investment securities- with OTTI AFS [Member]
Available for sale (AFS) securities with OTTI: Unrealized holding gains, Before tax amount	(216)	1,493	(276)	2,432
Available for sale (AFS) securities with OTTI: Unrealized holding gains, Tax effect	59	(404)	75	(658)
Available for sale (AFS) securities with OTTI: Unrealized holding gains, Net of tax	(157)	1,089	(201)	1,774
Available for sale (AFS) securities with OTTI: Less: accretable yield recognized in income, Before tax amount	50	52	99	107
Available for sale (AFS) securities with OTTI: Less: accretable yield recognized in income, Tax effect	(13)	(14)	(26)	(29)
Other than temporary impairment losses, investments, reclassification adjustment of noncredit portion included in net income, Available for sale securities, Net of tax	37	38	73	78
Available for sale (AFS) securities with OTTI: Net unrealized gains on investments with OTTI, Before tax amount	(266)	1,296	(375)	2,180
Available for sale (AFS) securities with OTTI: Net unrealized gains on investments with OTTI, Tax effect	72	(351)	101	(590)
Available for sale (AFS) securities with OTTI: Net unrealized gains on investments with OTTI, Net of tax	(194)	945	(274)	1,590
Securities: Less: gain (losses) recognized in income, Before tax		145		145
Securities: Less: gain (losses) recognized in income, Tax effect		(39)		(39)
Securities: gains (losses) recognized in income, Net of tax		106		106
Investment Securities -All Other AFS [Member]
Securities: Unrealized holding losses, Before tax	2,169	(325)	3,405	(1,812)
Securities: Unrealized holding losses, Tax effect	(588)	88	(923)	490
Securities: Unrealized holding losses, Net of tax	1,581	(237)	2,482	(1,322)
Securities: Less: gain (losses) recognized in income, Before tax	6	(10)		(19)
Securities: Less: gain (losses) recognized in income, Tax effect	(2)	3		5
Securities: gains (losses) recognized in income, Net of tax	4	(7)		(14)
Available for sale securities: Net unrealized losses on all other AFS securities, Before Tax	2,163	(315)	3,405	(1,793)
Available for sale securities: Net unrealized losses on all other AFS securities, Tax effect	(586)	85	(923)	485
Available for sale securities - all other: Net unrealized losses on all other AFS securities, Net of tax	1,577	(230)	2,482	(1,308)
Investment Securities HTM [Member]
Securities: Less: gain (losses) recognized in income, Before tax	(86)	(52)	(161)	(114)
Securities: Less: gain (losses) recognized in income, Tax effect	23	14	43	31
Securities: gains (losses) recognized in income, Net of tax	(63)	(38)	(118)	(83)
Held to maturity securities: Net unrealized losses on all HTM securities, Before tax	86	52	161	114
Held to maturity securities: Net unrealized losses on all HTM securities, Tax	(23)	(14)	(43)	(31)
Held to maturity securities: Net unrealized losses on all HTM securities, After tax	63	38	118	83
Pension Plan [Member]
Unrealized net actuarial loss, Before Tax	701	(2,399)	3,353	(1,692)
Unrealized net actuarial loss, Tax Effect	(190)	648	(909)	457
Unrealized net actuarial loss, Net of Tax	511	(1,751)	2,444	(1,235)
Net plan liability adjustment, Before Tax	970	(2,097)	3,891	(1,088)
Net plan liability adjustment, Tax Effect	(263)	567	(1,055)	294
Net plan liability adjustment, Net of Tax	707	(1,530)	2,836	(794)
SERP [Member]
Net plan liability adjustment, Before Tax	29	40	57	80
Net plan liability adjustment, Tax Effect	(8)	(11)	(15)	(22)
Net plan liability adjustment, Net of Tax	21	29	42	58
Amortization of unrecognized loss [Member] | Pension Plan [Member]
Less: amortization of unrecognized net gain (loss), Before Tax	(269)	(300)	(538)	(600)
Less: amortization of unrecognized net gain (loss), Tax Effect	73	81	146	162
Less: amortization of unrecognized net gain (loss), Net of Tax	(196)	(219)	(392)	(438)
Amortization of unrecognized loss [Member] | SERP [Member]
Less: amortization of unrecognized net gain (loss), Before Tax	(29)	(40)	(58)	(81)
Less: amortization of unrecognized net gain (loss), Tax Effect	8	11	15	22
Less: amortization of unrecognized net gain (loss), Net of Tax	$ (21)	(29)	(43)	(59)
Amortization of prior service costs [Member] | Pension Plan [Member]
Less: amortization of prior service costs, Before Tax		(2)		(4)
Less: amortization of prior service costs, Tax Effect				1
Less: amortization of prior service costs, Net of Tax		$ (2)		(3)
Amortization of prior service costs [Member] | SERP [Member]
Less: amortization of prior service costs, Before Tax			1	1
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				6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gains/(losses) - other	$ 30		$ 147		$ 44	$ 181
Tax (expense) benefit	(790)		(840)		(1,667)	(1,488)
Net income	2,602	$ 3,151	3,016	$ 2,506	5,753	5,522
Reclassification out of Accumulated Other Comprehensive Loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on calls			145			145
Net income	(239)		(152)		(479)	(412)
Investment securities- with OTTI AFS [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest income (expense) on investment securities: taxable	50		52		99	107
Tax (expense) benefit	(13)		(53)		(26)	(68)
Net income	37		144		73	184
Investment Securities -All Other AFS [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gains/(losses) - other	6		(10)			(19)
Tax (expense) benefit	(2)		3			5
Net income	4		(7)			(14)
Investment Securities HTM [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest income (expense) on investment securities: taxable	(86)		(52)		(161)	(114)
Tax (expense) benefit	23		14		43	31
Net income	(63)		(38)		(118)	(83)
Pension Plan [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Tax (expense) benefit	73		81		146	163
Net income	(196)		(221)		(392)	(441)
Pension Plan [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member] | Amortization of unrecognized loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	(269)		(300)		(538)	(600)
Pension Plan [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member] | Amortization of prior service costs [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits			(2)			(4)
SERP [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Tax (expense) benefit	8		11		15	22
Net income	(21)		(30)		(42)	(58)
SERP [Member] | Reclassification out of Accumulated Other Comprehensive Loss [Member] | Amortization of unrecognized loss [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	$ (29)		$ (41)		(58)	(81)
SERP [Member] | Reclassification out of Accumulated Other Comprehensive Loss [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 - (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Total operating lease expense	$ 100	$ 200
Short-term lease expense	$ 13	$ 37

XML

Leases (Classification of ROU Assets and Lease Liabilities) (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Leases [Abstract]
Operating lease right-of-use asset	$ 2,594
Operating lease liability	$ 3,177

XML

Leases - (Weighted-Average Lease Term and Discount Rate for Operating Leases) (Details)	Jun. 30, 2019
Leases [Abstract]
Weighted-average remaining lease term - Operating leases	8 years 9 months 22 days
Weighted-average discount rate - Operating leases	5.09%

XML

Leases - (Future Minimum Payments for Operating Leases) (Details) $ in Thousands	Jun. 30, 2019 USD ($)
Future minimum payments
2019 (remainder of year)	$ 229
2020	467
2021	466
2022	459
2023	393
Thereafter	1,983
Total future minimum lease payments	3,997
Amount representing interest	(820)
Present value of net future minimum lease payments	$ 3,177

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Borrowed Funds (Narrative) (Details) $ in Millions	Jun. 30, 2019 USD ($)
Borrowed Funds [Abstract]
Repurchase agreements secured by available for sale securities	$ 45.0
FHLB advances secured by loans receivable	$ 214.0
Minimum fair value percentage pledged against account balances	102.00%

XML

Borrowed Funds (Summary of Short Term Borrowings) (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Overnight borrowings, weighted average interest rate		2.70%
Outstanding at end of period	$ 31,155	$ 77,707
Short-term Correspondent Bank Advance
Overnight borrowings		40,000
Securities Sold under Agreements to Repurchase [Member]
Outstanding at end of period	$ 31,155	$ 37,707
Weighted average interest rate	0.35%	0.24%
Maximum amount outstanding as of any month end	$ 40,579	$ 55,648
Average amount outstanding	$ 37,218	$ 44,045
Approximate weighted average rate during the period	0.29%	0.20%

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Employee Benefit Plans (Narrative) (Details) - USD ($)	1 Months Ended			3 Months Ended		6 Months Ended
	Jan. 31, 2019	Jan. 31, 2018	Jan. 31, 2017	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 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	$ 29,812	$ 29,812
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		$ 37,576
Pension [Member]
Defined Benefit Plan Disclosure [Line Items]
Period of employment used to determine benefits						5 years
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 their (a) ages, at their closest birthday plus (b) 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

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Employee Benefit Plans (Components of the Net Periodic Pension Plan Cost) (Pension) (Details) - Pension [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 66	$ 81	$ 133	$ 162
Interest cost	437	396	874	793
Expected return on assets	(764)	(810)	(1,528)	(1,620)
Amortization of net actuarial loss	269	300	538	600
Amortization of prior service cost		2		4
Net pension expense/(credit) included in employee benefits and other expense	$ 8	$ (31)	$ 17	$ (61)

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Employee Benefit Plans (Components of the Net Periodic Pension Plan Cost) (SERP) (Details) - SERP [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 23	$ 28	$ 47	$ 56
Interest cost	83	75	165	150
Amortization of recognized loss	29	41	58	81
Amortization of prior service cost			(1)	(1)
Net pension expense/(credit) included in employee benefits and other expense	$ 135	$ 144	$ 269	$ 286

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Equity Compensation Plan Information (Narrative) (Details) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	May 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Deferred compensation arrangement with individual, description				Stock-based awards were made to non-employee directors in May 2019 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				14,641
Per share fair market value of issued fully vested common stock shares		$ 18.30		$ 18.30
Shares issued to Director	1,000
Cash paid to Director	$ 10,000
Stock compensation expense		$ 66,894	$ 62,331	$ 133,612	$ 115,889
Maximum [Member]
Maximum issuance of common stock options		325,000		325,000

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Letters of Credit and Off Balance Sheet Liabilities (Narrative) (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Letters of Credit and Off Balance Sheet Liabilities [Abstract]
Outstanding standby letters of credit	$ 8.6	$ 3.4

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Derivative Financial Instruments (Narrative) (Details)	1 Months Ended	6 Months Ended
	Mar. 31, 2016 USD ($) contract	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Derivative [Line Items]
Decrease in fair value of derivatives		$ 1,100,000
Deferred tax asset on gain on derivative		298,000
Cash flow hedge ineffectiveness		0
Interest Rate Swap [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 30,000,000
Number of interest rate swap contracts | contract	4
Interest rate swap fair value		$ (55,000)	$ (1,000,000)
Swap Contract - 3-Year $5 million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 5,000,000
Interest rate swap contracts term		3 years
Derivative, maturity date	Jun. 17, 2019
Swap Contract - 5-Year $5 million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 5,000,000
Interest rate swap contracts term		5 years
Derivative, maturity date	Mar. 17, 2021
Swap Contract - 10-Year $15 million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 15,000,000
Interest rate swap contracts term		10 years
Derivative, maturity date	Mar. 17, 2026
Swap Contract- 7 year $5 Million [Member]
Derivative [Line Items]
Interest rate swap notional amount	$ 5,000,000
Interest rate swap contracts term		7 years
Derivative, maturity date	Mar. 17, 2023

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Derivative Financial Instruments (Impact Of Derivative Financial Instruments) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Amount of gain or (loss) recognized in OCI on derivative (effective portion)	$ (666)	$ 148	$ (1,098)	$ 755
Cash Flow Hedging [Member] | Interest Rate Contract [Member]
Amount of gain or (loss) recognized in OCI on derivative (effective portion)	$ 486	$ 108	$ 801	$ 551

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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	Jun. 30, 2019	Dec. 31, 2018
Investment security collateral as a percentage of borrowing	102.00%
Interest Rate Swap [Member]
Gross Amounts of Recognized (Assets)/Liabilities	$ 55	$ (1,043)
Net Amounts of (Assets)/Liabilities Presented in the Statement of Condition	55	(1,043)
Gross Amounts Not Offset in the Statement of Condition: Financial Instruments	(55)	1,043
Net Amount
Repurchase Agreements [Member]
Gross Amounts of Recognized (Assets)/Liabilities	31,155	37,707
Net Amounts of (Assets)/Liabilities Presented in the Statement of Condition	31,155	37,707
Gross Amounts Not Offset in the Statement of Condition: Financial Instruments	(31,155)	(37,707)
Net Amount

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Adoption of New Accounting Standards and Effects of New Accounting Pronouncements (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
Operating lease right-of-use asset	$ 2,594
Operating lease liability	$ 3,177
ASU 2016-02 [Member]
Operating lease right-of-use asset		$ 2,700
Operating lease liability		$ 3,300