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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2019
Employee Benefit Plans [Abstract] |
Employee Benefit Plans | 18. Employee Benefit Plans ﻿ First United Corporation sponsors a noncontributory defined benefit pension plan (the “Pension Plan”) covering the employees who were hired prior to the freeze and others who were grandfathered into the 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 (i) their ages, at their closest birthday, plus (ii) years of service for vesting purposes equals 80 or greater. The “soft freeze” continues to apply to all other plan participants. Pension benefits for these participants will be managed through discretionary contributions to the First United Corporation 401(k) Profit Sharing Plan (the “401(k) Plan”). ﻿ During 2001, the Bank established an unfunded Defined Benefit Supplemental Executive Retirement Plan (“Defined Benefit SERP”). The Defined Benefit SERP is available only to a select group of management or highly compensated employees to provide supplemental retirement benefits in excess of limits imposed on qualified plans by federal tax law. Concurrent with the establishment of the Defined Benefit SERP, the Bank acquired 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. ﻿ On January 9, 2015, First United Corporation and members of management who do not participate in the Defined Benefit SERP entered into participation agreements under the Deferred Compensation Plan, each styled as a Defined Contribution SERP Agreement (the “Contribution Agreement”). Pursuant to each Contribution Agreement, First United Corporation agreed, for each Plan Year (as defined in the Deferred Compensation Plan) in which it determines that it has been Profitable (as defined in the Contribution Agreement), to make a discretionary contribution to the participant’s Employer Account in an amount equal to 15% of the participant’s base salary level for such Plan Year, with the first Plan Year being the year ending December 31, 2015. The Contribution Agreement provides that the participant will become 100% vested in the amount maintained in his or her Employer Account upon the earliest to occur of the following events: (i) Normal Retirement (as defined in the Contribution Agreement); (ii) Separation from Service (as defined in the Contribution Agreement) following a Change of Control (as defined in the Deferred Compensation Plan) and subsequent Triggering Event (as defined in the Contribution Agreement); (iii) Separation from Service due to a Disability (as defined in the Contribution Agreement); (iv) with respect to a particular award of Employer Contribution Credits, the participant’s completion of two consecutive Years of Service (as defined in the Contribution Agreement) immediately following the Plan Year for which such award was made; or (v) death. Notwithstanding the foregoing, however, a participant will lose entitlement to the amount maintained in his or her Employer Account in the event employment is terminated for Cause (as defined in the Contribution Agreement). In addition, the Contribution Agreement conditions entitlement to the amounts held in the Employer Account on the participant (a) refraining from engaging in Competitive Employment (as defined in the Contribution Agreement) for three years following his or her Separation from Service, (b) refraining from injurious disclosure of confidential information concerning the Corporation, and (c) remaining available, at the First United Corporation’s reasonable request, to provide at least six hours of transition services per month for 12 months following his or her Separation from Service (except in the case of death or Disability), except that only item (b) will apply in the event of a Separation from Service following a Change of Control and subsequent Triggering Event. ﻿ In January 2018, the Board approved discretionary contributions to four participants totaling $119,252. The contributions had a two-year vesting period that ended on December 31, 2019. The Corporation recorded $59,626 of the related compensation for the years ended December 31, 2019 and 2018. In January 2019, the Board of Directors of First United Corporation approved discretionary contributions to four participants totaling $123,179. The Corporation recorded $75,152 of related compensation expense for the year ended December 31, 2019. In January 2020, the Board of Directors approved discretionary contributions to four participants totaling $126,058. Each discretionary contribution has a two-year vesting period. ﻿ The following tables summarize benefit obligation and funded status, plan asset activity, components of net pension cost, and weighted average assumptions for the Pension Plan and the Defined Benefit SERP: ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Pension |  | Defined Benefit SERP
﻿(in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
﻿Change in Benefit Obligation |  |  |  |  |  |  |  |  |  |  |  |
﻿Obligation at the beginning of the year |  | $ | 42,022 |  | $ | 44,975 |  | $ | 7,544 |  | $ | 7,613
﻿Service cost |  |  | 265 |  |  | 324 |  |  | 120 |  |  | 112
﻿Interest cost |  |  | 1,748 |  |  | 1,586 |  |  | 272 |  |  | 321
﻿Change in discount rate and mortality assumptions |  |  | 7,981 |  |  | — |  |  | — |  |  | —
﻿Actuarial losses/(gains) |  |  | 979 |  |  | (3,049) |  |  | 994 |  |  | (276)
﻿Benefits paid |  |  | (2,000) |  |  | (1,814) |  |  | (283) |  |  | (226)
﻿Obligation at the end of the year |  |  | 50,995 |  |  | 42,022 |  |  | 8,647 |  |  | 7,544
﻿Change in Plan Assets |  |  |  |  |  |  |  |  |  |  |  |
﻿Fair value at the beginning of the year |  |  | 43,056 |  |  | 47,216 |  |  | — |  |  | —
﻿Actual return on plan assets |  |  | 7,773 |  |  | (2,346) |  |  | — |  |  | —
﻿Employer contribution |  |  | 2,000 |  |  | — |  |  | 283 |  |  | 226
﻿Benefits paid |  |  | (2,000) |  |  | (1,814) |  |  | (283) |  |  | (226)
﻿Fair value at the end of the year |  |  | 50,829 |  |  | 43,056 |  |  | — |  |  | —
﻿(Unfunded)/Funded Status |  | $ | (166) |  | $ | 1,034 |  | $ | (8,647) |  | $ | (7,544)
﻿ ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | Pension |  | Defined Benefit SERP
﻿(in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
﻿Components of Net Pension Cost |  |  |  |  |  |  |  |  |  |  |  |
﻿Service cost |  | $ | 265 |  | $ | 324 |  | $ | 120 |  | $ | 112
﻿Interest cost |  |  | 1,748 |  |  | 1,586 |  |  | 272 |  |  | 321
﻿Expected return on assets |  |  | (3,055) |  |  | (3,240) |  |  | — |  |  | —
﻿Amortization of recognized loss |  |  | 1,077 |  |  | 1,200 |  |  | 116 |  |  | 159
﻿Amortization of prior service cost |  |  | — |  |  | 9 |  |  | (3) |  |  | (3)
﻿Net pension (income)/expense in employee benefits |  | $ | 35 |  | $ | (121) |  | $ | 505 |  | $ | 589
﻿Weighted Average Assumptions used to determine benefit obligations: |  |  |  |  |  |  |  |  |  |  |  |
﻿Discount rate for benefit obligations |  |  | 3.25% |  |  | 4.25% |  |  | 3.14% |  |  | 4.45%
﻿Discount rate for net pension cost |  |  | 4.25% |  |  | 3.60% |  |  | — |  |  | —
﻿Expected long-term return on assets |  |  | 7.00% |  |  | 7.00% |  |  | — |  |  | —
﻿Rate of compensation increase |  |  | 3.00% |  |  | 3.00% |  |  | 3.00% |  |  | 3.00%
﻿Mortality tables |  |  | PRI-2012 White Collar |  |  | RP-2014 |  |  | N/A |  |  | N/A
﻿ The accumulated benefit obligation for the Pension Plan was $48.9 million and $39.8 million at December 31, 2019 and 2018, respectively. The accumulated benefit obligation for the Defined Benefit SERP was $7.7 million and $7.5 million at December 31, 2019 and 2018, respectively. ﻿ The investment assets of a defined benefit plan are managed with the goal of providing for retiree distributions while also supporting long-term plan obligations with a moderate level of portfolio risk. In order to address the variability over time of both risk and return, the plan investment strategy entails a dynamic approach to asset allocation, providing for normalized targets for major asset classes, with the ability to tactically adjust within the following specified ranges around those targets. ﻿
﻿ |  |  |  |
﻿ |  |  |  |
﻿Asset Class |  | Normalized Target |  | Range
﻿Cash |  | 5% |  | 0% - 20%
﻿Fixed Income |  | 40% |  | 30% - 50%
﻿Equities |  | 55% |  | 45% - 65%
﻿ Decisions regarding tactical adjustments within the above noted ranges for asset classes are based on a top down review of factors expected to have material impact on the risk and reward dynamics of the portfolio as a whole. Such factors include, but are not limited to, the following: ﻿
| · |  | Anticipated domestic and international economic growth as a whole;
| · |  | The position of the economy within its longer term economic cycle; and
| · |  | The expected impact of economic vitality, cycle positioning, financial market risks, industry/demographic trends and political forces on the various market sectors and investment styles.
﻿ With respect to individual company securities, additional company specific matters are considered, which could include management track record and guidance, future earnings expectations, current relative price expectations and the impact of identified risks on expected performance, among others. A core equity position of large cap stocks will be maintained, with more aggressive or volatile sectors meaningfully represented in the asset mix in pursuit of higher returns. ﻿ Strategic and specific investment decisions are guided by an in-house investment committee as well as a number of outside institutional resources that provide economic, industry and company data and analytics. It is management’s intent to give the Plan’s investment managers flexibility with respect to investment decisions and their timing within the overall guidelines. However, certain investments require specific review and approval by management. Management is also informed of anticipated changes in nonproprietary investment managers, significant modifications of any previously approved investment, or the anticipated use of derivatives to execute investment strategies. ﻿ Portfolio risk is managed in large part by a focus on diversification across multiple levels as well as an emphasis on financial strength. For example, current investment policies restrict initial investments in debt securities to be rated investment grade at the time of purchase. Also, with the exception of the highest rated securities (e.g. - U.S. Treasury or government-backed agency securities), no more than 10% of the portfolio may be invested in a single entity’s securities. As a result of the previously noted approaches to controlling portfolio risk, any concentrations of risk would be associated with general systemic risks faced by industry sectors or the portfolio as a whole. ﻿ Assets in the Pension Plan are valued by the Corporation’s accounting system provider who utilizes a third-party pricing service. Valuation data is based on actual market data for stocks and mutual funds (Level 1) and matrix pricing for bonds (Level 2). Cash and cash equivalents are also considered Level 1 within the fair value hierarchy. ﻿ As of December 31, 2019 and 2018, the value of Pension Plan investments was as follows: ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |
﻿December 31, 2019 |  |  |  |  |  |  | Fair Value Hierarchy
﻿(Dollars in thousands) |  | Assets at Fair Value |  | % of Portfolio |  | Level 1 |  | Level 2
﻿Cash and cash equivalents |  | $ | 247 |  | 0.5% |  | $ | 247 |  | $ | —
﻿Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
﻿U.S. Government and Agencies |  |  | 1,904 |  | 3.7% |  |  | — |  |  | 1,904
﻿Taxable municipal bonds and notes |  |  | 4,555 |  | 8.9% |  |  | — |  |  | 4,555
﻿Corporate bonds and notes |  |  | 9,588 |  | 18.9% |  |  | — |  |  | 9,588
﻿Preferred stock |  |  | 657 |  | 1.3% |  |  | — |  |  | 657
﻿Fixed income mutual funds |  |  | 6,441 |  | 12.7% |  |  | 6,441 |  |  | —
﻿Total fixed income |  |  | 23,145 |  | 45.5% |  |  | 6,441 |  |  | 16,704
﻿Equities: |  |  |  |  |  |  |  |  |  |  |
﻿Large Cap |  |  | 21,460 |  | 42.2% |  |  | 21,460 |  |  | —
﻿Mid Cap |  |  | 1,660 |  | 3.3% |  |  | 1,660 |  |  | —
﻿Small Cap |  |  | 1,009 |  | 2.0% |  |  | 1,009 |  |  | —
﻿International |  |  | 3,308 |  | 6.5% |  |  | 3,308 |  |  | —
﻿Total equities |  |  | 27,437 |  | 54.0% |  |  | 27,437 |  |  | —
﻿Total market value |  | $ | 50,829 |  | 100.0% |  | $ | 34,125 |  | $ | 16,704
﻿ |  |  |  |  |  |  |  |  |  |  |
﻿December 31, 2018 |  |  |  |  |  |  | Fair Value Hierarchy
﻿(Dollars in thousands) |  | Assets at Fair Value |  | % of Portfolio |  | Level 1 |  | Level 2
﻿Cash and cash equivalents |  | $ | 1,834 |  | 4.3% |  |  | 1,834 |  | $ | —
﻿Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
﻿U.S. Government and Agencies |  |  | 1,394 |  | 3.2% |  |  | — |  |  | 1,394
﻿Taxable municipal bonds and notes |  |  | 4,363 |  | 10.1% |  |  | — |  |  | 4,363
﻿Corporate bonds and notes |  |  | 9,931 |  | 23.1% |  |  | — |  |  | 9,931
﻿Preferred stock |  |  | 476 |  | 1.1% |  |  | — |  |  | 476
﻿Fixed income mutual funds |  |  | 2,498 |  | 5.8% |  |  | 2,498 |  |  | —
﻿Total fixed income |  |  | 18,662 |  | 43.3% |  |  | 2,498 |  |  | 16,164
﻿Equities: |  |  |  |  |  |  |  |  |  |  |
﻿Large Cap |  |  | 17,454 |  | 40.5% |  |  | 17,454 |  |  | —
﻿Mid Cap |  |  | 1,342 |  | 3.1% |  |  | 1,342 |  |  | —
﻿Small Cap |  |  | 884 |  | 2.1% |  |  | 884 |  |  | —
﻿International |  |  | 2,880 |  | 6.7% |  |  | 2,880 |  |  | —
﻿Total equities |  |  | 22,560 |  | 52.4% |  |  | 22,560 |  |  | —
﻿Total market value |  | $ | 43,056 |  | 100.0% |  | $ | 26,892 |  | $ | 16,164
﻿ The expected rate of return on Pension Plan assets is based on a combination of the following: ﻿
| · |  | Historical returns of the portfolio of assets;
| · |  | Monte Carlo simulations of expected returns for a portfolio with strategic asset targets similar to the normalized targets; and
| · |  | Market impact adjustments to reflect expected future investment environment considerations.
﻿ At December 31, 2019, the 25-year average return on pension portfolio assets was 7.15%, which exceeded the expected long-term return of 7.00% utilized for 2019. Considering that future equity returns are partially a function of current starting valuations and the general level of interest rates is near a historically low point, one could start to build a case for lower expected returns going forward. However, according to a recent Vanguard Global Economics Team white paper, over half of the volatility in expected returns is not explained by current valuations. As potential returns remain widely dispersed and expected returns are based on a time horizon that will likely exceed the timing of current concerns, it is considered appropriate to maintain the forward expected long-term rate of return of 7.00%. ﻿ The Pension Plan did not hold any shares of First United Corporation common stock at December 31, 2019 or 2018. ﻿ Estimated cash flows related to expected future benefit payments from the Pension Plan and Defined Benefit SERP are as follows: ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿(In thousands) |  | Pension Plan |  | Defined Benefit SERP
﻿2020 |  | $ | 2,051 |  | $ | 266
﻿2021 |  |  | 2,136 |  |  | 330
﻿2022 |  |  | 2,211 |  |  | 332
﻿2023 |  |  | 2,360 |  |  | 332
﻿2024 |  |  | 2,506 |  |  | 332
﻿2025-2029 |  |  | 13,540 |  |  | 2,472
﻿ First United Corporation made a $2.0 million contribution to the Pension Plan in 2019. First United Corporation will continue to evaluate future annual contributions to the Pension Plan based upon its funded status and an evaluation of the future benefits to be provided thereunder. The Bank expects to fund the annual projected benefit payments for the Defined Benefit SERP from operations. ﻿ Amounts included in accumulated other comprehensive loss as of December 31, 2019 and 2018, net of tax, are as follows: ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | 2019 |  | 2018
﻿(In thousands) |  | Pension |  | Defined Benefit SERP |  | Pension |  | Defined Benefit SERP
﻿Unrecognized net actuarial loss |  | $ | 21,241 |  | $ | 1,186 |  | $ | 18,841 |  | $ | 742
﻿Unrecognized prior service costs |  |  | — |  |  | (3) |  |  | — |  |  | (7)
﻿ |  | $ | 21,241 |  | $ | 1,183 |  | $ | 18,841 |  | $ | 735
﻿ The estimated costs that will be amortized from accumulated other comprehensive loss into net periodic pension cost during the next fiscal year are as follows: ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿(In thousands) |  | Pension |  | Defined Benefit SERP
﻿Prior service costs |  | $ | — |  | $ | (3)
﻿Net actuarial loss |  |  | 1,434 |  |  | 188
﻿ |  | $ | 1,434 |  | $ | 185

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