Source: FactSet as of December 31, 2020, and includes price change and reinvested cash dividends

Overview of Compensation Philosophy and Objectives

The Compensation Committee of the Board is responsible for overseeing and administering the Corporation’s employee benefit plans and policies, and for annually reviewing and approving all compensation decisions relating to the executive officers, including the named executive officers. The compensation committee of the Bank’s board of directors has identical responsibilities with respect to executive officers of the Bank. The Compensation Committee submits its decisions regarding compensation to the independent directors of the Board. The Compensation Committee has the authority and resources to obtain, independent of management, advice and assistance from internal and external legal, human resource, accounting or other experts, advisors, or consultants as it deems desirable or appropriate.

The Compensation Committee is composed of at least three directors who are determined to be “independent directors” as that term is defined by Rule 5605(a)(2) of the Nasdaq Rules. The members of the Compensation Committee are appointed each year by the Board, after considering the recommendations and views of the Nominating Committee. Five members of the Board serve on the Compensation Committee, each of whom is an “independent director”. The Chairman of the Compensation Committee reports to the Board regarding all committee actions.

The Compensation Committee recognizes the importance of balancing the need to attract and retain qualified executive officers with the need to maintain sound principles for the development and administration of compensation and benefit programs. The Compensation Committee has taken steps to enhance the Compensation Committee’s ability to effectively carry out its responsibilities as well as ensure that the Corporation maintains strong links between executive pay and performance. Examples of procedures and actions that the Compensation Committee utilized in 2020 include:

The Compensation Committee believes that the compensation paid to executive officers should be closely tied to the Corporation’s performance on both a short and long-term basis. Overall, the Compensation Committee believes that a performance-based compensation program can assist the Corporation in attracting, motivating and retaining the quality executives critical to long-term success. Accordingly, when and to the extent permitted by law, the Compensation Committee generally seeks to structure executive compensation programs so that they are focused on enhancing overall financial performance.

In setting the CEO’s compensation, the Compensation Committee meets with the CEO to discuss her performance and compensation package. Decisions regarding her package are based upon the Compensation Committee’s independent deliberations and input from the Compensation Committee’s compensation consultant, if one is engaged for that purpose. In setting compensation for other named executive officers, the Compensation Committee considers the CEO’s recommendations, as well as any requested input and data from the CFO, Human Resources Department and outside consultants and advisors. The Compensation Committee occasionally requests one or more members of senior management to be present at Compensation Committee meetings where executive compensation and corporate or individual performance are discussed and evaluated. Only Compensation Committee members are allowed to vote on decisions regarding executive compensation, and such decisions occur only during its executive sessions without executive officers present.

In addition to reviewing competitive market values, the Compensation Committee also examines the total compensation mix, pay-for-performance relationship, and how all elements, in the aggregate, comprise each executive’s total compensation package. The Compensation Committee also examines all incentive compensation plans at least annually to ensure that such plans do not encourage employees to take unnecessary or excessive risks that threaten the Corporation’s value. All incentive plans contain “claw-back” provisions that require, in the event the Corporation is required to prepare an accounting restatement due to its material noncompliance with any financial reporting requirement under applicable securities laws or applicable accounting principles, each participant who received an award to return it to the extent the accounting restatement shows that a smaller award should have been paid. Further, all incentive plans contain ethics provisions that require a participant to repay an award in the event that the Corporation determines that the award was paid in a plan year in which the participant willfully engaged in any activity that was or is injurious to the Corporation and its affiliates. In general, the Board and/or its Compensation Committee may terminate, suspend or amend an incentive plan at any time.

Role of Compensation Consultants

The Compensation Committee has the authority and resources necessary to engage independent consultants to aid and provide direction with respect to executive compensation and benefits. In 2019, the Compensation Committee engaged McLagan, which is part of the Rewards Solutions practice at Aon plc, as its independent compensation consultant to provide advice and facilitate the Committee’s deliberations with respect to executive compensation to be paid in and after 2020.

McLagan reported directly and exclusively to the Compensation Committee and did not provide any other services to us, management or our affiliates. McLagan did not make compensation-related decisions for the Compensation Committee, as the Compensation Committee always retains the authority to make all final compensation-related decisions. During 2020, and after taking into consideration the factors listed in Rule 5605(d)(3)(D) of the Nasdaq Rules, the Compensation Committee concluded that neither it nor the Corporation has any conflicts of interest with McLagan and that McLagan is independent from management.

Compensation Process and Plans

Annually, the Board approves the Corporation’s financial budget. The budget supports the multi-year financial objectives of the Corporation and establishes annual financial goals and targets to support achievement of these long-term financial objectives. The specific performance targets for the incentive-based plans are derived from both the annual budget and multi-year financial projections. As part of its annual review of executive compensation, the Compensation Committee reviews base salaries and makes adjustments based upon annual performance appraisals for the preceding year, the experience and qualifications of the executive officer, the scope of responsibilities of the position and the executive’s performance relative to established goals and objectives. During 2020, the Compensation Committee determined that an adjustment was necessary to the base salary of the Chief Operating Officer to better align his salary with the peer group, to recognize the scope of responsibilities underlying his position and his growth since assuming the position. They further determined that no merit salary adjustments would be made to base salaries for other named executive officers due to the introduction of the performance based Short Term and Long Term Incentive Plans in 2020.

A critical element of the compensation philosophy is a review of the Corporation’s performance and compensation levels and mix relative to a peer group of publicly traded commercial banks. Each year, the Committee reviews this peer group and makes adjustments as necessary. Peer group data is supplemented with national compensation survey data. The comparator bank peer group for 2020 consisted of 19 banks as listed below.

The peer group was recommended by McLagan and consisted of banks traded on The New York Stock Exchange or The Nasdaq Stock Market that met the following parameters as of September 30, 2019:

Exceptions to the criteria above were made for Summit Financial Group, Orrstown Financial Services and Citizens Financial Services due to geographic and/or business model relevance. There were no changes to the peer group in 2020.

Based on the 2019 McLagan analysis, feedback from shareholders and the judgment of the Compensation Committee, the Compensation Committee determined to adopt new programs and policies for 2020. These programs were designed to enhance the at-risk nature of pay, increase alignment between corporate performance and executive rewards as well as between executive interests and shareholder interests, to be consistent with typical market practice and in the best interests of the Corporation. The key changes to executive compensation that was provided through these new programs are summarized below.

The Compensation Committee retains discretion to increase or decrease all incentive awards based upon the superior performance, shortfalls in performance, subjective factors or extraordinary non-recurring results. For 2020, no adjustments were made to plan goals or results.

Compensation of Named Executive Officers in 2020

All of the Corporation’s executive officers are also executive officers of the Bank. Both the Corporation and the Bank maintain various compensation plans and arrangements for their respective executive officers, but, where appropriate, most of these plans and arrangements are structured to apply to executive officers of the consolidated group.

The following table sets forth, for each of the last two calendar years (which were also the Corporation’s last two fiscal years), the total compensation awarded to, earned by, or paid to (i) each person who served as the Corporation’s principal executive officer at any time during 2020, (ii) the Corporation’s two most highly compensated executive officers other than the principal executive officer who were serving as such as of December 31, 2020 and whose total compensation (excluding above-market and preferential earnings on nonqualified deferred compensation) exceeded $100,000 during 2020, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing item (ii) had they been serving as executive officers of the Corporation as of December 31, 2020 (all such persons are referred to as the “named executive officers”). For this purpose, the term “executive officer” includes any executive officers of the Bank who performs a policy making function for the Corporation. The Corporation has determined that the named executive officers for purposes of this Proxy Statement include Ms. Rodeheaver, and Messrs. Fisher and Rush. In calendar years 2020 and 2019, executive compensation included annual base salary, restricted stock units (“RSUs”) awarded pursuant to a Long-Term Incentive Plan (the “LTIP”), cash compensation paid under a Short-Term Incentive Plan (the “STIP”), and income related to certain employee benefit plans, and the table that follows reflects compensation paid by both the Corporation and the Bank.

Notes:

Short-Term Incentive Plan

In 2020, the Compensation Committee adopted the STIP to provide executives with the opportunity to earn cash incentives based on the achievement of pre-defined performance metrics for each calendar year. Although similar plans are common practice within the banking industry, the Corporation has not had a formal cash incentive plan or made significant cash incentive awards since before the 2008 financial crisis.

The STIP consists of four performance categories, each with defined threshold, target and maximum performance and payout levels. Performance and payouts under each performance category are calculated separately, and failure to meet an acceptable performance threshold for a given category will result in no incentive payout for that category. Similarly, payouts for performance above the defined maximum level for a given category are capped, which the Compensation Committee believes limits the incentive to take unnecessary risks to receive ever-increasing incentive awards. In addition, 80% of the overall award potential is contingent on corporate performance, with the remaining 20% contingent on quantitative individual performance objectives.

For 2020, the Compensation Committee approved four goals to reward performance with the primary objectives of driving revenue, lowering costs and maintaining high asset quality. Multiple metrics were utilized to discourage excessive risk-taking by participants consistent with overall compensation philosophy. In addition to the four fundamental measures of corporate performance, the STIP also includes a minimum performance hurdle that must be attained before any awards under the plan are paid. The Corporation had to achieve a minimum of 50% of targeted net income in 2020 in order for any payout to occur in the plan, regardless of performance in any goal category. The use of this performance hurdle aligns with bank regulatory best practices intended to protect the safety and soundness of the Bank, rather than representing higher performance aspirations as with the four plan goals in the table below.

Target performance levels were set based on the annual budget which supports the Corporation’s long-term objective of achieving high performance as compared to peers. Threshold performance is the minimum level of acceptable performance as defined by the Compensation Committee and maximum performance represented a level potentially achievable under ideal circumstances. Achievement of the threshold performance level would result in each executive participant earning a payout at 50% of his or her respective target award opportunity. Achievement of the target performance level would result in the executive participant earning the target award and achievement at or above the maximum performance level would result in the executive participant earning 150% of the target opportunity. Actual results for any goal that falls between performance levels would be interpolated to calculate a proportionate award.

The Compensation Committee reviewed the results of financial operations for the established goals as approved by the Audit Committee before exercising its authority to approve the cash incentive payments on March 4, 2021. The Compensation Committee recognized that 2020 was an unprecedented year, both negatively and positively impacted by the pandemic, the economic environment, and the Government stimulus plans. The Compensation Committee regularly reviewed the actual and projected performance of the Corporation relative to the established goals and ultimately determined that, in spite of the unique performance challenges of 2020, no adjustments would be made with respect to the goals as originally established. As part of its approval process, the Compensation Committee first determined that the net income performance hurdle was met, permitting the payment of awards as earned. They then reviewed the actual performance to each of the goals as shown in the chart below. To calculate the payment level, the weight for each goal was multiplied by the level of achievement for that goal. The total payout was calculated as the sum of all payment levels for each executive.

The 2020 net income performance hurdle for the STIP plan was achieved and the performance measures, respective weights and actual performance levels for 2020 were as follows:

The target opportunity for each named executive for the STIP and the amounts paid to each executive for each corporate goal are shown in the table below and in the Summary Compensation Table contained in the section entitled “Compensation of Named Executive Officers in 2020”.

Long-Term Incentive Plan

Also in 2020, the Compensation Committee adopted the LTIP , as a sub-plan of the First United Corporation 2018 Equity Compensation Plan, pursuant to which the Corporation will grant equity awards to reward executives for achieving long-term performance goals, to provide an opportunity for them to further align with the interests of shareholders through increased share ownership and for the retention of executive management. The two incentive plans are described below.

LTIP for 2019

The LTIP was initially conceived as an award in 2019 that would be contingent on performance over the three-year period from 2019–2021. However, due to the timing of engaging McLagan as the Compensation Committee’s independent compensation consultant, the work of designing and implementing the LTIP was not completed until early 2020.

In March 2020, the Compensation Committee granted awards of performance-vesting RSUs (“PRSUs”) to each executive having a value equal to 10% of the executive’s base salary on the date of grant. The PRSUs will vest in 2023, provided that (i) the named executive officer is employed on the vesting date and (ii) the Corporation has met a pre-defined annual earnings per share (“EPS”) goal for the year ending December 31, 2021. The Compensation Committee selected EPS as the performance metric because of its close correlation with shareholder value over a multi-year timeframe. EPS also aligns with the Corporation’s strategic objective of increasing profitability over time, and the Compensation Committee believes that the targeted level of EPS performance reflects the Corporation’s multi-year strategic plan and will ultimately drive meaningful shareholder value. Both the EPS goal and the potential vesting levels have defined threshold, target and maximum levels. Performance at threshold level will pay at 50% of the target award and performance at or above the maximum level will pay at 150% of the target award. No awards will vest if performance falls below the threshold performance level, and performance above the maximum level will not result in ever-increasing awards. Under the First United Corporation 2018 Equity Compensation Plan, the number of shares constituting the restricted stock award is determined by dividing the percentage of salary by the mean between the high and low sales price of a share of Common Stock on the trading day immediately preceding the grant date. The actual number of shares was rounded down to the nearest whole share.

LTIP for 2020

Also in March 2020, the Compensation Committee granted awards of time-vesting RSUs and PRSUs to each executive having a combined value equal to 15% of the executive’s base salary on the date of grant. The award covered a performance period from January 1, 2020 to December 31, 2022. The RSUs represented one-third of the total grant and will vest ratably over a three-year period beginning March 26, 2020 and ending on March 26, 2023 provided that the executive is still employed on each vesting date. RSUs were utilized as part of the LTIP to strengthen the alignment between named executive officers and shareholders, allow executives to increase their share ownership over time, provide a retention incentive for named executive officers to remain with the Corporation and align with typical banking industry practice.

PRSUs granted in 2020 under the LTIP represented two-thirds of the total grant. Vesting will be contingent on the Corporation achieving pre-defined goals with respect to EPS and tangible book value per share. If either of the threshold levels is met, then 50% of the performance award will vest. Each of the two goals will be measured over the three-year period from January 1, 2020 to December 31, 2022, and will include defined threshold, target and maximum performance and payout levels. Performance at threshold level will pay at 50% of the target award and performance at or above the maximum level will pay at 150% of the target award. No awards will vest for a given performance measure if the defined threshold performance level for that goal is not achieved. For both measures, actual performance will be interpolated to calculate the proportionate award. If the applicable performance metrics are achieved, awards will vest on the third anniversary of the grant date, provided the executive is still employed on the vesting date. Performance-vested awards will be utilized in order to motivate and reward named executive officers for long-term performance, align the interests of named executive officers and shareholders, allow for continued growth in executive share ownership provided performance conditions are achieved, and provide a retention incentive for named executive officers to remain with the Corporation throughout the three-year vesting period.

Under the First United Corporation 2018 Equity Compensation Plan, the number of shares constituting the restricted stock award is determined by dividing the percentage of salary by the mean between the high and low sales price of a share of Common Stock on the trading day immediately preceding the grant date. The actual number of shares was rounded down to the nearest whole share.

Stock Ownership Guidelines

In conjunction with the adoption of the 2020 LTIP, the Compensation Committee adopted stock ownership guidelines and share retention requirements for the executive officers and directors. The purpose of the ownership guidelines is to encourage the executive officers and directors to increase or maintain their holdings of the Common Stock, further aligning their interests with the interests of shareholders.

With respect to executive officers, the ownership guidelines will be expressed as a multiple of each executive’s base salary. The CEO will be expected to hold shares equal in value to three times her base salary, while our other named executive officers will be expected to hold shares equal in value to one times their base salary. With respect to directors other than the CEO, each director will be expected to hold shares worth at least $100,000 in value. In addition, each executive will be expected to hold 75% and each director will be expected to hold 100% of all net shares granted to him or her by the Corporation until he or she has achieved ownership equal to the ownership guideline.

Outstanding Equity Awards at Fiscal Year End

The following table shows information regarding all unvested equity awards held by the named executive officers at December 31, 2020. These awards are subject to forfeiture until vested, and the ultimate value of the performance-based awards is unknown.

Notes:

Employment Arrangements

All of the named executive officers are employed on an at-will basis and are not parties to any written employment agreement with the Corporation or the Bank.

In addition to base salaries paid in 2020, the named executive officers’ employment arrangements make them eligible to receive benefits under and/or participate in the 401(k) Profit Sharing Plan, the Pension Plan, the Split Dollar Life Insurance arrangements, the Deferred Compensation Plan, and, except for Mr. Fisher, the Defined Benefit Supplemental Executive Retirement Plan, described below. Mr. Fisher participates in the Defined Contribution Agreement, described below. The material terms of these plans and arrangements and the compensation and benefits available thereunder are discussed below. In addition, all executive officers are entitled to employee benefits that the Corporation makes available to all eligible employees generally, including health, dental and vision insurance, long-term disability insurance, and group term life insurance. Ms. Rodeheaver and Mr. Fisher are also provided with the use of employer-owned automobiles.

In 2020, the Corporation and certain executive officers, including each of the named executive officers, entered into Amended and Restated Agreements (each, a “Severance Agreement”) under the First United Corporation Change in Control Severance Plan (the “Severance Plan”) that provide for cash payments and employee benefits continuation to the executive officers if they experience an involuntary separation from service in connection with a change in control of the Corporation.

401(k) Profit Sharing Plan

In furtherance of the Corporation’s belief that every employee should have the ability to accrue retirement benefits, the Corporation adopted the 401(k) Profit Sharing Plan, which is available to all employees, including executive officers. Employees are automatically entered in the plan on the first of the month following completion of 30 days of service to the Corporation and its subsidiaries. Employees have the opportunity to opt out of participation or change their deferral amounts under the plan at any time. In addition to contributions by participants, the plan contemplates employer matching and the potential of discretionary contributions to the accounts of participants. The Corporation believes that matching contributions encourage employees to participate and thereby plan for their post-retirement financial future. Beginning with the 2008 plan year, the Corporation enhanced the match formula to 100% on the first 1% of salary reduction and 50% on the next 5% of salary reduction. This match is accrued for all Participants, including executive officers, immediately upon entering the plan on the first day of the month following the completion of 30 days of employment. Additionally, the Corporation accrued a non-elective employer contribution during 2020 for all employees (other than employees who participate in the Defined Benefit SERP or the Defined Contribution Agreement Plans and those employees meeting the age plus service requirement in the Pension Plan), equal to 4% of each employee’s salary for those hired after January, 2010 and 4.5% of each employee’s salary for those hired before January 1, 2010, which will be paid into the plan in the first quarter of 2021 but which were reported as accrued for the 2020 year in the Summary Compensation Table above.

Pension Plan

Prior to 2010, all employees were eligible to participate in the Pension Plan, which is a qualified defined benefit plan, upon completion of one year of service and the attainment of the age of 21. Each of our named executive officers is a participant in the Pension Plan. Retirement benefits are determined using an actuarial formula that takes into account years of service and average compensation. Normal retirement age for the defined benefit pension plan is 65 years of age with the availability of early retirement at age 55. Pension benefits are fully vested after five years of service. A year of service is defined as working at least 1,000 hours in a plan year. Effective April 30, 2010, the 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 plan was amended to unfreeze the plan for those employees for whom the sum of (i) their ages, at their closest birthday, plus (ii) years of service for vesting purposes equal 80 or greater. The “soft freeze” continues to apply to all other plan participants.

Defined Benefit Supplemental Executive Retirement Plan

The Bank adopted the First United Bank & Trust Defined Benefit Supplemental Executive Retirement Plan (the “Defined Benefit SERP”) so that executives could reach a targeted retirement income. The Defined Benefit SERP is available only to a select group of management or highly compensated employees, including Ms. Rodeheaver and Mr. Rush. Mr. Fisher does not participate in the Defined Benefit SERP. The Defined Benefit SERP was created to overcome qualified plan regulatory limits or the “reverse discrimination” imposed on highly compensated executives due to IRS contribution and compensation limits. In connection with the adoption of the Severance Plan, the Compensation Committee decided to credit participants with 24 years of service, regardless of actual years of service, to minimize certain income taxes that could be imposed under Section 280G of the Internal Revenue Code upon a separation from service. In the event a participant voluntarily terminates employment without good reason, his or her credited years of service will revert to actual years of service as of the date of termination. Future participants in the plan, if any, will be credited with actual years of service.

The Defined Benefit SERP benefit is equal to 2.5% of the executive’s Final Pay (defined below) for each year of service through age 60 (up to a maximum of 24 years) plus 1% of Final Pay for each year of service after age 60 (up to a maximum of 5 years), for a total benefit equal to 65% of Final Pay. The Compensation Committee chose this plan design to provide competitive retirement benefits and to encourage service. The Defined Benefit SERP was designed primarily to supplement benefits payable under the Pension Plan and, as such, it would be appropriate to measure Defined Benefit SERP benefits using an actuarial formula (i.e., years of service and final pay) similar to that used under the Pension Plan. Accordingly, the Defined Benefit SERP benefits are offset by any accrued benefits payable under the Pension Plan and 50% of the social security benefits received by the participant. For purposes of the Defined Benefit SERP, “Final Pay” means an amount equal to the participant’s annual base salary rate in effect immediately prior to his or her Separation from Service. A “Separation from Service” is defined as any termination of employment for any reason that satisfies the separation from service rules of Section 409A of the Code.

The normal retirement Defined Benefit SERP benefit is paid following Normal Retirement, which is defined as a Separation from Service (as defined in the Defined Benefit SERP) after attaining age 60 and providing at least 10 years of service. Each participant is entitled to elect, upon initial participation, whether to receive the benefit in a single lump sum or in the form of a single life annuity, a level payment single life annuity, a level payment single life annuity with 120 months of guaranteed payments, a 50% joint and survivor level payment annuity, a 75% joint and survivor level payment annuity, or a 100% joint and survivor level payment annuity. Annuity payments will be made on a monthly basis and are subject to actuarial adjustments. Payments under a life annuity will be determined based on the expected remaining number of years of life for the annuitant and actuarial tables as of the time the annuity begins. Payments under any form of annuity other than a single life annuity will be determined using the same actuarial equivalent assumptions used for the Pension Plan. If a participant fails to make an election, he or she will receive the benefit as a level payment single life annuity.

A participant vests in his or her accrued normal retirement Defined Benefit SERP benefit upon 10 years of service, upon Normal Retirement, upon a Separation from Service due to Disability (as defined in the Defined Benefit SERP), and upon the participant’s death. Upon a Separation from Service following a Change in Control (as defined in the Defined Benefit SERP) and a subsequent Triggering Event (as defined in the Defined Benefit SERP), a participant will vest in the greater of (i) 60% of Final Pay or (ii) his or her accrued normal retirement Defined Benefit SERP benefit through the date of the Separation from Service.

Generally, the distribution of a participant’s Defined Benefit SERP benefit will begin following the participant’s Normal Retirement. If the participant suffers a Separation from Service due to death or following a Disability, then the participant or his or her designated beneficiaries will receive a lump sum payment equal to the actuarial equivalent of his or her accrued Defined Benefit SERP benefit. If the participant suffers a Separation from Service other than due to Cause (as defined in the Defined Benefit SERP) after 10 years of service but prior to Normal Retirement, then he or she will receive the normal retirement Defined Benefit SERP benefit that has accrued through the date of the Separation from Service at age 60, in the form elected. If the participant suffers a Separation from Service following a Change in Control and subsequent Triggering Event, then the distribution of his or her normal retirement Defined Benefit SERP benefit that has accrued through the date of the Separation from Service will begin, in the form elected, once the participant reaches age 60. If the participant dies following the commencement of distributions but prior to the complete distribution of his or her vested and accrued Defined Benefit SERP benefit, then distributions will be paid to his or her beneficiaries only if he or she chose a joint and survivor annuity form of distribution or a 10-year guaranteed payment lifetime annuity (and then only until the guaranteed payments have been made).

A participant will lose all Defined Benefit SERP benefits if he or she is terminated for Cause. In addition, each participant has agreed that the receipt of any Defined Benefit SERP benefits is conditioned upon his or her (i) refraining from competing with the Corporation and its subsidiaries in their market areas for a period of three years following his or her Separation from Service, (ii) refraining from disclosing the Corporation’s confidential information following a Separation from Service, and (iii) remaining available to provide up to six hours of consultative services per month for twelve months after his or her Separation from Service. Items (i) and (iii) do not apply, however, if the Separation from Service results from a Change in Control and subsequent Triggering Event. If a participant breaches any of these conditions, then he or she is obligated to return all Defined Benefit SERP benefits paid to date plus interest on such benefits at the rate of 10% per year.

The amounts that could be paid to Ms. Rodeheaver and Mr. Rush under the Defined Benefit SERP upon a separation from service is shown below in the table contained in the section entitled “Benefits Upon a Separation from Service.”

Split Dollar Life Insurance Arrangements

The Bank purchased policies of bank owned life insurance (“BOLI”) in the aggregate amounts of $18 million in 2001, $2.3 million in 2004, $2.8 million in 2006, $10 million in 2009 and $5.5 million in 2015 to help offset the costs of providing benefits under all benefit plans and arrangements. The Bank is the sole owner of these BOLI policies, has all rights with respect to the cash surrender values of these BOLI policies, and is the sole death beneficiary under these BOLI policies.

Because the Compensation Committee believes that it is important to reward officers for their loyalty and service, the Corporation has agreed, pursuant to Endorsement Split Dollar Agreements, to assign a portion of the cash benefits payable under these BOLI policies to the executive officers’ named beneficiaries in the event they die while employed. Participation under the Split-Dollar Life Insurance arrangements can be terminated for any reason, at any time, by either the Bank or the covered officer. The Bank terminates each covered officer’s participation when his or her employment is terminated. The current death benefits payable to the beneficiaries of the named executive officers under these arrangements are shown below in the table contained in the section entitled “Benefits Upon a Separation from Service.”

Deferred Compensation Plan and Defined Contribution Agreement

The Corporation’s directors and those executives selected by the Compensation Committee are permitted to participate in the Deferred Compensation Plan. Each of the named executive officers is entitled to participate in the Deferred Compensation Plan. The Deferred Compensation Plan permits directors and executives to elect, each year, to defer receipt of up to 100% of their directors’ fees, salaries and bonuses, as applicable, to be earned in the following year. The deferred amounts are credited to an account maintained on behalf of the participant (a “Deferral Account”) and are deemed to be invested in certain investment options established from time to time by the Investment Committee of the Bank’s Trust Department. Additionally, the Corporation may make discretionary contributions for the benefit of a participant to an Employer Contribution Credit Account (the “Employer Account”), which will be deemed to be invested in the same manner as funds credited to the Deferral Account. Each Deferral Account and Employer Account is credited with the gain or loss generated on the investments in which the funds in those accounts are deemed to be invested, less any applicable expenses and taxes.

A participant is always 100% vested in his or her Deferral Account. The Corporation is permitted to set a vesting date or event for the Employer Account, and such date may be based on the performance by the participant of a specified number of completed years of service with the Corporation, may be based on the participant’s performance of specified service goals with respect to the Corporation, may be limited to only certain termination of employment events (e.g., involuntary termination, those following a change of control, etc.), or may be based on any other standard, at the Corporation’s sole and absolute discretion. Notwithstanding the foregoing, a participant will become 100% vested in his or her Employer Account if he or she terminates employment (or, in the case of a participant who is a non-employee director, terminates membership on the Board) because of death or Total and Permanent Disability (as defined in the Deferred Compensation Plan). Each participant will also become 100% vested in his or her Employer Account in the event of a Change in Control (as defined in the Plan).

Generally, a participant is entitled to choose, pursuant to an election form, the date on which his or her account balances are to be distributed, subject to any restrictions imposed by the Corporation and the trustee under the Deferred Compensation Plan in their sole and absolute discretion and applicable law. If a participant fails to select a distribution date, then distributions will begin on or about the date of the participant’s termination of employment or director status with the Corporation. The participant may choose whether his or her account balances are to be distributed in one lump sum or in equal annual installments selected by the participant between 2 and 10 installments. If a participant fails to elect a payment date or the method of payment, then the account balances will be distributed in one lump sum following termination of employment. If distributions are made in installments, then the undistributed balance will continue to be deemed invested in the chosen investment options, and the accounts will be credited or debited accordingly, until all amounts are distributed.

If a participant dies or experiences a Total and Permanent Disability before terminating his or her employment or director status with the Corporation and before the commencement of payments, then the entire balance of the participant’s accounts will be paid to the participant or to his or her named beneficiaries, as applicable, as soon as practicable following death or Total and Permanent Disability. If a participant dies after the commencement of payments but before he or she has received all payments to which he or she is entitled, then the remaining payments will be paid to his or her designated beneficiaries in the manner in which such benefits were payable to the participant. Upon a Change in Control, the entire balance of a participant’s accounts will be paid in a single lump sum payment.

The Deferred Compensation Plan provides for limited distributions in the event of certain financial hardships.

On January 9, 2015, the Corporation entered into a participation agreement under the Deferred Compensation Plan, styled as the First United Corporation Defined Contribution Agreement (the “Defined Contribution Agreement”), with Mr. Fisher pursuant to which the 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 Defined Contribution Agreement), to make a discretionary contribution to the Employer Account of Mr. Fisher in an amount equal to 15% of his base salary for such Plan Year, with the first Plan Year being the year ending December 31, 2015. Mr. Fisher received Employer Contribution Credits of $40,928 for the 2020 Plan Year and $40,331 for the 2019 Plan Year. The Defined Contribution Agreement provides that Mr. Fisher will become 100% vested in the amount maintained in his Employer Account upon the earliest to occur of the following events: (i) his Normal Retirement (as defined in the Defined Contribution Agreement); (ii) his Separation from Service (as defined in the Defined Contribution Agreement) following a Change of Control (as defined in the Deferred Compensation Plan) and subsequent Triggering Event (as defined in the Defined Contribution Agreement); (iii) his Separation from Service due to a Disability (as defined in the Defined Contribution Agreement); (iv) with respect to a particular award of Employer Contribution Credits, his completion of two consecutive Years of Service (as defined in the Defined Contribution Agreement) immediately following the Plan Year for which such award was made; or (v) his death. Notwithstanding the foregoing, however, Mr. Fisher will lose his entitlement to the amount credited to his Employer Account if he is terminated for Cause (as defined in the Defined Contribution Agreement). In addition, the Defined Contribution Agreement conditions his entitlement to the amounts credited to his Employer Account on his (a) refraining from engaging in Competitive Employment (as defined in the Defined Contribution Agreement) for three years following his Separation from Service, (b) refraining from injurious disclosure of confidential information concerning the Corporation, and (c) remaining available, at the Corporation’s reasonable request, to provide at least six hours of transition services per month for 12 months following his 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 the event that Mr. Fisher violates any of those conditions, then he will forfeit all then-unpaid amounts in his Employer Account and be obligated to reimburse the Corporation for all amounts theretofore paid to him, plus interest thereon at the rate of 10% per year.

Benefits upon a Separation from Service

As noted above, the Corporation has entered into Severance Agreements under the Severance Plan with Ms. Rodeheaver and Messrs. Fisher and Rush; however, the Corporation has not made any payments under the Severance Agreements to date.

The Corporation’s obligations under the Severance Agreements would be triggered if the participating executive officer’s employment were to be terminated by the Corporation without Cause (as defined in the Severance Agreement) or by the executive for Good Reason (as defined in the Severance Agreement) during the period commencing on the date that is 90 days before a Change in Control (as defined in the Severance Plan) and ending on the first anniversary of a Change in Control (the “Protection Period”). In such case, Ms. Rodeheaver would be entitled to receive a lump sum cash payment equal to 2.99 times her Final Pay and each of Mr. Fisher and Mr. Rush would be entitled to receive a lump sum cash payment equal to 2.0 times his Final Pay (as defined in the Severance Agreement), the immediate vesting of all equity-based compensation awards that have been granted to the executive, and a monthly cash payment for 24 months following the date of termination equal to the amount that the Corporation would have paid to cover the executive under the Corporation’s medical and dental plan(s) had the executive remained an active employee of the Corporation during such period, after giving effect to any amounts that the executive would have paid for such coverages had he or she remained an active employee during such period (employed monthly premium for a similar policy), and outplacement services for up to 12 months.

Each of the Severance Agreements provides that the amount of all severance benefits described above, plus the amount of all benefits under any other plan or arrangement, the payment of which is deemed to be contingent upon a change in the ownership or effective control of the Corporation (as determined under Section 280G of the Code), may not exceed 2.99 times the participant’s “annualized includable compensation for the base period” (i.e., the average annual compensation that was includable in his or her gross income for the last five taxable years ending before the date on which the Change in Control occurs).

Each Severance Agreement has a one-year term, which automatically renews for additional one-year terms unless the Corporation provides the participant with six months’ prior notice of its intention not to renew the Severance Agreement, except that the Severance Agreement will automatically terminate at the expiration of the Protection Period.

The table that follows shows the estimated present value of benefits that could have been paid to the named executive officers as of December 31, 2020 under the Severance Plan, the SERP and the Split Dollar Life Insurance Arrangements upon an applicable separation from service and/or a change in control event. As discussed above, subject to certain conditions, participants in the SERP are entitled to receive their vested benefits (offset by Pension Plan benefits, 50% of social security benefits and, in the case of death, benefits paid under the Split Dollar Life Insurance arrangements described above) if they suffer a separation from service other than for cause. No SERP benefits are payable if a participant’s separation from service was for cause. Except in the cases of a separation from service due to death or disability, the payment of SERP benefits does not commence until the later of normal retirement or attainment of age 60 for the SERP.

Potential Payments Upon Termination or Change in Control

Notes:

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the last two fiscal years, the Bank has had banking transactions in the ordinary course of its business with certain directors and officers of the Corporation and with their affiliates. These transactions were on substantially the same terms, including interest rates, collateral, and repayment terms on loans, as those prevailing at the same time for comparable transactions with person who are not related to the Bank.

In addition to the foregoing, MP&B provides various printing services (marketing materials, account statements, and other routine items), document storage and warehouse services, and related services to the Corporation. Total fees paid by the Corporation to this corporation in 2020 and 2019 were $194,784 and $186,334, respectively. The Corporation has again retained MP&B to provide these services in 2021, for which it expects to pay approximately $200,000. Management believes that all of the foregoing transactions with this corporation are or will be on terms that are substantially similar to those that would be available if a person unrelated to the Corporation were to provide these services.

During 2017, the Bank hired a general contractor for the completion of renovation projects in the Bank’s branch office locations. The general contractor is not affiliated with the Corporation, the Bank or any of their directors or executive officers. On its own initiative and without input from the Bank, the general contractor hired Rush Services as a subcontractor to provide electrical, HVAC and other services. Jason Rush, the Chief Operating Officer of the Corporation and the Bank, serves as the Secretary of, and is a 50% owner of, Rush Services. Total fees paid by the Bank directly to Rush Services in 2020 and 2019 were $36,889 and $51,879, respectively. Renovation projects for which the general contractor paid Rush Services were completed in 2019. The general contractor paid Rush Services $6,239, in 2019 for such services.

The Corporation and the Bank have adopted written policies and procedures to help ensure that the Corporation and the Bank comply with all legal requirements applicable to related party transactions. Among other policies and procedures, the Audit Committee of the Board must review and approve transactions with directors, executive officers and/or their respective related interests and submit such transactions to the full Board for approval. This review is intended to ensure compliance with Regulation O, which imposes requirements for extensions of credit to directors and executive officers, Sections 23A and 23B of the Federal Reserve Act, which governs transactions between the Bank and its affiliates, and Section 5-512 of the Financial Institutions Article of the Annotated Code of Maryland, which limits, and requires periodic review and approval of, extensions of credit to directors and executive officers.

DECLASSIFICATION OF THE BOARD OF DIRECTORS (Proposal 2)

On July 23, 2020, the Board unanimously adopted a resolution approving and declaring the advisability of amending the Charter to remove provisions that provide for a classified Board, subject to approval by the Corporation’s shareholders at the 2021 Annual Meeting. If this Proposal 2 is approved by the shareholders, then the Corporation will cause the amendment described in this Proposal and attached as Appendix BA hereto to become effective by filing Articles of Amendment with the State Department of Assessments and Taxation of Maryland (“SDAT”). If this Proposal 2 is not approved by the shareholders, then the Board will remain classified and the directors will continue to serve three-year terms.

Summary of the Proposal

Article FIFTH of the Articles of Amendment and Restatement filed by the Corporation with SDAT on May 5, 1998, which forms a part of the Corporation’s Charter, currently requires that the Board be divided into three staggered classes, with the directors in each class serving three-year terms and only one class facing election each year. Thus, each year, shareholders elect only one class of directors, constituting approximately one-third of the entire Board.

If and when fully implemented, Board declassification would permit shareholders to vote annually for all directors. If this Proposal is adopted by shareholders and thereafter implemented, then declassification of the Board would be phased-in over a period of three years and three annual meetings of shareholders, beginning with the 2022 Annual Meeting of Shareholders and concluding at the 2024 Annual Meeting of Shareholders. Directors elected at or after the 2022 Annual Meeting of Shareholders would be elected to one-year terms expiring at the next annual meeting of shareholders following their election. However, any director elected or appointed to the Board before the 2022 Annual Meeting of Shareholders, including those elected at the 2021 Annual Meeting, would complete the remainder of his or her respective three-year term. Similarly, any director elected or appointed to fill a vacancy opened by the departure of a director serving a classified term would, if elected by shareholders at the next annual meeting following the new director’s original election or appointment, serve the remainder of such departed director’s term. Declassification of the Board would be complete as of the conclusion of the 2024 Annual Meeting of Shareholders, and, as of that year and going forward, all directors would serve one-year terms.

The text of the proposed amendment to the Charter contemplated by this Proposal is attached to this Proxy Statement as Appendix B. The text of Appendix B is incorporated into this discussion by reference. This description of the proposed amendment to the Charter is only a summary and is qualified in its entirety by reference to the actual, full text of the proposed amendment as set forth in Appendix B, which you are encouraged to read.

Rationale for the Proposal

The Board recognizes that many investors believe that the election of directors is the primary means for shareholders to influence corporate governance policies and to hold management and the Board accountable for implementing those policies. Similarly, many investors believe that a classified board structure may reduce directors’ accountability to shareholders because such a structure does not enable shareholders to express their approval or other views on each director’s performance on an annual basis. Upon thoughtful consideration and consistent with the feedback received from shareholders and market views on best-in-class governance practices, the Board determined that it is in the best interests of the Corporation and its shareholders to propose that the Board be declassified. The Board believes that declassification supports the Corporation’s commitment to strong corporate governance and shareholder democracy.       Because the outcome of the vote on this Proposal 2 will impact the terms of persons who are elected to the Board in the future, each of the Corporation’s directors and director nominees have an interest in the outcome of the vote. However, each such director and director nominee approved and declared advisable the amendment to the Charter described in this Proposal 2.

Vote Required

Approval of this Proposal 2 requires the affirmative vote of holders of at least two-thirds (66 2/3%) of the outstanding shares of the Common Stock entitled to vote on the Proposal (each share conferring one vote). Because the vote required to approve this Proposal is based on the total number of shares outstanding rather than the votes cast at the 2021 Annual Meeting, abstentions and broker non-votes (if any) will have the effect of a vote against the Proposal. Accordingly, it is very important that shareholders vote their shares on this Proposal.

Corresponding Amendments to the Bylaws

The Bylaws, likewise contemplate a classified Board consistent with the provisions of the Charter, and the Board has conditionally approved conforming amendments to the Bylaws. If this Proposal 2 is approved by shareholders, then these conforming amendments will become effective. Shareholder approval is not required for these conforming amendments to the Bylaws, and shareholders are not being asked to vote on those amendments.

The Board unanimously recommends that shareholders vote “FOR” the declassification of the Board as set forth in this Proposal 2.

NON-BINDING ADVISORY VOTE ON A MAJORITY VOTE STANDARD (Proposal 3)

Summary of the Proposal

The MGCL provides that certain actions of a Maryland corporation must, assuming that they have been declared advisable by the board of directors, be approved by the affirmative vote of shareholders holding at least two-thirds of all shares entitled to be cast on the matter (each, an “Extraordinary Action”). These Extraordinary Actions include certain mergers and consolidations, a share exchange, a sale of all or substantially all of the corporation’s assets, a conversion into another form of entity, certain charter amendments, the dissolution of the corporation, and the reinstatement of the corporation’s charter following its forfeiture. The MGCL provides further, however, that a Maryland corporation’s charter may provide for the approval of Extraordinary Actions by a lesser percentage, but not less than a majority of all the votes entitled to be cast on the matter (a “Majority Vote Provision”). Notwithstanding the foregoing, a Majority Vote Provision cannot alter the voting standards applicable to a non-exempt “business combination” with an “interested stockholder” of the corporation, as such terms are defined in the Maryland Business Combination Act.

The Corporation’s Charter does not include a Majority Vote Provision. As such, Extraordinary Actions involving the Corporation currently must be approved by the affirmative vote of at least two-thirds of all votes entitled to be cast on the matter. This aspect of the Charter has existed since the Corporation’s incorporation in 1984. At that time, the Board believed that requiring a supermajority vote for Extraordinary Actions was an important element of the Corporation’s governance structure, serving to facilitate corporate governance stability by requiring broad shareholder consensus to make certain fundamental changes to our governance, and was in the best interests of the Corporation and shareholders. Since that time, corporate governance standards have evolved, as have the views of the Corporation’s shareholders. Although such protection could be, in certain instances, beneficial to shareholders, many investors now view a supermajority vote requirement as limiting the Board’s accountability to shareholders by impeding shareholders’ ability to approve ballot items that might be in their interests and by limiting the ability of shareholders to effectively participate in corporate governance.

Rationale for the Proposal

After considering various factors with respect to the implementation of such a voting standard including, among other things, the views expressed by our shareholders and/or their stewardship policies as well as our Board’s desire to align the Corporation’s governance structures with best-in-class corporate governance practices, the Corporation is urging shareholders to vote for this Proposal 3 on the Corporation’s BLUEaccompanying Proxy Card, which the Corporation believes is appropriately tailored to the Corporation and its shareholder base.

Accordingly, the Board will ask shareholders at the 2021 Annual Meeting to adopt the following resolution:

RESOLVED, that the shareholders of the Corporation request that the Board take all actions necessary to amend the Charter to include a provision permitted by Section 2-104(b)(5) of the MGCL, with the voting threshold set forth therein applicable to a matter contemplated thereby being a majority of the total number of shares of capital stock entitled to be voted thereon.

The MGCL does not allow the Board to unilaterally amend the Charter to change the voting standard applicable to Extraordinary Actions. If the resolution contemplated by this Proposal 3 is adopted by shareholders at the 2021 Annual Meeting, then the Board currently intends to ask shareholders to approve the foregoing Charter amendment (the “Majority Vote Amendment”) at the next Annual Meeting of Shareholders. If the resolution is not adopted, then the Board currently intends to take no action with respect to the Majority Vote Amendment.

Because this advisory vote relates to, and may impact, the Corporation’s governance policies, the Corporation’s directors, director nominees and executive officers, including its named executive officers, have an interest in the outcome of this vote.

Vote Required; Conclusion and Recommendation

The approval of Proposal 3 requires the affirmative vote of a majority of the votes cast at the 2021 Annual Meeting. Abstentions and broker non-votes will not be counted as votes cast, and, therefore, will have no effect on the outcome of the proposal.

Because your vote on this Proposal 3 is advisory, it will not be binding on the Board or create or imply any duty by the Board. The Board will, however, take into account the outcome of the vote on this Proposal 3 when deciding whether to ask shareholders to formally approve the Majority Vote Amendment at a future meeting of shareholders.

The Board unanimously recommends that shareholders vote “FOR” the adoption of the resolution described in this Proposal 3.

NON-BINDING ADVISORY VOTE ON PROXY ACCESS (Proposal 4)

Summary of the Proposal; Rationale for the Proposal

Currently, Article II, Section 4 of the Bylaws describes the process by which the Corporation’s shareholders may nominate candidates for election to the Board be voted on at an Annual Meeting of Shareholders. The Proxy Access Bylaw Amendment would provide an additional means for the Corporation’s shareholders to nominate director candidates for election to our Board. Eligible shareholders who comply with the requirements set forth in the Proxy Access Bylaw Amendment would be able to include their own director candidates for election in the Corporation’s proxy materials, together with candidates nominated by the Board.

The Proxy Access Bylaw Amendment would permit a shareholder or group of shareholders (such shareholder or shareholder group, an “Eligible Shareholder”) that has maintained continuous qualifying ownership of at least 3% of outstanding Common Stock for at least the previous three years to nominate and include in the Corporation’s proxy materials candidates constituting up to the greater of three individuals or 25% of the Board, provided that the Eligible Shareholder and the nominees satisfy certain requirements that will be further described in the Bylaws, including providing the Corporation with advance notice of the nomination.

The Corporation has been informed that Driver Management intends to submit a proposal for shareholder approval at the 2021 Annual Meeting requesting that the Board adopt a proxy access bylaw. After considering various factors with respect to the implementation of proxy access including, among other things, the views expressed by our shareholders and/or their stewardship policies as well as our Board’s desire to align the Corporation’s governance structures with best-in-class corporate governance practices, the Corporation urges shareholders to vote for this Proposal 4 on the Corporation’s BLUEaccompanying Proxy Card, which the Corporation believes is appropriately tailored to the Corporation and its shareholder base.

Accordingly, the Board will ask shareholders at the 2021 Annual Meeting to adopt the following resolution:

RESOLVED, that the shareholders of the Corporation adopt a non-binding advisory resolution that the Board take the actions necessary to adopt a proxy access bylaw. Such a bylaw shall require the Corporation to include in proxy materials prepared for an annual meeting of shareholders at which directors are to be elected the name and required disclosures of any person nominated for election to the board by a shareholder or shareholder or group of shareholders (such shareholder or shareholder group, an “Eligible Shareholder”) that has maintained continuous qualifying ownership of at least 3% of outstanding Common Stock for at least the previous three years to nominate and include in the Corporation’s proxy materials candidates constituting up to the greater of three individuals or 25% of the Board. The Eligible Shareholder must provide the Corporation, within the time period identified in the Bylaws, with written notice of the information required by the Bylaws and applicable SEC rules and regulations about the nominee or nominees and the Eligible Shareholder. The Corporation shall allow shareholders to vote on such nominee on the Corporation’s proxy card.

The Bylaws allow the Board to unilaterally amend the Bylaws to adopt a proxy access bylaw. Because your vote on this Proposal 4 is advisory, it will not be binding on the Board or create or imply any duty by the Board. The Board will, however, take into account the outcome of the vote on this Proposal 4 when deciding whether to adopt a proxy access bylaw.

Because this advisory vote relates to, and may impact, the Corporation’s governance policies, the Corporation’s directors, director nominees and executive officers, including its named executive officers, have an interest in the outcome of this vote.

Vote Required; Conclusion and Recommendation

The affirmative vote of a majority of all of the votes cast at the 2021 Annual Meeting is required for the non-binding, advisory resolution approving this Proposal 4. Abstentions and broker non-votes will not be counted as votes cast, and, therefore will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.

The Board unanimously recommends that shareholders vote “FOR” adoption of the foregoing non-binding advisory resolution.

NON-BINDING ADVISORY VOTE ON EXECUTIVE COMPENSATION (Proposal 5)

The Corporation is providing shareholders with the opportunity, by casting a non-binding advisory vote, to approve or disapprove the compensation paid to its named executive officers for 2020, as discussed in this Proxy Statement pursuant to Item 402 of the Regulation S-K (commonly referred to as the “Say-on-Pay Vote”). This advisory vote is required by Rule 14a-21(a) under the Exchange Act, but the frequency of the vote (every year, every two years, or every three years) is at the discretion of the Board. Rule 14a-21(b) under the Exchange Act requires the Board to ask shareholders, at least every six years, to recommend the frequency of the Say-on-Pay Vote. At the 2015 Annual Meeting of Shareholders, shareholders recommended that future Say-on-Pay Votes take place every year, and the Board has determined to submit the Say-on-Pay Vote to shareholders on an annual basis.

The Corporation’s goal for its executive compensation program is to attract, motivate and retain a talented team of executives who will provide leadership for the Corporation’s success in dynamic and competitive markets. The section of this Proxy Statement entitled “Executive Compensation” contains the information required by Item 402 of Regulation S-K with respect to the compensation paid to the named executive officers and discusses in detail the Corporation’s executive compensation program and the compensation that was earned by, awarded to or paid to the Corporation’s named executive officers for 2020.

At the 2021 Annual Meeting, shareholders will be asked to adopt the following non-binding advisory resolution:

RESOLVED, that the compensation paid to the named executive officers of First United Corporation, as disclosed in its definitive proxy statement for the 2021 Annual Meeting of Shareholders pursuant to Item 402 of Regulation S-K, including in the section entitled “COMPENSATION OF EXECUTIVE OFFICERS”, is hereby approved.

Although the Board believes that it is important to seek the views of shareholders on the design and effectiveness of the Corporation’s executive compensation program, you should understand that your vote is advisory and, as a result, will not be binding upon the Board or the Compensation Committee, overrule any decision made by the Board or the Compensation Committee, or create or imply any additional fiduciary duty by the Board or the Compensation Committee. The Board and/or the Compensation Committee may, however, take into account the outcome of the vote when considering future executive compensation arrangements.

The Board and the Compensation Committee believe that the Corporation’s compensation policies and procedures applicable to the named executive officers are reasonable in comparison both to the Corporation’s peer group and to the Corporation’s performance during 2020.

Because this advisory vote relates to, and may impact, the Corporation’s executive compensation policies and practices, the Corporation’s executive officers, including its named executive officers, have an interest in the outcome of this vote.

Vote Required; Conclusion and Recommendation

The affirmative vote of a majority of all of the votes cast at the 2021 Annual Meeting is required for the non-binding, advisory resolution approving the compensation of the Corporation’s named executive officers. Abstentions and broker non-votes will not be counted as votes cast, and, therefore will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.

The Board unanimously recommends that shareholders vote “FOR” adoption of the foregoing non-binding advisory resolution.

CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EffectiveOn March 26, 2021, after completing a request for proposal process that it commenced in November 2020 and considering proposals from various accounting firms, the Audit Committee decided to appoint Crowe LLP to serve as the Corporation’s independent registered public accounting firm for fiscal year 2021, subject to the completion of Crowe LLP's standard client acceptance procedures and the execution of an engagement letter.

On that same date, the Audit Committee dismissed Baker Tilly as the Corporation’s independent registered public accounting firm. Baker Tilly served as the Corporation’s independent registered public accounting firm for the fiscal year ended December 31, 2020. The reports of Baker Tilly on the consolidated financial statements of First United as of and for the years ended December 31, 2020 and 2019 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the years ended December 31, 2020 and 2019 and the subsequent period from December 31, 2020 through March 26, 2021, First United did not have any disagreements with Baker Tilly on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Baker Tilly, would have caused Baker Tilly to make reference thereto in its reports on the consolidated financial statements of First United for such years. During the years ended December 31, 2020 and 2019 and the subsequent period from December 31, 2020 through March 26, 2021, First United did not have any “reportable events” as described in Item 304 (a)(1)(v) of the SEC’s Regulation S-K.

On April 1, 2021, the Audit Committee appointed Crowe LLP to serve as the Corporation’s independent registered public accounting firm for the year ending December 31, 2021.

During the years ended December 31, 2020 and 2019 and the subsequent period from December 31, 2020 through March 26,April 1, 2021, neither First United nor anyone acting on First United’s behalf consulted Crowe LLP regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on First United’s financial statements, or (ii) any matter that was either the subject of a disagreement as defined in Item 304(a)(1)(iv) of the SEC’s Regulation S-K or a “reportable event” described in Item 304(a)(1)(v) of the SEC’s Regulation S-K.

RATIFICATION OF APPOINTMENT OF CROWE LLP AS THE CORPORATION’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Proposal 6)6

At the 2021 Annual Meeting, the Board expects to ask shareholders to ratify the Audit Committee’s appointment of Crowe LLP to audit the books and accounts of the Corporation for the fiscal year ending December 31, 2021. Crowe LLP has advised the Corporation that neither the accounting firm nor any of its partners or associates has any direct financial interest in or any connection with the Corporation other than as independent public auditors. The Corporation does not expect that a representative of Crowe LLP or a representative of Baker Tilly will be present at the 2021 Annual Meeting. Accordingly, representatives of Crowe LLP and Baker Tilly are not expected to make statements at the 2021 Annual Meeting or be available to respond to appropriate questions.

Vote Required; Conclusion and Recommendation

The affirmative vote of a majority of all of the votes cast at the 2021 Annual Meeting is required to ratify the appointment of our independent public accountant. Abstentions and broker non-votes will not be counted as votes cast, and, therefore , will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.

The Board unanimously recommends that shareholders vote “FOR” the ratification of the appointment of Crowe LLP as the Corporation’s independent registered public accounting firm for 2021.

Because your vote is advisory, it will not be binding upon the Audit Committee, overrule any decision made by the Audit Committee, or create or imply any additional fiduciary duty by the Audit Committee. The Audit Committee may, however, take into account the outcome of the vote when considering future auditor appointments.

AUDIT FEES AND SERVICES

Crowe LLP has not provided any audit or other services to the Corporation since the date of its appointment and, thus, has not billed the Corporation for any such services.

The following table shows the fees paid or accrued by the Corporation in 2020 and 2019 for the audit and other services provided by Baker Tilly for those years: