First United Corp: Form 10-Q for the period ended Sep 30, 2025

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, 2024.

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 contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but are statements about management’s beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objectives. These statements are evidenced by terms such as "anticipate," "estimate," "should," “will”, "expect," "believe," "intend," and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. The beliefs, plans and objectives on which forward-looking statements are based involve risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports that First United Corporation files with the Securities and Exchange Commission (the “SEC”) entitled "Risk Factors".

FIRST UNITED CORPORATION

First United Corporation is a Maryland corporation chartered in 1985 and a financial holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended, that elected financial holding company status in 2021. The Corporation’s primary business is serving as the parent company of First United Bank & Trust, a Maryland trust company (the “Bank”), First United Statutory Trust I (“Trust I”) and First United Statutory Trust II (“Trust II” and together with Trust I, “the Trusts”), both Connecticut statutory business trusts. The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital. The Bank has two consumer finance company subsidiaries- OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company – and one subsidiary that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure – First OREO Trust, a Maryland statutory trust. In addition, the Bank owns 99.9% of the limited partnership interests in Liberty Mews Limited Partnership, a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland, and a 99.9% non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland and Mineral County, West Virginia.

At September 30, 2025, the Corporation’s total assets were $2.0 billion, net loans were $1.5 billion, and deposits were $1.7 billion. Shareholders’ equity at September 30, 2025 was $199.1 million.

We maintain an Internet site at www.mybank.com (http://www.mybank.com) on which we make available, free of charge, First United Corporation’s 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.

RESULTS OF OPERATIONS

Overview

Consolidated net income was $6.9 million for the third quarter of 2025, or $1.07 per basic and diluted share, compared to $5.8 million, or $0.89 per basic and diluted share, for the third quarter of 2024. Net income for the first nine months of 2025 was $18.7 million, or $2.89 per basic share and $2.88 per diluted common share, compared to $14.4 million, or $2.20 per basic and diluted share, for the same period of 2024.

The $1.2 million increase in quarterly net income when compared to the third quarter of 2024 was primarily driven by a $2.2 million increase in net interest income and a $0.3 million increase in non-interest income, partially offset by increases in provision expense of $0.2 million, non-interest expense of $0.7 million and income tax expense of $0.4 million. Comparing the third quarter of 2025 to the same period of 2024, interest and fees on loans increased by $2.0 million primarily due to the repricing of adjustable-rate loans and new production booked at higher rates. Quarterly interest expense increased by $0.3 million on a year-over-year basis. This increase was attributable to growth in our municipal deposit balances, offset slightly by reduced interest expense on short-term borrowings related to the repayment of $40.0 million in Bank Term Funding Program (“BTFP”) balances in September 2024. Other operating income increased by $0.3 million due to increases in wealth management income and net gains as a result of an investment sale transaction. Other operating expenses increased by $0.7 million due to a $0.4 million increase in salaries and benefit expenses, a $0.2 million increase in professional services, and a $0.2 million increase in data processing costs. These increases were offset by slight reductions in equipment, other real estate owned (“OREO”) and investor relations expenses.

Net income for the first nine months of 2025 was $18.7 million compared to $14.4 million for the same period in 2024. Net interest income increased by $5.8 million due to a $6.4 million increase in interest income due to loans repricing at higher rates and new loan production booked at higher rates. Interest expense increased by $0.6 million driven by a $1.2 million increase in interest on deposits related to growth in our municipal balances, partially offset by a net reduction in borrowing costs of $0.7 million resulting from the repayment of $40.0 million in BTFP balances late in the third quarter of 2024. Provision for credit losses decreased by $0.4 million due primarily to strong credit quality, lower charge-offs and lower loan growth during the first nine months of 2025 when compared to the same time period in 2024. Other operating income increased by $0.6 million primarily due to a $0.4 million increase in trust department income and a $0.2 million increase on gains from the sales of residential mortgages and investment securities. These increases were partially offset by a $1.0 million increase in other operating expenses that were primarily related to a $0.7 million increase in salaries and employee benefits as a result of increased salary expense as we continue to build our sales teams, a $0.5 million increase in data processing expenses related to software agreements, and a $0.3 million increase in professional services expenses from increased audit fees. These increases were partially offset by a $0.8 million decrease in equipment and occupancy expenses due primarily to reduced depreciation expense related to the closure of four branches early in 2024.

Other operating income, including net gains, for the third quarter of 2025 increased by $0.3 million when compared to the same period of 2024. This increase was driven by a $0.2 million increase in wealth management income, reflecting higher market valuations and expanded relationships with both new and existing clients. Additionally, $0.1 million in net gains from the sale of available-for-sale investments was recognized in the third quarter of 2025.

Other operating income for the nine months ended September 30, 2025 increased by $0.6 million when compared to the same period of 2024. This increase was attributable to a $0.4 million increase in wealth management income, driven by improving market conditions, increased annuity sales and growth in new and existing customer relationships. Gains on sales of residential mortgages increased by $0.1 million and gains on sales of investment securities increased by $0.1 million. Service charge and debit card income were both stable when comparing the first nine months of 2025 to the same period of 2024.

Operating expenses increased by $0.7 million in the third quarter of 2025 when compared to the third quarter of 2024. Salaries and employee benefits increased by $0.4 million due to a $0.4 million increase in salary expense related to normal merit increases effective April 1, 2025 and increased staffing levels as an effort to build out our West region and a $0.1 million increase in incentive expense, partially offset by decreases in employee life and health insurance expense due to decreased claims. Additionally, data processing and professional services expenses each increased by $0.2 million year-over-year.

For the nine months ended September 30, 2025, non-interest expense increased by $1.0 million when compared to the nine months ended September 30, 2024. Salaries and employee benefits increased by $0.7 million related to normal merit increases effective April 1, 2025, increased salary expense as a result of increased staffing levels as we continue to expand our West region, increases in incentives, and 401K expenses offset by reduced life and health insurance costs related to reduced claims in 2025. Net OREO expenses increased by $0.1 million. Data processing expenses increased by $0.5 million primarily due to increased software agreements and professional services expenses increased by $0.3 million as a result of increased audit fees. These increases were partially offset by a $0.8 million decrease in occupancy and equipment expenses related to accelerated depreciation expense recognized in the first quarter of 2024 related to branch closures.

Net Interest Income

Net interest income is our largest source of operating revenue. Net interest income is the difference between the interest that we earn on our interest-earning assets and the interest expense we incur on our interest-bearing liabilities. For analytical and discussion purposes, net interest income is adjusted to a fully taxable equivalent (“FTE”) basis to facilitate performance comparisons between taxable and tax-exempt assets 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. This is a non-GAAP disclosure and management believes it is not materially different than the corresponding GAAP disclosure.

The tables below summarize net interest income for the nine- and three-month periods ended September 30, 2025 and 2024.

(in thousands)

The following tables set 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 nine- and three-month periods ended September 30, 2025 and 2024:

(in thousands)

(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2025 and 2024. Non-GAAP interest income on an FTE for the nine-month periods ended September 30, 2025 and 2024 was $160 and $176, 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.

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(dollars in thousands)

(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2025 and 2024. Non-GAAP interest income on an FTE basis for the three-month periods ended September 30, 2025 and 2024 was $57 and $61, 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 a non-GAAP, FTE basis, increased by $2.2 million for the third quarter of 2025 when compared to the third quarter of 2024. This increase was driven by an increase of $2.5 million in interest income due to a $2.0 million increase in interest income on loans resulting from an increase of 25 basis points in the overall yield on the loan portfolio. This increase in yield was attributable to upward repricing of adjustable-rate loans and an increase in average balances of $68.4 million. Interest income on investment securities increased by $0.2 million due to an increase in average balances of $9.0 million and an increase in yield of 17 basis points. The increase in the investment portfolio resulted from management’s strategic decision to reinvest cashflows in the higher rate environment to increase yield on the portfolio. Interest income on Federal funds sold increased by $0.2 million due to an increase of $37.4 million in average balances, partially offset by a decrease of 147 basis points in average rates. Interest expense increased by $0.3 million when compared to the third quarter of 2024. Interest expense paid on deposits increased by $0.4 million related to a $100.5 million increase in average balances, partially offset by a decrease of 6 basis points on the rate paid. Interest paid on short-term borrowings decreased by $0.5 million when compared to the same period of 2024 due to the repayment of the $40.0 million borrowing from the BTFP late in the third quarter of 2024. Interest paid on long-term borrowings increased by

$0.4 million when compared to the third quarter of 2024 due to a $43.8 million increase in average balances, partially offset by a decrease of 80 basis points on rates paid.

Comparing the nine months ended September 30, 2025 to the nine months ended September 30, 2024, net interest income, on a non-GAAP, FTE basis, increased by $5.8 million. Interest income increased by $6.4 million and was driven by an increase of $6.6 million on interest and fees on loans as average loan balances increased by $72.6 million and the overall yield increased by 32 basis points in correlation with upward repricing of adjustable-rate loans. Interest expense on deposits increased by $1.2 million as the average deposit balances increased by $87.6 million, driven by increases of $6.3 million in demand deposit accounts, $73.6 million in money market balances and $24.4 million in brokered time deposits, partially offset by decreases in savings balances of $15.2 million and $1.5 million in retail time deposits. Interest expense on short-term borrowings decreased by $1.4 million due to the Bank’s utilization of the BTFP program in 2024 and subsequent repayment late in the third quarter of 2024. Long-term borrowing costs increased $0.7 million as a result of an increase of $37.3 million in Federal Home Loan Bank of Atlanta (the “FHLB”) average balances, partially offset by a decrease in rate paid of 85 basis points. The net interest margin for the nine months ended September 30, 2025 was 3.64% compared to 3.34% for the nine months ended September 30, 2024.

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 nine- and three-month periods ended September 30, 2025 and 2024:

(in thousands and tax equivalent basis)

(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.

(in thousands and tax equivalent basis)

(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.

Provision for Credit Losses

Specific allocations have been made for 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 estimated allowance for credit losses (“ACL”) have been adjusted based on the current economic environment and the characteristics of the loan portfolio. For the first nine months of 2025 and 2024, net credit loss expense was $2.0 million and $2.4 million, respectively. For the third quarters of 2025 and 2024, net provision expense was $0.5 million and $0.3 million, respectively. Provision for credit losses decreased by $0.4 million due primarily to strong credit quality, lower charge-offs and lower loan growth during the first nine months of 2025 when compared to the same time period in 2024.

Other Income

The composition of other operating income for the nine- and three-month periods ended September 30, 2025 and 2024 is illustrated in the following table:

(in thousands)

Other Operating Expenses

The composition of other operating expenses for the nine- and three-month periods ended September 30, 2025 and 2024 is illustrated in the following table:

(in thousands)

Provision for Income Taxes

In reporting interim financial information, income tax provisions should be determined under the procedures set forth in Financial Accounting Standards Board’s Accounting Standards Codification (“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 income tax rates as a percentage of income for the nine-month periods ended September 30, 2025 and September 30, 2024 were 24.7% and 24.6%, respectively.

GAAP and Non-GAAP Financial Measures

The following table sets forth certain selected financial data for the periods ended September 30, 2025 and 2024 under GAAP (as reported) and non-GAAP. A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes or includes amounts that are required to be disclosed in the most directly comparable measure calculated and presented in accordance with GAAP in the United States. The Corporation’s management believes that the presentation of non-GAAP financial measures provides investors with a greater understanding of the Corporation’s operating results in addition to the results measured in accordance with GAAP. While management uses these non-GAAP measures in its analysis of the Corporation’s performance, this information should not be viewed as a substitute for financial results determined in accordance with GAAP or considered to be more important than financial results determined in accordance with GAAP.

(in thousands, except for per share amount)

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FINANCIAL CONDITION

Balance Sheet Overview

Total assets at September 30, 2025 were $2.0 billion, representing a $51.0 million increase since December 31, 2024. During the first nine months of 2025, the investment portfolio increased by $8.9 million as bonds were purchased to lock in yield in anticipation of potential declines in long-term rates. Gross loans increased by $16.0 million as new production during the nine months of 2025 was mitigated by amortization and increased payoffs. Other assets, including deferred taxes, premises and equipment, bank owned life insurance, pension assets, accrued trust income receivable, and accrued interest receivable, increased by $11.3 million.

Total liabilities at September 30, 2025 were $1.8 billion, representing a $31.1 million increase since December 31, 2024. Total deposits increased by $104.1 million when compared to December 31, 2024. The increase in deposits was primarily driven by $50.0 million in new brokered time deposits obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024. In addition, savings and money market accounts increased by $42.0 million, retail time deposits increased by $9.7 million, and non-interest-bearing deposits increased by $3.2 million. Interest-bearing demand deposits, primarily our ICS product, decreased slightly by $0.8 million due primarily to seasonal fluctuations in municipal deposit accounts. Short-term borrowings decreased by $45.2 million due to the purchase of the brokered time deposit discussed above, which was partially offset by increases in the overnight investment sweep product. Long-term borrowings decreased by $25.0 million due to the full repayment of a matured $25.0 million Federal Home Loan Bank borrowing in September 2025.

Loan Portfolio

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

(in thousands)

Outstanding loans of $1.5 billion at September 30, 2025 reflected a $16.0 million increase since December 31, 2024. Since December 31, 2024, commercial real estate loans increased by $28.1 million, acquisition and development loans decreased by $1.3 million, commercial and industrial loans decreased by $8.5 million, residential mortgage loans increased by $2.5 million, and consumer loans decreased by $4.8 million.

New commercial loan production for the third quarter of 2025 was approximately $29.8 million. Year-to-date commercial production was approximately $139.0 million, which compares to $117.0 million for the nine months ended September 30, 2024. The commercial pipeline was strong as of September 30, 2025 at $50.4 million, and unfunded, commercial construction loans totaled approximately $42.8 million. Commercial amortization and payoffs were unusually high at approximately $29.4 million for the three months ended September 30, 2025. Included in that amount were payoffs of approximately $20.9 million during the third quarter primarily attributable to four relationships either utilizing cash to repay or consolidating debt.

New consumer mortgage loan production for the third quarter of 2025 was approximately $20.8 million, most of which was comprised of in-house mortgages booked to our portfolio. The pipeline of in-house, portfolio loans as of September 30, 2025 was $23.0 million. Unfunded commitments related to residential construction loans totaled $12.1 million at September 30, 2025.

Non-accrual loans totaled $3.8 million at September 30, 2025 compared to $4.9 million at December 31, 2024. The decrease in non-accrual balances at September 30, 2025 was related to principal paydowns and the charge-off of $0.5 million related to a non-accrual commercial and industrial relationship that was recorded during the third quarter of 2025.

The following table presents loans in our commercial real estate portfolio by industry type at September 30, 2025.

(in thousands)

Our loan portfolio does not consist of any loans secured by office buildings located in major metropolitan areas or that are over four stories or any retail properties rented to major big box retail tenants. There have been no significant changes in our commercial real estate concentrations since December 31, 2024.

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.

(in thousands)

Allowance for Credit Losses

The ACL represents an amount which, in management’s judgment, is adequate to absorb expected credit losses over the life of outstanding loans as of the balance sheet date based on the evaluation of current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of future economic conditions and prepayment experience. The ACL is measured and recorded upon the initial recognition of a financial asset. The ACL is reduced by charge-offs, net of recoveries of previous losses, and is increased by a provision or decreased by a recovery for credit losses, which is recorded as a current period operating expense.

Determination of an appropriate ACL is inherently complex and requires the use of significant and highly subjective estimates. The reasonableness of the ACL is reviewed quarterly by management.

Management believes that it uses relevant information available to make determinations about the ACL and that it has established the existing allowance in accordance with GAAP. However, the determination of the ACL requires significant judgment, and estimates of expected credit losses in the loan portfolio can vary from the amounts actually observed. While management uses available information to recognize expected credit losses, future additions to the ACL may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment which may directly impact prepayment and curtailment rate assumptions, and changes in the financial conditions of borrowers.

The ACL “base case” model is derived from various economic forecasts provided by widely recognized sources. Management evaluates the variability of market conditions by examining the peak and trough of economic cycles. These peaks and troughs are used to stress the base case model to develop a range of potential outcomes. Management then determines the appropriate reserve through an evaluation of these various outcomes relative to current economic conditions and known risks in the portfolio. For the nine-month period ended September 30, 2025, the range of outcomes would produce a 7% reduction or a 68% increase in reserves based on the best-case and worst-case scenarios, respectively.

The following table presents a summary of the activity in the ACL for the nine-month periods ended September 30, 2025 and 2024:

(in thousands)

Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio

Investment Securities

At September 30, 2025, the total amortized cost basis of the available-for-sale investment portfolio was $123.2 million compared to a fair value of $105.1 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $172.9 million compared to a fair value of $149.1 million.

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

(in thousands)

Total fair value of investment securities available for sale increased by $10.6 million since December 31, 2024 as cash flow from the portfolio was reinvested into securities at higher yields and to maintain balances for liquidity. At September 30, 2025, the securities classified as available-for-sale included a net unrealized loss of $18.1 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.

Total amortized cost of securities held to maturity decreased by $2.6 million since December 31, 2024 as principal paydowns were partially offset by reinvestment in new security purchases.

As discussed in Note 6 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 consider risk premiums that a market participant would require.

Approximately $89.8 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $14.6 million at September 30, 2025. The remaining $15.2 million of the available-for-sale securities represents the entire collateralized debt obligation 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 nine pooled trust preferred securities that comprise the collateralized debt obligation portfolio.

Deposits

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

(in thousands)

Total deposits at September 30, 2025 increased by $104.1 million when compared to December 31, 2024. In January 2025, $50.0 million in brokered time deposits with an average interest rate of 4.24% were obtained to fund the repayment of $50.0 million in overnight borrowings that were outstanding on December 31, 2024. Savings and money market accounts increased by $42.0 million due primarily to the expansion of current and new relationships throughout the first nine months of 2025. Non-interest-bearing checking deposits increased by $3.2 million and interest-bearing checking deposits decreased by $0.8 million as we experienced seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers related to inflation. Retail time deposits increased by $9.7 million since December 31, 2024.

The following table summarizes the percentage of deposits that are insured by deposit insurance or otherwise fully collateralized by securities compared to uninsured deposits as of September 30, 2025 and December 31, 2024.

(in thousands)

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.

The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of September 30, 2025 and December 31, 2024.

(in thousands)

Borrowed Funds

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

(in thousands)

Short-term borrowings decreased by $45.2 million due to the purchase of the brokered time deposit discussed above, which was partially offset by increases in the overnight investment sweep product. Long-term borrowings decreased by $25.0 million due to the full repayment of a matured $25.0 million FHLB borrowing in September 2025.

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

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

• Unsecured Fed Funds lines of credit with upstream correspondent banks (M&T Bank, Atlantic Community Bankers Bank, Community Bankers Bank, PNC Financial Services, Pacific Coast Banker’s Bank and Zions Bancorp).
• Secured advances with the FHLB, which are collateralized by eligible one-to-four family residential mortgage loans, home equity lines of credit, commercial real estate loans. Cash and various securities may also be pledged as collateral.
• Secured line of credit with the Federal Reserve Discount Window for use in borrowing funds up to 90 days, using eligible investment securities as collateral.
• 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.
• One Way Buy CDARS/ICS funding – a form of brokered deposits that has become a viable supplement to brokered deposits obtained directly.

The following table presents sources of liquidity available to the Corporation as of September 30, 2025.

(in thousands)

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.

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 September 30, 2025, 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.

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

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

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

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

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 September 30, 2025 and December 31, 2024, management estimated the following changes in net interest income, assuming the indicated rate changes:

(in thousands)

Due to the current rate environment and changes to prepayment speeds, the Corporation became slightly less asset sensitive as of September 30, 2025 when compared to December 31, 2024. All changes in net interest income from our simulation analysis remain within our policy limits.

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, 2024. Our NII simulation analysis as of December 31, 2024 is included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2024 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”.

In addition to operational requirements, the Bank is 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.

The following table presents the Bank’s capital ratios as of the dates indicated:

As of both September 30, 2025 and December 31, 2024, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

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 September 30, 2025 to December 31, 2024, short-term borrowings decreased by $45.2 million primarily due to the repayment of $50.0 million of overnight borrowings outstanding at December 31, 2024 from the purchase of a $50.0 million brokered CD, partially offset by increases in balances of the overnight investment sweep product.

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)

The increase of $1.7 million in commitments at September 30, 2025 when compared to December 31, 2024 was primarily due to new residential home equity loan commitments originated during 2025.

For the nine-month periods ended September 30, 2025 and 2024, net credit loss expense/(credit) for off-balance sheet exposures was approximately $118,000 and ($17,000), respectively. For the three-month periods ended September 30, 2025 and 2024, net credit loss (credit)/expense for off-balance sheet exposures was approximately ($13,000) and $55,000, respectively.

First United Corporation is a “smaller reporting company” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, and, accordingly, is not required to include the information required by this item.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act 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 September 30, 2025 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 nine months ended September 30, 2025, 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.

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, 2024. Management does not believe that any material changes in our risk factors have occurred since they were last disclosed.