First United Corp: Form 10-Q for the period ended Mar 31, 2026

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, 2025.

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 bank 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 March 31, 2026, the Corporation’s total assets were $2.0 billion, net loans were $1.5 billion, and deposits were $1.8 billion. Shareholders’ equity at March 31, 2026 was $205.3 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 $6.7 million for the first quarter of 2026, or $1.03 per diluted share, compared to $5.8 million, or $0.89 per diluted share, for the first quarter of 2025. Non-GAAP net income was $6.6 million, or $1.02 per diluted share, for the first quarter of 2026 compared to $5.8 million, or $0.89 per diluted share, for the first quarter of 2025 and $7.2 million, or $1.10 per diluted share, for the fourth quarter of 2025. Return on Average Assets and Return on Average Equity for the quarter ended March 31, 2026, were 1.29% and 13.06%, respectively.

The $0.9 million increase in quarterly net income when compared to the first quarter of 2025 was primarily driven by a $2.1 million increase in net interest income, an increase of $0.4 million in non-interest income, inclusive of gains, partially offset by a $0.2 million increase in provision for credit losses as a result of increased off-balance sheet loan commitments, an increase in non-interest expense of $1.1 million, and an increase in income tax expense of $0.3 million. Comparing the first quarter of 2026 to the same period of 2025, interest and fees on loans increased by $0.7 million resulting from new loans booked at higher rates late in 2025 and the repricing of adjustable-rate loans. Interest expense decreased by $0.4 million when comparing year-over-year quarterly expense, resulting from the repayment of a $25.0 million brokered certificate of deposit in January 2026 and $65.0 million in Federal Home Loan Bank (“FHLB”) borrowings in March 2026. Other operating income increased by $0.4 million, driven by an increase in trust and brokerage income of $0.2 million resulting from increased production and a $0.2 million increase in bank owned life insurance (“BOLI”) related to a one-time death benefit received in the first quarter of 2026. Other operating expenses increased by $1.1 million, driven by a $0.9 million increase in salaries and benefits as a result of filling open positions throughout 2025, normal merit increases in April 2025 and increased incentive payouts, partially offset by reduced life and health insurance expense due to reduced claims and an increase in the reduction of costs associated with loan originations related to increased loan production. Professional services expenses increased by $0.1 million and data processing expenses increased by $0.2 million. These increases were partially offset by reductions in other expenses such as miscellaneous loan fees and net periodic pension expenses.

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 table below summarizes net interest income for the three-month periods ended March 31, 2026 and 2025.

(in thousands)

The following table sets forth the average balances, net interest income and expense, and average yields and rates of our interest-earning assets and interest-bearing liabilities for the three-month periods ended March 31, 2026 and 2025:

(in thousands)

Notes:

(1) The above table reflects the average rates earned or paid stated on an FTE basis assuming a 21% tax rate for 2026 and 2025. Non-GAAP interest income on an FTE basis for the three-month periods ended March 31, 2026 and 2025 was $56 and $49, respectively.

(2) Average balances are presented on a daily average basis.

(3) The average balances of non-accrual loans for the three-months ended March 31, 2026 and 2025, which were reported in the average loan balances for these periods, were $4,029 and $4,265, respectively.

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

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

Net interest income, on a non-GAAP, FTE basis, increased by $2.1 million for the first quarter of 2026 when compared to the first quarter of 2025. This increase was driven by an increase of $1.7 million in interest income. Interest income on loans increased by $0.7 million due to the increase of 21 basis points in overall yield on the loan portfolio as new loans were booked at higher rates during 2025 as well as the upward repricing of adjustable-rate loans. Investment income increased slightly by $0.1 million as management continues to reinvest cashflows back into the portfolio resulting in an increase in yield of 14 basis points. Interest income on federal funds sold increased by $0.8 million due to an increase of $87.2 million in average cash balances held at the Federal Reserve Bank as a result of strong deposit growth in 2025. Interest expense, in the first quarter of 2026 decreased by $0.4 million when compared to the first quarter of 2025. Interest on deposits remained stable despite a $95.9 million increase in average deposit balances, primarily in interest bearing demand and money market deposits. Long-term borrowing expense decreased by $0.3 million for the first quarter of 2026 when compared to the same period of 2025 due to the repayment of $65.0 million of FHLB advances at their maturity in March of 2026.

The following table sets forth an analysis of volume and rate changes in interest income and interest expense for our average interest-earning assets and average interest-bearing liabilities for the three-month periods ended March 31, 2026 and 2025:

(in thousands and tax equivalent basis)

Note: 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. The provision for credit losses was $0.9 million for the quarter ended March 31, 2026 compared to $0.7 million for the quarter ended March 31, 2025.

Other Income

The composition of other operating income for the three-month periods ended March 31, 2026 and 2025 is illustrated in the following table:

(in thousands)

Other Operating Expenses

The composition of other operating expenses for the three-month periods ended March 31, 2026 and 2025 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 three-month periods ended March 31, 2026 and 2025 were both 24.6%.

GAAP and Non-GAAP Financial Measures

The following table sets forth certain selected financial data for the three-month periods ended March 31, 2026 and 2025 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. 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.

FINANCIAL CONDITION

Balance Sheet Overview

Total assets at March 31, 2026 were $2.0 billion, representing a $48.4 million decrease since December 31, 2025. During the first quarter of 2026, cash and interest-bearing deposits in other banks decreased by $41.8 million. The investment portfolio increased by $3.2 million as cashflows of the bonds were reinvested in the first quarter of 2026 in an effort to gain yield before long- term rates decline. Gross loans increased slightly by $3.8 million. While loan production was strong during the quarter, amortization and unusually high payoffs exceeded growth levels. Pension assets decreased by $0.8 million due to decreased market values.

Total liabilities at March 31, 2026 were $1.8 billion, representing a $50.1 million decrease since December 31, 2025. Total deposits increased by $15.5 million when compared to December 31, 2025. In January 2026, a $25.0 million brokered certificate of deposit with an interest rate of 4.23% matured and was repaid. Savings and money market accounts increased by $44.4 million due primarily to the expansion of current and new relationships throughout the first three months of 2026. Non-interest-bearing demand deposits decreased by $1.7 million and interest-bearing demand deposits decreased by $1.4 million due primarily to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers. Retail time deposits decreased by $0.8 million since December 31, 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 March 31, 2026 reflected a $3.8 million increase since December 31, 2025. Since December 31, 2025, commercial real estate loans increased by $38.7 million as a result of new customer relationships; acquisition and development loans increased by $7.5 million; commercial and industrial loans decreased by $30.8 million as a result of payoffs related to approximately $15.0 million due to competitive pricing, approximately $5.3 million related to sales of businesses, and approximately $8.0 million as a result of a refinance to another institution; residential mortgage loans decreased by $10.6 million as a result of normal amortization; and consumer loans decreased by $1.0 million.

New commercial loan production for the three months ended March 31, 2026 was approximately $98.0 million. The pipeline of commercial loans as of March 31, 2026 was robust, and unfunded committed commercial construction loans totaled approximately $43.0 million. Commercial amortization and payoffs were approximately $43.0 million through March 31, 2026, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.

New consumer mortgage loan production for the first quarter of 2026 was approximately $16.0 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of March 31, 2026 was $17.5 million. Unfunded commitments related to residential construction loans totaled $14.4 million at March 31, 2026.

As a percentage of the loan portfolio, accruing loans past due 30 days or more increased slightly to 0.35% at March 31, 2026 compared to 0.32% at December 31, 2025. Non-accrual loans totaled $4.7 million at March 31, 2026 compared to $4.2 million at December 31, 2025. The increase in non-accrual balances at March 31, 2026 was related to one commercial loan moving to non-accrual status in the first quarter.

The following table presents loans in our commercial real estate portfolio by industry type at March 31, 2026.

(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, 2025.

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 three-month period ended March 31, 2026, the range of outcomes would produce a 26% reduction or a 44% 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 three-month periods ended March 31, 2026 and 2025:

(in thousands)

The following table presents a summary of charge-offs and recoveries as a percent to their applicable portfolio for the three-month periods ended March 31, 2026 and 2025:

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

The following presents management’s allocation of the ACL by major loan category in comparison to that loan category’s percentage of total loans. Changes in the allocation over time reflect changes in the composition of the loan portfolio risk profile and refinements to the methodology of determining the ACL. Specific allocations in any particular category may be reallocated in the future as needed to reflect current conditions. Accordingly, the entire ACL is considered available to absorb losses in any category.

Allocation of the Allowance for Credit Losses

(in thousands)

Investment Securities

At March 31, 2026, the total amortized cost basis of the available-for-sale investment portfolio was $126.3 million compared to a fair value of $109.0 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, net of tax, a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $172.8 million compared to a fair value of $148.9 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 $1.9 million since December 31, 2025. At March 31, 2026, the securities classified as available-for-sale included a net unrealized loss of $17.3 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 increased by $1.3 million since December 31, 2025 due to 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 $92.8 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $14.7 million at March 31, 2026. The remaining $16.2 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 $2.6 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 March 31, 2026 increased by $15.5 million when compared to December 31, 2025. Non-interest-bearing demand deposits decreased by $1.7 million and interest-bearing demand deposits decreased by $1.4 million due primarily to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers. Savings and money market accounts increased by $44.4 million due primarily to the expansion of current and new relationships throughout the first three months of 2026. Retail time deposits decreased by $0.8 million since December 31, 2025. In January 2026, a $25.0 million brokered certificate of deposit, with an interest rate of 4.23%, was repaid at its maturity.

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 March 31, 2026 and December 31, 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.

The following table summarizes the percentage of deposit balances from retail customers compared to business customers as of March 31, 2026 and December 31, 2025.

(in thousands)

Borrowed Funds

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

(in thousands)

Short-term borrowings increased by $1.9 million due to increased balances in the overnight investment sweep product. Long-term borrowings decreased by $65.0 million due to the full repayment of $65.0 million in FHLB advances at their maturities in March 2026.

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 March 31, 2026.

(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 March 31, 2026, 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 March 31, 2026 and December 31, 2025, management estimated the following changes in net interest income, assuming the indicated rate changes:

(in thousands)

The Corporation became slightly more asset sensitive as of March 31, 2026 when compared to December 31, 2025 as a result of increased reductions of liabilities related to the repayment of the brokered CD and FHLB borrowings. 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, 2025. Our NII simulation analysis as of December 31, 2025 is included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2025 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 March 31, 2026 and December 31, 2025, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.

Contractual Obligations, Commitments and Contingent Liabilities

Contractual Obligations

The Corporation enters into contractual obligations in the normal course of business. Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment. Comparing March 31, 2026 to December 31, 2025, short-term borrowings increased by $1.9 million due to increases in the overnight investment sweep product. Long-term borrowings decreased by $65.0 million due to the full repayment of $65.0 million in FHLB advances at their maturities in March 2026.

Commitments

Loan commitments are made to accommodate the financial needs of our customers. Loan commitments have credit risk essentially the same as that involved in extending loans to customers and are subject to normal credit policies. Commitments to extend credit generally have fixed expiration dates, may require payment of a fee, and contain cancellation clauses in the event of an adverse change in the customer’s credit quality.

The contractual amounts of commitments to extend credit at the dates indicated were as follows:

(in thousands)

The increase of $29.2 million in commitments at March 31, 2026 when compared to December 31, 2025 was primarily due to new commercial business commitments originated during the first quarter of 2026.

For the three-month periods ended March 31, 2026 and 2025, net credit loss expense/(credit) for off-balance sheet exposures was approximately $0.2 million and ($1,000), respectively.

We do not issue any guarantees that would require liability recognition or disclosure other than the standby letters of credit issued by the Bank. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party to support contractual obligations and to ensure job performance. Generally, the Bank’s letters of credit are issued with expiration dates within one year. Historically, most letters of credit expire unfunded, and therefore, cash requirements are substantially less than the total commitment. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank generally holds collateral and/or personal guarantees supporting letters of credit.

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 March 31, 2026 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 three months ended March 31, 2026, 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, 2025. Management does not believe that any material changes in our risk factors have occurred since they were last disclosed.