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Item 2. Management’s Discussion and Analysis

2025-11-05 compared with 2025-08-13 · 149 added, 119 removed, 463 unchanged (37% of the section changed)

9 unchanged sentences

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 entitled "Risk Factors".

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

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The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital.

The Bank has two consumer finance company subsidiaries- OakFirst Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company – and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure – First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company (“OREO I”).

OREO I was dissolved on July 1, 2025.

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.

At June 30, 2025, the Corporation’s total assets were $2.0 billion, net loans were $1.5 billion, and deposits were $1.6 billion.

Shareholders’ equity at June 30, 2025 was $191.1 million.

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.

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 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

Consolidated net income was $6.0 million for the second quarter of 2025, or $0.92 per basic and diluted share, compared to $4.9 million, or $0.75 per basic and diluted share, for the second quarter of 2024.

Net income for the first six months of 2025 was $11.8 million, or $1.82 per basic share and $1.81 per diluted common share, compared to $8.6 million, or $1.31 per basic and diluted share, for the same period of 2024.

The $1.1 million increase in quarterly net income when compared to the second quarter of 2024 was primarily driven by a $1.5 million increase in net interest income, a $0.3 million decrease in provision for credit loss, and a $0.2 million increase in non-interest income, partially offset by increases in non-interest expense of $0.6 million and income tax expense of $0.4 million.

Comparing the second quarter of 2025 to the same period of 2024, interest and fees on loans increased by $2.1 million due to from the repricing of adjustable-rate loans and growth in our loan portfolio.

Interest expense increased by $0.3 million when comparing year-over-year quarterly expense as increased funding was offset by reductions in deposit rates and borrowing costs.

Comparing the six months ended June 30, 2025 to the six months ended June 30, 2024, net interest income, on a non-GAAP, fully taxable equivalent (“FTE”) basis, increased by $3.7 million.

Interest income increased by $3.9 million and was driven by an increase of $4.6 million on interest and fees on loans as average loan balances increased by $74.7 million and the overall yield increased by 36 basis points in correlation with upward repricing of adjustable-rate loans.

Interest expense on deposits increased by $0.8 million as the average deposit balances increased by $75.3 million, driven by increases of $4.8 million in demand deposit accounts, $76.6 million in money market balances and $15.9 million in brokered time deposits, partially offset by decreases in savings balances of $16.1 million and $6.1 million in retail time deposits.

Interest expense on short-term borrowings decreased by $0.9 million due to the Bank’s utilization of the Bank Term Funding Program (the “BTFP”) in 2024 and subsequent repayment late in the third quarter of 2024.

Other operating income, including net gains, for the second quarter of 2025 increased by $0.2 million when compared to the same period of 2024.

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, gains on sales of residential mortgages increased by $0.1 million due to growth in production year-over-year.

Other operating income for the six months ended June 30, 2025 increased by $0.3 million when compared to the same period of 2024.

This was attributable to a $0.2 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.

Service charge and debit card income were both stable when comparing the first six months of 2025 to the same period of 2024.

Operating expenses increased by $0.6 million in the second quarter of 2025 when compared to the second quarter of 2024.

Net other real estate owned (“OREO”) expenses increased by $0.2 million due to a $0.1 million gain on the sale of OREO property in the second quarter of 2024 and an increase in costs associated with one OREO property in the second quarter of 2025.

Data processing fees increased by $0.2 million and professional services expenses increased by $0.1 million.

Salaries and employee benefits increased by $0.1 million due to a $0.3 million increase in salary expense related to normal merit increases effective April 1, 2025, partially offset by decreases in employee life and health insurance expense due to reduced health claims.

For the six months ended June 30, 2025, non-interest expense increased by $0.3 million when compared to the six months ended June 30, 2024.

Salaries and employee benefits increased by $0.2 million due to normal merit increases effective April 1, 2025, increases in stock compensation expense as a result of increased stock prices and 401K expenses offset by reduced life and health insurance costs related to reduced claims in 2025.

Net OREO expenses increased by $0.2 million due to a $0.1 million gain on the sale of OREO in 2024 as well as one-time expense associated with an OREO property recorded in the second quarter of 2025, increases of $0.1 million in marketing and professional services and an increase in data processing expenses of $0.4 million.

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.

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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 an 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.

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 six- and three-month periods ended June 30, 2025 and 2024.

Six Months Ended

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

Nine Months Ended

September 30,

(in thousands)

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Three Months Ended

September 30,

(in thousands)

3 unchanged sentences

Net interest margin %

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 six- and three-month periods ended June 30, 2025 and 2024:

Six Months Ended

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:

Nine Months Ended

September 30,

(in thousands)

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(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 a fully taxable equivalent for the six-month periods ended June 30, 2025 and 2024 was $103 and $116, respectively.

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.

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Three Months Ended

September 30,

(dollars in thousands)

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(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 a fully taxable equivalent for the three-month periods ended June 30, 2025 and 2024 was $54 and $58 respectively.

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 $1.5 million for the second quarter of 2025 when compared to the second quarter of 2024.

This increase was driven by an increase of $1.8 million in interest income due to a $2.1 million increase in interest income on loans that resulted from an increase of 26 basis points in the overall yield on the loan portfolio, upward repricing of adjustable-rate loans, and an increase in average balances of $74.1 million.

Interest income on Federal funds sold decreased by $0.4 million due to a decrease of 129 basis points in average rates and a decrease of $16.0 million in average balances.

Interest expense increased by $0.3 million when compared to the second quarter of 2024.

Interest expense paid on deposits increased by $0.4 million due to a $73.3 million increase in average balances, partially offset by a decrease of 2 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 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 second quarter of 2024 due to a $50.0 million increase in average balances, partially offset by a decrease in 100 basis points on rates paid.

Comparing the six months ended June 30, 2025 to the six months ended June 30, 2024, net interest income, on a non-GAAP, FTE basis, increased by $3.7 million.

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 i n 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.

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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.

The net interest margin for the six months ended June 30, 2025 was 3.61% compared to 3.31% for the six months ended June 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 six- and three-month periods ended June 30, 2025 and 2024:

For the six months ended June 30, 2025

compared to the six months ended June 30, 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:

For the nine months ended September 30, 2025

compared to the nine months ended September 30, 2024

(in thousands and tax equivalent basis)

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(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.

For the three months ended June 30, 2025

compared to the three months ended June 30, 2024

For the three months ended September 30, 2025

compared to the three months ended September 30, 2024

(in thousands and tax equivalent basis)

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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 six months of 2025 and 2024, net provision expense was $1.5 million and $2.1 million, respectively.

For the second quarters of 2025 and 2024, net provision expense was $0.9 million and $1.2 million.

The decreased provision expense recorded in the first six months of 2025 when compared to the same period in 2024 was primarily related to $1.1 million in charge-offs related to one non-accrual commercial loan relationship that occurred in 2024.

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

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.

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:

Income as % of

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Total Other Income

Six Months Ended

Nine Months Ended

Three Months Ended

September 30,

(in thousands)

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Other Operating Expenses

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

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:

Expense as % of

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Total Other Operating Expenses

Six Months Ended

Nine Months Ended

Three Months Ended

September 30,

(in thousands)

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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 six-month periods ended June 30, 2025 and June 30, 2024 were 24.7% and 24.3%, respectively.

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 June 30, 2025 and 2024 under GAAP (as reported) and non-GAAP.

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.

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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.

Six months ended June 30,

Three months ended June 30,

Nine months ended September 30,

Three months ended September 30,

(in thousands, except for per share amount)

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Diluted net income per share - non-GAAP

Basic book value per common share

Diluted book value per common share

Basic book value per share

Diluted book value per share

Net income - as reported

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Significant Ratios:

Six months ended June 30,

Nine months ended September 30,

Return on Average Assets - as reported

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Balance Sheet Overview

Total assets at June 30, 2025 were $2.0 billion, representing a $34.4 million increase since December 31, 2024.

During the first six months of 2025, the investment portfolio increased by $9.6 million as bonds were purchased to gain yield in anticipation of potential declines in long-term rates.

Gross loans increased by $21.7 million.

Management expects stronger growth in the second half of the year due to strong loan pipelines.

Other assets, including deferred taxes, premises and equipment, bank owned life insurance, pension assets, and accrued interest receivable, increased by $4.0 million.

Total liabilities at June 30, 2025 were $1.8 billion, representing a $22.6 million increase since December 31, 2024.

Total deposits increased by $39.4 million when compared to December 31, 2024 due primarily to $50.0 million in new brokered deposits that were obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings that were outstanding at December 31, 2024.

Savings and money market accounts increased by $25.4 million and retail time deposits increased by $3.9 million.

Interest-bearing demand deposits, primarily our ICS product, decreased by $39.1 million due primarily to seasonal fluctuations in municipal deposit accounts, and non-interest-bearing deposits decreased by $1.0 million due to increased spending by businesses and consumers related to inflation.

Short-term borrowings decreased by $14.5 million due to a change in balances of $20.9 million in overnight borrowings, partially offset by an increase in balances of the overnight investment sweep product.

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

1 unchanged sentence

(in thousands)

June 30, 2025

September 30, 2025

December 31, 2024

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Residential mortgage

Outstanding loans of $1.5 billion at June 30, 2025 reflected a $21.7 million increase since December 31, 2024.

Since December 31, 2024, commercial real estate loans increased by $24.4 million, acquisition and development loans increased by $3.6 million, commercial and industrial loans decreased by $6.1 million, residential mortgage loans increased by $3.2 million, and consumer loans decreased by $3.4 million.

New commercial loan production for the second quarter of 2025 was approximately $65.1 million.

The pipeline of commercial loans as of June 30, 2025 was $32.3 million and unfunded, committed commercial construction loans totaled approximately $47.0 million.

Commercial amortization and payoffs were approximately $27.0 million for the three months ended June 30, 2025, 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 second quarter of 2025 was approximately $19.2 million, with most of this production comprised of in-house mortgages.

The pipeline of in-house, portfolio loans as of June 30, 2025 was $11.4 million.

Unfunded commitments related to residential construction loans totaled $10.0 million at June 30, 2025.

Non-accrual loans totaled $3.8 million at June 30, 2025 compared to $4.9 million at December 31, 2024.

The decrease in non-accrual balances at June 30, 2025 was related to principal reductions and a payoff of a residential mortgage loan.

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

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)

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Manufacturing

Mining, quarrying, oil and gas extraction

Other services (except public services)

15 unchanged sentences

(in thousands)

September 30,

Non-accrual loans:

6 unchanged sentences

Commercial real estate

Commercial and industrial

Residential mortgage

26 unchanged sentences

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 period ended June 30, 2025, the range of outcomes would produce a 15% reduction or a 58% 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 six-month periods ended June 30, 2025 and 2024:

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)

9 unchanged sentences

Total recoveries

Net credit losses

Credit loss expense

7 unchanged sentences

Investment Securities

At June 30, 2025, the total amortized cost basis of the available-for-sale investment portfolio was $122.5 million compared to a fair value of $103.6 million.

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.

1 unchanged sentence

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

June 30, 2025

September 30, 2025

December 31, 2024

17 unchanged sentences

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 June 30, 2025, the securities classified as available-for-sale included a net unrealized loss of $18.9 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.

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.

4 unchanged sentences

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 $88.3 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $15.4 million at June 30, 2025.

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).

2 unchanged sentences

(in thousands)

June 30, 2025

September 30, 2025

December 31, 2024

7 unchanged sentences

Total Deposits

Total deposits at June 30, 2025 increased by $39.4 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 at December 31, 2024.

Savings and money market accounts increased by $25.4 million due primarily to the expansion of current and new relationships throughout the first six months of 2025.

Non-interest-bearing checking deposits decreased by $1.0 million and interest-bearing checking deposits decreased by $39.1 million due primarily to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers related to inflation.

Total deposits at September 30, 2025 increased by $104.1 million when compared to 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 June 30, 2025 and December 31, 2024.

June 30, 2025

September 30, 2025

December 31, 2024

3 unchanged sentences

Uninsured and uncollateralized deposits

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

June 30, 2025

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.

September 30, 2025

December 31, 2024

5 unchanged sentences

(in thousands)

September 30,

Overnight borrowings from Federal Reserve Discount Window

Overnight borrowings from Zions Bank

Securities sold under agreements to repurchase

3 unchanged sentences

Total long-term borrowings

Short-term borrowings decreased by $14.5 million when compared to December 31, 2024.

Overnight borrowings were $29.1 million and $50.0 million at June 30, 2025 and December 31, 2024, respectively.

The decrease in overnight borrowings was partially offset by increases in balances of the overnight investment sweep product.

There were no changes in long-term borrowings when comparing June 30, 2025 to December 31, 2024.

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

13 unchanged sentences

● 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 Federal Home Loan Bank (“FHLB”) of Atlanta, which are collateralized by eligible one-to-four family residential mortgage loans, home equity lines of credit, commercial real estate loans.

● 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.

3 unchanged sentences

● 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 June 30, 2025.

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

(in thousands)

19 unchanged sentences

A negative gap position would benefit us during a period of declining interest rates.

At June 30, 2025, we were asset sensitive.

At September 30, 2025, we were asset sensitive.

Our interest rate risk management goals are:

7 unchanged sentences

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.

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.

12 unchanged sentences

They do not necessarily indicate the long-term prospects or economic value of the institution.

Based on the simulation analysis performed at June 30, 2025 and December 31, 2024, management estimated the following changes in net interest income, assuming the indicated rate changes:

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)

September 30,

+400 basis points

6 unchanged sentences

-400 basis points

Due to the current rate environment and changes to prepayment speeds, the Corporation became slightly less asset sensitive as compared to December 31, 2024.

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.

17 unchanged sentences

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

September 30,

Total Capital (to risk-weighted assets)

2 unchanged sentences

Tier 1 Capital (to average assets)

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

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

2 unchanged sentences

Among these obligations are FHLB advances and junior subordinated debentures, operating lease agreements for banking and subsidiaries’ offices and for data processing and telecommunications equipment.

Comparing June 30, 2025 to December 31, 2024, short-term borrowings decreased by $14.5 million primarily due to the changes in overnight borrowings outstanding, partially offset by increases in balances of the overnight investment sweep product.

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.

Loan commitments are made to accommodate the financial needs of our customers.

4 unchanged sentences

(in thousands)

September 30,

Residential mortgage - home equity

2 unchanged sentences

Standby letters of credit

The increase of $19.4 million in commitments at June 30, 2025 when compared to December 31, 2024 was due to new commercial loan commitments originated during 2025.

Unfunded commercial real estate construction commitments increased by $11.5 million and unfunded revolving commercial and industrial commitments increased by $10.6 million

For the six-month periods ended June 30, 2025 and 2024, net credit loss expense/(credit) for off-balance sheet exposures was approximately $131,000 and ($72,000), respectively.

For the three-month periods ended June 30, 2025 and 2024, net credit loss expense/(credit) for off-balance sheet exposures was approximately $132,000 and ($57,000), respectively.

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.

Quantitative and Qualitative Disclosures about Market Risk

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

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis