FIRST UNITED CORPORATION ANNOUNCES THIRD QUARTER 2025 FINANCIAL RESULTS

Third Quarter Financial Highlights:

• Net interest margin, on a non-GAAP, fully tax equivalent ("FTE") basis, was 3.69% for the third quarter of 2025, reflecting increased loan yields and stable funding costs.
• Strong loan production during the quarter, with $29.8 million in commercial loan originations and $20.8 million in residential mortgage originations, offset by unusually high payoffs.
• Provision expense was $0.5 million in the third quarter resulting from reduced loan growth and a charge-off related to one non-accrual commercial relationship, partially offset by improved qualitative factors.
• Operating income, including net gains, increased slightly by $0.2 million when compared to the linked quarter.
• Operating expenses were stable compared to the linked quarter.
• A cash dividend of $0.26 per common share was declared in the third quarter.

Income Statement Overview

On a GAAP basis, net income for the third quarter of 2025 was $6.9 million.  This compares to $6.0 million for the second quarter of 2025 and $5.8 million for the third quarter 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.

Compared to the linked quarter, net income increased by $1.0 million as net interest income increased by $0.7 million due to an increase in interest and fees on loans of $0.8 million, a decrease in provision expense of $0.4 million, and an increase in other operating income of $0.2 million related to net gains on sales of investment securities, trust department income, and an incentive received on check fees.  Non-interest expenses remained stable when comparing the linked quarter to the third quarter.  Income tax expense increased by $0.3 million.

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.

Net Interest Income and Net Interest Margin

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 third quarter of 2025 to the second quarter of 2025, net interest income, on a non-GAAP, FTE basis, increased by $0.7 million.  This increase was driven by a $0.9 million increase in interest income as a result of an increase in interest and fees on loans of $0.8 million as average loan balances increased by $12.4 million and average yield increased by 8 basis points.  Interest expense increased by $0.2 million due to a $0.2 million increase in interest paid on deposits attributable to a $21.9 million increase in average balances and a slight increase in average yield of 1 basis point.  Interest expense on borrowing costs remained stable when comparing the third quarter of 2025 to the linked quarter.

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 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.

Non-Interest Income

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.

On a linked quarter basis, other operating income, including net gains, increased by $0.2 million.  The increase was attributable to a $0.1 million cash incentive received in connection with check fees and $0.1 million in net gains from the sale of available-for-sale investments.  Wealth management income was stable when compared to the prior quarter.

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.

Non-Interest Expense

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.  

Compared to the linked quarter, operating expenses were stable.  Net OREO expenses decreased by $0.1 million, and data processing expenses and investor relations expenses each decreased by $0.1 million.  These decreases were  partially offset by a $0.3 million increase in salaries and employee benefits related to increased salary and incentive expense.

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.

The effective income tax rates as a percentage of income for the nine-month periods ended September 30, 2025 and September 30, 2024 remained stable at 24.7% and 24.6%, respectively. 

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 mentioned previously 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.

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.  

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 book value of the Corporation's common stock was $30.65 per share at September 30, 2025 compared to $27.71 per share at December 31, 2024. At September 30, 2025, there were 6,496,908 basic outstanding shares and 6,508,790 diluted outstanding shares of common stock.  The increase in the book value at September 30, 2025 was due to the undistributed net income of $14.2 million for the first nine months of 2025.

Asset Quality

The allowance for credit losses ("ACL") was $19.1 million at September 30, 2025 compared to $18.0 million at September 30, 2024 and $18.2 million at December 31, 2024.  The provision for credit losses was $0.5 million for the quarter ended September 30, 2025 compared to $0.3 million for the quarter ended September 30, 2024 and $0.9 million for the second quarter of 2025.  The increased provision expense recorded in the third quarter of 2025 when compared to the same period in 2024 resulted from increased net charge-offs of $0.4 million in the third quarter of 2025 compared to $0.1 million in the third quarter of 2024. The decrease in provision expense compared to the linked quarter was due to decreases in the overall loan portfolio and improved qualitative factors, partially offset by the increased net charge-offs primarily related to one non-accrual commercial and industrial relationship.  Asset quality remained strong during the third quarter of 2025.  The ratio of the ACL to loans outstanding remained stable at 1.28%at September 30, 2025 compared to 1.27% at June 30, 2025 and 1.24% at September 30, 2024.

The ratio of net charge offs to average loans was 0.08% for the nine months ended September 30, 2025, and 0.18% for the nine months ended September 30, 2024.  The commercial and industrial portfolio had net charge offs of 0.41% and 0.53% for the nine-month periods ended September 30, 2025 and 2024, respectively, due primarily to charge offs on one non-accrual commercial relationship.  The acquisition and development portfolio had net recoveries of 0.42% and 0.08% for the nine-month periods ended September 30, 2025 and 2024, respectively.  This shift was due primarily to recoveries recognized in 2025 related to one relationship previously charged off in 2016.  The decrease in net charge offs in consumer loans in the first nine months of 2025 was primarily driven by approximately $0.3 million in charge offs of demand deposit balances during the first quarter of 2024.  Details of the ratios, by loan type, are shown below.  Our special assets team continues to actively collect on charged-off loans, resulting in overall low net charge-off ratios.

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 of related to a non-accrual commercial and industrial relationship that was recorded during the third quarter of 2025. 

Non-accrual loans that have been subject to partial charge-offs totaled $0.3 million and $0.7 million at September 30, 2025 and December 31, 2024, respectively.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $0.2 million and $1.6 million at September 30, 2025 and December 31, 2024, respectively.  As a percentage of the loan portfolio, accruing loans past due 30 days or more were 0.26% at September 30, 2025 compared to 0.32% at December 31, 2024 and 0.37% as September 30, 2024. 

ABOUT 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 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- Oak First 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.   The Corporation's website is www.mybank.com.

FORWARD-LOOKING STATEMENTS

This press release 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," "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 entitled "Risk Factors". In addition, investors should understand that the Corporation is required under generally accepted accounting principles to evaluate subsequent events through the filing of the consolidated financial statements included in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2025 and the impact that any such events have on our critical accounting assumptions and estimates made as of September 30, 2025, which could require us to make adjustments to the amounts reflected in this press release.