Table of Contents
th
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 2026
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to ________________
Commission file number 0-14237
First United Corporation
(Exact name of registrant as specified in its charter)
Maryland
52-1380770
(State or other jurisdiction of incorporation or organization)
(I. R. S. Employer Identification No.)
19 South Second Street, Oakland, Maryland
21550-0009
(Address of principal executive offices)
(Zip Code)
(800) 470-4356
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbols
Name of each exchange on which registered
Common Stock
FUNC
Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer ◻
Accelerated Filer ☑
Non-Accelerated filer ◻
Smaller Reporting Company ☑
Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,453,836 shares of common stock, par value $0.01 per share, as of July 31, 2026.
INDEX TO QUARTERLY REPORT
FIRST UNITED CORPORATION
Page
PART I. FINANCIAL INFORMATION
3
Item 1.
Financial Statements June 30, 2026 (unaudited); December 31, 2025 (audited)
Consolidated Statements of Financial Condition –June 30, 2026 and December 31, 2025
Consolidated Statements of Operations – for the six and three months ended June 30, 2026 and 2025
4
Consolidated Statements of Comprehensive Income – for the six and three months ended June 30, 2026 and 2025
6
Consolidated Statements of Changes in Shareholders’ Equity – for the six and three months ended June 30, 2026 and 2025
8
Consolidated Statements of Cash Flows – for the six months ended June 30, 2026 and 2025
9
Notes to Consolidated Financial Statements
10
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
47
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
67
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
68
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
69
SIGNATURES
70
2
Item 1. Financial Statements
First United Corporation and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except share data)
June 30,2026
December 31,2025
(unaudited)
(audited)
Assets
Cash and due from banks
$
84,195
129,830
Interest bearing deposits in banks
993
1,782
Cash and cash equivalents
85,188
131,612
Investment securities – available for sale (at fair value)
107,997
107,144
Investment securities – held to maturity, net of allowance for credit losses of $102 at June 30, 2026 and December 31, 2025 (fair value $146,368 at June 30, 2026 and $148,889 at December 31, 2025)
170,259
171,361
Equity investments not held for trading with readily determinable fair values
1,044
1,029
Restricted investment in bank stock, at cost
1,621
4,630
Loans held for sale
—
130
Loans
1,572,131
1,521,704
Unearned fees
(592)
(476)
Allowance for credit losses
(20,591)
(19,470)
Net loans
1,550,948
1,501,758
Premises and equipment, net
29,550
29,665
Goodwill and other intangibles
11,279
11,444
Bank owned life insurance
50,501
50,360
Deferred tax assets
8,072
8,730
Other real estate owned
1,083
Other repossessed assets
2,780
2,802
Right of use assets
862
1,015
Pension asset
24,044
20,798
Accrued interest receivable
7,602
7,904
Trust receivable
5,238
9,824
Other assets
25,107
26,164
Total Assets
2,082,092
2,087,453
Liabilities and Shareholders’ Equity
Liabilities:
Non-interest bearing deposits
441,365
453,036
Interest bearing deposits
1,294,148
1,282,113
Total deposits
1,735,513
1,735,149
Short-term borrowings
69,233
17,661
Long-term borrowings
30,929
95,929
Operating lease liability
1,009
1,180
SERP deferred compensation
9,099
9,008
Allowance for credit losses on unfunded commitments
1,463
1,218
Accrued interest payable
844
953
Other liabilities
19,950
21,031
Dividends payable
1,678
1,690
Total Liabilities
1,869,718
1,883,819
Shareholders’ Equity:
Common Stock – par value $0.01 per share; Authorized 25,000,000 shares; issued and outstanding 6,453,836 shares at June 30, 2026 and 6,499,476 at December 31, 2025
64
65
Surplus
19,514
21,551
Retained earnings
216,262
207,284
Accumulated other comprehensive loss, net of tax
(23,466)
(25,266)
Total Shareholders’ Equity
212,374
203,634
Total Liabilities and Shareholders’ Equity
See accompanying notes to the consolidated financial statements
Consolidated Statements of Operations
(In thousands, except per share data)
Six Months Ended
June 30,
2026
2025
Interest income
Interest and fees on loans
46,281
44,049
Interest on investment securities
Taxable
3,787
3,539
Exempt from federal income tax
118
102
Total investment income
3,905
3,641
Other
1,694
1,243
Total interest income
51,880
48,933
Interest expense
Interest on deposits:
Savings
81
88
Interest-bearing transaction accounts
10,697
10,304
Time deposits
2,886
3,079
Total interest on deposits
13,664
13,471
Interest on short-term borrowings
37
41
Interest on long-term borrowings
1,519
2,698
Total interest expense
15,220
16,210
Net interest income
36,660
32,723
Credit loss expense
Credit loss expense - loans
1,415
1,385
Credit loss expense - off-balance sheet credit exposures
245
131
Total credit loss expense
1,660
1,516
Net interest income after provision for credit losses
35,000
31,207
Other operating income
Net gains on sales of residential mortgage loans
125
238
Net gains on disposal of fixed assets
46
Net gains
171
Other Income
Service charges on deposit accounts
1,115
1,124
Other service charges
393
420
Trust department
4,709
Debit card income
1,977
1,904
916
690
Brokerage commissions
770
791
124
Total other income
10,527
9,762
Total other operating income
10,698
10,000
Other operating expenses
Salaries and employee benefits
16,358
14,650
FDIC premiums
553
512
Equipment expense
1,046
1,143
Occupancy expense of premises
1,364
Data processing expense
3,403
3,103
Marketing expense
427
434
Professional services
3,272
1,065
Contract labor
355
329
Telephone
189
194
Other real estate owned expense, net
182
300
Investor relations
145
Contributions
146
134
1,967
2,128
Total other operating expenses
29,458
25,550
Income before income tax expense
16,240
15,657
Provision for income tax expense
3,910
3,867
Net Income
12,330
11,790
Basic net income per share
1.91
1.82
Diluted net income per share
1.90
1.81
Weighted average number of basic shares outstanding
6,467
6,482
Weighted average number of diluted shares outstanding
6,478
6,498
Dividends declared per share
0.52
0.44
Three Months Ended
(Unaudited)
23,779
22,294
1,907
1,776
59
57
1,966
1,833
424
744
26,169
24,871
43
45
5,353
5,104
1,637
1,639
7,033
6,788
26
21
524
1,355
Total Interest Expense
7,583
8,164
Net Interest income
18,586
16,707
736
728
132
781
860
17,805
15,847
39
568
577
204
214
2,684
2,386
983
377
349
388
370
52
61
5,319
4,940
5,358
5,086
8,157
7,319
274
267
525
565
675
1,739
1,600
193
196
2,702
589
166
93
96
208
85
78
978
15,765
12,974
7,398
7,959
1,731
1,975
5,667
5,984
0.88
0.92
6,451
6,489
6,461
6,506
0.26
0.22
5
Consolidated Statements of Comprehensive Income
(In thousands)
Comprehensive Income
Other comprehensive income, net of tax and reclassification adjustments:
Available for sale securities:
Unrealized holding gains on investments with credit related impairment
417
506
Reclassification adjustment for accretable yield realized in income
101
Other comprehensive income on investments with credit related impairment
316
405
Unrealized holding (losses)/gains on all other AFS investments
(673)
2,334
Other comprehensive (loss)/income on all other AFS investments
Held to maturity securities
Reclassification adjustment for amortization realized in income
(319)
(317)
Other comprehensive income on HTM investments
319
317
Cash flow hedges:
Unrealized holding losses on cash flow hedges
(76)
(189)
Other comprehensive loss on cash flow hedges
Pension plan liability:
Unrealized holding gains/(losses) on pension plan liability
2,378
(23)
Reclassification adjustment for amortization of unrecognized losses realized in income
(194)
(265)
Other comprehensive income on pension plan liability
2,572
242
Other comprehensive income before income tax
2,458
3,109
Income tax effect related to other comprehensive income
(658)
(838)
Other comprehensive income, net of tax
1,800
2,271
Comprehensive income
14,130
14,061
197
498
50
51
147
447
Unrealized holding gains on all other AFS investments
44
485
Other comprehensive income on all other AFS investments
Held to Maturity Securities
(161)
(163)
161
163
(81)
Unrealized holding gains on pension plan liability
3,571
2,105
(97)
(133)
3,668
2,238
4,020
3,252
(1,069)
(870)
2,951
2,382
8,618
8,366
7
Consolidated Statements of Changes in Shareholders’ Equity
(In thousands, except per share data, unaudited)
CommonStock
RetainedEarnings
AccumulatedOtherComprehensiveLoss, Net of Tax
TotalShareholders'Equity
Balance at January 1, 2026
Net income
6,663
Other comprehensive loss
(1,151)
Stock based compensation, net of forfeitures
(109)
Common stock issued - 7,841 shares
89
Common stock repurchased - 60,600 shares
(1)
(2,171)
(2,172)
Common stock dividend declared - $0.26 per share
(1,692)
Balance at March 31, 2026
19,360
212,255
(26,417)
205,262
Other comprehensive income
1
433
Common stock issued - 17,119 shares
91
Common stock repurchased - 10,000 shares
(370)
(371)
(1,660)
Balance at June 30, 2026
Balance at January 1, 2025
20,476
189,002
(30,248)
179,295
5,806
(111)
55
Common stock issued - 7,538 shares
75
Common stock dividend declared - $0.22 per share
(1,426)
Balance at March 31, 2025
20,606
193,382
(30,359)
183,694
440
Common stock issued - 15,977 shares
(1,428)
Balance at June 30, 2025
21,121
197,938
(27,977)
191,147
Consolidated Statements of Cash Flows
Operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation
1,215
1,311
325
495
Gains on sales of other real estate owned, net
(5)
Write-downs of other real estate owned, net
27
Originations of loans held for sale
(1,690)
(3,172)
Proceeds from sales of loans held for sale
1,945
4,106
Gains from sales of loans held for sale
(125)
(238)
Gains on disposal of fixed assets
(46)
Net increase in equity securities with readily determinable fair values
(15)
Net accretion of investment securities discounts and premiums- AFS
(167)
(94)
Net accretion of investment securities discounts and premiums- HTM
(284)
(271)
Amortization of intangible assets
165
164
Earnings on bank owned life insurance
(916)
(690)
Amortization of deferred loan fees, net
(68)
(78)
Amortization of operating lease right of use asset
153
Decrease/(Increase) in accrued interest receivable and other assets
4,903
(4,370)
Deferred tax expense /(benefit)
658
(32)
Amortization of operating lease liability
(171)
(153)
Decrease in accrued interest payable and other liabilities
(1,143)
(2,497)
Net cash provided by operating activities
18,724
7,960
Investing activities
Proceeds from prepayments/calls and maturities of investment securities - AFS
5,271
2,576
Proceeds from prepayments and maturities of investment securities - HTM
4,090
3,169
Purchases of investment securities - AFS
(6,317)
(8,832)
Purchases of investment securities - HTM
(2,704)
(2,352)
Purchase of equity securities with readily determinable fair values
(1,008)
Proceeds from sale of other repossessed assets
110
Proceeds from sale of other real estate owned
1,137
Proceeds from BOLI death benefit
775
Net decrease/(increase) in restricted stock
3,009
(47)
Net increase in loans
(41,913)
(22,030)
Purchase of consumer loan pool
(8,761)
Purchases of premises and equipment, net
(1,054)
(874)
Net cash used in investing activities
(46,357)
(29,398)
Financing activities
Net increase in deposits
364
39,378
Issuance of common stock
180
150
Cash dividends paid on common stock
(3,364)
(2,849)
Net increase/(decrease) in short-term borrowings
51,572
(14,455)
Common stock repurchases
(2,543)
Payments of long-term borrowings
(65,000)
Net cash (used in)/provided by financing activities
(18,791)
22,224
(Decrease)/increase in cash and cash equivalents
(46,424)
786
Cash and cash equivalents at beginning of the year
78,327
Cash and cash equivalents at end of period
79,113
Supplemental information
Interest paid
15,274
15,761
Taxes paid
4,034
Non-cash investing activities:
Transfers from loans to other repossessed assets
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 – Basis of Presentation
The financial information is presented in accordance with generally accepted accounting principles and general practice for financial institutions in the United States of America (“GAAP”). First United Corporation has prepared these unaudited condensed consolidated financial statements in accordance with GAAP for interim financial information, rules of the Securities and Exchange Commission that permit reduced disclosure for interim periods, and Article 8 of Regulation S-X. Operating results for the six- and three-month periods ended June 30, 2026 are not necessarily indicative of the results that may be expected for the full year or for any future interim period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in First United Corporation’s Annual Report on Form 10-K for the year ended December 31, 2025.
In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of financial statements. In addition, these estimates and assumptions affect revenues and expenses in the financial statements and, as such, actual results could differ from those estimates.
In the opinion of management, all adjustments (all of which are of a normal recurring nature) that are necessary for a fair statement are reflected in the unaudited condensed consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of First United Corporation, First United Bank & Trust (the “Bank”), First United Statutory Trust I, First United Statutory Trust II, OakFirst Loan Center, LLC, OakFirst Loan Center, Inc. and First OREO Trust. All significant inter-company accounts and transactions have been eliminated.
As used in these notes, the terms “the Corporation” “we”, “us”, and “our” refer to First United Corporation and, unless the context clearly requires otherwise, its consolidated subsidiaries.
The Corporation has evaluated events and transactions occurring subsequent to the statement of financial condition date of June 30, 2026 and through the date on which these consolidated financial statements were issued, for items of potential recognition or disclosure.
Note 2 – Accounting Standards Issued but Not Yet Adopted
In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, “Income Statement- Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU No. 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU No. 2024-03 requires new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU No. 2024-03 is effective on a prospective basis for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, though early adoption and retrospective application is permitted. ASU No. 2024-03 is not expected to have a material impact on our financial statements.
In September 2025, FASB issued ASU No. 2025-06, “Intangibles- Goodwill and Other Internal Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software.” ASU No. 2025-06 applies to all entities subject to internal-use software guidance in Accounting Standards Codification (“ASC”) Subtopic 350-40 and website development costs in accordance with Subtopic 350-50. The amendments in ASU No.2025-06 remove all reference to prescriptive and sequential software development stages. Therefore, an entity is required to start capitalizing software costs when both the following occur: (i) management has authorized and committed to funding the software project and (ii) it is probable that the project will be completed
and the software will be used to perform the function intended. ASU No. 2025-06 is effective on a prospective basis for annual periods beginning after December 15, 2027, though early adoption and retroactive application is permitted. ASU No. 2025-06 is not expected to have a material impact on our financial statements.
In November 2025, FASB issued ASU No. 2025-08, “Financial Instruments- Credit Losses (topic 326): Purchased Loans.” ASU No. 2025-08 expands the scope of the “gross-up” method, formerly applicable only to purchased credit-deteriorated (“PCD”) assets, to include acquired non-PCD loans that meet certain criteria, now referred to as “purchased seasoned loans” (“PSL”). Under this model, an allowance for expected credit losses is recognized at acquisition, offsetting the loan’s amortized cost basis, thereby eliminating the day-one credit-loss expense previously required for non-PCD assets. PSLs are defined as non-PCD loans acquired either (i) through a business combination, or (ii) purchased more than 90 days after origination when the acquirer was not involved in origination. ASU No. 2025-08 is effective on a prospective basis for annual periods beginning after December 15, 2026, though early adoption is permitted. ASU No. 2025-08 is not expected to have a material impact on our financial statements.
In November 2025, FASB issued ASU No. 2025-09, “Derivatives and Hedging (topic 815): Hedge Accounting Improvements.” ASU No. 2025-09 amends ASC Topic 815 to align hedge accounting more closely with an entity’s economic risk management practices. Key amendments include (i) to allow designating a variable price component of a nonfinancial forecasted purchase or sale as the hedged risk, (ii) to allow grouping individual forecasted transactions with similar (not identical) risk exposures, (iii) a new model for hedging forecasted interest on a variable-rate debt, enabling changes in index or tenor without dedesignation, subject to simplifying assumptions, and (iv) additional clarifications related to hedge accounting of nonfinancial components, net written options, and dual-hedge strategies. ASU No. 2025-09 is effective on a prospective basis for annual periods beginning after December 15, 2026, though early adoption and retroactive application is permitted. ASU No. 2025-09 is not expected to have a material impact on our financial statements.
In November 2025, FASB issued ASU No. 2025-11, “Interim reporting (topic 270): Narrow Scope Improvements.” ASU No. 2025-11 clarifies and enhances guidance under ASC Topic 270 on interim financial reporting by (i) clarifying the scope of ASC 270 such that it now explicitly applies only to entities that issue complete interim financial statements and related notes under U.S. GAAP, (ii) establishing clear guidance on the form of interim statements and notes, incorporating a comprehensive list of required interim disclosures drawn from across the ASC, and (iii) introducing a requirement to disclose material events and changes occurring after the end of the last annual period that could impact interim results. ASU No. 2025-11 is effective on a prospective basis for annual periods beginning after December 15, 2027, though early adoption and retroactive application is permitted. ASU No. 2025-11 is not expected to have a material impact on our financial statements.
Note 3 – Earnings Per Share
Basic earnings per share is derived by dividing net income available to shareholders by the weighted-average number of common shares outstanding during the period and does not include the effect of any potentially dilutive common stock equivalents. Diluted earnings per share is derived by dividing net income available to shareholders by the weighted-average number of shares outstanding, adjusted for the dilutive effect of outstanding common stock equivalents, such as restricted stock units (“RSUs”). There were no anti-dilutive shares outstanding at June 30, 2026 or 2025.
11
The following tables set forth the calculation of basic and diluted earnings per common share for the six- and three-month periods ended June 30, 2026 and 2025:
Six months ended June 30,
Weighted
Average
Per Share
(in thousands, except for per share amount)
Income
Shares
Amount
Basic Earnings Per Share:
Diluted Earnings Per Share:
Restricted stock units
16
Three months ended June 30,
17
Note 4 – Investments
The following tables show a comparison of amortized cost and fair values of investment securities at June 30, 2026 and December 31, 2025:
(in thousands)
AmortizedCost
GrossUnrealizedGains
GrossUnrealizedLosses
Allowance for Credit Losses
Estimated Fair Value
June 30, 2026
Available for Sale:
U.S. government agencies
2,000
624
1,376
Residential mortgage-backed agencies
24,601
3,220
21,387
Commercial mortgage-backed agencies
40,901
8,230
32,671
Collateralized mortgage obligations
28,387
2,720
25,667
Obligations of states and political subdivisions
10,968
139
10,884
Corporate bonds
1,000
954
Collateralized debt obligations
17,204
2,146
15,058
Total available for sale
125,061
17,125
12
GrossUnrecognizedGains
GrossUnrecognizedLosses
Held to Maturity:
68,744
8,250
60,494
33,243
56
2,785
30,514
20,536
5,157
15,379
43,593
7,402
36,191
4,245
72
527
3,790
Total held to maturity
170,361
128
24,121
146,368
December 31, 2025
596
1,404
25,891
40
3,076
22,855
37,805
7,738
30,068
29,795
2,445
27,390
8,557
35
8,525
907
18,802
2,807
15,995
123,850
116
16,822
68,595
7,721
60,874
32,084
138
2,474
29,748
20,947
5,180
15,767
45,447
7,056
38,391
4,390
206
487
4,109
171,463
344
22,918
148,889
There was one call of an available-for-sale (“AFS”) security at par during each of the six- and three-month periods ended June 30, 2026. There were no calls during the six- or three-month periods ended June 30, 2025. There was no sales activity during the six- and three-month periods ended June 30, 2026 or 2025.
The Corporation utilizes ASC Topic 326 to evaluate its AFS and held-to-maturity (“HTM”) debt security portfolio for expected credit losses.
For any AFS debt security in an unrealized loss position, the Corporation first assesses whether it intends to sell, or it is more likely than not that the Corporation will be required to sell the security before recovery to its amortized cost basis. If either criterion regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether any decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically
13
related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through the ACL is recorded in other comprehensive income (“OCI”).
The Corporation adopted ASC Topic 326 using the prospective transition approach for debt securities for which other than temporary impairment (“OTTI”) had been recognized prior to January 1, 2023, such as AFS collateralized debt obligations. As a result, the amortized cost basis for such debt securities remained the same before and after the effective date of ASC Topic 326. The effective interest rate on these debt securities has not changed. Amounts of OTTI that were recorded prior to January 1, 2023 are being accreted into income over the remaining life of the assets.
The ACL on HTM securities is a contra-asset valuation account, calculated in accordance with ASC Topic 326. Management measures expected credit losses on HTM debt securities on a collective basis by major security type. Management has elected to not measure an ACL for accrued interest on securities. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.
Management classifies the HTM portfolio into the following major security types: (i) securities issued or guaranteed by U.S. government agencies (including U.S. treasuries, agency bonds, and U.S. guaranteed residential mortgage-backed securities, commercial mortgage-backed securities, and collateralized mortgage obligations); (ii) rated municipal securities; and (iii) unrated municipal securities. With regard to securities issued by U.S. government agencies and corporations, it is expected that the securities will not settle at prices that are less than the amortized cost basis of the securities, as such securities are backed by the full faith and credit of and/or guaranteed by the U.S. government. Accordingly, no ACL has been recorded on these securities. With regard to securities issued by states and political subdivisions, management considers (x) issuer bond ratings, (y) historical loss rates for given bond ratings, and (z) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. Non-rated securities are evaluated internally based on financial performance and expected future cash flows.
At June 30, 2026, for HTM securities, there were no securities in non-accrual status and all were performing in accordance to their contractual terms.
As of both June 30, 2026 and December 31, 2025, the Corporation recorded ACL of approximately $102,000, related to one municipal bond in its HTM securities portfolio.
14
The following tables show the Corporation’s investment securities with gross unrealized and unrecognized losses and fair values at June 30, 2026 and December 31, 2025, aggregated by investment category and the length of time that individual securities have been in a continuous unrealized and unrecognized loss position:
Less than 12 months
12 months or more
FairValue
UnrealizedLosses
Number ofInvestments
18,710
4,158
98,594
UnrecognizedLosses
12,369
48,125
8,119
26,805
2,308
128,808
23,990
15
17,405
28,623
8,811
100
14,160
2,345
3,332
Corporate Bonds
81,826
16,722
34
19,434
2,364
136,830
The amortized cost and estimated fair value of securities by contractual maturities at June 30, 2026 are shown in the following table. Expected maturities for mortgage-backed securities and collateralized mortgage obligations will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Contractual Maturity
Due after one year through five years
Due after five years through ten years
16,499
14,920
Due after ten years
14,178
12,857
31,172
28,272
Due in one year or less
12,500
4,550
4,271
45,396
39,575
10,543
8,069
72,989
64,284
At June 30, 2026 and December 31, 2025, AFS investment securities with an aggregate fair value of $90.0 million and $87.1 million, respectively, and HTM investment securities with an aggregate book value of $160.5 million and $169.0 million, respectively, were pledged as permitted or required to secure public deposits, for securities sold under agreements to repurchase as required or permitted by law and as collateral for borrowing capacity.
Note 5 – Loans and Related Allowance for Credit Losses
The following table summarizes the primary segments of the loan portfolio at June 30, 2026 and December 31, 2025:
CommercialReal Estate
AcquisitionandDevelopment
CommercialandIndustrial
ResidentialMortgage
Consumer
Total
Individually evaluated for impairment
1,255
5,636
1,521
8,412
Collectively evaluated for impairment
624,566
102,211
236,377
545,597
54,968
1,563,719
Total loans
625,821
242,013
547,118
617
17,142
1,927
19,686
570,191
90,272
259,892
534,985
46,678
1,502,018
570,808
277,034
536,912
The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at June 30, 2026 and December 31, 2025:
Current
30-59 DaysPast Due
60-89 DaysPast Due
90 Days+Past Due
Total PastDue andAccruing
Non-Accrual
Total Loans
Commercial real estate:
Non-owner-occupied
350,537
3,530
354,067
All other CRE
269,511
880
1,363
271,754
Acquisition and development:
1-4 family residential construction
24,388
All other A&D
77,823
Commercial and industrial
240,273
702
787
Residential mortgage:
Residential mortgage - term
471,505
1,155
375
1,576
2,041
475,122
Residential mortgage - home equity
71,362
113
484
71,996
54,424
53
537
1,559,823
5,997
1,406
391
7,794
4,514
334,581
334,683
234,459
769
304
1,073
593
236,125
15,369
74,903
275,826
112
28
140
1,068
464,294
244
2,540
2,223
469,057
67,154
256
86
188
530
67,855
46,100
252
246
543
1,512,686
1,539
2,810
477
4,826
4,192
Non-accrual loans that have been subject to partial charge-offs totaled $0.1 million at June 30, 2026 and $0.2 million at December 31, 2025. Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $1.2 million at June 30, 2026 and $0.5 million at December 31, 2025. The increase was due to one mortgage loan of approximately $1.2 million that was moved to non-accrual status in the second quarter. As a percentage of the loan portfolio, accruing loans past due 30 days or more increased to 0.50% at June 30, 2026 compared to 0.32% at December 31, 2025. This increase was attributable to one large commercial loan.
A loan that is considered a non-accrual or modified loan may be subject to the individually evaluated loan analysis if the commitment is $100,000 or greater; otherwise, the non-accrual or modified loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows of the loan. For a discussion with respect to reserve calculations regarding individually evaluated loans, refer to the “Nonrecurring Loans” section in Note 6, Fair Value of Financial Instruments.
The Corporation maintains an ACL at a level that management believes is adequate to absorb expected credit losses associated with the Corporation’s financial instruments over the life of those instruments as of the balance sheet date. The Corporation develops and documents a systematic ACL methodology based on the following portfolio segments: (i) commercial real estate; (ii) acquisition and development; (iii) commercial and industrial; (iv) residential mortgage; and (v) consumer. The
18
Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ACL.
Commercial Real Estate- loans are secured by commercial purpose real estate, including both owner-occupied properties and properties obtained for investment purposes, such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary source of repayment of these loans. The condition of the local economy is an important indicator of risk, but there are more specific risks depending on the collateral type as well as the business.
Acquisition and Development- loans include both commercial and consumer. Commercial loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Consumer loans are made for the construction of residential homes for which a binding sales contract exists and generally are for a period of time sufficient to complete construction. Residential construction loans to individuals generally provide for the payment of interest only during the construction phase. Credit risk for residential real estate construction loans can arise from construction delays, cost overruns, failure of the contractor to complete the project to specifications and economic conditions that could impact demand for supply of the property being constructed.
Commercial and Industrial- loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the borrower is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the borrower. The collateral for these types of loans often does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. These loans are also made to local municipalities for various purposes including refinancing existing obligations, infrastructure up fit and expansion, or to purchase new equipment. The primary repayment source for local municipalities includes the tax base of the municipality, specific revenue streams related to the infrastructure financed, and other business operations of the municipal authority. The health and stability of state and local economies directly impacts each municipality’s tax basis and are important indicators of risk for this segment. The ability of each municipality to increase taxes and fees to offset service requirements gives this type of loan a very low risk profile in the continuum of the Corporation’s loan portfolio.
Residential Mortgage- loans are secured by first and second liens such as home equity lines of credit and 1-4 family residential mortgages. The primary source of repayment for these loans is the income of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy debt.
Consumer- loans are made to individuals and may be either secured by assets other than real estate or unsecured. This segment includes automobile loans and unsecured loans and lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.
19
The following tables present the amortized cost basis of loans on a nonaccrual status at June 30, 2026 and December 31, 2025:
Nonaccrual Loans With No Allowance for Credit Loss
Nonaccrual Loans With Allowance for Credit Loss
Total Nonaccrual Loans
Commercial real estate
108
Residential mortgage
520
Residential mortgage – home equity
3,729
785
Non owner-occupied
515
90
1,823
400
104
3,522
670
The following table summarizes the primary segments of the ACL at June 30, 2026 and December 31, 2025, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:
Individually evaluatedfor impairment
123
Collectively evaluatedfor impairment
5,805
1,563
3,645
8,399
1,056
20,468
Total ACL
3,768
20,591
4,644
1,278
4,056
8,272
803
19,053
4,473
19,470
Changes in the fair value of the types of collateral for individually evaluated loans are reported as provision for credit loss in the period of change. The evaluation of the need and amount of a specific allocation of the ACL and whether a loan can be removed from impairment status is made on a quarterly basis.
20
The following tables present the amortized cost basis of collateral-dependent, individually-evaluated loans as of June 30, 2026 and December 31, 2025.
Real Estate
Other Collateral
Non-Accrual Loans with No Allowance for Credit Loss
2,776
2,544
The following tables present the activity in the ACL for the six- and three-month periods ended June 30, 2026 and 2025.
Beginning balance at January 1, 2026
Loan charge-offs
(134)
(4)
(326)
(464)
Recoveries collected
107
170
Credit loss expense/(credit)
1,161
272
(581)
472
ACL balance at June 30, 2026
Beginning balance at January 1, 2025
5,272
909
4,205
7,010
774
18,170
(9)
(399)
(778)
71
29
154
894
378
(137)
178
ACL balance at June 30, 2025
6,166
1,043
4,226
6,902
707
19,044
Three months ended (in thousands)
ACL balance at April 1, 2026
5,638
1,446
4,050
7,974
843
19,951
(63)
(128)
(191)
30
95
167
111
(227)
395
290
ACL balance at April 1, 2025
5,670
940
4,334
6,723
800
18,467
(6)
(215)
(236)
54
496
(104)
The Corporation’s methodology for estimating the ACL includes:
Segmentation. The Corporation’s loan portfolio is segmented by homogeneous loan types that behave similarly to economic cycles.
Specific Analysis. A specific reserve analysis is applied to certain individually evaluated loans. These loans are evaluated quarterly based on collateral value, observable market value or the present value of expected future cash flows. A specific reserve is established if the fair value is less than the loan balance. A charge-off is recognized when the loss is quantifiable. Individually evaluated loans not specifically analyzed, reside in the quantitative analysis.
Quantitative Analysis. The Corporation has elected to use discounted cash flows. Economic forecasts include but are not limited to unemployment, the Consumer Price Index, the Housing Affordability Index, and Gross State Product. These forecasts are assumed to revert to the long-term average and are utilized in the model to estimate the probability of default and the loss given default is the estimated loss rate, which varies over time. The estimated loss rate is applied within the appropriate periods in the cash flow model to determine the net present value. Net present value is also impacted by assumptions related to the duration between default and recovery. The reserve is based on the difference between the summation of the principal balances taking amortized costs into consideration and the summation of the net present values.
The Corporation has elected to forecast out the first four quarters of the credit loss estimate and revert this forecast to long-term historical averages on a straight-line basis over eight quarters. By reverting these modeling inputs to their historical average and considering loan/borrower specific attributes, our models are intended to yield a measurement of expected credit losses that reflects our average historical loss rates for periods subsequent to the reversion period.
Qualitative Analysis. Based on management’s review and analysis of internal, external and model risks, management may adjust the model output. Management reviews the peaks and troughs of the model’s calibrations, taking into account economic forecasts to develop guardrails that serve as the basis for determining the reasonableness of the model’s output and makes adjustments as necessary. This process challenges unexpected variability resulting from outputs beyond the model’s calibrations that appear to be unreasonable. Management also enhances the calculation through the use of Moody’s economic forecast data in its calculation. Additionally, management may adjust the economic forecast if it is incompatible with known market conditions based on management’s experience and perspective.
The ACL is based on estimates, and actual losses may vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ACL that is representative of the risk found in the components of the portfolio at any given date.
22
Credit Quality Indicators:
The Corporation’s portfolio grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Corporation’s internal credit risk grading system is based on debt service coverage, collateral values and other subjective factors. Mortgage and consumer loans are defaulted to pass grade until a loan migrates to past due status.
The Corporation has a loan review policy and annual scope report that details the level of loan review for loans in a given year. The annual loan review provides the Credit Risk Committee with an independent analysis of the following: (i) credit quality of the loan portfolio; (ii) compliance with loan policy; (iii) adequacy of documentation in credit files; and (iv) validity of risk ratings.
The Corporation’s internally assigned grades are as follows:
Pass- The Corporation uses six grades of pass, including its watch rating. Generally, a pass rating indicates that the loan is currently performing and is of high quality.
Special Mention- Assets with potential weaknesses that warrant management’s close attention and if left unchanged, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date.
Substandard- Assets that are inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Assets so classified have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. Such assets are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful- Assets with all weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
Loss- Assets considered of such little value that their continuance on the books is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical to defer writing off this basically worthless asset even though partial recovery may be affected in the future.
The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, we monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss.
23
The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments for the periods presented:
2024
2023
2022
2021 and Prior
Revolving
Total Portfolio Loans
Pass
25,243
35,811
22,565
46,783
75,669
136,630
9,583
352,284
Special Mention
Substandard
1,783
Total non-owner occupied
138,413
Current period gross charge-offs
41,161
24,490
56,576
29,929
20,676
87,906
2,331
263,069
904
6,412
600
8,685
Total all other CRE
57,480
30,698
94,318
2,931
5,234
13,012
3,181
2,753
Total acquisition and development
9,048
12,110
16,130
2,650
3,640
8,979
24,975
77,532
291
Total all other A&D
12,401
Commercial and industrial:
21,380
36,843
15,192
20,117
25,392
15,179
61,191
195,294
4,250
18,902
3,500
500
27,152
135
224
1,101
7,544
10,563
19,567
Total commercial and industrial
19,577
39,243
29,993
22,723
72,254
37,057
46,886
43,165
60,314
80,093
198,835
2,035
468,385
840
5,875
6,737
Total residential mortgage - term
80,933
204,710
2,057
471
481
523
2,924
1,274
65,297
71,027
962
969
Total residential mortgage - home equity
1,281
66,259
Consumer:
16,108
7,650
4,548
4,677
15,313
4,154
54,721
62
247
Total consumer
7,660
4,655
4,739
2,312
15,332
4,162
87
66
38
326
155,702
177,283
161,414
165,201
210,665
464,116
172,319
1,506,700
301
1,146
1,055
1,982
21,640
12,155
38,279
177,584
166,810
185,158
216,147
485,756
184,974
Current YTD Period:
122
98
464
24
2021
2020 and Prior
33,245
22,810
40,375
78,385
25,911
123,082
8,917
332,725
1,856
1,958
40,477
124,938
24,612
50,485
31,650
22,273
20,617
75,235
3,240
228,112
864
915
1,712
3,922
7,149
51,400
23,193
79,157
3,840
11,783
980
2,515
13,267
24,703
8,852
3,988
1,582
8,840
13,374
74,606
297
13,564
37,145
17,406
17,629
45,513
11,060
13,892
71,139
213,784
19,112
3,638
32
4,963
31,995
235
1,008
106
8,015
21,769
31,255
37,167
21,756
36,976
50,159
11,198
21,907
97,871
570
441
1,011
44,643
47,862
63,667
86,508
69,335
148,527
1,057
461,599
857
1,173
5,405
7,458
87,365
70,508
153,932
1,080
558
567
3,180
557
866
61,070
66,857
989
998
875
62,059
9,849
6,814
6,369
3,372
1,593
15,573
2,789
46,359
60
94
82
49
9,909
6,908
3,421
15,588
2,801
275
92
172
715
175,102
170,230
170,089
243,219
130,655
386,015
164,101
1,439,411
896
32,859
379
1,109
419
1,914
2,998
19,222
23,393
49,434
175,481
175,589
189,620
248,771
134,549
405,237
192,457
187
674
504
1,750
Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past.
25
The following tables present loan balances by year of origination segregated by performing and non-performing loans for the periods presented:
Performing
Nonperforming
93,724
270,391
594
29,040
241,060
80,739
202,488
472,706
2,222
2,416
66,093
71,830
4,732
54,961
184,382
215,000
482,940
184,808
1,567,226
776
1,147
2,816
4,905
78,564
235,532
49,181
11,108
275,966
70,127
151,846
466,590
381
2,086
2,467
61,700
67,496
359
6,891
6,416
3,409
15,572
46,598
80
175,572
189,483
247,781
134,078
402,542
192,098
1,517,035
137
990
2,695
4,669
Loan Modifications for Borrowers Experiencing Financial Difficulty
The Corporation evaluates all loan modifications according to the accounting guidance in ASU No. 2022-02 to determine if the modification results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, or combinations of the listed modifications. Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows.
The Corporation may offer various types of modifications when restructuring a loan. Commercial and industrial loans modified in a loan restructuring often involve temporary interest-only payments, term extensions, and converting credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested.
Commercial mortgage and construction loans modified in a loan restructuring often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a loan restructuring may also involve extending the interest-only payment period.
Loans modified in a loan restructuring for the Corporation may have the financial effect of increasing the specific allowance associated with the loan. An allowance for loans that have been modified in a loan restructuring is measured based on the present value of expected cash flows discounted at the loan’s effective interest rate or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.
Commercial and consumer loans modified in a loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Corporation evaluates the loan for possible further loss. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.
The following tables present the amortized cost basis and the financial effect of loans modified to borrowers experiencing financial difficulty during the six- and three-month periods ended June 30, 2026 and 2025. For the six months ended June 30, 2026, two new loans and one existing loan were modified and one existing modification was repaid . During the second quarter of 2026, one new loan was added and one existing modification was repaid.
Term Extension
Percentage of Total Loan Type
Weighted Average Term and Principal Payment Extension
Six months ended June 30, 2026
Owner-occupied commercial real estate
0.32%
12 months
0.01%
4 months
Six months ended June 30, 2025
874
0.38%
60 months
898
Three months ended June 30, 2026
Three months ended June 30, 2025
The Corporation monitors loan payments on performing and non-performing loans on an ongoing basis to determine if a loan is considered to have a payment default. The borrowers for whom loan modifications were made in the six- and three-month periods ended June 30, 2026 have made all contractual payments.
If a modified loan with an outstanding balance of $100,000 or greater subsequently defaults and goes on non-accrual status, then the Corporation individually evaluates the loan when performing its estimate of current expected credit losses to calculate the ACL. Upon determination that a modified loan (or a portion of a modified loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.
Note 6 – Fair Value of Financial Instruments
The Corporation complies with the guidance of ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements required under other accounting pronouncements. The Corporation also follows the guidance on matters relating to all financial instruments found in ASC Subtopic 825-10, Financial Instruments – Overall.
The fair value of an asset or liability is the price to sell an asset or to transfer a liability in an orderly transaction between willing market participants as of the measurement date. In estimating fair value, the Corporation utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities. This level is the most reliable source of valuation.
Level 2: Quoted prices that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates). It also includes inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Several sources are utilized for valuing these assets, including a contracted valuation service, Standard & Poor’s (“S&P”) evaluations and pricing services, and other valuation matrices.
Level 3: Prices or valuation techniques that require inputs that are both significant to the valuation assumptions and not readily observable in the market (i.e. supported with little or no market activity). Level 3 instruments are valued based on the best available data, some of which is internally developed, and consider risk premiums that a market participant would require.
The level established within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 1, 2 or 3 are recorded at fair value at the beginning of the reporting period.
Investments – The investment portfolio is classified and accounted for based on the guidance of ASC Topic 320, Investments – Debt and Equity Securities.
The fair value of investments available-for-sale is determined using a market approach. At both June 30, 2026 and December 31, 2025, the U.S. Government agencies and treasuries, residential and commercial mortgage-backed securities, and municipal bonds segments were classified as Level 2 within the valuation hierarchy. Their fair values were determined based upon market-corroborated inputs and valuation matrices, which were obtained through third party data service providers or securities brokers through which we have historically transacted both purchases and sales of investment securities.
Equity investments not held for trading with readily determinable fair values consisted of money market mutual funds as of both June 30, 2026 and December 31, 2025 and were classified as Level 1 within the valuation hierarchy. Their fair values were determined based upon daily published net asset values with which investors can freely redeem from the fund.
Derivative financial instruments (cash flow hedge) – The Corporation’s open derivative positions are interest rate swap agreements. Those classified as Level 2 open derivative positions are valued using externally developed pricing models based on observable market inputs provided by a third party and validated by management. The Corporation has considered counterparty credit risk in the valuation of its interest rate swap assets.
Individually evaluated loans – Loans included in the table below are those that are considered individually evaluated with a specific allocation or with partial charge-offs, based upon the guidance of Topic 326 in ASU No. 2016-13, Financial Instruments - Credit Loses, under which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value consists of the loan balance less its valuation allowance and is generally determined based on independent third-party appraisals of the collateral or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
Equity investments without readily determinable fair values- Equity investments included in the table below are recorded with a write-down to fair value recorded in other operating expenses. Fair value of the equity investment was based on an independent third-party valuation report where the value was determined based on the revenue multiples of like kind information technology businesses. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
Other real estate owned (“OREO”) – OREO included in the table below are recorded with specific write-downs. Fair value of other real estate owned was based on independent third-party appraisals of the properties. These values were determined based on the sales prices of similar properties in the approximate geographic area. These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.
For assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2026 and December 31, 2025 were as follows:
Fair Value Measurementsat June 30, 2026 Using
Quoted
Prices in
Significant
Active Markets
Measured at
for Identical
Observable
Unobservable
Fair Value
Inputs
6/30/2026
(Level 1)
(Level 2)
(Level 3)
Recurring:
Investment securities available-for-sale:
Non-recurring:
Collateral dependent loans
Fair Value Measurementsat December 31, 2025 Using
Assets/(liabilities)
12/31/25
Financial derivatives
76
266
853
There were no transfers of assets between any levels of the fair value hierarchy for the six- or three-month periods ended June 30, 2026 or 2025.
31
For Level 3 assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2026 and December 31, 2025, the significant unobservable inputs used in the fair value measurements were as follows:
Fair Value atJune 30,2026
ValuationTechnique
SignificantUnobservableInputs
SignificantUnobservableInput Value
Investment securities – available for sale -CDO
Discounted Cash Flow
Discount Margin
Range of mid to upper 400 bps
Fair Value atDecember 31,2025
Range of upper 200 to upper 400 bps
Market Comparable Properties
Marketability Discount
N/A
15.0%
The following tables show a reconciliation of the beginning and ending balances for fair valued assets measured on a recurring basis using Level 3 significant unobservable inputs for the six- and three-month periods ended June 30, 2026 and 2025:
Fair Value Measurements
Using Significant Unobservable Inputs
Investment Securities
Available for Sale
Beginning balance January 1, 2026
Total gains realized/unrealized:
Included in other comprehensive income
752
Total reductions due to call of investment
(1,689)
Ending balance June 30, 2026
Beginning balance January 1, 2025
14,718
Ending balance June 30, 2025
15,241
Fair Value MeasurementsUsing Significant Unobservable Inputs(Level 3)
Investment SecuritiesAvailable for Sale
Beginning balance April 1, 2026
16,229
518
Beginning balance April 1, 2025
14,697
544
There were no gains or losses included in earnings attributable to the change in realized/unrealized gains or losses related to the assets for the six- or three-month periods ended June 30, 2026 or 2025.
The disclosed fair values may vary significantly between institutions based on the estimates and assumptions used in the various valuation methodologies. The derived fair values are subjective in nature and involve uncertainties and significant judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could significantly impact the derived estimates of fair value. Disclosure of non-financial assets such as buildings, as well as certain financial instruments such as leases is not required. Accordingly, the aggregate fair values presented do not represent the underlying value of the Corporation.
33
The following tables present fair value information about financial instruments, whether or not recognized in the Consolidated Statement of Financial Condition, for which it is practicable to estimate that value. The actual carrying amounts and estimated fair values of the Corporation’s financial instruments that are included in the Consolidated Statement of Financial Condition are as follows:
Carrying
Fair
Value
Financial Assets:
Investment securities - AFS
92,939
Investment securities - HTM
144,886
1,482
Equity securities not held for trading with readily determinable fair values
Restricted bank stock
Loans, net
1,518,149
938
6,664
Financial Liabilities:
Deposits - non-maturity
1,563,455
Deposits - time deposits
172,058
170,511
Short-term borrowed funds
Long-term borrowed funds
30,986
91,149
147,144
1,745
1,469,463
Financial derivative
895
7,009
1,534,191
200,958
199,967
95,775
Note 7 – Accumulated Other Comprehensive Loss
The following table presents the changes in each component of accumulated other comprehensive loss for the six- and three-month periods ended June 30, 2026 and 2025:
Investment
securities-
with credit
related
impairment
all other
Cash Flow
Pension
AFS
HTM
Hedge
Plan
SERP
Accumulated OCL, net:
Balance - January 1, 2026
(2,377)
(10,383)
(4,212)
73
(8,246)
(121)
Other comprehensive income/(loss) before reclassifications
162
(527)
(60)
(877)
(1,302)
Amounts reclassified from accumulated other comprehensive income
(36)
151
Balance - March 31, 2026
(2,251)
(10,910)
(4,096)
(9,052)
144
2,624
2,800
(38)
Balance - June 30, 2026
(2,145)
(10,878)
(3,978)
(6,357)
Balance - January 1, 2025
(2,592)
(13,792)
(4,696)
372
(9,723)
183
1,357
(85)
(1,562)
(37)
97
173
Balance - March 31, 2025
(2,623)
(12,435)
(4,583)
287
(11,188)
Other comprehensive income/(loss)before reclassifications
365
356
(64)
1,545
2,202
Amounts reclassified from accumulated other comprehensive loss
120
Balance - June 30, 2025
(2,295)
(12,079)
(4,463)
223
(9,546)
The following tables present the components of other comprehensive loss for the six- and three-month periods ended June 30, 2026 and 2025:
Before
Tax
Components of Other Comprehensive Income
(Expense)
Benefit
Net
For the six months ended June 30, 2026
Available for sale (AFS) securities with credit related impairment:
Unrealized holding gains
306
Less: accretable yield recognized in income
(27)
74
Net unrealized gains on investments with credit related impairment
(84)
232
Available for sale securities – all other:
Unrealized holding losses
(495)
Net unrealized losses on all other AFS securities
Held to maturity securities:
Less: amortization recognized in income
(234)
Net unrealized gains on HTM securities
234
Pension Plan:
Unrealized net actuarial gains
(631)
1,747
Less: amortization of unrecognized losses
(142)
Net pension plan asset adjustment
(683)
1,889
For the six months ended June 30, 2025
(135)
371
(108)
(621)
1,713
Net unrealized gains on all other AFS securities
84
(233)
233
(149)
Unrealized net actuarial losses
(17)
(65)
177
36
Components of Other Comprehensive Income(in thousands)
BeforeTaxAmount
Tax(Expense)Benefit
For the three months ended June 30, 2026
(53)
(12)
(41)
(118)
(43)
(947)
Less: amortization of unrecognized loss
(71)
(973)
For the three months ended June 30, 2025
(14)
(119)
328
(129)
(120)
(560)
(596)
1,642
The following tables present the details of amounts reclassified from accumulated other comprehensive loss for the six- and three-month periods ended June 30, 2026 and 2025:
Amounts Reclassified from
Six months ended
Accumulated Other Comprehensive Loss
Affected Line Item in the Statement
Where Net Income is Presented
Net unrealized gains on available for sale investment securities with credit related impairment:
Accretable yield
Interest income on taxable investment securities
Taxes
Net of tax
Net unrealized gains on held to maturity securities:
Amortization
Credit for income tax expense
Net pension plan asset adjustment:
Amortization of unrecognized losses
Other Operating Expenses
Total reclassifications for the period
(302)
(353)
(151)
(180)
Note 8 - Equity Compensation Plan Information
At the 2018 Annual Meeting of Shareholders, First United Corporation’s shareholders approved the First United Corporation 2018 Equity Compensation Plan (the “Equity Plan”), which authorizes the issuance of up to 325,000 shares of common stock to employees, directors and qualifying consultants pursuant to stock options, stock appreciation rights, stock awards, dividend equivalents, and other stock-based awards.
The Corporation complies with the provisions of ASC Topic 718, Compensation-Stock Compensation, in measuring and disclosing stock compensation cost. The measurement objective in ASC Paragraph 718-10-30-6 requires public companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost is recognized in expense over the period in which an employee is required to provide service in exchange for the award (the vesting period).
Pursuant to First United Corporation’s director compensation policy, each director receives an annual retainer of 1,000 shares of First United Corporation common stock, plus $15,000 to be paid, at the director’s election, in cash or additional shares of common stock. In May 2026, a total of 10,448 fully vested shares of common stock were issued to directors, which had a grant date fair value of $37.89 per share. In May 2025, a total of 11,692 fully vested shares of common stock were issued to directors, which had a grant date fair value of $31.52 per share. Director stock compensation was $188,823 and $166,185 for the six-month periods ending June 30, 2026 and 2025, respectively. Director stock compensation expense was $96,690 and $87,613 for the three-month periods ended June 30, 2026 and 2025, respectively.
Employee stock compensation was $63,457 and $18,596 for the six-month periods ended June 30, 2026 and 2025, respectively. Employee stock compensation expense was $31,549 and $3,029 for the three-month periods ended June 30, 2026 and 2025, respectively.
Restricted Stock Units
On March 26, 2020, pursuant to the Corporation’s Long Term Incentive Plan (the "LTIP"), which is a sub-plan of the Equity Plan, the Compensation Committee of First United Corporation’s Board of Directors (the "Compensation Committee") granted RSUs to the Corporation’s principal executive officer, its principal financial officer, and certain of its other executive officers. An RSU contemplates the issuance of shares of common stock of First United Corporation if and when the RSU vests.
The RSUs granted to each of the foregoing officers consist of (i) a performance-vesting award for a three-year performance period and (ii) a time-vesting award that will vest ratably over a three-year period. Target performance levels were set based on the annual budget which supports the Corporation’s long-term objective of achieving high performance as compared to peers. Threshold performance is the minimum level of acceptable performance as defined by the Compensation Committee and maximum performance represented a level potentially achievable under ideal circumstances. Achievement of all threshold performance levels would result in each executive participant earning a payout at 50% of his or her respective target award opportunity. Achievement of all target performance levels would result in the executive participant earning the target award. Achievement at or above all maximum performance levels would result in the executive participant earning 150% of the target opportunity. Actual results for any goal that falls between performance levels would be interpolated to calculate a proportionate award.
To receive any shares under an RSU, a grantee must be employed by the Corporation or one of its subsidiaries on the applicable vesting date, except that a grantee whose employment terminates prior to such vesting date due to death, disability or retirement will be entitled to a pro-rated portion of the shares subject to the RSUs, assuming that, in the case of performance-vesting RSUs, the performance goals had been met at their "target" levels.
In March 2022, the Corporation granted performance-vesting RSUs relating to 8,096 shares (target) and time-vesting RSUs relating to 6,238 shares, which had a grant date fair market value of $21.88 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs was the three-year period ended December 31, 2024. The time-vesting RSUs vested ratably over a three-year period that began on March 9, 2022. On March 9, 2023, 2,079 shares underlying the time-vesting RSUs were issued to participants. On March 9, 2024, 2,079 additional shares underlying the time-vesting RSUs were issued to
participants. On March 9, 2025, the remaining 2,080 shares underlying the RSUs were issued to participants. In the third quarter of 2024, it was projected that the performance-vesting RSUs would not be satisfied, and the stock compensation expense was adjusted accordingly. Stock compensation expense was $26,145 and $55,290 for the six-month periods ended June 30, 2025 and 2024, respectively. Stock compensation expense was $0 and $26,145 for each of the three-month periods ended June 30, 2025 and 2024, respectively. All compensation expense related to these RSUs were recognized as of June 30, 2025.
In March 2023, the Corporation granted performance-vesting RSUs relating to 10,214 shares (target) and time-vesting RSUs relating to 7,920 shares, which had a grant date fair market value of $18.25 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs was the three-year period ended December 31, 2025. The time-vesting RSUs vested ratably over a three-year period that began on March 15, 2023. On March 15, 2024, 2,639 shares underlying the time-vesting RSUs were issued to participants. On March 15, 2025, 2,639 shares underlying the time-vesting RSUs were issued to participants. On March 15, 2026, the remaining 2,642 shares underlying the time-vesting RSUs were issued to participants. On December 31, 2025, the performance-vesting RSUs failed to vest and the stock compensation expense was adjusted accordingly. Stock compensation expense was $12,048 and $55,170 for the six-month periods ended June 30, 2026 and 2025, respectively. Stock compensation expense was $0 and $27,585 for the three-month periods ended June 30, 2026 and 2025, respectively. All compensation expense related to these RSUs were recognized as of March 31, 2026.
In May 2024, the Corporation granted performance-vesting RSUs relating to 8,593 shares (target) and time-vesting RSUs relating to 6,662 shares, which had a grant date fair market value of $22.26 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2026. The time-vesting RSUs will vest ratably over a three-year period that began on May 20, 2024. On May 20, 2025, 2,219 shares of the 6,662 time-vesting RSUs were issued to participants. On May 20, 2026, 1,576 shares underlying the time-vesting RSUs were issued to participants. On May 7, 2026, Carissa Rodeheaver, Chairman of the Board, retired and a net of 3,023 shares underlying the performance-vesting RSUs and a net of 1,053 shares underlying her time-vesting RSUs were issued on a pro-rata basis. Stock compensation expense was $72,138 and $56,628 for the six-month periods ended June 30, 2026 and 2025, respectively. Stock compensation expense was $43,824 and $28,314 for the three-month period ended June 30, 2026 and 2025, respectively. Unrecognized compensation expense related to these RSUs that have not vested was $64,404 as of June 30, 2026.
In February 2025, the Corporation granted performance-vesting RSUs relating to 6,006 shares (target) and time-vesting RSUs relating to 4,797 shares, which had a grant date fair market value of $37.59 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2027. The time-vesting RSUs will vest ratably over a three-year period that began on February 25, 2025. On February 25, 2026, 1,599 shares underlying the time-vesting RSUs were issued to participants. On May 7, 2026 at the time of Ms. Rodeheaver’s retirement, a net of 1,085 shares underlying her performance-vesting RSUs and a net of 400 shares underlying her time-vesting RSUs were issued on a pro-rata basis. Stock compensation expense was $78,096 and $45,147 for the six-month periods ended June 30, 2026 and 2025, respectively. Stock compensation expense was $44,236 and $33,860 for the three-month periods ended June 30, 2026 and 2025, respectively. Unrecognized compensation expense related to these RSUs that have not vested was $149,987 as of June 30, 2026.
In March 2026, the Corporation granted performance-vesting RSUs relating to 6,049 shares (target) and time-vesting RSUs relating to 4,797 shares, which had a grant date fair market value of $35.94 per share of common stock underlying each RSU. The performance period for the performance-vesting RSUs is the three-year period ending December 31, 2028. The time-vesting RSUs will vest ratably over a three-year period beginning on March 6, 2026. Stock compensation expense was $32,498 for both the six-month and three-month period ended June 30, 2026. Unrecognized compensation expense related to these RSUs that have not vested was $357,477 as of June 30, 2026.
Note 9– Derivative Financial Instruments
As a part of managing interest rate risk, the Corporation entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated its interest rate swap agreements as cash flow hedges under the guidance of ASC Subtopic 815-30, Derivatives and Hedging – Cash Flow Hedges. Cash flow hedges have the effective portion of changes in the fair value of the derivative, net of taxes, recorded in net accumulated other comprehensive income.
In March 2016, the Corporation entered into four interest rate swap contracts totaling $30.0 million notional amount, hedging future cash flows associated with floating rate trust preferred debt. The fair value of the interest rate swap contracts was
$0.0 and $0.1 million at June 30, 2026 and December 31, 2025, respectively. As of June 30, 2026, all of the swap contracts had matured.
The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the six- and three-month periods ended June 30, 2026 and 2025.
Derivative in Cash Flow Hedging Relationships
Amount of gain or
(loss) recognized in
Amount of loss
income or derivative
recognized in
(loss) reclassified from
(ineffective portion
OCI on derivative
accumulated OCI into
and amount excluded
(effective portion),
income (effective
from effectiveness
net of tax
portion) (a)
testing) (b)
Interest rate contracts:
Six months ended:
June 30, 2025
Three months ended:
Notes:
Note 10 – Regulatory Capital Requirements
The following table presents the Bank’s capital ratios as of June 30, 2026 and December 31, 2025.
Required forCapitalAdequacyPurposes
Requiredto be WellCapitalized
Total Capital (to risk-weighted assets)
15.22
%
15.19
8.00
10.00
Tier 1 Capital (to risk-weighted assets)
13.96
13.94
6.00
Common Equity Tier 1 Capital (to risk-weighted assets)
4.50
6.50
Tier 1 Capital (to average assets)
11.56
11.01
4.00
5.00
As of June 30, 2026 and December 31, 2025, the Bank was considered “well capitalized” under the regulatory framework for prompt corrective action.
Note 11 – Deposits
The following table summarizes deposits at June 30, 2026 and December 31, 2025.
Balance
Percent
Non-Interest-bearing deposits:
25%
26%
Interest-bearing deposits:
Demand
406,118
24%
392,823
23%
Money market-retail
557,110
33%
529,870
30%
Money market- brokered
0%
Savings deposits
158,861
9%
158,461
Time deposits- retail
147,058
8%
150,958
Time deposits- brokered
25,000
1%
50,000
3%
Total Deposits
100%
Note 12 – Borrowed Funds
The following is a summary of borrowings at June 30, 2026 and December 31, 2025:
Short-term borrowings:
Securities sold under agreements to repurchase:
Outstanding at end of period
19,233
Weighted average interest rate at end of period
0.22%
Maximum amount outstanding as of any month end
25,874
26,756
Average amount outstanding
19,281
19,565
Approximate weighted average rate during the period
0.19%
Overnight borrowings, weighted average interest rate of 3.75% at June 30, 2026
Long-term borrowings:
FHLB advances, bearing fixed interest rate of 3.84% at December 31, 2025
65,000
Junior subordinated debt, bearing variable interest rate of 6.68% at June 30, 2026 and 6.72% at December 31, 2025
Total borrowings outstanding
100,162
113,590
Repurchase agreements were secured by investment securities with a market value of $30.3 million and $24.8 million at June 30, 2026 and December 31, 2025, respectively. A minimum of 102% of fair value is pledged against account balances.
The following table presents contractual maturities of long-term borrowings outstanding at June 30, 2026 and December 31, 2025:
Fixed Rate
Floating Rate
Due in 2026
Due in 2027
Thereafter
Total long-term debt
42
Note 13 – Segment Reporting
The Corporation is managed under an organizational structure that conducts business in two primary operating segments; (i) Community Banking and (ii) Wealth Management. The Corporation is primarily managed based on the line of business structure. In that regard, the Corporation provides the same lines of business, which have the same product and service offerings, have similar types and classes of customers and utilize similar service delivery methods across our entire geographic footprint. Pricing guidelines for products and services are across all regions. Community Banking and Wealth Management are delineated by the products and services that each segment offers.
Business activity for the operating segments is as follows:
Community Banking: The Community Banking segment is conducted through the Bank and involves delivering a broad range of financial products and services, including various loan and deposit products, to consumer, business, and not-for-profit customers. Parent company income and assets are included in the Community Banking segment, as the majority of parent company functions are related to this segment. Major revenue sources include net interest income, gains on sales of mortgage loans, and service charges on deposit accounts. Expenses include salaries and employee benefits, occupancy, data processing, FDIC premiums, marketing, equipment, and other expenses.
Wealth Management: The Wealth Management segment is conducted through the Bank and offers corporate trustee services, trust and estate administration, IRA administration and custody services. Revenues for this segment are generated from administration, service and custody fees, brokerage commissions, and management fees that are derived from Assets Under Management. Expenses include personnel, occupancy, data processing, marketing, equipment, and other expenses.
The accounting policies of each reportable segment are the same as those of our consolidated entity except that expenses for consolidated back-office operations and general overhead-type expenses such as executive administration, accounting, information technology and human resources are recorded in the Community Banking segment and reimbursed by the Wealth Management segment through a monthly management fee based on estimated uses of those services.
An internal team of the Corporation’s executive officers including the Chief Executive Officer, Chief Financial Officer, and Chief Wealth Officer serve as the Corporation’s Chief Operating Decision Maker (“CODM”). The CODM reviews actual net income versus budgeted net income to assess segment performance on a monthly basis and to make decisions about allocating capital and personnel to the segments.
Financial results by operating segment, including significant expense categories provided to the CODM are detailed below. Certain prior period amounts have been reclassified to conform to the current presentation. The Wealth Management segment excludes off-balance-sheet assets under management with a total fair value of $1.9 billion at June 30, 2026 and $1.8 billion at December 31, 2025.
Information for the operating segments for the six- and three-month periods ended June 30, 2026 and 2025 is presented in the following tables:
Community
Wealth
Banking
Management
Net interest income after credit loss expense
Other operating income:
Net gains on sales of residential mortgages
Trust department income
Other segment income (1)
4,690
6,008
Other operating expenses:
13,764
2,594
Equipment and occupancy
2,461
Data processing
3,179
Other segment expenses (2)
6,459
6,683
Total operating expenses
26,371
3,087
Income before income taxes and intercompany fees
13,319
2,921
Intercompany management fee income/(expense)
Income before income taxes
13,325
2,915
Income tax expense
3,297
613
10,028
2,302
Significant noncash items
1,207
105
11,174
Total assets
2,081,949
143
(1) Other segment income includes bank owned life insurance income, gains on disposals of fixed assets, and miscellaneous income.
(2) Other segment expenses include professional services, contract labor, telephone, investor relations, contributions, net OREO expense/(income), marketing expense and miscellaneous expenses.
814
4,500
5,500
12,397
2,253
2,457
2,507
2,908
195
4,540
4,778
22,814
2,736
12,893
2,764
12,899
2,758
3,287
580
9,612
2,178
1,302
11,295
314
11,609
2,007,120
351
2,007,471
(1) Other segment income includes net gains/(losses) on disposals of fixed assets, bank owned life insurance income, and miscellaneous income.
(2) Other segment expenses include professional services, contract labor, line rentals, investor relations, contributions, net OREO expense/(income), and miscellaneous expenses.
For the three months ended
429
2,286
3,072
6,803
1,354
1,196
1,622
117
4,252
4,380
14,147
1,618
5,944
1,454
(3)
5,947
1,451
1,426
305
4,521
Significant noncash items:
611
616
410
2,330
2,756
6,150
1,169
1,240
1,500
2,437
2,548
11,569
1,405
6,608
1,351
6,611
1,348
1,692
283
4,919
646
655
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 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 June 30, 2026, the Corporation’s total assets were $2.1 billion, net loans were $1.6 billion, and deposits were $1.7 billion. Shareholders’ equity at June 30, 2026 was $212.4 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
Overview
Consolidated net income decreased by $0.3 million for the second quarter of 2026 when compared to the second quarter of 2025. The decrease was driven by an increase in other expense as a result of a one-time, $1.7 million, net of tax, consulting expense related to core processing system contract negotiations. This increase was partially offset by a $1.9 million increase in net interest income, an increase of $0.3 million in non-interest income, inclusive of gains, and a $0.1 million decrease in provision for credit losses. Comparing the second quarter of 2026 to the same period of 2025, interest and fees on loans increased by $1.5 million as a result of new loans booked at higher rates and the continued repricing of adjustable-rate loans. Interest expense decreased by $0.6 million when comparing year-over-year quarterly expense as a result of 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 $0.3 million driven by an increase in trust and brokerage income of $0.3 million as a result of increased production and favorable market values on assets under management. Other operating expenses increased by $2.8 million driven by the one-time core processing system contract negotiations discussed above, a $0.8 million increase in salaries and benefits as a result of filling open positions in late 2025 and 2026, normal merit increases in April 2026 and increased incentive payouts, partially offset
48
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.
Net income for the six months ended June 30, 2026 was $12.3 million on a GAAP basis, inclusive of the $1.7 million, net of tax, core processing system contract consulting expenses discussed above, and $13.9 million on a non-GAAP basis compared to GAAP and non-GAAP basis income of $11.8 million for the six months ended June 30, 2025. The year-over-year increase of $0.5 million was attributable to a $3.9 million increase in net interest income an increase in other non-interest income of $0.7 million, inclusive of net gains, as a result of increased trust and brokerage income of $0.5 million, and increased bank owned life insurance (“BOLI”) income of $0.2 million related to a one-time death benefit received in the first quarter of 2026, partially offset by an increase in other operating expenses of $3.9 million driven by the aforementioned consulting fee, increased salaries and benefits of $1.7 million and an increase in data processing expenses of $0.3 million. Salaries and benefits increased due to increased salaries as a result of new hires and annual merit increases in April 2026 and increased incentive payouts, partially offset by an increase in the reduction of costs associated with loan originations related to increased loan production.
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 six- and three-month periods ended June 30, 2026 and 2025.
Non-GAAP
GAAP
52,018
49,036
36,798
32,826
Net interest margin %
3.89
3.61
3.87
3.60
26,250
24,925
18,667
16,761
3.98
3.65
3.97
3.64
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 six- and three-month periods ended June 30, 2026 and 2025:
Balance (2)
Interest (1)
Yield/Rate
1,526,255
46,326
6.12
1,486,334
44,072
5.98
Investment Securities:
291,027
2.62
284,612
2.51
Non-taxable
7,493
211
5.68
6,977
5.26
298,520
3,998
2.70
291,589
3,721
2.57
Federal funds sold
78,697
1,513
3.88
46,213
1,012
4.42
Interest-bearing deposits with other banks
1,602
3,174
2.22
Other interest-earning assets
3,946
152
7.77
5,795
6.82
Total earning assets
1,909,020
5.49
1,833,105
5.39
Allowance for loan losses
(19,990)
(18,550)
Non-earning assets
178,742
174,298
2,067,772
1,988,853
Deposits
Interest-bearing demand deposits
392,655
3,268
1.68
366,170
3,173
1.75
Interest-bearing money markets - retail
554,931
7,428
468,732
7,125
3.07
Interest-bearing money markets - brokered
2.40
3.83
159,415
0.10
170,178
Time deposits - retail
149,015
2,294
3.10
145,984
2,176
3.01
Time deposits - brokered
28,039
592
4.26
43,059
903
4.23
1,284,139
2.15
1,194,439
2.27
19,259
0.39
21,423
58,940
5.20
120,929
Total interest-bearing liabilities
1,362,338
2.25
1,336,791
2.45
Non-interest-bearing deposits
463,856
435,362
32,985
30,682
Shareholders’ Equity
208,593
186,018
Net interest income and spread
3.24
2.94
Net interest margin
Comparing the six months ended June 30, 2026 to the six months ended June 30, 2025, net interest income, on a non-GAAP, FTE basis, increased by $4.0 million. Interest income increased by $3.0 million, primarily driven by an increase of $2.3 million on interest and fees on loans as average loan balances increased by $39.9 million and an increase in yield by 14 basis points. Interest expense on deposits increased slightly by $0.2 million despite an increase in average deposit balances of $89.7 million driven by increases of $26.5 million in demand deposit accounts, and $86.2 million in retail money market balances, partially offset by decreases in savings balances of $10.8 million and $15.0 million in brokered time deposits. Interest expense on short-term borrowings remained stable and interest expense on long-term borrowings decreased by $1.2 million as a result of a decrease in
average balances of $62.0 million, primarily due to the repayment of $65.0 million of FHLB advances at their maturities in March 2026. The net interest margin for the six months ended June 30, 2026 was 3.89% compared to 3.61% for the six months ended June 30, 2025.
(dollars in thousands)
AverageBalance (2)
AverageYield/Rate
1,549,332
23,813
6.16
1,489,485
22,304
6.01
291,217
2.63
283,914
7,488
7,424
5.46
298,705
2,013
291,338
1,877
2.58
28,424
4.85
50,675
628
4.97
861
2.80
3,799
2.11
2,656
11.18
5,815
6.62
1,879,978
5.60
1,841,112
5.43
(20,249)
(18,685)
179,343
175,323
2,039,072
1,997,750
389,083
1.65
357,725
1.71
560,943
3,753
2.68
473,262
3,579
3.03
4.04
159,161
0.11
168,854
148,020
1,370
3.71
147,433
1,120
3.05
4.28
4.16
1,282,208
2.20
1,197,770
19,922
19,811
0.43
6.80
4.49
1,333,059
2.28
1,338,510
463,149
440,779
32,586
29,889
210,278
188,572
3.32
2.98
Net interest income, on a non-GAAP, FTE basis, increased by $1.9 million for the second quarter of 2026 when compared to the second quarter of 2025. This increase was driven by an increase of $1.3 million in interest income. Interest income on loans increased by $1.5 million due to the increase of 15 basis points in overall yield on the loan portfolio as new loans were booked at higher rates during 2025 and 2026 as well as the upward repricing of adjustable-rate loans. Investment income remained stable as management continued to reinvest cashflows back into the portfolio resulting in an increase in yield of 12 basis points. Interest income on federal funds sold decreased by $0.3 million due to a decrease of $22.2 million in average cash balances held at the
Federal Reserve Bank as a result of loan growth in the second quarter of 2026. Interest expense decreased by $0.6 million in the second quarter of 2026 when compared to the second quarter of 2025. Interest on deposits increased slightly by $0.2 million despite an $84.4 million increase in average deposit balances, primarily in interest bearing demand and money market deposits. Long-term borrowing interest expense decreased by $0.8 million due to a decrease of average balances of $90.0 million for the second quarter of 2026 when compared to the same period of 2025 primarily related to the repayment of $65.0 million and $25.0 million of FHLB advances at their maturities in March of 2026 and September of 2025, respectively.
The following tables set 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, 2026 and 2025:
compared to the six months ended June 30, 2025
(in thousands and tax equivalent basis)
Volume
Rate
Interest Income:
2,387
2,254
Taxable Investments
248
Non-taxable Investments
1,436
(935)
501
Interest-bearing deposits
(35)
Other interest earning assets
(126)
(44)
3,850
(868)
2,982
Interest Expense:
463
(368)
Interest-bearing money markets- retail
2,646
(2,343)
303
Interest-bearing money markets- brokered
(11)
(7)
(635)
324
(311)
(8)
(2,790)
1,611
(1,179)
(253)
(737)
(990)
4,103
(131)
3,972
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.
compared to the three months ended June 30, 2025
899
610
1,509
(276)
(52)
(22)
603
722
1,325
(55)
79
664
(490)
174
(2)
250
(259)
(251)
(1,010)
179
(831)
(474)
(107)
1,077
829
1,906
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 $0.8 million for the quarter ended June 30, 2026 compared to $0.9 million for the quarter ended June 30, 2025. Provision for credit losses was $1.7 million and $1.5 million for the first six months of 2026 and 2025, respectively.
The composition of other operating income for the six- and three-month periods ended June 30, 2026 and 2025 is illustrated in the following table:
Income as % of
Total Other Income
10%
12%
11%
4%
50%
48%
19%
20%
7%
Other income
The composition of other operating expenses for the six- and three-month periods ended June 30, 2026 and 2025 is illustrated in the following table:
Expense as % of
Total Other Operating Expenses
55%
58%
52%
56%
2%
5%
17%
6%
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 six-month periods ended June 30, 2026 and 2025 were 24.1% and 24.7%, respectively.
GAAP and Non-GAAP Financial Measures
The following table sets forth certain selected financial data for the six- and three-month periods ended June 30, 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.
Per Share Data
Basic net income per share - as reported
Basic net income per share - non-GAAP
2.16
1.14
Diluted net income per share - as reported
Diluted net income per share - non-GAAP
Significant Ratios:
Return on Average Assets - as reported
1.20%
Adjustments:
Gain on disposal of fixed assets
(0.01%)
Consulting fee on core processing contract
0.17%
Adjusted Return on Average Assets (non-GAAP)
1.36%
Return on Average Equity - as reported
11.92%
12.78%
(0.03%)
1.60%
Adjusted Return on Average Equity (non-GAAP)
13.49%
Net income - as reported
2,179
Income tax effect of adjustments
(516)
Adjusted net income (non-GAAP)
13,947
7,330
Diluted earnings per share - as reported
(0.01)
Adjusted diluted earnings per share (non-GAAP)
FINANCIAL CONDITION
Balance Sheet Overview
Total assets at June 30, 2026 were $2.1 billion, representing a $5.4 million decrease since December 31, 2025. During the six months of 2026, cash and interest-bearing deposits in other banks decreased by $46.4 million. The investment portfolio decreased by $0.2 million. The decreases were partially offset by increases in gross loans of $50.4 million as well as an increase in pension assets of $3.2 million due to increased market values.
Total liabilities at June 30, 2026 were $1.9 billion, representing a $14.1 million decrease since December 31, 2025. Total deposits increased by $0.4 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 $27.6 million due primarily to the expansion of current and new relationships throughout the first six months of 2026. Non-interest-bearing demand deposits decreased by $11.6 million and interest-bearing demand deposits increased by $13.3 million. Retail time deposits decreased by $3.9 million since December 31, 2025. Short-term borrowings increased by $51.6 million at June 30, 2026 when compared to December 31, 2025 as a result of overnight borrowings in anticipation of loan funding. These borrowings were subsequently fully repaid in July.
Loan Portfolio
The following table presents the composition of our loan portfolio at the dates indicated:
40%
38%
Acquisition and development
15%
18%
35%
Outstanding loans of $1.6 billion at June 30, 2026 reflected a $50.4 million increase since December 31, 2025. Since December 31, 2025, commercial real estate loans increased by $55.0 million as a result of new business relationships as well as additional growth in existing relationships; acquisition and development loans increased by $11.9 million; commercial and industrial loans decreased by $35.0 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, approximately $8.0 million as a result of a refinance to another institution, and the payoff of a floorplan line of credit. Residential mortgage loans increased by $10.2 million as a result of robust mortgage production booked in house as opposed to the selling to the secondary market outlets, offset slightly by normal amortization; and consumer loans increased by $8.3 million related to the purchase of a consumer loan pool in the second quarter of 2026.
New commercial loan production for the second quarter of 2026 was approximately $66.0 million. The pipeline of commercial loans as of June 30, 2026 was robust, and unfunded committed commercial construction loans totaled approximately $42.0 million. Commercial amortization and payoffs were approximately $71.6 million through June 30, 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 second quarter of 2026 was approximately $33.9 million, with most of this production comprised of in-house mortgages. The pipeline of in-house, portfolio loans as of June 30, 2026 was $20.0 million. Unfunded commitments related to residential construction loans totaled $20.7 million at June 30, 2026.
The following table presents loans in our commercial real estate portfolio by industry type at June 30, 2026.
Owner-occupied
Multi-family
Accommodations and food services
78,655
6,168
84,823
Administration and support, waste management, and remediation services
1,393
Agriculture, forestry, fishing and hunting
23,022
Arts, entertainment and recreation
3,686
Construction
1,937
5,937
7,874
Educational services
Finance and insurance
8,324
103
8,427
Health care and social assistance
11,508
21,513
33,021
Manufacturing
13,935
Mining, quarrying, oil and gas extraction
374
Other services (except public services)
361
26,001
26,652
Professional, scientific and technical services
1,360
Public administration
559
1,861
Commercial rental properties
192,029
86,344
278,373
Residential rental properties
28,768
29,052
Student rental properties
2,213
Mixed use rental properties
2,928
1,894
17,610
22,432
Storage units
46,349
Real estate rental and leasing- other
10,437
4,891
15,328
Retail trade
4,287
4,346
Transportation and warehousing
415
Wholesale trade
20,141
222,873
48,881
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.
% ofApplicablePortfolio
Non-accrual loans:
695
0.12%
0.39%
2,191
0.40%
2,394
0.45%
0.07%
Total non-accrual loans
0.29%
0.28%
Accruing Loans Past Due 90 days or more:
432
Total loans past due 90 days or more
Total non-accrual and accruing loans past due 90 days or more
Total non-performing assets
7,685
8,554
Non-accrual loans to total loans (as %)
Non-performing loans to total loans (as %)
0.31%
Non-performing assets to total assets (as %)
0.37%
0.41%
Allowance for credit losses to non-accrual loans (as %)
456.16%
464.46%
Allowance for credit losses to non-performing assets (as %)
267.94%
227.61%
Modified Loans:
1,199
Total modified loans
Individually evaluated loans without a valuation allowance
Individually evaluated loans with a valuation allowance
4,683
16,164
Total individually evaluated loans
58
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 six-month period ended June 30, 2026, the range of outcomes would produce a 16% reduction or a 43% 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, 2026 and 2025:
Balance, January 1
Charge-offs:
Total charge-offs
Recoveries:
Total recoveries
Net credit losses
(294)
(511)
Balance at end of period
Allowance for credit losses to gross loans outstanding (as %)
1.31
1.27
The following table presents a summary of charge-offs and recoveries as a percent to their applicable portfolio for the six- month periods ended June 30, 2026 and 2025:
Net (Charge-offs)/Recoveries as a % of Average Applicable Portfolio
0.00%
0.03%
0.13%
(0.10)%
(0.25)%
(0.86)%
(0.96)%
(0.04)%
(0.07)%
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
Amount of Allowance Allocated
Percent of Loans in Each Category to Total Loans
Ratio of Allowance Allocated to Loans in Each Category
39.8%
0.93%
6.5%
1.53%
15.4%
1.56%
34.8%
1.54%
3.5%
1.92%
100.0%
1.31%
37.5%
0.81%
5.9%
1.42%
18.2%
1.61%
35.3%
3.1%
1.72%
1.28%
At June 30, 2026, the total amortized cost basis of the available-for-sale investment portfolio was $125.1 million compared to a fair value of $108.0 million. Unrealized gains and losses on available-for-sale securities are reflected in accumulated other comprehensive loss, net of tax, and a component of shareholders’ equity. The amortized cost basis of the held to maturity portfolio was $170.4 million compared to a fair value of $146.4 million.
The following table presents the composition of our securities portfolio at amortized cost and fair values at the dates indicated:
Amortized
FV as %
Cost
(FV)
of Total
Available for Sale Securities:
21%
28%
Obligations of state and political subdivisions
14%
Held to Maturity Securities:
41%
Total fair value of investment securities available for sale increased by $0.9 million since December 31, 2025. At June 30, 2026, the securities classified as available-for-sale included a net unrealized loss of $17.1 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 $1.1 million since December 31, 2025 due to security paydowns, net of new 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 $92.9 million of the available-for-sale portfolio was valued using Level 2 pricing and had net unrealized losses of $14.9 million at June 30, 2026. The remaining $15.1 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 $2.1 million in net unrealized losses associated with this portfolio relates to eight pooled trust preferred securities that comprise the collateralized debt obligation portfolio.
The following table presents the composition of our deposits at the dates indicated:
Non-interest-bearing deposits:
Money market- retail
Total deposits at June 30, 2026 remained flat at $1.7 billion when compared to 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. Savings and money market accounts increased by $27.6 million due primarily to the expansion of current and new relationships throughout the first six months of 2026. Non-interest-bearing demand deposits decreased by $11.6 million, offset by an increase in interest-bearing demand deposits of $13.3 million, primarily related to municipality accounts. Retail time deposits decreased by $3.9 million since December 31, 2025.
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, 2026 and December 31, 2025.
Insured deposits
1,345,258
78%
1,341,185
77%
Uninsured and fully collateralized deposits
89,662
101,925
Uninsured and uncollateralized deposits
300,593
292,039
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 June 30, 2026 and December 31, 2025.
Retail deposits
800,849
46%
807,443
47%
Business deposits
934,664
54%
927,706
53%
Borrowed Funds
The following table presents the composition of our borrowings at the dates indicated:
Overnight borrowings from Federal Reserve Discount Window
Securities sold under agreements to repurchase
Total short-term borrowings
FHLB advances
Junior subordinated debt
Total long-term borrowings
Short-term borrowings increased by $51.6 million driven by increased balances in overnight borrowings of $50.0 million in anticipation of loan funding. The $50.0 million was subsequently repaid in July 2026. 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:
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:
63
The following table presents sources of liquidity available to the Corporation as of June 30, 2026.
Total Availability
Amount Used
Net Availability
Internal Sources
Excess cash
59,960
Unpledged securities
29,919
External Sources
Federal Reserve (discount window)
75,521
25,521
Correspondent unsecured lines of credit
140,000
FHLB
349,923
8,359
341,564
655,323
58,359
596,964
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 June 30, 2026, we were asset sensitive.
Our interest rate risk management goals are:
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 earned 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 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 June 30, 2026 and December 31, 2025, management estimated the following changes in net interest income, assuming the indicated rate changes:
+400 basis points
5,298
5,866
+300 basis points
5,185
5,578
+200 basis points
4,295
4,511
+100 basis points
2,482
2,557
-100 basis points
(3,106)
(3,192)
-200 basis points
(6,253)
(6,365)
-300 basis points
(9,067)
(9,569)
-400 basis points
(13,100)
(13,657)
The Corporation became slightly less asset sensitive as of June 30, 2026 when compared to December 31, 2025 as a result of increased liabilities related to overnight borrowings at June 30, 2026. 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 relationship 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 June 30, 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. Short-term borrowings increased by $51.6 million at June 30, 2026 when compared to December 31, 2025 as a result of overnight borrowings in anticipation of loan funding. These borrowings were subsequently fully repaid in July 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:
74,534
73,155
Residential mortgage - construction
20,772
14,515
Commercial
197,870
177,791
Consumer - personal credit lines
5,427
4,531
Standby letters of credit
18,839
16,350
317,442
286,342
The increase of $31.1 million in commitments at June 30, 2026 when compared to December 31, 2025 was primarily due to new commercial business commitments originated during the first six months of 2026.
For the six-month periods ended June 30, 2026 and 2025, net credit loss expense for off-balance sheet exposures was approximately $0.2 million and $0.1 million, respectively. For the three-month periods ended June 30, 2026 and 2025, net credit loss expense for off-balance sheet exposures was $45,000 and $0.1 million, 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.
Item 3. 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 (the “Exchange Act”), as amended, and, accordingly, is not required to include the information required by this item.
Item 4. Controls and Procedures
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 errors or mistakes. 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 June 30, 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 quarter ended June 30, 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.
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes stock repurchases for the three-months ended June 30, 2026:
Issuer Purchases of Equity Securities
Period
Total Number of Shares (or Units) Purchased
Average Price Paid per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
939,400
April 2026
May 2026
36.99
929,400
June 2026
Note:
(1) All shares were purchased in open-market transactions pursuant to First United Corporation’s stock repurchase program that was effective on January 26, 2026. The program authorizes the repurchase of up to 1,000,000 shares of common stock of First United Corporation through July 26, 2027. The program authorizes the repurchases to be conducted through open market or private transactions at such times, in such amounts, and, within certain limits, at such prices per transaction as the President and Chief Executive Officer of First United Corporation determines to be appropriate. The program was publicly announced on January 27, 2026.
Item 3. Defaults upon Senior Securities
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
During the three months ended June 30, 2026, based on information provided to the Corporation, no director or officer of the Corporation adopted or terminated (i) any contract, instruction or written plan for the purchase or sale of securities of the registrant intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) promulgated under the Exchange Act or (ii) any “non-Rule 10b51 trading arrangement” (as defined in Item 408(c) of the SEC’s Regulation S-K).
Item 6. Exhibits
The exhibits filed or furnished with this quarterly report are listed in the following Exhibit Index.
Exhibit
Description
31.1
Certifications of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
31.2
Certifications of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act (filed herewith)
Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act (furnished herewith)
101.INS
Inline XBRL Instance Document (filed herewith)
101.SCH
Inline XBRL Taxonomy Extension Schema (filed herewith)
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
The cover page of First United Corporation’s Quarterly Report on Form 10Q for the quarter ended June 30, 2026 formatted in Inline XBRL, included within the Exhibit 101 attachments (filed herewith).
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 6, 2026
/s/ Jason B. Rush
Jason B. Rush
Chairman of the Board, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Tonya K. Sturm
Tonya K. Sturm, Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)