The special charge taken on December 31, 2002, relates to a $.36 million "realized loss" on an equity security issued by the Federal Home Loan Mortgage Corporation. William B. Grant, Chief Executive Officer and Chairman of the Board explained, "Generally accepted accounting principles require a write- down on the investment's value when the market value has been below the original cost basis for several months. This is referred to as an other-than- temporary impairment. The loss in value is attributed to the sharp decline in interest rates over the past two years. As the yield of this issue is tied to a spread over the two-year Treasury, that yield spread has declined sharply, resulting in a decrease in the market value of the security. With rates at a 40-year low, most experts believe that rates will, at some point in time, increase. When this happens, the market value of the security will rise also. As the time and degree of interest rate increases cannot be determined, the adjustment downward of the security is required. The credit quality of the security is not in question, nor is the ability or willingness of the Corporation to hold the security to its maturity." Mr. Grant further stated, "It is important to note that the security is still in the Corporation's investment portfolio, and has not been sold. The recovery of the special charge could only occur when and if the Corporation decides to sell the security for an amount greater than its original cost basis."

Book value per share was $13.04 as of December 31, 2002 as compared to $11.69 as of December 31, 2001. Returns on average assets for the 12 months ended December 31, 2002 and 2001 were 1.13% and 1.11% respectively. Returns on average shareholders' equity were 12.75% and 13.26% for the years 2002 and 2001 respectively. The efficiency ratio, a ratio that measures the percent of revenue supporting overhead expenses, was 62.39% as of December 31, 2002, which is higher than the 58.58% reported as of December 31, 2001. A higher ratio indicates less efficiency.

First United's risk based capital ratio at December 31, 2002 was 14.31%, which is well above the regulatory minimum of 8.00%, and the regulatory level to be considered well capitalized of 10.00%. This ratio was 15.54% at December 31, 2001.

Investment Securities
Investment securities decreased $6.90 million during the fourth quarter of 2002. Investment securities grew $87.75 million to a total of $224.39 million during the twelve-month period ending December 31, 2002. This increase in 2002 was due to the implementation of a leverage policy and strategy during the third quarter of 2002.

Borrowings of $80.00 million were obtained from the FHLB of Atlanta and these funds were reinvested in securities to earn a favorable spread for the Corporation.

Loans
During the fourth quarter of 2002, gross loans and leases increased $34.46 million. During the period since December 31, 2001, gross loans and leases increased $56.27 million to $665.83 million as of December 31, 2002. This is an increase of 9.23%.

The growth during the fourth quarter as well as throughout 2002 was due primarily to growth within the commercial lending portfolio. Because of the historically low interest rate environment, many consumers chose to refinance their mortgages through a variety of alternative brokers throughout First United's market area. First United chose not to grow its balance sheet with these refinancings due to the low fixed-rate yield on these loans. Therefore, the consumer residential mortgage portfolio remained flat in 2002. Consumer installment loans showed modest growth of $4.78 million in 2002.

Deposits
During the fourth quarter of 2002 deposits grew $20.09 million. Deposits increased $33.09 million or 5.36% from a total of $616.77 million at December 31, 2001 to $649.86 million at December 31, 2002. The growth in deposits was due to the introduction of a new product, the My Easy Access CD, which provided both liquidity and yield to First United's customers, and the continued growth in the commercial Cash Management product.

Net Interest Income
Net interest income increased $.49 million during the fourth quarter of 2002 to a total of $8.25 million. For the same time period of 2001, net interest income was $7.76 million.

Year to date net interest income was $31.89 million in 2002 as compared to $29.85 million for the period ending December 31, 2001. This is an increase of 6.82% or $2.04 million. Aggressive repricing of deposit liabilities was the driver behind the increase in First United's net interest margin in 2002. The net interest margin increased to 4.04% in 2002 from a level of 3.86% in 2001. The yield on average assets decreased from 8.16% in 2001 to 7.25% in 2002 and the cost of funds to earning assets experienced a decrease from a level of 4.30% in 2001 to 3.21% in 2002.

Operating Income
For the fourth quarter of 2002 total operating income totaled $1.87 million as compared to $2.43 million for the same time period of 2001. Total operating income was $9.01 million for the period ending December 31, 2002. Total operating income for the period ending December 31, 2001 was $9.32 million. This is a decrease of $.31 million or 3.31%. Non-operating items affecting this comparison include security gains of $.58 million that were recognized in 2001 and the loss on investment securities recognized in 2002 of $.36 million. There were no security gains in 2002.

Income from trust and fiduciary activities in 2002 was $2.15 million. This is a decrease of $.36 million from the $2.51 million earned in 2001. Trust and fiduciary activity income is directly affected by the performance of the equity and bond markets because the majority of trust account fees are calculated based on the market value of assets under management. Despite the market conditions, First United's Trust Department has seen significant growth in new trust business and increased management fees.

Service charges on deposit accounts increased $.28 million in 2002 over the $2.43 million reported for 2001. This increase is due to revised product pricing and increased NSF fees.

Operating Expense
Total operating expense was $6.55 million for the fourth quarter of 2002, as compared to $6.04 million for the same time period in 2001. Total operating expense for the full year 2002 was $26.04 million as compared to $23.38 million in 2001. This is an increase of $2.66 million or 11.37%.

The largest item in this category, salaries and employee benefits increased $1.42 million or 11.36% in 2002. Salaries and employee benefits totaled $13.92 million in 2002 as compared to $12.50 million in 2001. Salary increases and an expanded incentive program related to employee performance contributed to this increase.

Other expense increased $.85 million in 2002 or 13.00% resulting from increased legal and professional fees, increased consultants fees, vendor commission expense and other miscellaneous cost increases.

Asset Quality
First United's asset quality continues to be high. The provision for probable credit losses was $.25 million for the fourth quarter of 2002 as compared to $1.07 million for the fourth quarter of 2001. The provision for probable credit losses totaled $1.51 million for the year 2002 as compared to $2.93 million for 2001. The loan delinquency ratio at December 31, 2002 was 1.05%. The loan delinquency ratio at December 31, 2001 was 1.30%. Non- accrual loans totaled $1.85 million as of December 31, 2002 as compared to a total of $3.20 million at December 31, 2001. This decrease was due to the resolution of a large commercial loan that resulted in no loss to the Corporation. Total non-performing loans were $3.30 million at December 31, 2002 as compared to $4.42 million at December 31, 2001. The reserve for loan and lease losses as a percentage of gross loans equaled .91% as of December 31, 2002 as compared to .95% as of December 31, 2001. The reserve for loan losses totaled $6.07 million at December 31, 2002 and $5.75 million at December 31, 2001.

First United Corporation offers full-service banking through its banking subsidiary, First United Bank & Trust, and consumer finance products through its subsidiaries, OakFirst Loan Center, Inc. and OakFirst Loan Center, LLC. These subsidiaries operate a network of offices throughout Garrett, Allegany, Washington, and Frederick counties in Maryland, as well as Mineral, Hardy, Hampshire, and Berkeley counties in West Virginia. First United's website can be located at www.mybankfirstunited.com. As of December 31, 2002, the Corporation posted assets of $953.68 million and had 6,080,589 shares outstanding.

First United Corporation has made certain "forward-looking" statements with respect to this earnings release. Such statements should not be construed as guarantees of future performance. Actual results may differ from "forward-looking" information as a result of any number of unforeseeable factors, which include, but are not limited to, the effect of prevailing economic conditions, the overall direction of government policies, unforeseeable changes in the general interest rate environment, competitive factors in the marketplace, business risk associated with credit extensions and trust activities, and other risk factors. These and other factors could lead to actual results, which differ, materially from management's statements regarding actual performance.