Business Context and Reporting Period
Company: First United Corporation (FUNC)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: First United Corporation is a Maryland bank holding company and financial holding company. Its primary subsidiary is First United Bank & Trust, a community bank operating 23 offices in Western Maryland and Northeastern West Virginia. The Corporation also operates a Wealth Management segment and holds interests in low-income housing partnerships.
Key Financial Metrics
| Metric | 2025 | 2024 |
|---|---|---|
| Net Income (GAAP) | $24.5 million | $20.6 million |
| Adjusted Net Income (Non-GAAP) | $25.8 million | $21.0 million |
| Diluted EPS (GAAP) | $3.77 | $3.15 |
| Total Assets | $2.09 billion | $1.97 billion |
| Net Loans | $1.50 billion | $1.46 billion |
| Total Deposits | $1.74 billion | $1.57 billion |
| Shareholders' Equity | $203.6 million | $179.3 million |
| Net Interest Margin (FTE) | 3.67% | 3.38% |
| Return on Average Assets (GAAP) | 1.21% | 1.06% |
| Return on Average Equity (GAAP) | 12.70% | 12.16% |
| Allowance for Credit Losses (ACL) | $19.5 million (1.28% of loans) | $18.2 million (1.23% of loans) |
Material Changes vs. Prior Period
- Profitability: Net income increased 19.1% year-over-year, driven by a $8.1 million increase in net interest income (FTE) and a $0.7 million increase in other operating income. Non-GAAP adjusted net income rose 22.1%.
- Net Interest Income: Increased due to a $68.8 million rise in average loan balances and a 31 basis point increase in loan yields. Interest expense rose slightly ($0.7 million) due to higher deposit balances, though the overall rate paid on deposits decreased by 3 basis points.
- Loan Portfolio: Gross loans grew by $40.9 million. Commercial real estate loans increased by $44.4 million, and residential mortgages grew by $18.1 million. Growth was partially offset by unusually high payoffs in the commercial portfolio.
- Deposits: Total deposits increased by $160.3 million. This included $50.0 million in new brokered time deposits obtained in January 2025 to replace overnight borrowings, and a $70.2 million increase in savings and money market accounts.
- Expense Management: Other operating expenses increased by $3.8 million. Notable increases included salaries and benefits ($1.3 million) and OREO expenses ($2.0 million) due to a fair value write-down on a legacy property. These were partially offset by a decrease in occupancy and equipment expenses related to branch closures in the prior year.
- Asset Quality: Net charge-offs decreased to $1.0 million from $2.2 million in 2024. Non-accrual loans declined to $4.2 million (0.28% of total loans) from $4.9 million.
Guidance, Outlook, and Risks
Management Commentary: Management continues to focus on margin management as it moves into 2026. Higher cash levels at year-end are expected to allow the repayment of outstanding debt and brokered deposits at maturity. The Bank remains "well capitalized" under regulatory measures.
Key Risks and Contingencies:
- Interest Rate Risk: The Corporation is currently asset-sensitive. Rising rates are expected to increase net interest income, while falling rates could reduce it.
- Credit Risk: A significant portion of the loan portfolio is secured by real estate. Declines in local real estate values could lead to under-collateralized loans. The Bank maintains an ACL based on CECL methodology, utilizing economic forecasts.
- Liquidity: The Bank relies on customer deposits and various borrowing facilities (FHLB, Federal Reserve Discount Window). While liquidity is currently adequate, access to funding sources could be constrained by market conditions.
- Cybersecurity: The Corporation faces ongoing risks from cyber-attacks and data breaches, which could disrupt operations or result in financial loss.
- Regulatory: As a financial holding company, the Bank must maintain "well capitalized" and "well managed" status. Failure to do so could restrict the Corporation's ability to engage in certain activities.
Investor Verification Checklist
- OREO Write-Down: Verify the details of the $1.3 million (net of tax) write-down on Other Real Estate Owned (OREO) property, which was a legacy participation loan originated in 2013.
- Brokered Deposits: Confirm the maturity schedule and interest rates of the $50.0 million in brokered time deposits obtained in early 2025, as these impact future funding costs.
- Commercial Loan Payoffs: Review the impact of the "unusually high payoffs" in the commercial portfolio on future loan growth projections.
- Investment Portfolio: Assess the unrealized losses in the Available-for-Sale (AFS) portfolio ($16.8 million gross unrealized losses) and the potential impact on shareholders' equity if securities are sold.
- Dividend Policy: Note that the ability to pay dividends is subject to regulatory capital requirements and the terms of the Trust Preferred Securities (TPS) Debentures, which can be deferred.