Business Overview
First United Corporation (NASDAQ: FUNC) is a Maryland corporation chartered in 1985. Operating as a financial holding company registered with the Board of Governors of the Federal Reserve System, the Corporation elected financial holding company status in 2021. The Corporation’s primary business operations consist of serving as the parent company for First United Bank & Trust (the “Bank”), as well as two Connecticut statutory business trusts, First United Statutory Trust I and First United Statutory Trust II, which were formed to sell trust preferred securities qualifying as Tier 1 capital.
The Bank operates multiple subsidiaries to support its operational footprint. These include two consumer finance companies: Oak First Loan Center, Inc. (West Virginia) and OakFirst Loan Center, LLC (Maryland). Additionally, the Bank manages First OREO Trust, a Maryland statutory trust utilized to hold real estate acquired via foreclosure or deeds in lieu of foreclosure. The Bank also holds a 99.9% limited partnership interest in Liberty Mews Limited Partnership and a 99.9% non-voting membership interest in MCC FUBT Fund, LLC, both of which were formed to acquire, develop, and operate low-income housing units across Maryland and West Virginia.
Key Financial Performance Highlights
First United Corporation delivered robust financial results for the 2025 fiscal year, achieving record core earnings on a non-GAAP basis.
Full-Year 2025 Highlights:
Net Income (GAAP): For the twelve-month period ended December 31, 2025, GAAP net income stood at $24.5 million, or $3.77 per diluted share. This represents a notable increase compared to GAAP net income of $20.6 million, or $3.15 per diluted share, for the same period in 2024.
Net Income (Non-GAAP): Exclusive of losses on the contracted sale of a retail branch office, write-downs on other real estate owned (OREO), and net gains on investment sales, non-GAAP net income reached $25.8 million, or $3.97 per diluted share. This compares favorably to the 2024 non-GAAP net income of $21.0 million, or $3.21 per diluted share.
Profitability Ratios: GAAP Return on Average Assets (ROAA) for the year ended December 31, 2025, was 1.21%, while GAAP Return on Average Equity (ROAE) was 12.70%.
Quarterly Highlights (Q4 2025):
Q4 2025 vs. Q4 2024 (YoY): GAAP net income for the fourth quarter of 2025 was $5.8 million, or $0.89 per diluted share, a slight decline from $6.2 million, or $0.95 per diluted share, in the fourth quarter of 2024. However, on a non-GAAP basis, net income was $7.2 million, or $1.10 per diluted share, representing an increase from $6.2 million, or $0.95 per diluted share, in Q4 2024. The GAAP decline was primarily driven by a $2.8 million increase in non-interest expense and a $0.2 million increase in provision expense, which were largely offset by a $2.3 million increase in net interest income.
Q4 2025 vs. Q3 2025 (QoQ): Compared to the linked third quarter of 2025, GAAP net income decreased by $1.2 million from $6.9 million ($1.07 per diluted share). This linked-quarter decrease was heavily influenced by a $1.9 million increase in non-interest expense, primarily associated with a $1.6 million fair value write-down on a legacy loan participation residing in OREO. Non-GAAP net income sequentially increased from $6.9 million ($1.07 per diluted share) in Q3 2025 to $7.2 million ($1.10 per diluted share) in Q4 2025.
Segment-Wise & Business-Line Performance
Net Interest Income (NII) and Margin: NII expansion was a significant driver of the Corporation’s 2025 performance. For the full year 2025, NII increased by $8.1 million. This was primarily fueled by an $8.6 million increase in interest and fees on loans due to higher repricing rates and new loan production. Full-year interest expense increased by only $0.7 million, despite strong deposit growth, indicating effective liability management.
On a quarterly basis, Q4 2025 NII (on a non-GAAP, fully tax equivalent basis) increased by $2.3 million compared to Q4 2024. This was supported by a $1.9 million increase in loan interest and fees, driven by a 26 basis point increase in the overall loan portfolio yield. Funding costs remained stable; while deposit interest expense increased by $0.5 million YoY due to a $107.3 million increase in average balances, the rate paid on these deposits actually decreased by 6 basis points. Consequently, the Net Interest Margin (NIM) on a non-GAAP, FTE basis expanded to 3.75% for the fourth quarter of 2025. For the full years, NIM was 3.67% in 2025, up from 3.38% in 2024.
Non-Interest Income: Other operating income, inclusive of net gains, increased by $0.2 million YoY in Q4 2025. This growth was driven by a $0.4 million increase in wealth management income, which benefited from higher market valuations and expanded client relationships. This positive momentum was partially offset by a $0.2 million net loss related to the contracted sale and relocation of a retail branch office in Morgantown, WV. For the full year, other operating income increased by $0.7 million, again driven by a $0.7 million boost in wealth management income tied to improving market conditions and annuity sales.
Non-Interest Expense: Operating expenses were a headwind during the fourth quarter, increasing by $2.8 million YoY. The primary driver was a $1.8 million increase in net OREO expenses, which included a $1.6 million fair value write-down on a legacy 2013 participation loan and an additional $0.2 million in related expenses. Salaries and employee benefits also increased by $0.6 million due to merit increases, enhanced sales presence staffing in Morgantown, and increased incentive expenses. For the full year 2025, non-interest expense increased by $3.8 million, driven by a $1.3 million increase in salaries/benefits, a $2.0 million increase in net OREO expenses, and increases in data processing and professional services.
Balance Sheet and Operational Metrics
Assets and Loan Portfolio: Total assets reached $2.1 billion at December 31, 2025, reflecting a $114.4 million increase from year-end 2024. Gross loans grew by $40.9 million to reach $1.5 billion. Loan growth was characterized by a $44.4 million increase in commercial real estate loans and an $18.1 million increase in residential mortgage loans. Conversely, acquisition and development loans decreased by $5.0 million, commercial and industrial loans decreased by $10.5 million, and consumer loans decreased by $6.1 million.
Production remained robust in Q4 2025, with $108.0 million in commercial loan originations and $25.3 million in residential mortgage originations. Full-year commercial production reached $247.0 million, a substantial increase from $189.5 million in 2024. However, total net loan growth was muted by unusually high payoffs in the commercial portfolio, which totaled approximately $79.1 million in Q4 2025 alone. These payoffs were largely driven by business sales ($10.5 million) and refinancings/restructurings ($33.5 million). The commercial pipeline remained strong at $61.0 million at year-end.
Deposits and Borrowings: Total liabilities increased by $90.1 million to $1.9 billion. Total deposits were a major funding source, growing by $160.3 million since December 31, 2024. Key drivers included a $70.2 million increase in savings and money market accounts, a $26.3 million increase in non-interest-bearing deposits, and a $50.0 million increase in brokered time deposits. The $50.0 million brokered CD was strategically acquired in January 2025 to repay overnight borrowings.
On the borrowing side, short-term borrowings decreased by $47.7 million , aided by the repayment of $40.0 million in Bank Term Funding Program (BTFP) balances late in Q3 2024. Long-term borrowings decreased by $25.0 million following the maturity and full repayment of an FHLB borrowing in September 2025.
Asset Quality: Asset quality metrics remained sound. The allowance for credit losses (ACL) stood at $19.5 million, or 1.28% of total loans, at year-end 2025. Provision for credit losses was $0.7 million in Q4 2025, an increase linked to loan growth and off-balance sheet commitments. For the full year, provision expense was $2.7 million, down from $2.9 million in 2024, reflecting strong credit quality and lower charge-offs. The ratio of net charge-offs to average loans improved to 0.07% for FY 2025 from 0.16% in 2024. Non-accrual loans decreased to $4.2 million, and accruing loans past due 30 days or more remained stable at 0.32% of the portfolio.
Shareholder Value: The Corporation demonstrated value creation through a notable increase in book value, which rose to $31.33 per share at December 31, 2025, compared to $27.71 a year prior. This growth was primarily attributed to $18.3 million in undistributed net income. Furthermore, the Board of Directors declared a Q4 cash dividend of $0.26 per share, following a dividend increase initiated in the third quarter of 2025.
Management Commentary and Strategic Updates
Executive Chairman Carissa L. Rodeheaver highlighted the Corporation’s 125th anniversary in 2025, framing it alongside the delivery of record core earnings. Rodeheaver attributed the strong performance to a “strong net interest margin, robust loan, deposit and trust production,” as well as a “continued disciplined approach to expense management”.
Strategically, the Corporation appointed Jason B. Rush as the new President and Chief Executive Officer to lead future growth initiatives. Management continues to actively focus on margin enhancement. Cash flow from the investment portfolio was strategically reinvested to capture higher yields in the current rate environment, increasing the portfolio’s overall yield by 17 basis points YoY. Additionally, management noted that higher cash levels at the end of 2025 will facilitate the repayment of outstanding debt and brokered deposits upon maturity, evidenced by the repayment of a $25.0 million brokered certificate of deposit in January 2026.
Notable Risks and Challenges
While the financial outcomes were largely positive, the document explicitly identifies several challenges and risk factors impacting the Corporation:
Elevated Commercial Payoffs: While loan origination was robust, net loan growth was severely hampered by “unusually high payoffs in the commercial loan portfolio”. Payoffs in Q4 2025 reached approximately $79.1 million as clients utilized cash to consolidate debt, sell businesses, or restructure balance sheets.
Legacy OREO Exposure: The Corporation faced a significant $1.6 million fair value write-down on a legacy 2013 participation loan held in OREO. Following the cancellation of a previous contract, the Corporation and other participants had to entertain a new letter of intent, requiring a mark-to-market adjustment that notably depressed Q4 GAAP earnings.
Operating Expense Creep: Total operating expenses saw upward pressure, increasing by $3.8 million for the full year, driven not only by the OREO write-down but also by elevated salaries and employee benefits (tied to expansion and merit increases), increased data processing software agreements, and higher audit fees.
General Uncertainties: The release cautions that actual future results may differ materially due to various risks and uncertainties, formally directing investors to the “Risk Factors” section of the Corporation’s periodic SEC filings.
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