First United $FUNC

The thesis

First United Corporation is the Oakland, Maryland holding company for First United Bank & Trust, which runs 23 banking offices in western Maryland and northern West Virginia. It makes commercial real estate, business, mortgage and consumer loans funded by local deposits, and runs a trust and brokerage business with $1.93B of assets under management. We think the market is paying a plain community bank price for a bank whose margin has widened every quarter for two years, as loan yields rose and the bank paid off its most expensive funding.

The evidence

The bank earns more on its money every quarter. The tax-equivalent net interest margin was 4.05% in the September 2026 quarter, against 3.69% a year earlier and 3.48% in the December 2024 quarter, and it has risen in each of the last eight quarters; before that it fell, to 3.46% in the September 2024 quarter from 3.49% (investor presentations, Feb and Oct 2026). Net interest income rose 13% to $19.6M, and interest expense fell to $7.4M from $8.4M after the bank repaid $65M of Federal Home Loan Bank advances and $50M of brokered deposits this year (Q3 release, Oct 2026).

Earnings before credit costs are growing. Pre-tax, pre-provision earnings were $11.4M in the quarter against $9.7M a year earlier (Q3 presentation). Quarterly net income was $7.2M, or $1.11 a share, against $1.07, and nine-month net income was $19.5M against $18.7M despite a one-time $1.7M after-tax consulting fee for renegotiating its core processing contract (Q3 release).

Book value keeps building and credit is clean. Tangible book value per share was $31.41 at 30 Sep 2026, up 8.8% from $28.87 a year earlier and from $25.89 at the end of 2024. Nonperforming plus 90-day past-due loans were $3.8M, 0.23% of loans, against $4.7M at the end of 2025, and loans rated substandard fell to $38.3M at 30 Jun from $49.4M at the end of 2025 (Q3 release; Q2 10-Q).

Cash is going back to shareholders. The quarterly dividend goes to $0.28 on 2 Nov, up from $0.26 and from $0.22 in the first half of 2025 (dividend 8-Ks). A buyback of up to 1,000,000 shares runs to 26 Jul 2027, with 929,400 shares still available at 30 Jun (buyback 8-K, Jan 2026; Q2 10-Q).

What the market is missing

At the 19 Oct close of $43.63 the stock trades at 1.39 times tangible book of $31.41 a share and about 11 times the last four quarters' earnings of $3.91 a share, for a market value of about $282M. Common equity tier 1 capital is 13.59%, so the bank has room to keep paying more and buying back stock while the margin works through the earnings. The Q3 10-Q, due by 16 Nov, will show the loan grades at 30 Sep and any third-quarter buybacks.

The risks

Profit growth is slow. Quarterly net income rose only 3.4% because the provision for credit losses jumped to $1.9M from $0.5M, and loans 30 or more days past due rose to 0.45% from 0.26% a year earlier, mostly one large commercial real estate loan. Modified loans rose to $6.9M from $1.2M at the end of 2025 after a $5.9M commercial loan had its term extended. Commercial real estate and construction loans are about 46% of the loan book, and much of this year's deposit growth came from municipal accounts, which can move. The stock has already risen over the year, there is no insider buying, and three insiders sold about $0.5M of stock in July.

What would change our mind

The margin turning down for more than a quarter, the past-due and modified loans turning into charge-offs, substandard loans rising again in the Q3 10-Q, or the buyback going unused while insiders keep selling.