10-Q: First United Reports Strong Q2 & YTD 2025 Earnings

First United Corporation announced significant increases in net income and earnings per share for both the second quarter and first half of 2025, driven by robust net interest income growth and improved asset quality.

Summary

• Consolidated net income for the second quarter of 2025 increased by 21.8% to $6.0 million, or $0.92 per basic and diluted share, compared to $4.9 million, or $0.75 per basic and diluted share, for Q2 2024.
• Net income for the first six months of 2025 rose by 36.9% to $11.8 million, or $1.82 per basic share and $1.81 per diluted common share, up from $8.6 million, or $1.31 per basic and diluted share, for the same period in 2024.
• Net interest income for the six months ended June 30, 2025, increased by $3.7 million (12.6%) to $32.723 million, primarily due to a $4.6 million increase in interest and fees on loans.
• Credit loss expense decreased by 29.2% to $1.516 million for the first six months of 2025, compared to $2.140 million in the prior year period.
• Total assets grew by $34.4 million (1.7%) to $2.007 billion at June 30, 2025, from $1.973 billion at December 31, 2024.
• Net loans increased by $20.7 million (1.4%) to $1.483 billion, and total deposits increased by $39.4 million (2.5%) to $1.614 billion over the same period.
• Non-accrual loans decreased by 22.7% to $3.8 million at June 30, 2025, from $4.9 million at December 31, 2024, contributing to improved asset quality.
• Dividends declared per share increased by 10% to $0.44 for the six months ended June 30, 2025, from $0.40 in the prior year period.

Sentiment

Score: 8

Explanation: The company demonstrated robust financial performance with significant increases in net income and EPS, driven by strong net interest income growth and reduced credit loss expense. Asset quality improved, and capital ratios remain strong, indicating a healthy financial position. The dividend increase signals confidence in future performance, and the positive outlook for loan growth in the second half of the year suggests continued momentum. These factors contribute to a very positive sentiment.

Positives

• Net income for the second quarter of 2025 increased by $1.1 million (21.8%) to $6.0 million compared to Q2 2024.
• Year-to-date net income for June 30, 2025, increased by $3.2 million (36.9%) to $11.8 million compared to the same period in 2024.
• Net interest income increased by $1.5 million for Q2 2025 and $3.7 million for the six months ended June 30, 2025, driven by loan repricing and portfolio growth.
• Credit loss expense decreased by $0.3 million in Q2 2025 and $0.6 million year-to-date, indicating improved credit quality.
• Wealth management income increased by $0.1 million in Q2 2025 and $0.2 million year-to-date, reflecting higher market valuations and expanded client relationships.
• Gains on sales of residential mortgage loans increased by $0.1 million in Q2 2025 and year-to-date due to growth in production.
• Non-accrual loans decreased by $1.1 million (22.7%) to $3.8 million at June 30, 2025, from $4.9 million at December 31, 2024.
• Non-performing assets decreased by $1.5 million (13.1%) to $10.2 million at June 30, 2025, from $11.7 million at December 31, 2024.
• The allowance for credit losses to non-accrual loans improved to 499.58% at June 30, 2025, from 368.49% at December 31, 2024.
• The Bank maintained its 'well capitalized' status under regulatory frameworks, with strong capital ratios (Total Capital 14.99%, Tier 1 Capital 13.74%, Common Equity Tier 1 Capital 13.74%, Tier 1 Capital to average assets 10.87%).
• Dividends declared per share increased by 10% to $0.22 for Q2 2025 and $0.44 year-to-date.
• Total deposits increased by $39.4 million, including a $25.4 million increase in savings and money market accounts and a $3.9 million increase in retail time deposits.

Negatives

• Non-interest-bearing deposits decreased by $1.0 million to $425.8 million at June 30, 2025.
• Interest-bearing demand deposits decreased by $39.1 million, primarily due to seasonal fluctuations in municipal deposit accounts and increased spending by businesses and consumers related to inflation.
• Other operating expenses increased by $0.6 million in Q2 2025 and $0.3 million year-to-date, driven by higher OREO expenses, data processing fees, and professional services.
• Investment securities available-for-sale held a net unrealized loss of $18.9 million at June 30, 2025.
• The collateralized debt obligation portfolio (Level 3 assets) had $3.5 million in net unrealized losses at June 30, 2025.

Risks

• General economic and financial conditions can impact financial performance.
• Interest rate fluctuations are the primary market risk, affecting the difference between interest earned on assets and interest paid on liabilities.
• Consumer preferences can influence interest margins.
• Unforeseeable changes in the general interest rate environment and other factors can affect net interest income (NII) simulation analysis.
• Credit risks are inherent in loan commitments and letters of credit, similar to extending loans.
• The determination of the Allowance for Credit Losses (ACL) is inherently complex and requires significant, subjective estimates, meaning actual losses may vary from current estimates.
• Future additions to the ACL may be necessary due to changes in the loan portfolio, economic conditions, interest rate environment, and borrower financial conditions.
• The impact of inflation on monetary assets, as they lose value in terms of purchasing power during inflationary periods.
• Dependence on purchased funds and core growth for liquidity management.

Future Outlook

Management expects stronger loan growth in the second half of the year due to strong loan pipelines. The Corporation aims to minimize fluctuating net interest margins and enhance consistent growth of net interest income through periods of changing interest rates.

Management Comments

• Management expects stronger growth in the second half of the year due to strong loan pipelines.
• Management seeks to minimize fluctuating net interest margins, and to enhance consistent growth of net interest income through periods of changing interest rates.

Industry Context

The banking industry continues to navigate a dynamic interest rate environment and competitive landscape for deposits and loans. First United Corporation's performance, marked by significant net interest income growth and improved asset quality, suggests effective management of these challenges. The increase in wealth management income indicates either favorable market conditions or successful client engagement strategies, aligning with broader trends of financial institutions diversifying revenue streams. The repayment of Bank Term Funding Program (BTFP) borrowings reflects a potential shift towards more traditional funding sources or improved internal liquidity, a positive sign in the current economic climate.

Corporate Governance

Stakeholder Impact

• Shareholders: Positive impact due to significant increases in net income, EPS, and dividends declared, along with improved asset quality and strong capital ratios.
• Employees: Continued stock-based compensation plans (RSUs) and normal merit increases indicate stable employee benefits and compensation.
• Customers: Continued provision of a broad range of financial products and services, including various loan and deposit products, with a focus on expanding relationships.
• Creditors: Strong capital ratios and improved asset quality, including a decrease in non-accrual loans, suggest a lower credit risk profile for the company's debt obligations.

Next Steps

• Adopt ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, in the annual report for the period ending December 31, 2025.
• Adopt ASU No. 2024-03, Income StatementReporting Comprehensive Income Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.
• Management expects stronger loan growth in the second half of the year due to strong loan pipelines.
• Continue active management of liquidity position through sub-committee meetings, looking forward 12 months at 30-day intervals.
• Conduct monthly reviews by management and quarterly reviews by the Asset and Liability Committee to ensure adequate levels of available funds.
• Utilize interest sensitivity gap analysis and simulation models to measure and manage interest rate risk.

Key Dates

Recommendation

First United Corporation delivered robust financial results for Q2 and YTD 2025, marked by substantial growth in net income and EPS. The increase in net interest income, coupled with a decrease in credit loss expense, highlights strong operational efficiency and improved asset quality. The company's capital ratios remain well above regulatory requirements, and the increase in dividends signals management's confidence in sustained performance. With a positive outlook for loan growth in the second half of the year, the company is well-positioned for continued financial strength, making it an attractive 'buy' for investors.

Keywords

First United Corporation, FUNC, Quarterly Report, SEC Filing, Financial Results, Net Income, EPS, Banking, Wealth Management, Loan Portfolio, Deposits, Credit Quality, Net Interest Income, Non-Performing Assets, Capital Ratios, Financial Holding Company, Community Banking, Investment Securities, Interest Rate Risk