10-Q: First United Reports Strong Q3 2025 Earnings Growth

First United Corporation announced a significant increase in net income and earnings per share for the third quarter and first nine months of 2025, driven by robust net interest income and improved credit quality.

Summary

• Net income for the third quarter of 2025 increased to $6.9 million, or $1.07 per basic and diluted share, up from $5.8 million, or $0.89 per share, in Q3 2024.
• For the first nine months of 2025, net income rose to $18.7 million, or $2.89 per basic share and $2.88 per diluted share, compared to $14.4 million, or $2.20 per share, for the same period in 2024.
• Total assets reached $2.02 billion as of September 30, 2025, a $51.0 million increase since December 31, 2024.
• Net loans grew by $15.0 million to $1.48 billion, while total deposits increased by $104.1 million to $1.68 billion since December 31, 2024.
• Net interest income for the nine months ended September 30, 2025, increased by $5.8 million to $50.1 million, primarily due to higher loan yields and increased average loan balances.
• Credit loss expense decreased by $0.4 million for the nine-month period, reflecting strong credit quality and lower charge-offs.
• Other operating income increased by $0.6 million for the nine-month period, driven by higher wealth management income and gains on investment sales.
• Operating expenses increased by $1.0 million for the nine-month period, mainly due to higher salaries and employee benefits, data processing, and professional services, partially offset by reduced occupancy and equipment expenses from branch closures.

Sentiment

Score: 8

Explanation: The company reported strong financial performance with significant increases in net income and EPS, driven by robust net interest income and improved credit quality. Liquidity and capital positions are solid, and the company is asset-sensitive, benefiting from the current interest rate environment. While operating expenses increased, the overall financial health and growth trajectory are positive.

Positives

• Net income increased by $1.2 million (20.4%) for Q3 2025 and $4.3 million (30.3%) for the nine months ended September 30, 2025, compared to the prior year periods.
• Basic and diluted EPS saw substantial growth, rising to $1.07 for Q3 2025 and $2.88/$2.89 for the nine months ended September 30, 2025.
• Net interest income increased by $2.2 million for Q3 2025 and $5.8 million for the nine months ended September 30, 2025, driven by higher loan yields and average balances.
• Credit loss expense decreased by $0.4 million for the nine-month period, indicating strong credit quality and lower charge-offs.
• Non-accrual loans decreased to $3.8 million at September 30, 2025, from $4.9 million at December 31, 2024.
• The allowance for credit losses to non-accrual loans improved significantly to 499.06% at September 30, 2025, from 368.49% at December 31, 2024.
• Wealth management income increased due to improving market conditions, increased annuity sales, and growth in customer relationships.
• The Bank remains 'well capitalized' under regulatory frameworks, with strong capital ratios.
• The company is asset sensitive, with NII projected to increase with rising interest rates, and all NII simulation analysis changes remain within policy limits.

Negatives

• Interest expense on deposits increased by $0.4 million for Q3 2025 and $1.2 million for the nine months ended September 30, 2025, due to growth in municipal balances and higher rates.
• Other operating expenses increased by $0.7 million for Q3 2025 and $1.0 million for the nine months ended September 30, 2025, primarily due to higher salaries and employee benefits, data processing, and professional services.
• Credit loss expense for the three months ended September 30, 2025, increased to $510,000 from $264,000 in the same period of 2024.

Risks

• Management does not believe that any material changes in our risk factors have occurred since they were last disclosed in Item 1A of Part I of First United Corporation's Annual Report on Form 10-K for the year ended December 31, 2024.

Future Outlook

The Corporation anticipates adopting several new accounting standards in future periods, including ASU 2023-09 (Income Taxes) in its annual report for December 31, 2025, ASU 2024-03 (Income Statement Expenses) for annual periods beginning after December 15, 2026, ASU 2025-05 (Credit Losses for Accounts Receivable) for annual periods beginning after December 15, 2025, and ASU 2025-06 (Internal Use Software) for annual periods beginning after December 15, 2027. Management believes these adoptions will not have a material impact on the financial statements. The commercial loan pipeline is strong at $50.4 million, with unfunded commercial construction loans at $42.8 million. The pipeline for in-house, portfolio consumer mortgage loans is $23.0 million, with unfunded residential construction loans at $12.1 million. The company expects to maintain adequate levels of available funds through active liquidity management and utilization of various funding sources.

Management Comments

• The $1.2 million increase in quarterly net income when compared to the third quarter of 2024 was primarily driven by a $2.2 million increase in net interest income and a $0.3 million increase in non-interest income, partially offset by increases in provision expense of $0.2 million, non-interest expense of $0.7 million and income tax expense of $0.4 million.
• Provision for credit losses decreased by $0.4 million due primarily to strong credit quality, lower charge-offs and lower loan growth during the first nine months of 2025 when compared to the same time period in 2024.
• The increase in deposits was primarily driven by $50.0 million in new brokered time deposits obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024.
• The commercial pipeline was strong as of September 30, 2025 at $50.4 million, and unfunded, commercial construction loans totaled approximately $42.8 million.
• Management believes that no material changes in our market risks, our procedures used to evaluate and mitigate those risks, or our actual or simulated sensitivity positions have occurred since December 31, 2024.
• All changes in net interest income from our simulation analysis remain within our policy limits.

Industry Context

First United Corporation's strong net interest income growth, driven by higher loan yields and increased average loan balances, reflects a banking sector that has generally benefited from a rising interest rate environment. The strategic decision to reinvest cash flows at higher yields and manage deposit costs aligns with broader industry efforts to optimize net interest margins. The growth in wealth management income also suggests a favorable market or successful client acquisition strategies within the financial services industry. The company's asset-sensitive position indicates it is well-positioned to benefit from further interest rate increases, a common characteristic among regional banks in the current economic cycle.

Corporate Governance

Legal Proceedings

• None.

Stakeholder Impact

• Shareholders: Benefited from increased net income, higher earnings per share, and an increase in dividends declared per share.
• Employees: Experienced increases in salaries and employee benefits, along with increased staffing levels, particularly in the West region.
• Customers: Benefited from expanded relationships and new loan production, particularly in commercial and residential mortgage segments.
• Creditors: The company's strong capital ratios and well-capitalized status indicate a stable financial position, reducing credit risk for lenders.

Next Steps

• Adopt ASU No. 2023-09 (Income Taxes) in the annual report for the period ending December 31, 2025.
• Adopt ASU No. 2025-05 (Financial InstrumentsCredit Losses) for annual periods beginning after December 15, 2025.
• Adopt ASU No. 2024-03 (Income StatementReporting Comprehensive Income) for annual periods beginning after December 15, 2026.
• Adopt ASU No. 2025-06 (IntangiblesGoodwill and Other Internal Use Software) for annual periods beginning after December 15, 2027.
• Continue to build out sales teams, particularly in the West region, as indicated by increased salary expenses and staffing levels.
• Manage interest rate swap agreements, with $15.0 million notional amount remaining until maturity in March 2026.

Key Dates

Recommendation

First United Corporation demonstrates robust financial health and strong operational performance, evidenced by significant year-over-year increases in net income and EPS for both the quarter and the nine-month period. The company's asset-sensitive balance sheet positions it favorably in the current interest rate environment, driving substantial growth in net interest income. Credit quality remains strong with decreasing non-accrual loans and a high allowance for credit losses coverage. Strategic initiatives, such as expanding sales teams and reinvesting at higher yields, are yielding positive results. The company is well-capitalized, indicating stability and capacity for continued growth. These factors collectively suggest a strong investment opportunity.

Keywords

Banking, Financial Services, Regional Bank, Wealth Management, Loans, Deposits, Net Interest Income, Credit Quality, SEC Filing, Quarterly Report, Earnings, Capital Ratios