FIRST UNITED CORP/MD/ (FUNC) stock intrinsic value fair value estimate & owner earnings analysis

First United Corporation is the holding company for First United Bank & Trust, an independent community bank based in Oakland, Maryland. It operates 23 banking offices in Allegany, Frederick, Garrett and Washington counties in Maryland and in Mineral, Berkeley and Monongalia counties in West Virginia. At the end of 2025 it had $2.09 billion of assets, $1.50 billion of net loans and $203.6 million of shareholders' equity, about $31.33 per share. Its most distinctive feature is deposit density in small rural markets: FDIC data in the 2025 annual report show the bank holding 64.6% of the deposits in Garrett County, Maryland. It also runs a trust and wealth business with $1.8 billion of assets under management, and total non-interest income was $20.6 million in 2025. Earnings history. Earnings per diluted share were $1.85 in 2019, $1.97 in 2020, $2.94 in 2021, $3.76 in 2022, $2.25 in 2023, $3.15 in 2024 and $3.77 in 2025. Diluted shares fell from 7.10 million in 2019 to 6.50 million in 2025, which helped per-share results. 2023 is the key lesson about this business: funding costs repriced faster than loan yields, interest expense rose $19.5 million, the net interest margin fell from 3.56% in 2022 to 3.26% in 2023, and net income dropped about 40% (from $25.0 million to $15.1 million). A fourth-quarter 2023 securities sale added roughly $4.2 million of pre-tax securities losses compared with 2022, worth roughly half a dollar per share. The margin then recovered to 3.38% in 2024 and 3.67% in 2025, above each of the prior three years. That recovery produced 2025 earnings growth of 19.7%. Latest results. In the first half of 2026 earnings were $1.90 per share against $1.81 a year earlier, with net interest income up 12% ($36.7 million versus $32.7 million). Second-quarter earnings were $0.88 per share against $0.92, because non-interest expense rose 21.5% year over year; professional fees were $2.7 million in the quarter against $0.6 million a year earlier. We could not determine the cause of the fee increase from the information available. The quarterly dividend is now $0.26 per share, up from $0.22 in the first half of 2025. Credit and capital. Non-performing assets were $8.6 million, 0.41% of assets, at year-end 2025; accruing loans 30 or more days past due were 0.32%; the allowance for credit losses was $19.9 million, 1.31% of loans. The one item to watch: loans evaluated individually for loss rose to $19.6 million from $4.4 million, mostly one commercial relationship in the automotive dealership industry that was current but not meeting its loan terms; it carries a $0.4 million specific reserve. Regulatory capital ratios in the annual report were 15.19% total risk-based and 11.01% leverage, against well-capitalized minimums of 10% and 5%; equity was 9.8% of assets. Long-term debt at year-end 2025 was $95.9 million: $65 million of Federal Home Loan Bank advances and $30.9 million of floating-rate trust preferred debentures (6.72%). By June 30, 2026 long-term debt was $30.9 million and short-term borrowings had risen to $69.2 million from $17.7 million. Because deposits and borrowings are the raw material of a bank and their cost is already deducted in its earnings, we value the earnings directly and subtract no borrowings in any case; borrowings owed are therefore shown as zero below. Base case: $59.4 per share. We take a typical year as $3.15 per share, the middle of the last five years (2021-2025), a stretch that spans near-zero rates, the 2022-2023 funding squeeze and the recovery. We do not take the 2025 result of $3.77 as typical because the 2022 to 2023 experience shows how fast the margin can reverse. We credit growth of 4% a year for five years and 2.5% a year for the next five, taking earnings from $3.28 in year 1 to $3.83 in year 5 and $4.34 in year 10. Last year's actual earnings growth was 19.7% and the first year here is 4% above the typical level, so the starting pace is well below the latest actual. That growth is funded by retaining enough earnings to keep equity at its current share of assets, which is how this bank has grown: earnings per share compounded 6.4% a year from 2021 to 2025 and 12.6% a year from 2019 to 2025, and we use rates below both. After year 10 we hold earnings flat and fully paid out, because what demonstrably persists is the deposit franchise itself, and we credit nothing beyond it. We left out a payoff from the Morgantown, West Virginia sales-team expansion, any further margin gain, and share gains, since none has yet shown up in results. The business is worth $59.4 per share, it owes $0 that we subtract, and the difference is $59.4. Bear case: $28.3 per share. This is a full credit cycle of the kind the bank has actually been through. In 2011 and 2012 net charge-offs were 1.24% and 1.41% of average loans, loan-loss provisions were $9.2 million and $9.4 million, and the allowance stood at 2.08% and 1.83% of loans. Applied to a loan book of about $1.6 billion (it was $1.57 billion at June 30, 2026) in years 3 and 4, that means charge-offs of $19.8 million and $22.6 million, plus raising the allowance to 2.0% of loans (an extra $12.1 million), against $2.7 million of provisions in 2025. After tax at the 24.65% rate of 2025, earnings per share are about -$0.23 in year 3 and $0.85 in year 4, with $3.15 in the two years before. The case never shows a cumulative loss over the two cycle years (roughly a $4 million profit), so we assume no capital raise. Afterward, the bank earns what it earned after the last cycle: a return on assets of about 0.52% (the middle of 2013-2016), or $1.67 per share on today's $2.09 billion of assets, and we hold that level indefinitely with no growth. The business is worth $28.3 per share, it owes $0 that we subtract, and the difference is $28.3, about 10% below year-end book value of $31.33 per share. Bull case: $75.5 per share. It starts from the 2025 result of $3.77, which the first half of 2026 supports at $1.90 per share, with the margin holding near 3.67% and loans growing about 3% a year as they did in 2025 (2.8%) and the first half of 2026 (3.3%). Earnings grow 5% a year for five years and 3% for the next five, reaching $3.96 in year 1, $4.81 in year 5 and $5.58 in year 10, and are flat afterward. The business is worth $75.5 per share, it owes $0 that we subtract, and the difference is $75.5. What has changed. Our earlier estimates of $25, $46.9 and $65.8 were made on a different basis and are not comparable. In the business itself: the dividend was raised, the long-term Federal Home Loan Bank advances are no longer in long-term debt, second-quarter expenses jumped, and the filing shows $19.6 million of individually evaluated loans, mostly one relationship, rather than the roughly $16 million we cited before. What could make this wrong. A credit cycle deeper or longer than 2011-2012 is the main risk. A margin squeeze like 2023 that does not reverse would leave earnings near the $2.25 to $3.15 range. If the entire $19.6 million of individually evaluated loans were lost (more than the one relationship), the after-tax cost would be about $14.5 million, or $2.23 per share, taken in one year. Margin-of-safety price: $18. We are fairly sure a typical year earns near $3: three of the last five years were at or above $3.15, and the 2023 low was depressed by a securities loss. We are less sure of anything above $3.15, since $3.77 came with the widest margin in four years. The worst plausible outcome is a credit cycle like 2011-2012 combined with a margin squeeze, plus losses on the auto dealership relationship that no case models separately. The structure can absorb that: it is deposit-funded, equity is 9.8% of assets, and reported capital ratios are well above well-capitalized levels. We would expect dividends to be cut in such a period, which is a judgement, not a computed fact. The price assumes a three-to-five-year holding period, during which the dividend is $0.26 a quarter ($1.04 a year, 5.8% of an $18 price), and the company has also repurchased shares ($4.0 million in 2024, $2.5 million in the first half of 2026). At $18, the $3.15 typical earnings are 17.5% of the price. If book value per share grows 4% a year from $31.33 and the dividend grows 4% a year from $1.04, a value after five years of 0.9 to 1.0 times book value ($34.3 to $38.1, our judgement of what the shares would command) implies about 18.7% to 20.9% a year; at 0.8 times book it implies about 16.2%. On a deliberately harsh path (dividends of nothing in years 3 and 4 and $0.50 in year 5, book value unchanged at $31.33 and a value at 0.8 times book, or $25.06), it implies about 9.6% a year. At $20 the same base-path figures fall to 16.0% to 18.2%, below the 20% target, so $18 is the highest price at which the target is reached without assuming a value above book.