First United's Margin Expansion Slowed In Third Quarter

The Tip Desk · October 21, 2026 · 3 min read

First United's net interest margin reached 4.05% in the third quarter, while a higher credit-loss provision absorbed part of the income gains.

First United (FUNC), the Maryland-based parent of First United Bank & Trust, extended its net interest margin expansion in the third quarter, though the pace slowed. Its non-GAAP, fully tax-equivalent margin reached 4.05%, up 7 bps from 3.98% in the second quarter. That followed a 15 bps increase from the first quarter's 3.83%.

Higher loan yields and lower funding costs continued to support interest income. Fully tax-equivalent net interest income increased $1.0 million QoQ. Average loan balances rose $31.3 million over the same period, while loan yields increased 9 bps and deposit funding costs fell 9 bps. First United attributed the income improvement to those changes.

The funding mix also shifted. Quarter-end deposits increased $52.2 million QoQ, led by interest-bearing demand accounts, while brokered time deposits declined $25.0 million. First United completed repayment of its brokered certificates of deposit at maturity in July, following an earlier repayment in January. Separately, short-term borrowings taken in anticipation of loan funding were fully repaid in October.

Gross loans increased $33.3 million QoQ, with residential mortgages contributing $17.0 million of the increase. Commercial originations recovered to $115.0 million from $66.0 million in the second quarter. Consumer balances also increased; First United said purchases of consumer loan pools in the second and third quarters contributed to that portfolio's growth during the first nine months.

The wider margin and the absence of a consulting charge helped lift GAAP net income to $7.2 million, or $1.11 a share, from $5.7 million in the second quarter. The previous quarter included a $1.7 million after-tax charge for core-processor contract negotiations. Third-quarter non-GAAP earnings equaled GAAP earnings and were slightly below the second quarter's $7.3 million.

Underlying costs remained higher than a year earlier. Operating expenses increased $0.8 million YoY, which First United attributed to salaries and benefits, including regional hiring, merit increases and insurance claims, alongside costs associated with new loan-origination software. The company described expenses other than the consulting charge as stable QoQ.

Wealth management provided another source of income growth. Trust and brokerage income increased $0.3 million YoY, which First United attributed to new-account production and favorable market values. Other quarterly income also included proceeds related to a previously recorded branch sale and a one-time check-fee incentive.

Credit provisioning absorbed part of the operating gains. The provision rose to $1.9 million from $0.8 million in the second quarter. First United attributed the increase primarily to loan growth, approximately $39.0 million of additional unfunded commitments, and economic and political uncertainty. Quarterly net charge-offs remained $0.1 million.

Credit indicators were mixed. Non-accrual loans totaled $3.2 million at September's end, but accruing loans at least 30 days past due increased to 0.45% of loans from 0.32% at year-end, a deterioration of 13 bps. First United attributed that increase to one large non-owner-occupied commercial real estate loan. Residential loans in foreclosure totaled $1.3 million.

Modified loans totaled $6.9 million after a term-extension accommodation on a $5.9 million commercial and industrial loan during the quarter. The allowance for credit losses stood at $21.8 million at September's end.

Heading into the fourth quarter, the commercial loan pipeline stood at $138.0 million and the in-house mortgage pipeline at $29.8 million. Chief Executive Jason Rush said the pipelines remain robust, while inflation and interest-rate uncertainty warrant a disciplined approach to reserves.