First United Corporation (FUNC): 5 FORCES Analysis [Nov-2025 Updated]

You're looking for the real story behind First United Corporation's competitive footing right now, so let's cut through the noise and map out the market reality using the five forces framework. Honestly, the pressure is clear: suppliers-depositors-are pushing for higher rates, which directly impacts funding costs, especially with \$50.0 million in brokered deposits needed in 2025. While the threat of new bank entrants is low thanks to massive regulatory hurdles, the competition from Fintech substitutes is high, and commercial clients have real leverage, evidenced by their \$65.1 million in Q2 2025 originations. Still, the firm's 13.23% Q3 2025 ROAE shows it's fighting effectively in that fragmented community space, but you need to see the full breakdown below to grasp where the next near-term risk lies for this \$2.0 billion asset institution.

First United Corporation (FUNC) - Porter's Five Forces: Bargaining power of suppliers

When you look at First United Corporation (FUNC), the suppliers aren't just the usual vendors; the biggest suppliers are the sources of funding-primarily depositors. In the late 2025 environment, their power is definitely elevated, especially given the persistent inflationary pressures you and I have been watching.

The pressure from depositors demanding higher rates is a real factor. Honestly, the CEO noted in the first quarter of 2025 that funding remains a challenge because inflation has taken its toll, leading to higher customer spending and reduced deposit balances, all while competition for those dollars stays high. This dynamic forces First United Corporation to be very strategic about its cost of funds.

We saw this play out directly when the company had to secure funding. To manage liquidity and replace short-term debt, First United Corporation needed to tap the wholesale market. Specifically, in January 2025, the company obtained $50.0 million in brokered time deposits. That specific funding came with an average interest rate of 4.24%, which is a concrete example of the cost of securing funds when core deposit growth isn't keeping pace or when specific funding needs arise. This move funded the repayment of $50.0 million in overnight borrowings that were outstanding at the end of 2024.

Despite the need for these specific, potentially more expensive, funding sources, management has managed the overall cost structure well enough to maintain a competitive Net Interest Margin (NIM). For the third quarter of 2025, the NIM on a non-GAAP, fully tax equivalent basis was 3.69%, which the company attributed to higher loan yields and stable funding costs. Still, the underlying competition for core deposits is fierce, which keeps the threat of rising rates from depositors present.

Here's a quick look at how the balance sheet funding mix looked as of September 30, 2025, compared to the end of 2024, showing the overall deposit growth that helps offset reliance on potentially more volatile sources:

The power of technology vendors is a different kind of supplier dynamic for First United Corporation. You're looking at moderate power here. The company has clearly signaled its intent to spend more in this area, which gives vendors some leverage. For instance, in the first quarter of 2025, management stated they intend to invest in enhanced technology, especially around the electronic banking experience. This investment is expected to result in higher data processing expenses over the year.

The key supplier pressures for First United Corporation can be summarized like this:

• Depositors demand higher rates due to inflation.
• Reliance on $50.0 million in brokered deposits in 2025.
• Competition for core deposits remains high.
• Technology vendors hold moderate power for key upgrades.
• Planned investment in electronic banking technology.

To manage this, Finance needs to stress-test the NIM assumption against a 10-basis-point increase in average deposit rates for the next two quarters. That's the immediate action item.

First United Corporation (FUNC) - Porter's Five Forces: Bargaining power of customers

You're assessing First United Corporation's position against its customers, and honestly, the power they wield is best described as moderate. For basic retail banking services, the switching costs are generally low. Customers can move their checking or savings accounts with relative ease, especially as digital-only banks, or neobanks, continue to gain traction, demanding seamless, mobile-first experiences in 2025. In fact, industry projections suggested that by 2025, as many as 70% of financial executives believed more than half of consumers would open a new financial relationship with a non-traditional institution. That mobility puts pressure on First United Corporation to keep its offerings competitive.

Still, customers have clear alternatives. They can easily access services from larger regional banks that operate across a wider footprint than First United Corporation's primary markets in Maryland, West Virginia, Pennsylvania, and Virginia. This ease of access means that if First United Corporation's pricing, service levels, or technology lags, customers have viable, established options ready to onboard them.

First United Corporation actively works to mitigate this customer power through its core operating model. The management team emphasizes that their unique size allows them to be small enough to build deep relationships, yet large enough to deliver customized solutions. This focus on community and tailored service acts as a deliberate friction point against customer defection. They are investing time, energy, and resources directly into the communities they serve, which builds loyalty beyond just the transaction.

Where customer leverage is most pronounced is within the commercial segment. Large commercial clients, who drive significant revenue and relationship depth, have substantial leverage when negotiating terms or considering refinancing. This leverage is underscored by the volume of business First United Corporation is actively writing. Here's a quick look at the recent production figures that define this segment's importance:

The $65.1 million in commercial loan originations for the second quarter of 2025 shows that commercial clients are actively engaging with First United Corporation for significant financing needs. This volume means that losing even a few key commercial relationships would materially impact growth targets. The pipeline as of June 30, 2025, stood at $32.3 million in commercial loans, plus unfunded commitments of approximately $47.0 million, indicating that these high-leverage clients are central to near-term performance.

To keep these valuable clients engaged and to counter the general market trend of low switching costs, First United Corporation focuses on specific relationship strengths:

• Maintaining a Net Interest Margin of 3.65% (FTE basis) in Q2 2025.
• Increasing loan yields while keeping funding costs stable.
• Expanding talent, such as adding to the Morgantown team in the first half of 2025.
• Focusing on technologies to enhance customer experience long-term.

First United Corporation (FUNC) - Porter's Five Forces: Competitive rivalry

You're looking at the competitive landscape for First United Corporation (FUNC) as of late 2025, and rivalry is definitely a key pressure point. The community banking sector, even for a 'Super Community Bank' like First United Bank & Trust, is inherently competitive.

The rivalry is high in fragmented community banking across four states, which is the premise we are working from. This fragmentation means local market share is hard-won, and competitors are often deeply embedded in the same towns and counties. Honestly, this forces every bank to fight for every deposit and loan relationship.

Direct competition from peers like Burke & Herbert Financial Services (BHRB) is a clear benchmark for performance. When you stack up the Q3 2025 results, you see a clear picture of who is delivering returns in this environment. For instance, Burke & Herbert Financial Services Corp. posted an annualized Return on Average Equity (ROAE) of 14.88% for the third quarter of 2025.

FUNC's strong Q3 2025 ROAE of 13.23% indicates effective competition, showing the management team is keeping pace, even if slightly behind a direct peer like BHRB in that specific metric. Here's a quick comparison of key Q3 2025 figures:

The difference in scale is apparent-BHRB reported net income nearly four times that of FUNC in the quarter. Still, FUNC's ability to generate a 13.23% ROAE shows it is extracting value effectively from its asset base in a tough market.

This intense rivalry drives necessary investment in the operational backbone of the bank. Competition forces First United Corporation to invest in technology to improve customer experience, which is a major theme across the community banking industry for 2025. Banks are doubling down on digital-first technology investments to meet the needs of a convenience-driven, tech-savvy clientele.

For First United Corporation, this competitive pressure translates into specific action areas, which you can see reflected in broader industry priorities:

• Prioritizing efficiency drivers and data analytics to stay competitive.
• Increasing investment in generative artificial intelligence (gen AI) and cybersecurity.
• Focusing on streamlining processes to enhance customer interactions.
• Adopting tools that attract next-gen account holders seeking wealth-building features.

If onboarding takes 14+ days, churn risk rises, so speed in digital service delivery is non-negotiable. Finance: draft 13-week cash view by Friday.

First United Corporation (FUNC) - Porter's Five Forces: Threat of substitutes

You're looking at how external players can steal First United Corporation (FUNC)'s business, and honestly, the digital shift is making this a major focus for management. The threat of substitutes is substantial across lending, deposits, and wealth services.

High threat from non-bank financial technology (Fintech) lenders

Fintech lenders are aggressively taking share by offering speed and convenience, which directly challenges First United Bank & Trust's traditional lending model. The sheer scale of this substitution is evident in the broader market figures. Globally, the Fintech Lending Market size was valued at USD 589.64 billion in 2025.

This digital preference translates directly to the U.S. market where, as of 2025, digital lending now accounts for 63% of U.S. personal loan originations. Furthermore, Fintech platforms are delivering more than half of SME loans in developed regions. First United Corporation reported $29.8 million in commercial loan originations in Q3 2025. To compete, these fintechs use advanced analytics, which allows them to offer approval rates that are 30% higher for thin-file borrowers compared to traditional lenders.

Here are some key market dynamics showing the scale of the substitution:

Wealth management services face substitution from national brokerage firms

For First United Corporation's wealth management segment, the competition comes from large, national brokerage firms that offer extensive, often lower-cost, digital platforms for investment management. While First United Corporation reported positive internal momentum, with wealth management income increasing by $0.1 million in Q2 2025 compared to Q2 2024, the sheer scale of national competitors presents an ongoing substitution risk. The wealth department was noted as a large contributor to success in 2024, but without specific asset under management (AUM) comparisons against national players, we must assume the threat remains high due to client preference for broader digital access.

The substitution pressure is visible in the following areas:

• Brokerage commissions grew from $1.2 million to $1.4 million year-over-year for a recent quarter.
• Wealth management income rose $0.1 million in Q2 2025 vs. Q2 2024.
• The CEO noted wealth relationship managers continue to deliver strong production.
• The business is focused on growing its wealth presence in 2025.

Credit unions and online-only banks offer lower-cost deposit alternatives

The competition for core deposits is fierce, as customers can easily move funds to institutions offering better rates or a purely digital experience. First United Corporation has actively sought funding, obtaining $50.0 million in brokered time deposits in January 2025 at an average interest rate of 4.24%. You should note that management has previously been critical of brokered deposits because they are a higher cost deposit than traditional ones.

Despite this, First United saw growth in its core, relationship-based deposits:

• Savings and money market accounts increased by $42.0 million in the first nine months of 2025.
• Savings and money market accounts grew by $18.7 million in Q1 2025.
• Savings and money market accounts increased by $25.5 million in the first six months of 2025.

Total deposits for First United increased by $104.1 million as of September 30, 2025, compared to December 31, 2024. The need to use higher-cost brokered deposits to fund the repayment of overnight borrowings suggests that attracting low-cost, relationship-based deposits from competitors like credit unions and online banks is a persistent challenge.

Customers can substitute traditional mortgages with online lenders like loanDepot

The mortgage market clearly shows nonbank lenders capturing significant volume, directly substituting the traditional bank mortgage origination business that First United Corporation engages in. The nonbank share of total residential mortgage originations rose from 65.2% in 2024 to 66.4% in the first quarter of 2025.

The dominance of nonbanks in the top tier is stark:

First United Corporation originated $20.8 million in residential mortgages in Q3 2025. Meanwhile, the U.S. industry for Online Mortgage Brokers-a pure substitute channel-is estimated to have a market size of $647.5 million in 2025. This environment means First United Corporation must fight hard to maintain its production levels against more digitally focused competitors.

First United Corporation (FUNC) - Porter's Five Forces: Threat of new entrants

You're looking at the barriers to entry for a new competitor trying to set up shop against First United Corporation (FUNC) in late 2025. Honestly, the threat from brand-new banks is structurally low, even with the recent buzz around fintech charters.

Low Threat Due to Extremely High Regulatory Barriers for a Bank Charter

Getting a bank charter in the US is a marathon, not a sprint, involving federal and state regulators like the OCC and the FDIC. While 2025 saw a surge in charter filings from fintechs-reportedly 20 applications through October 3rd, an all-time high-this doesn't mean it's easy; it just means the window for some applicants might be open under the current regulatory posture. The historical trend clearly shows the difficulty: the number of chartered banks in the US has shrunk from 9,943 in 1995 to just 4,036 as of 2023. New entrants face a complex web of licensing and application requirements that vary by charter type and jurisdiction.

For First United Corporation (FUNC), which has been serving its local communities for over a century, this regulatory moat is a significant advantage. New applicants must navigate stringent safety and soundness operating standards right from the start.

Significant Capital Requirements

Capitalization is a massive hurdle. While First United Corporation (FUNC) sits at $2.0 billion in total assets as of September 30, 2025, any de novo (newly chartered) bank must demonstrate substantial capital reserves to satisfy regulators. For context on the regulatory environment, even large banks (those with $100 billion or more in assets) face minimum Common Equity Tier 1 (CET1) capital ratio requirements of 4.5%, plus a Stress Capital Buffer (SCB) of at least 2.5%.

For a smaller institution like First United Corporation (FUNC), the initial capital needed to launch and sustain operations while meeting all compliance overhead-especially for a full-service institution-is substantial. What this estimate hides is the need for operational capital beyond the minimum regulatory thresholds to survive initial losses.

Here's a look at the capital structure for the largest players, illustrating the regulatory baseline:

Entrants Need Large Branch Networks or Expensive Digital Infrastructure

A new entrant must decide whether to compete on physical presence or digital superiority. For First United Corporation (FUNC), which emphasizes serving local communities in Maryland, West Virginia, Pennsylvania, and Virginia, a physical network is already established. A new competitor aiming for a similar footprint would need significant investment in brick-and-mortar locations.

Alternatively, a digital-first entrant faces its own steep costs. While modern digital architectures promise operational expense reductions of up to 70% compared to traditional models, the initial build-out is costly. The Total Cost of Ownership (TCO) for a new digital bank includes:

• Licensing fees and annual maintenance costs.
• Hardware, data centers, and energy consumption.
• Integration efforts, including API development.
• Compliance overhead for security updates.
• Costs for specialized knowledge retention.

The reality is that building a robust, safe, and functional digital bank from scratch requires significant upfront investment in technology and compliance, even if the long-term operational costs are lower.

New Entrants Face Difficulty Building Trust in Local Markets

Trust is the currency of community banking, and it takes time to earn. First United Corporation (FUNC) is celebrating its 125th anniversary in 2025, a testament to its long-standing presence and sound financial management practices. This history translates directly into customer confidence.

New entrants, especially digital-only ones, struggle to replicate this established goodwill. While 52 percent of US adults use at least one open banking-powered service, the core relationship for lending and complex advisory services often defaults to known entities. Building the necessary reputation to attract deposits and secure high-quality loan production, which saw First United Corporation (FUNC) originate $29.8 million in commercial loans in Q3 2025, is a multi-year process that new firms simply haven't completed yet. Defintely, this intangible asset is a major barrier.