First United Corporation (FUNC): Russell 2500 Inclusion and Buybacks Fuel Valuation Upside

First United Corporation (NASDAQ: FUNC), a bank holding company for First United Bank & Trust, has entered a pivotal phase in its growth trajectory. The company's recent addition to the Russell 2500 Index—a mid-cap benchmark—alongside its disciplined capital management strategies, including share buybacks, positions it as a compelling investment opportunity. This article explores how these developments, combined with strong fundamentals, could drive valuation upside for investors.

Russell 2500 Inclusion: A Catalyst for Liquidity and Visibility

On June 18, 2025, First United Corporation was officially added to the Russell 2500 Index as part of the annual reconstitution process, effective June 30, 2025. This inclusion is significant because passive index funds tracking the Russell 2500 must now rebalance their portfolios to include FUNC shares, potentially driving short-term liquidity and trading volume.

The Russell 2500 targets mid-cap companies, and First United's inclusion reflects its market capitalization growth and adherence to FTSE Russell's eligibility criteria. Historically, such reclassifications have triggered inflows from index-tracking funds, creating a “halo effect” for smaller-cap stocks like FUNC.

Buyback Programs: A Strategic Use of Capital

While First United has not announced a new buyback program for 2025 explicitly, its track record in capital returns is robust. In 2024, the company repurchased and retired 201,800 shares at an average price of $19.99 per share, contributing to a 13.7% increase in book value per share to $27.71 by December 31, 2024.

This strategy reduces the share count, boosting metrics like earnings per share (EPS) and return on equity (ROE). With the stock price trading at $25.50 as of June 2025 (down slightly from its 2024 high), the company's buybacks could resume if management deems the stock undervalued. The $27.71 book value per share serves as a critical support level, suggesting a margin of safety for investors.

Strong Fundamentals: The Foundation for Growth

First United's first-quarter 2025 results underscore its operational resilience:
- Net income rose 20% YoY to $5.8 million, driven by a solid net interest margin (NIM) of 3.56%.
- Loans grew by 5.2% compared to the prior year, while deposits expanded 6.1%, signaling strong customer engagement.
- Asset quality remains robust, with non-performing loans (NPLs) at just 0.22% of total loans—a fraction of the industry average.

These metrics align with the company's strategic priorities: expanding loan and deposit market share, growing its wealth management division, and optimizing its balance sheet. The rising NIM reflects effective rate management, a key advantage in a rising-rate environment.

Valuation Upside: The Bull Case

The combination of Russell inclusion, buybacks, and strong fundamentals creates a compelling valuation case:
1. Index Inclusion: Passive inflows could push the stock toward its 2024 highs of $22–$24, with further upside if active investors follow suit.
2. Buyback Potential: If share repurchases resume, the reduced float could amplify EPS growth, especially if earnings continue their upward trend.
3. Fundamental Catalysts: The 3.56% NIM and loan growth suggest organic earnings momentum, while the 0.22% NPL ratio limits downside risks.

At current levels, FUNC trades at just 1.1x book value, a discount to its historical average of 1.3–1.5x. A re-rating to 1.3x could add 18% upside, reaching $36.02 per share.

Investment Thesis and Risks

Buy the dip: Investors should consider accumulating shares below $25, using the $27.71 book value as a long-term floor. The Russell inclusion and potential buybacks make June 30, 2025, a key catalyst date.

Risks:
- A prolonged economic slowdown could pressure loan demand and NIM.
- Regulatory changes or interest rate cuts might reduce margin flexibility.

Conclusion

First United Corporation stands at an inflection point. Its addition to the Russell 2500 Index, strong fundamentals, and capital management discipline position it to outperform mid-cap peers. With valuation at a discount and clear catalysts ahead, now is the time to consider this overlooked bank stock.

Action Item: Monitor the stock's performance post-June 30 reconstitution. A breakout above $25 could signal a sustained upward trend.