FUNC: First United

Date: 25 Jan 2007
Price: $21.99
P/E: 10.23
P/B: 1.4
Yield: 3.48%
Debt/Equity: 2.71
Data from Morningstar.com

Introduction
First United Bank first drew my attention as the result of some apparently erroneous information reporting that the dividend yield was a whopping 6.7%. That 'fact' coupled with a fairly low P/E ratio was enough for me to investigate further.

Company Description
It's a bank. I don't like to dwell too much on trivial details like what the company actually does, so that's all you're getting.

Past 10 years
The companies financial history makes very pleasant reading. Earnings have increased every year in the past ten years with one exception (2004 due to a high "non-compensation expense"), and in 2005 earnings were stronger than ever - so that proved to be a temporary blip. EPS doubled during the period from $1 to $2.15. The book value increased from $56.8m to $94m over the period, which is also good to see. Lots of warm fuzzy feelings here.

Pros
Everything about this company looks solid. In my opinion if you're looking for a relatively safe place to put your money then this is it. The return on shareholder's equity is around 12%, which is solid if not spectacular, and the balance sheet, income growth etc all looks very healthy.

Cons
I should first say a brief word about the debt/equity ratio above - particularly having complained so much in my previous post. For banks this number is basically irrelevant. All the customer deposits at the bank are counted as debt, which is of course true, but the banks business is to take on that debt and then use it to make money - so I don't penalize banks for that, and generally try to ignore the gearing or leverage ratios for a bank.

The main negative on this stock is that I'd like to see it even cheaper before buying. If it had a P/E of 8 rather than 10 I'd be jumping at it - as it is, I think it's worth an investment, but won't be getting excited about FUNC.

Conclusion
This stock seems to be pretty unexciting - and that has historically been true of the share price too. Personally I don't mind that, and I'm quite comfortable with investing some of my money in FUNC for the long term, and I'd probably get a low double-digit return (including dividends), which will do me nicely. It's nothing exciting, but I also view it as pretty low risk, and as a first dabble into the US stock market that will do nicely.