FIRST UNITED CORPORATION ANNOUNCES SECOND QUARTER 2024 FINANCIAL RESULTS

OAKLAND, Md., July 22, 2024 /PRNewswire/ -- First United Corporation (the "Corporation, "we", "us", and "our") (NASDAQ: FUNC), a bank holding company and the parent company of First United Bank & Trust (the "Bank"), today announced financial results for the three- and six-month periods ended June 30, 2024.  Consolidated net income was $4.9 million, or $0.75 per diluted share, for the second quarter of 2024, compared to $4.4 million, or $0.66 per diluted share, for the second quarter of 2023 and $3.7 million, or $0.56 per diluted share, for the first quarter of 2024.  Year to date income was $8.6 million, or $1.31 per diluted share, compared to $8.8 million, or $1.31 per diluted share, for the six months ended June 30, 2023.

According to Carissa Rodeheaver, Chairman, President and CEO, "Net interest income improved as we experienced higher repricing of loans and saw stabilization of deposit expense as we remained disciplined in our pricing.  Non-interest expenses declined, and loan and wealth production were solid, all resulting in solid core earnings for the quarter offset slightly by increased provision expense.  We also took advantage of the lower stock price and improved shareholder position by repurchasing common stock.  We believe the environment will continue to be challenging due to the higher interest rates, but we are well positioned to continue to post solid earnings the remainder of the year."

Financial Highlights:

• Deposits decreased due to consumer and commercial spending and runoff of retail certificates of deposit due to competitive pricing
• Repaid $15.0 million of higher cost brokered certificates of deposit
• Shifted $15.0 million of municipal customer balances from overnight investment sweep products to fully insured Intrafi Cash Service ("ICS") products to release pledging of investment securities and increase available liquidity
• Loan production ramped up with $36.9 million in commercial and $19.1 million in residential mortgage originations
• Purchased and retired 201,800 shares of First United Corporation common stock
• Paid $0.20 per share quarterly dividend to common shareholders
• Net interest margin, on a non-GAAP, fully tax equivalent ("FTE") basis, was 3.49% for the second quarter of 2024
• Provision expense increased due to a $1.1 million charge-off on a non-accrual commercial and industrial credit
• Non-interest income, including net gains, remained stable
• Non-interest expense normalized and remains a focus for management

Income Statement Overview

On a GAAP basis, net income for the second quarter of 2024 was $4.9 million.  This compares to GAAP net income of $3.7 million for the first quarter of 2024, inclusive of $0.4 million, net of tax, in accelerated depreciation expense related to branch closures.  GAAP net income was $4.4 million for the second quarter of 2023.

The $0.5 million increase in quarterly net income year-over-year was primarily driven by a $1.1 million increase in net interest income, which was offset by an increase of $0.8 million in provision expense.  The increase in net interest income was primarily related to the $3.4 million increase in interest on loans due to new loans being booked at higher rates and the repricing of adjustable-rate loans.   This increase was partially offset by the $2.0 million increase in interest paid on deposits due to continued competitive pricing pressures.  An increase of $0.5 million in interest paid on short-term borrowings related to the Bank Term Funding Program ("BTFP") was offset by the reduction in long-term borrowings related to the repayment of the $40.0 million Federal Home Loan Bank ("FHLB") advance in the first quarter of 2024.  The year-over-year increase in provision for credit losses was primarily driven by increased charge-offs in the commercial and industrial portfolio related to one non-accrual credit where collateral was sold through a liquidation auction at depressed prices.   The charge-off was partially offset by continued improvement of qualitative factors.  Other activity comparing the second quarter of 2024 to the same period in 2023 was a $0.3 million increase in wealth management income due to improving market conditions and growth of new relationships and a decrease in operating expenses of $0.1 million.   The provision for income tax was up $0.2 million when comparing the two quarters due to increased net income before tax.

Compared to the linked quarter, net income increased by $1.2 million due primarily to a $1.4 million increase in net interest income during the second quarter of 2024.  The increase in net interest income was primarily related to a $1.0 million increase in interest on loans as new loans continue to be booked at higher interest rates and adjustable-rate loans reprice to higher rates.  Additionally, in the first quarter of 2024, two large commercial relationships with combined loan balances of $12.1 million were moved to non-accrual status, which resulted in a reversal of $0.4 million in accrued interest income and fees during the quarter.   Equipment and occupancy expenses decreased by $0.6 million due to accelerated depreciation expenses recognized in the first quarter of 2024 related to branch closures.   The increased income was partially offset by a $0.2 million increase in provision for credit losses.    Provision for income taxes was up $0.4 million when comparing the two quarters due to increased net income in the second quarter over the first quarter 2024.

Year to date net income for the first six months of 2024 was $8.6 million compared to $8.8 million for the same period in 2023.   Provision for credit losses increased by $1.2 million related primarily to an increase of $1.1 million in net charge-offs in 2024 due primarily to charge-offs of $1.1 million related to commercial and industrial loans of one relationship in 2024.   The increase in provision for credit losses was partially offset by the year over year increase of $0.4 million in net interest income driven by strong growth in our loan portfolio, new loans booked at higher rates, and adjustable-rate loans repricing to higher rates.  Wealth management income increased $0.8 million in the first six months of 2024 when compared to the same time period of 2023.

Net Interest Income and Net Interest Margin

Net interest income, on a non-GAAP, fully-tax equivalent ("FTE") basis, increased by $0.9 million for the second quarter of 2024 when compared to the second quarter of 2023.  This increase was driven by a $3.0 million increase in interest income.   Interest income on loans increased by $3.4 million due to the increase in average balances of $97.6 million and a 64 basis point increase in the overall yield on the loan portfolio as new loans were booked at higher rates as well as adjustable-rate loans repricing in correlation to the rising rate environment.   Investment income decreased by $0.5 million due to a decrease of $86.8 million in average balances related to the balance sheet restructuring of our investment portfolio in the fourth quarter of 2023 and the maturity of $37.5 million in U.S. Treasury bonds in the first four months of 2024.  The overall yield on the investment portfolio increased by 12 basis points primarily driven by the increased rate on the trust preferred portfolio and the maturity and sale of lower rate investments.   Interest expense increased by $2.1 million year over year due to an increase of 70 basis points on interest paid on deposit accounts.   The average deposit balances increased by $24.5 million when compared to the second quarter of 2023 due primarily to the increase of $96.4 million in money market account, which was partially offset by a decrease of $43.2 million and $20.9 million in average savings and time deposits, respectively.   

Comparing the second quarter of 2024 to the first quarter of 2024, net interest income, on a non-GAAP, FTE basis, increased by $1.4 million driven by an increase of $1.2 million in interest income and a decrease of $0.2 million in interest expense.  Interest income on loans increased by $1.0 million related to the overall increase of 26 basis points in yield and $7.5 million increase in average balances during the second quarter as well as the reversal of $0.4 million in accrued interest and loan fees related to the non-accrual loans in the first quarter of 2024.  Interest expense on deposits increased slightly by $0.1 million primarily driven by an increase in average balances of $77.8 million in money market accounts.  Interest expense on long-term borrowings decreased by $0.4 million due to the maturity and repayment of $40.0 million in FHLB borrowings during the first quarter of 2024.

Comparing the six months ended June 30, 2024 to the six months ended June 30, 2023, net interest income, on a non-GAAP, FTE basis, was stable.  Interest income increased by $6.9 million.   Average loan balances increased by $112.9 million and the overall yield increased by 61 basis points in correlation with the rising rate environment and new loans booked at higher rates as well as the repricing of adjustable-rate loans.  Interest expense on deposits increased by $5.6 million while the average deposit balances increased by $42.5 million, driven by increases of $77.9 million in money market balances and $27.4 million in retail time deposits, partially offset by decreases in savings balances of $50.1 million.  Interest expense on short-term borrowings increased by $0.9 million due to the Bank's utilization of the BTFP program in January 2024.  The increased interest expense resulted in an overall increase of 99 basis points on interest bearing liabilities.  The net interest margin for the six months ended June 30, 2024 was 3.31% compared to 3.39% for the six months ended June 30, 2023.

Non-Interest Income

Other operating income, including net gains, for the second quarter of 2024 increased by $0.3 million when compared to the same period of 2023.  The growth was driven by an increase of $0.3 million in wealth management income due to improving market conditions, increased annuity sales and growth in new and existing customer relationships.  Gains on sales of mortgages declined slightly when comparing the second quarter of 2024 to the same time period of 2023 primarily due to reduced activity in the elevated interest rate environment.  Other operating income on service charges and debit card income remained stable.

On a linked quarter basis, other operating income, including net gains, remained stable.  Debt card income increased by $0.1 million, which was offset by a $0.1 million decrease in wealth management income.

Other operating income for the six months ended June 30, 2024 increased by $0.8 million when compared to the same period of 2023.  This increase was primarily due to the $0.8 million increase in wealth management income due to improving market conditions, increased annuity sales and growth in new and existing customer relationships.  Service charge and debit card income were both stable when comparing the six months of 2024 to the six months of 2023.

Non-Interest Expense

Operating expenses decreased by $0.1 million in the second quarter of 2024 when compared to the second quarter of 2023.  The decrease was related to a $0.2 million decrease in equipment and occupancy expenses resulting from branch closures in late 2023 and a $0.2 million decrease in check fraud related expenses.   These decreases were partially offset by a $0.4 million increase in salaries related to increased health insurance claims, higher salaries and benefits associated with normal merit increases effective April 1, 2024, and reduced loan origination costs due to lower loan production.  Other increases in data processing and marketing expenses were offset by decreases in professional services, contract labor, telephone and other miscellaneous expenses.

Non-interest expense decreased by $0.5 million when compared to the linked quarter.  This decrease was primarily due to the $0.6 million decrease in equipment and occupancy expenses related to accelerated depreciation expense recognized in the first quarter of 2024 related to branch closures, partially offset by a $0.1 million increase in salaries and employee benefits associated with normal merit increases effective April 1, 2024.

For the six months ended June 30, 2024, non-interest expenses increased by $0.1 million when compared to the six months ended June 30, 2023.  Increases in salaries and employee benefits of $0.2 million due to normal merit increases effective April 1, 2024, and increases in FDIC premiums, data processing, equipment and occupancy were offset by decreases in professional services, contract labor, investor relations and other miscellaneous expenses such as pension related expenses, check fraud and membership dues and licenses.  

The effective income tax rates as a percentage of income for the six months ended June 30, 2024 and June 30, 2023 were 24.3% and 24.0%, respectively. 

Balance Sheet Overview

Total assets at June 30, 2024 were $1.9 billion, representing a $37.3 million decrease since December 31, 2023.  During the first six months of 2024, cash and interest-bearing deposits in other banks decreased by $4.7 million.  The investment portfolio decreased by $44.3 million due to the maturities of $37.5 million of U.S. Treasury bonds during the year and normal principal amortization of our mortgage-backed securities ("MBS") portfolio. Gross loans increased by $16.3 million and other real estate owned ("OREO") decreased by $1.5 million due to sales of OREO properties.  Other assets, including deferred taxes, premises and equipment, and accrued interest receivable, decreased by $2.7 million. 

Total liabilities at June 30, 2024 were $1.7 billion, representing a $39.6 million decrease since December 31, 2023.  Total deposits decreased by $13.9 million when compared to December 31, 2023.  The decrease in deposits was attributable to decreases in savings deposits of $11.2 million, retail time deposits of $22.1 million and the repayment of $15.0 million in brokered certificates of deposits, partially offset by increases in demand deposits of $22.2 million and money markets of $16.0 million.  Short-term borrowings increased by $17.1 million since December 31, 2023 due to the Bank's utilization of the BTFP to obtain $40.0 million in borrowings during January 2024 at a rate of 4.87% with a one-year maturity.   The increase from the BTFP funding was partially offset by the shift of approximately $22.0 million in overnight investment sweep balances to the ICS product as a result of management's strategy to release pledging of investment securities for municipalities to increase available liquidity.  Long-term borrowings decreased by $40.0 million in the first six month of 2024 when compared to December 31, 2023 due to the repayment of $40.0 million in FHLB borrowings at its maturity in the first quarter of 2024. 

Total available for sale and held to maturity securities totaled $267.2 million at June 30, 2024, representing a $44.3 million decrease when compared to December 31, 2023.   In the first six months of 2024, $37.5 million in U.S. Treasury bonds matured and the proceeds were used to repay the $40.0 million maturing FHLB advance.  Additionally, there were $5.0 million of other principal amortizations in our MBS portfolio year to date.  

Outstanding loans of $1.4 billion at June 30, 2024 reflected growth of $16.3 million for the first six months of 2024.

Since December 31, 2023, commercial real estate loans increased by $12.6 million, and acquisition and development loans increased by $11.2 million. Commercial and industrial loans decreased by $14.4 million, driven by the repayment of $5.5 million of a non-accrual loan late in second quarter and the $1.1 million charge-off of a non-accrual equipment loan.  Residential mortgage loans increased by $11.5 million and consumer loans decreased by $4.5 million.

New commercial loan production for the three months ended June 30, 2024 was approximately $36.9 million.  The $64.9 million in the pipeline of commercial loans was robust as of June 30, 2024.  At June 30, 2024, unfunded, committed commercial construction loans totaled approximately $12.6 million. Commercial amortization and payoffs were approximately $51.6 million through June 30, 2024, due primarily to pay-offs of short-term commercial loans as well as normal amortizations of the commercial loan portfolio.

New consumer mortgage loan production for the second quarter of 2024 was approximately $19.1 million, with most of this production comprised of portfolio mortgages.  The pipeline of in-house, portfolio loans as of June 30, 2024 was $19.4 million.  The residential mortgage production level increased in the second quarter of 2024 due to the seasonality of this line of business, particularly construction lending.  Unfunded commitments related to residential construction loans totaled $13.5 million at June 30, 2024.  

Total deposits at June 30, 2024 decreased by $13.9 million when compared to December 31, 2023.  

Interest-bearing demand deposits increased by $22.2 million, primarily related to the shift of approximately $22.0 million in overnight investment sweep balances into the ICS product due to management's strategy to release pledging of investment securities for municipalities to increase available liquidity.  Money market accounts increased by $16.0 million due primarily to the expansion of current relationships and new relationships during the first six months.  Traditional savings accounts decreased by $11.3 million and time deposits decreased by $37.1 million.  The decrease in time deposits was due to a decrease of $22.1 million in retail Certificates of Deposit ("CDs") related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of a $15.0 million brokered CD.  The Bank has worked closely with customers as these CDs mature to transition them to other deposit and wealth management products offered by the Bank.

Short-term borrowings increased by $17.1 million as the Bank borrowed $40.0 million from the BTFP in January 2024, partially offset by a decrease of approximately $22.0 million in other short-term borrowings due primarily to management's strategic decision to shift municipal customers into the ICS deposit product.  Long-term borrowings decreased by $40.0 million as a $40.0 million FHLB advance matured in March 2024 and was fully repaid utilizing proceeds from lower yielding investment maturities.

The book value of the Corporation's common stock was $25.39 per share at June 30, 2024 compared to $24.38 per share at December 31, 2023.  At June 30, 2024, there were 6,465,601 of basic outstanding shares and 6,479,624 of diluted outstanding shares of common stock.  During the first six months of 2024, the Company purchased and retired 201,800 shares of First United Corporation stock as part of its previously announced stock repurchase plan at an average price of $19.99 per share. The increase in the book value at June 30, 2024 was due to the undistributed net income of $6.0 million for the first six months of 2024.

Asset Quality

The allowance for credit losses ("ACL") was $17.9 million at June 30, 2024 compared to $16.9 million recorded at June 30, 2023 and $17.5 million at December 31, 2023.  The provision for credit losses was $1.2 million for the quarter ended June 30, 2024 compared to $0.4 million for the quarter ended June 30, 2023 and $0.9 million for the first quarter of 2024.  The increased provision expense recorded in 2024 was primarily related to $1.1 million in charge-offs related to one non-accrual commercial and industrial loan relationship and was partially offset by improving qualitative risk factors of our loan portfolio.  Net charge-offs of $1.3 million were recorded for the quarter ended June 30, 2024 compared to net charge-offs of $0.4 million for the quarter ended June 30, 2023. The ratio of the ACL to loans outstanding was 1.26% at June 30, 2024 compared to 1.27% at March 31, 2024 and 1.25% at June 30, 2023. 

The ratio of year-to-date net charge offs to average loans was 0.25% for the six-month period ended June 30, 2024 and 0.10% for the six-month period ended June 30, 2023.  The commercial and industrial portfolio had net charge offs of 0.89% for the six-month period ended June 30, 2024 compared to a net charge offs of 0.13% for the six-month period ended June 30, 2023.  This shift was due primarily to charge offs of equipment loan balances on one non-accrual commercial relationship during 2024.  The consumer portfolio had net charge offs of 2.02% for the six-month period ended June 30, 2024 compared to net charge offs of 1.40% for the six month period ended June 30, 2023.  The increase in net charge offs in consumer loans in 2024 was primarily driven by approximately $0.4 million in charge offs of overdrawn demand deposit balances during the first quarter of 2024 and student loan accounts in the second quarter.  Details of the ratios, by loan type, are shown below.  Our special assets team continues to actively collect on charged-off loans, resulting in overall low net charge-off ratios.

Non-accrual loans totaled $9.4 million at June 30, 2024 compared to $4.0 million at December 31, 2023.  The increase in non-accrual balances at June 30, 2024 was related to two commercial and industrial loan relationships totaling $12.1 million that were moved to non-accrual during the first quarter of 2024.  The reduction in non-accrual balances during the second quarter of 2024 is related to a borrower's decision to sell a piece of collateral and reduce outstanding balances by approximately $5.5 million and the charge-off of $1.1 million on another commercial and industrial credit.

Non-accrual loans that have been subject to partial charge-offs totaling $1.0 million at June 30, 2024 and $0.1 million at December 31, 2023.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $1.5 million at June 30, 2024 and $1.8 million at December 31, 2023.  As a percentage of the loan portfolio, accruing loans past due 30 days or more was 0.26% at June 30, 2024 compared to 0.24% at December 31, 2023 and 0.18% as of June 30, 2023. 

ABOUT FIRST UNITED CORPORATION

First United Corporation is a Maryland corporation chartered in 1985 and a financial holding company registered with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended, that elected financial holding company status in 2021.  The Corporation's primary business is serving as the parent company of the Bank, First United Statutory Trust I ("Trust I") and First United Statutory Trust II ("Trust II" and together with Trust I, "the Trusts"), both Connecticut statutory business trusts.  The Trusts were formed for the purpose of selling trust preferred securities that qualified as Tier 1 capital.  The Bank has two consumer finance company subsidiaries- Oak First Loan Center, Inc., a West Virginia corporation, and OakFirst Loan Center, LLC, a Maryland limited liability company – and two subsidiaries that it uses to hold real estate acquired through foreclosure or by deed in lieu of foreclosure – First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland limited liability company.  In addition, the Bank owns 99.9% of the limited partnership interests in Liberty Mews Limited Partnership, a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland, and a 99.9% non-voting membership interest in MCC FUBT Fund, LLC, an Ohio limited liability company formed for the purpose of acquiring, developing and operating low-income housing units in Allegany County, Maryland (the "MCC Fund").   The Corporation's website is www.mybank.com.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.  Forward-looking statements do not represent historical facts, but are statements about management's beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objectives.  These statements are evidenced by terms such as "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions.  Although these statements reflect management's good faith beliefs and projections, they are not guarantees of future performance and they may not prove true.  The beliefs, plans and objectives on which forward-looking statements are based involve risks and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements.  For a discussion of these risks and uncertainties, see the section of the periodic reports that First United Corporation files with the Securities and Exchange Commission entitled "Risk Factors". In addition, investors should understand that the Corporation is required under generally accepted accounting principles to evaluate subsequent events through the filing of the consolidated financial statements included in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 and the impact that any such events have on our critical accounting assumptions and estimates made as of June 30, 2024, which could require us to make adjustments to the amounts reflected in this press release.