First United Corporation FUNC

OAKLAND, Md., April 21, 2025 /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-month period ended March 31, 2025.  Consolidated net income was $5.8 million for the first quarter of 2025, or $0.89 per diluted share, compared to $3.7 million, or $0.56 per diluted share, for the first quarter of 2024 and $6.2 million, or $0.95 per diluted share, for the fourth quarter of 2024.  Annualized Return on Average Assets and Return on Average Equity were 1.19% and 12.83%, respectively.

According to Carissa Rodeheaver, Chairman, President and CEO, "We are very pleased with the first quarter results as we saw margin expansion, solid fee income and controlled expenses.  Loan production was moderate during the quarter as many borrowers sit on the sidelines waiting for more certainty in the economic and political environments.  Funding remains a challenge as inflation has taken its toll resulting in higher spending and reduced deposit balances while competition remains high.  We are optimistic about the remainder of 2025 as we position ourselves for future growth and focus on an improved customer experience.  We intend to invest in strategic hires and enhanced technology, particularly around the electronic banking experience, which will result in higher salaries and benefits and data processing expenses over the course of this year.  However, we expect other expenses to be consistent with this quarter on a forward basis.  Our solid performance is attributable to our dedicated associates as they assist our customers through these volatile times." 

First Quarter Financial Highlights:

• Net interest margin, on a non-GAAP, fully tax equivalent ("FTE") basis, was 3.56% for the first quarter of 2025, reflecting increased loan yields and stable funding costs.
• Modest loan production, with $36.1 million in commercial loan originations and $11.4 million in residential mortgage originations in the first quarter.
• Provision expense was $0.7 million in the first quarter, driven by stable asset quality and improved qualitative factors, partially offset by the uncertainty of current economic conditions.
• Deposits increased by $48.7 million, which included $50.0 million in new brokered deposits obtained to repay $50.0 million in overnight borrowings outstanding at December 31, 2024.
• Operating income, including net gains, decreased by $0.1 million when compared to the linked quarter.
• Operating expenses increased by $0.5 million when compared to the linked quarter.
• A cash dividend of $0.22 per common share was declared in the first quarter.

Income Statement Overview

On a GAAP basis, net income for the first quarter of 2025 was $5.8 million.  This compares to $6.2 million in the fourth quarter of 2024 and $3.7 million in the first quarter of 2024.

The $2.1 million increase in quarterly net income when compared to the first quarter of 2024 was primarily driven by a $2.2 million increase in net interest income, a $0.3 million decrease in provision for credit loss, stable non-interest income, and a decrease in non-interest expense of $0.3 million, partially offset by an increase in income tax expense of $0.7 million.  Comparing the first quarter of 2025 to the same period of 2024, interest and fees on loans increased by $2.5 million resulting from new loans booked at higher rates, the repricing of adjustable-rate loans, and growth in our loan portfolio.  Interest expense remained stable when comparing year-over-year quarterly expense as reductions in the rate environment offset the increased funding.  Other operating income was stable, and other operating expenses decreased by $0.3 million driven by a $0.6 million decrease in occupancy and equipment expense related to the accelerated depreciation and lease expenses for the branch closures in the first quarter of 2024, and a $0.2 million decrease in other pension benefits expense.  These decreases were partially offset by a $0.2 million increase in salaries and benefits, an increase of $0.2 million in data processing expenses, and increases in other expenses such as miscellaneous loan fees and marketing expenses.

Compared to the linked quarter, net income decreased by $0.4 million due primarily to a $0.5 million increase in other operating expenses driven by a $0.9 million increase in salaries and employee benefit expenses due to a reversal of incentive payments in the fourth quarter of 2024 based on slower growth than originally budgeted, increased health insurance claims, and increased occupancy and equipment expenses of $0.2 million, partially offset by decreases in other expenses such as data processing, miscellaneous loan fees, and other pension benefits expenses.  Net interest income increased by $0.3 million due to a $0.3 million increase in interest income and stable interest expense.

Net Interest Income and Net Interest Margin

Net interest income, on a non-GAAP, FTE basis, increased by $2.2 million for the first quarter of 2025 when compared to the first quarter of 2024.  This increase was driven by an increase of $2.2 million in interest income.  Interest income on loans increased by $2.5 million due to the increase of 46 basis points in overall yield on the loan portfolio as new loans were booked at higher rates during 2024, upward repricing of adjustable-rate loans, and an increase in average balances of $75.3 million.  Interest income on Federal funds sold decreased by $0.4 million due to a decrease of 105 basis points in average rates and a decrease of $22.1 million in average balances.  Interest expense in the first quarter of 2025 was stable when compared to the first quarter of 2024.  Interest expense paid on deposits increased by $0.4 million due to a $141.1 million increase in average balances, partially offset by a decrease of 12 basis points on the rate paid.  Interest paid on short-term borrowings decreased by $0.4 million for the first quarter of 2025 when compared to the same period of 2024 due to the repayment of the $40.0 million from the Bank Term Funding Program ("BTFP") late in the third quarter of 2024.

Comparing the first quarter of 2025 to the fourth quarter of 2024, net interest income, on a non-GAAP, FTE basis, increased by $0.3 million.  This increase was driven by a $0.3 million increase in interest income resulting from a $0.5 million increase in interest and fees on loans, an increase in average loan balances of $30.8 million, and an 11 basis point increase in average yield.  This increase was partially offset by a $0.2 million decrease in interest earned on Federal funds sold due to $14.8 million in reduced balances and a 69 basis point reduction in average yield.  Interest expense was stable when comparing the first quarter of 2025 to the linked quarter.  Interest expense on deposits increased slightly by $0.1 million due to an increase of $39.7 million in average balances and a 2 basis point decrease in average yields.

Non-Interest Income

Other operating income, including net gains, for the first quarter of 2025 was stable when compared to the same period of 2024.  Wealth management income increased by $0.1 million due to increased market values  and growth in new and existing customer relationships.  This was offset by a decrease in brokerage commissions due to slower annuity sales comparing these quarters.

On a linked quarter basis, other operating income, including net gains, decreased by $0.1 million.  Debit card income decreased by $0.2 million due to an annual incentive payment received in the fourth quarter of 2024.  Wealth management income increased by $0.1 million due to increased brokerage commissions in the first quarter of 2025. 

Non-Interest Expense

Operating expenses decreased by $0.3 million in the first quarter of 2025 when compared to the first quarter of 2024.  The decrease was largely driven by a $0.6 million decrease in equipment and occupancy expense due to the accelerated depreciation expenses recognized in the first quarter of 2024 in conjunction with the branch closures in February 2024.  This decrease was partially offset by a $0.2 million increase in salaries and benefits primarily driven by increases in incentive pay and life and health insurance expenses due to increased claims.  Additionally, data processing expenses increased by $0.2 million in the first quarter of 2025 when compared to the first quarter of 2024, partially offset by a decrease in other miscellaneous expenses of $0.1 million due primarily to reduced net periodic pension costs and check fraud related costs.

Operating expenses increased by $0.5 million for the first quarter of 2025 when compared to the linked quarter.  Salaries and employee benefits increased by $0.9 million due to a reversal of incentive payments in the fourth quarter of 2024 based on slower growth than originally budgeted, increased health insurance expenses due to increased claims, and equipment and occupancy expenses increased $0.2 million.  Occupancy expenses increased quarter over quarter due to a credit in the fourth quarter of 2024 for a leased space exited in 2024 which was later reimbursed by the landlord.  These increases were partially offset by a decrease in professional services of $0.1 million, a decrease in data processing expenses of $0.2 million, a decrease in miscellaneous loan fees of $0.1 million, and a decrease in other miscellaneous expenses of $0.2 million. 

The effective income tax rates as a percentage of income for the three-month periods ended March 31, 2025 and March 31, 2024 were 24.6% and 23.9%, respectively. 

Balance Sheet Overview

Total assets at March 31, 2025 were $2.0 billion, representing a $6.7 million increase since December 31, 2024.  During the first quarter of 2025, cash and interest-bearing deposits in other banks increased by $6.1 million.  The investment portfolio increased by $5.2 million as bonds were purchased to gain yield before long-term rates decline. Gross loans decreased slightly by $0.9 million.  While loan production was modest during the quarter, amortization and payoffs exceeded growth levels.  Pension assets decreased by $1.8 million due to decreased market values. 

Total liabilities at March 31, 2025 were $1.8 billion, representing a $2.3 million increase since December 31, 2024.  Total deposits increased by $48.7 million when compared to December 31, 2024 related primarily to the $50.0 million in new brokered deposits that were obtained in January 2025 to fund the repayment of the $50.0 million in overnight borrowings outstanding at December 31, 2024.  Savings and money market accounts increased by $18.7 million and retail time deposits increased by $2.2 million.  Interest-bearing demand deposits, primarily our ICS product, decreased by $17.9 million and non-interest-bearing deposits decreased by $4.3 million due primarily to seasonal fluctuations in municipal deposit accounts and increased spending by businesses and consumers related to inflation, respectively.  Short-term borrowings decreased by $45.1 million primarily due to the repayment of $50.0 million in overnight borrowings outstanding at December 31, 2024, partially offset by increases in balances of the overnight investment sweep product.

Outstanding loans of $1.5 billion at March 31, 2025 reflected a $0.9 decrease since December 31, 2024.

Since December 31, 2024, commercial real estate loans increased by $6.4 million, acquisition and development loans decreased by $1.2 million, commercial and industrial loans decreased by $5.2 million, residential mortgage loans increased $1.3 million, and consumer loans decreased by $2.2 million.

While loan production in the first quarter was modest, offset by amortization and payoffs, we are still working towards an 8% increase in loans. This growth could be tempered depending on the outcome of the current political uncertainties.  New commercial loan production for the three months ended March 31, 2025 was approximately $36.1 million.  However, the pipeline of commercial loans as of March 31, 2025 was $56.0 million and unfunded, committed commercial construction loans totaled approximately $41.7 million.  Commercial amortization and payoffs were approximately $35.0 million through March 31, 2025, 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 first quarter of 2025 was approximately $11.4 million, with most of this production comprised of in-house mortgages.  The pipeline of in-house, portfolio loans as of March 31, 2025 was $10.9 million.  Unfunded commitments related to residential construction loans totaled $9.8 million at March 31, 2025.  

Total deposits at March 31, 2025 increased by $48.7 million when compared to December 31, 2024.

In January 2025, $50.0 million in brokered time deposits with an average interest rate of 4.24% were obtained to fund the repayment of $50.0 million in overnight borrowings that were outstanding at December 31, 2024.  Savings and money market accounts increased by $18.7 million due primarily to the expansion of current and new relationships throughout the first three months of 2025.  Non-interest-bearing checking deposits decreased by $4.3 million and interest-bearing checking deposits decreased by $17.9 million due primarily to seasonal fluctuations in municipal and commercial account balances and increased spending by businesses and consumers related to inflation.  Retail time deposits increased by $2.2 million since December 31, 2024. 

The book value of the Corporation's common stock was $28.35 per share at March 31, 2025 compared to $27.71 per share at December 31, 2024.  At March 31, 2025, there were 6,478,634 basic outstanding shares and 6,657,239 diluted outstanding shares of common stock.  The increase in the book value at March 31, 2025 was due to the undistributed net income of $4.4 million for the first quarter of 2025.

Asset Quality

The allowance for credit losses ("ACL") was $18.5 million at March 31, 2025 compared to $18.0 million recorded at March 31, 2024 and $18.2 million at December 31, 2024.  The provision for credit losses was $0.7 million for the quarter ended March 31, 2025 compared to $0.9 million for the quarter ended March 31, 2024 and $0.5 million for the fourth quarter of 2024.  The decreased provision expense recorded in the first quarter of 2025 when compared to the same period in 2024 was primarily related to the $12.1 million in commercial loan balances moved to non-accrual in the first quarter of 2024.  Asset quality remained strong during the first quarter of 2025.  Net charge-offs of $0.4 million were recorded for the quarter ended March 31, 2025 compared to net charge-offs of $0.5 million for the quarter ended March 31, 2024. The ratio of the ACL to loans outstanding was 1.25% at March 31, 2025 compared to 1.23% at December 31, 2024 and 1.27% at March 31, 2024.  Management feels it is important to maintain the ACL given the uncertainties in the economic and political environments.

The ratio of net charge offs to average loans was 0.10% for the quarter ended March 31, 2025, and 0.13% for the quarter ended March 31, 2024.  The commercial and industrial portfolio had net charge offs of 0.50% and 0.12% for the quarters ended March 31, 2025 and 2024, respectively.  This increase resulted from the charge off of equipment loan balances on one commercial restaurant relationship during the first quarter of 2025 due to depressed liquidation prices of the equipment.  The decrease in net charge offs in consumer loans in the first quarter of 2025 was primarily driven by approximately $0.3 million in charge offs of demand deposit balances during the first quarter of 2024.  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 $4.0 million at March 31, 2025 compared to $4.9 million at December 31, 2024.  The decrease in non-accrual balances at March 31, 2025 was related to principal reductions. 

Non-accrual loans that have been subject to partial charge-offs totaled $0.7 million at both March 31, 2025 and December 31, 2024.  There were no loans secured by 1-4 family residential real estate properties in the process of foreclosure at March 31, 2025.  Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $1.6 million at December 31, 2024.  As a percentage of the loan portfolio, accruing loans past due 30 days or more was 0.42% at March 31, 2025 compared to 0.32% at December 31, 2024 and 0.40% as of March 31, 2024.  The increase in the past due loans at March 31, 2025 was associated with one customer who experienced unexpected delays and cost overruns during construction of a multi-family project, thus causing cash flow disruption.

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 March 31, 2025 and the impact that any such events have on our critical accounting assumptions and estimates made as of March 31, 2025, which could require us to make adjustments to the amounts reflected in this press release.