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Income Statement Overview

On a GAAP basis, net income for the fourth quarter of 2024 was $6.2 million.  This compares to $5.8 million for the third quarter of 2024 and $1.8 million for the fourth quarter of 2023.

The $4.4 million increase in quarterly net income year over year was primarily driven by a restructuring of the investment portfolio leading to the recognition of a $3.3 million loss, net of tax, and $0.5 million, net of tax, in accelerated depreciation and lease termination expenses related to branch closures in the fourth quarter of 2023.   Net interest income increased by $1.5 million year-over-year driven by a $2.0 million increase in interest and fees on loans resulting from new loans booked at higher rates, the repricing of adjustable-rate loans, and growth in our loan portfolio during 2024.  Interest expense was stable when comparing year-over-year quarterly expense.  Comparing the fourth quarter of 2024 to the same period of 2023, other operating income was stable and other operating expenses decreased by $0.2 million as a result of a $1.0 million reduction in occupancy and equipment expense related to the accelerated depreciation and lease expenses for the branch closures in the fourth quarter of 2023 and decreased marketing and professional services expenses.  These decreases were partially offset by a $0.4 million increase in net other real estate owned ("OREO") expenses related to gains on sales recognized in 2023 and a $0.3 million increase in data processing expenses due to timing of invoices.

Compared to the linked quarter, net income increased by $0.4 million due primarily to a $0.5 million increase in net interest income driven by a $0.3 million increase in interest and fees on loans as interest expense remained stable.  Additionally, salaries and employee benefits decreased by $0.7 million due to reduced incentive pay and health insurance claims. Occupancy and equipment expenses decreased by $0.3 million.  These decreases were partially offset by a $0.3 million increase in provision for credit losses related primarily to growth in our loan portfolio, a $0.4 million increase in data processing expenses as a result of increased costs for the core processing system, and timing of invoices for software agreements.  We also experienced a $0.4 million increase in other expenses driven primarily by loan workout costs that we deemed to be uncollectible through collateral liquidation.

For the year ended December 31, 2024, net income increased by $5.5 million when compared to the year ended December 31, 2023.   Net interest income increased by $3.1 million driven by a $12.2 million increase in interest and fees on loans, partially offset by a $0.9 million decrease in interest income on investments and a $7.7 million increase in interest expense resulting from continued pricing pressure on deposits and our use of the Bank Term Funding Program ("BTFP").  Operating income, including net gains/(losses), increased by $5.4 million due primarily to the $4.2 million loss recognized in 2023 related to the investment portfolio restructuring mentioned above and a $1.1 million increase in wealth management income.   Operating expenses decreased by $0.6 million as occupancy and equipment expenses decreased by $1.0 million and other miscellaneous expenses decreased by $0.4 million due primarily to reduced check fraud expenses.  These decreases were partially offset by a $0.5 million increase in salaries and employee benefits, a $0.4 million increase in data processing expenses, and a $0.4 million increase in net OREO expenses due to gains on sales of OREO properties recognized in 2023.

Net Interest Income and Net Interest Margin

Net interest income, on a non-GAAP, FTE basis, increased by $1.5 million for the fourth quarter of 2024 when compared to the fourth quarter of 2023.  This increase was driven by a $1.5 million increase in interest income.   Interest income on loans increased by $2.0 million due to the increase in average balances of $53.9 million and a 36-basis point increase in the overall yield on the loan portfolio as new loans booked at higher rates as well as adjustable-rate loans repricing in correlation to the elevated rate environment.   Investment income decreased by $0.2 million due to a decrease of $58.1 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.  We also experienced principal paydowns and maturities in our municipal and mortgage-backed securities ("MBS") portfolios.  The overall yield on the investment portfolio increased by 23 basis points primarily driven by the increased rate on the trust preferred portfolio and the maturity and sale of lower rate investments.   Interest expense was stable year over year while increases in interest on demand deposits and money markets were offset by a decrease in interest on brokered certificates of deposit. The average deposit balances increased by $2.6 million when compared to the fourth quarter of 2023.  The average balance of interest-bearing demand deposits increased by $22.0 million and retail money market accounts increased by $80.8 million.  Average savings deposit balances decreased by $24.4 million and retail time deposits decreased by $19.8 million.   Average brokered time deposits decreased by $56.0 million compared to 2023 due to the maturity and repayment of brokered certificates of deposit during 2024.

Comparing the fourth quarter of 2024 to the third quarter of 2024, net interest income, on a non-GAAP, FTE basis, increased by $0.5 million.  Interest income increased by $0.5 million during the quarter, primarily due to a $0.3 million increase in interest and fees on loans related to an $18.8 million increase in average balances during the fourth quarter.  Interest income on cash balances increased by $0.2 million related to increased balances of $23.2 million, which was partially offset by a 96-basis point decrease in rate in conjunction with rate cuts made by the Federal Reserve to the overnight Federal Funds rate.  Interest expense remained stable when comparing the two quarters.  During the fourth quarter of 2024, average deposit balances increased by $31.3 million and the cost of deposits decreased by 6 basis points.

Comparing the year ended December 31, 2024 to the year ended December 31, 2023, net interest income, on a non-GAAP, FTE basis, increased by $2.7 million.  Interest income increased by $10.4 million.   Average loan balances increased by $87.2 million and the overall yield increased by 53 basis points in correlation with the elevated rate environment as new loans were booked at higher rates as well as the repricing of adjustable-rate loans.  Interest expense on deposits increased by $6.6 million while the average deposit balances increased by $19.4 million, driven by increases of $6.7 million in demand deposits and $80.1 million in money market balances, partially offset by decreases in savings balances of $39.1 million and brokered time deposits of $33.5 million.  Interest expense on short-term borrowings increased by $1.3 million due to the Bank's utilization of the BTFP program in 2024.  The increased interest expense resulted in an overall increase of 56 basis points on the cost of interest-bearing liabilities.  The net interest margin was 3.38% and 3.26% for the years ended December 31, 2024 and 2023, respectively.

Non-Interest Income

Other operating income, including net gains/(losses), for the fourth quarter of 2024 increased by $4.4 million when compared to the same period of 2023.   The Corporation recognized $4.2 million in losses related to the investment portfolio restructuring in the fourth quarter of 2023 to reinvest lower-yielding securities to fund higher-yielding loan production.   Gains on sales of residential mortgages increased by $0.1 million and wealth management increased by $0.2 million when compared to the same period in 2023.

On a linked quarter basis, other operating income, including net gains, was stable.  Debit card income increased by $0.1 million due to an annual commission received in the fourth quarter.  Miscellaneous income decreased by $0.1 million due to a $0.1 million cash incentive received in the third quarter in connection with check fees.

For the year ended December 31, 2024, other operating income increased by $5.4 million when compared to the same period of 2023.   Net gains/(losses) increased by $4.3 million primarily due to the loss recognized in 2023 on the investment portfolio restructuring.  Wealth management income increased by $1.1 million due to improving market conditions, increased annuity sales and growth in new and existing customer relationships.  Service charge and debit card income was stable when comparing 2024 to 2023.

Non-Interest Expense

Operating expenses decreased by $0.2 million in the fourth quarter of 2024 when compared to the fourth quarter of 2023.  Occupancy and equipment expenses decreased by $1.0 million related to depreciation and lease termination expenses recognized in conjunction with announced branch closures in the final quarter of 2023.  Marketing and professional services decreased by $0.1 million.  These decreases were partially offset by a $0.3 million increase in data processing expenses related to new technology agreements, a $0.4 million increase in net OREO related expenses due to gains from sales of OREO recognized during 2023, and by a $0.1 million increase in salaries and benefits.

Operating expenses decreased by $0.2 million when compared to the linked quarter.  Salaries and employee benefits decreased by $0.7 million driven by decreases in incentive pay and life and health insurance expenses due to decreased claims.  Equipment and occupancy expenses decreased by $0.3 million when comparing the linked quarters.  These decreases were partially offset by a $0.4 million increase in data processing expenses related to increased costs for the core processing system and timing of invoices for software agreements. We also experienced a $0.4 million increase in other expenses driven primarily by loan workout costs that we deemed to be uncollectible through collateral liquidation.

For the year ended December 31, 2024, operating expenses decreased by $0.6 million when compared to the year ended December 31, 2023.  The decrease was primarily attributable to a $1.0 million decrease in occupancy and equipment expenses related primarily to the branch closures announced in 2023, a $0.2 million decrease in marketing, and a $0.2 million decrease in professional services expenses. Other miscellaneous expenses decreased by $0.4 million driven by a $0.5 million decrease in check fraud expenses.  These decreases were partially offset by $0.5 million in increased salaries and employee benefits related to increased incentives, 401(k) expenses, wellness expenses, and reduced offsets related to loan origination, which were partially offset by reductions in life and health insurance costs.  Net OREO costs increased $0.4 million due to gains on the sale of OREO recognized in 2023, and $0.4 million in increased data processing expenses.

The effective income tax rates as a percentage of income for the years ended December 31, 2024 and December 31, 2023 were 24.5% and 22.7%, respectively.

Balance Sheet Overview

Total assets at December 31, 2024 were $2.0 billion, representing a $67.2 million increase since December 31, 2023.  During 2024, cash and interest-bearing deposits in other banks increased by $28.6 million.  The investment portfolio decreased by $41.5 million due to the maturities of $37.5 million of U.S. Treasury bonds during the year and normal principal amortization and maturities of our MBS and municipal portfolios.  Cash proceeds from investments were shifted to gross loans, which increased by $74.1 million. OREO decreased by $1.4 million due to sales of properties.  Pension assets increased by $6.6 million resulting from increased market values and deferred tax assets decreased by $2.0 million as we experienced increased fair market values on available for sale ("AFS") securities and pension assets when compared to December 31, 2023.

Total liabilities at December 31, 2024 were $1.8 billion, representing a $49.7 million increase since December 31, 2023.  Total deposits increased by $23.9 million when compared to December 31, 2023 related to increases in interest-bearing demand deposits of $35.9 million and money markets of $61.5 million, partially offset by the decrease of savings deposits by $20.3 million, retail time deposits of $22.4 million, and the repayment of $30.0 million in brokered certificates of deposits.  Short-term borrowings increased by $20.0 million since December 31, 2023, which were comprised of $50.0 million in overnight borrowings from the Federal Reserve offset by a shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts as a result of management's strategy to release pledging of investment securities for municipalities in order to allow those securities to be available for liquidity. The overnight borrowings were replaced with brokered certificates of deposit in January 2025.  Long-term borrowings increased by $10.0 million in 2024.  Maturities of Federal Home Loan Bank ("FHLB") advances of $40.0 million in March and $40.0 million in September were fully repaid.  During the third quarter and after the Federal Reserve's announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months at a weighted average rate of 3.89%.  Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowings at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the $40.0 million FHLB advance that matured in September at a rate of 4.53%.  The remainder was used to fund loan growth in the fourth quarter of 2024.

Total AFS and held-to-maturity ("HTM") securities totaled $270.0 million at December 31, 2024, representing a $41.5 million decrease when compared to December 31, 2023.   In 2024, $37.5 million in U.S. Treasury bonds matured and the proceeds were used to repay the $40.0 million FHLB advance that matured in March.  Additionally, there were $4.0 million of maturities in our municipal portfolio and $11.0 million of other principal amortizations in our MBS portfolio.  $11.2 million of new investment purchases were made during 2024 to meet our community reinvestment act obligations and to add increased yield to the portfolio.  Management intends to hold the portfolio relatively stable in 2025 by reinvesting proceeds from amortization and maturities into new higher yielding securities.  The investment portfolio is primarily utilized for liquidity purposes, management of interest sensitivity and collateralization needs.

Outstanding loans of $1.5 billion at December 31, 2024 reflected growth of $32.9 million since September 30, 2024 and $74.1 million since December 31, 2023.

Since December 31, 2023, commercial real estate loans increased by $32.6 million, acquisition and development loans increased by $18.3 million, commercial and industrial loans increased by $12.9 million, residential mortgage loans increased $18.9 million, and consumer loans decreased by $8.6 million.

New commercial loan production for the three months ended December 31, 2024 was approximately $72.2 million.  The pipeline of commercial loans at December 31, 2024 was $11.5 million.  At December 31, 2024, unfunded, committed commercial construction loans totaled approximately $5.6 million.  Commercial amortization and payoffs were approximately $114.1 million through December 31, 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 fourth quarter of 2024 was approximately $23.3 million, with most of this production comprised of mortgages to be held on balance sheet.  The pipeline of in-house, portfolio loans as of December 31, 2024 was $5.3 million.  The residential mortgage production level decreased in the fourth quarter of 2024 due to the seasonality of this line of business, particularly construction lending.  Unfunded commitments related to residential construction loans totaled $13.1 million at December 31, 2024.

Total deposits at December 31, 2024 increased by $23.9 million when compared to December 31, 2023.

Interest-bearing demand deposits increased by $35.9 million in 2024, which included the shift of approximately $22.0 million from overnight investment sweep balances to FDIC insured accounts due to management's strategy to release pledging of investment securities for municipalities to provide additional liquidity.  Money market accounts increased by $61.5 million due primarily to the expansion of current and new relationships throughout the year and a shift from certificates of deposit.  Traditional savings accounts decreased by $20.3 million and time deposits decreased by $52.3 million.  The decrease in time deposits was due to a decrease of $22.4 million in retail CDs related to maturities of a nine-month special CD promotion in 2023 and the maturity and repayment of $30.0 million in brokered CDs during the year.  The Bank has worked closely with customers as these retail CDs mature to transition them to other deposit and wealth management products offered by the Bank.

Short-term borrowings increased by $20.0 million when compared to December 31, 2023 due to an increase of $50.0 million in overnight borrowings from the Federal Reserve offset by a shift of approximately $22.0 million in overnight investment sweep balances into FDIC insured accounts due to management's strategy to release pledging of investment securities for municipalities to provide additional liquidity.  The overnight borrowings were replaced with brokered certificates of deposit in January 2025.  Long-term borrowings increased by $10.0 million when compared to December 31, 2023.  Maturities of FHLB advances of $40.0 million in March and $40.0 million in September were fully repaid.  During the third quarter and after the Federal Reserve's announcement that rates would be reduced by 50 basis points, management made the strategic decision to lock in borrowing costs by placing $90.0 million in FHLB advances with maturities of 12- and 18-months and a weighted average rate of 3.89%.  Of this amount, $41.1 million was utilized to prepay the principal and accrued interest of the BTFP borrowing at a rate of 4.87% that was scheduled to mature in January of 2025 and approximately $30.0 million was utilized to repay overnight borrowings related to the repayment of the September $40.0 million maturity at a rate of 4.53%.   The remainder was used to fund loan growth in the fourth quarter of 2024.

The book value of the Corporation's common stock was $27.71 per basic share at December 31, 2024 compared to $24.38 per share at December 31, 2023.  At December 31, 2024, there were 6,471,096 of basic outstanding shares and 6,485,119 of diluted outstanding shares of common stock.  In 2024, the Company purchased and retired 201,800 shares of First United Corporation common 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 December 31, 2024 was due to the undistributed net income of $15.1 million and a $5.6 million decrease in accumulated other comprehensive loss in 2024.

Asset Quality

The allowance for credit losses ("ACL") was $18.2 million at December 31, 2024 compared to $17.5 million at December 31, 2023.  The provision for credit losses was $0.5 million for the quarter ended December 31, 2024 compared to $0.4 million for the quarter ended December 31, 2023 and $0.3 million for the third quarter of 2024.  The increased provision expense recorded year to date in 2024 was primarily related to $1.3 million in net charge-offs related to one non-accrual commercial loan relationship and growth in our loan portfolio, partially offset by improving qualitative risk factors.  Net charge-offs of $0.4 million and $0.2 million were recorded for the quarter ended December 31, 2024 and December 31, 2023, respectively. The ratio of the ACL to loans outstanding was 1.23% at December 31, 2024, which compares to 1.24% at both September 30, 2024 and December 31, 2023.

The ratio of year-to-date net charge offs to average loans was 0.16% for year ended December 31, 2024, and 0.07% for the year ended December 31, 2023.  The commercial and industrial portfolio had net charge offs of 0.50% for the year ended December 31, 2024 compared to net charge offs of 0.09% for the year ended December 31, 2023.  This increase 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 1.76% for the year ended December 31, 2024 compared to net charge offs of 1.04% for the year ended December 31, 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 $0.1 million in charge offs of 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 $4.9 million at December 31, 2024 compared to $4.0 million at December 31, 2023.  The increase in non-accrual balances at December 31, 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.  Subsequent to being moved to non-accrual, one of the borrowers liquidated collateral and reduced the balances by $5.5 million.  Additionally, a total of $2.8 million in collateral was moved to repossessed assets in the fourth quarter of 2024. $1.3 million in net charge-offs and $3.0 million in principal reduction related to the liquidation of collateral at depressed prices were recognized on the other commercial credit during 2024.  The Bank continues to liquidate collateral on both loan relationships.

Non-accrual loans that have been subject to partial charge-offs totaled $0.7 million at December 31, 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 $1.6 million at December 31, 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 0.32% at December 31, 2024 compared to 0.24% at December 31, 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 (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 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 Annual  Report on Form 10-K for the year ended December 31, 2024 and the impact that any such events have on our critical accounting assumptions and estimates made as of December 31, 2024, which could require us to make adjustments to the amounts reflected in this press release.

 

 

 

 

 

 

 

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SOURCE First United Corporation