First United Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. First United is a Maryland-based financial holding company whose principal subsidiary, First United Bank & Trust, provides community banking and trust and investment services. Unless noted otherwise, dollar amounts below are in millions.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income (GAAP) | $13.98 | $15.14 | $42.68 | $42.45 |
| Net income | $4.51 | $6.94 | $13.30 | $18.08 |
| Diluted EPS | $0.67 | $1.04 | $1.98 | $2.72 |
| Net interest margin (FTE) | 3.12% | 3.66% | 3.30% | 3.53% |
- Revenue and earnings: Q3 interest income rose to $21.16 million from $16.19 million, but interest expense increased to $7.18 million from $1.04 million. Higher funding costs more than offset asset-yield growth. Q3 net income fell about 35% year over year. For the first nine months, net interest income was nearly flat while net income declined about 26%.
- Expenses and credit: Nine-month non-interest expense rose to $37.93 million from $31.54 million, and credit-loss expense increased to $1.20 million from $0.11 million. Management cited compensation and health-insurance costs, technology spending, FDIC assessments, pension costs, check fraud, and professional fees. The prior-year period included an $0.8 million litigation-cost reimbursement credit to expenses.
- Cash flow: Nine-month operating cash flow was $16.77 million, investing cash outflow was $79.85 million, and financing cash inflow was $69.42 million. Cash and cash equivalents increased $6.34 million to $80.65 million. Net loans grew by $101.32 million, a principal use of investing cash; financing included $80 million of new FHLB advances.
- Balance sheet at September 30: Total assets were $1.93 billion, up $80.0 million from year-end 2022. Loans were $1.38 billion, up $100.5 million; deposits were $1.58 billion, up $4.3 million. Shareholders’ equity was $155.0 million. The allowance for loan losses was $17.15 million, or 1.24% of gross loans.
- Funding and liquidity: Total borrowings were $164.3 million, versus $95.5 million at year-end 2022, reflecting $80 million in FHLB advances; short-term borrowings declined to $53.3 million. The filing reports $470.0 million in net available liquidity sources, including cash, unpledged securities, credit lines, FHLB capacity, and the Bank Term Funding Program. Non-interest-bearing deposits fell to 27% of deposits from 32%; brokered deposits were $60.7 million.
- Capital: The Bank remained “well capitalized.” At September 30, its total risk-based capital ratio was 14.12%, Tier 1 ratio 12.88%, CET1 ratio 12.88%, and Tier 1 leverage ratio 9.81%—all above the filing’s well-capitalized thresholds.
Material changes and notable items
- Loan growth and higher market rates increased interest income, but deposit repricing, a shift toward interest-bearing accounts, brokered funding, and higher borrowing costs compressed margins. Q3 FTE margin was 3.12%, down from 3.66% a year earlier.
- The securities portfolio remained materially below amortized cost: AFS securities had a $30.2 million net unrealized loss and HTM securities had a $38.9 million fair-value shortfall at quarter-end. These marks contributed to accumulated other comprehensive loss of $43.6 million.
- CECL was adopted January 1, 2023, increasing the loan allowance by $2.1 million and the reserve for unfunded commitments by $0.9 million; retained earnings declined $2.2 million net of tax. Management said the adoption did not materially affect capital ratios.
- Non-accrual loans were $3.48 million, approximately 0.25% of loans; non-performing assets were $8.50 million, or 0.44% of assets. Accruing loans past due 30 days or more were 0.27% of the portfolio, versus 0.16% at year-end 2022. One HTM bond had a $45,000 credit-loss allowance.
- Management said it implemented its liquidity contingency plan in Q1 amid market disruption and considers available liquidity adequate. It reported the company was asset-sensitive; modeled NII increased under rising-rate scenarios and declined under falling-rate scenarios. These estimates depend on assumptions and are not forecasts.
Outlook, risks, and contingencies
- The filing provides no specific earnings or financial guidance. Management noted that quarterly results are not necessarily indicative of full-year or future results.
- Key risks include deposit competition and funding costs, interest-rate changes, loan growth and credit quality, economic uncertainty, and unrealized securities losses. Management cited increased industry-wide check fraud and said additional procedures were implemented during Q3.
- Management performed an internal goodwill impairment analysis in response to banking-sector disruption, stock-price declines, and economic uncertainty; it concluded there was no goodwill impairment at September 30 and said it would continue monitoring.
- The filing reports no legal proceedings, no material change in disclosed risk factors, and no material change in internal control over financial reporting. Disclosure controls were assessed as effective at a reasonable-assurance level.
Important facts for investors to verify
- Confirm the sustainability of net interest margin and earnings as deposit costs and funding mix change.
- Review the size, duration, and liquidity implications of unrealized securities losses, including the HTM portfolio’s fair-value shortfall.
- Track deposit composition, brokered funding, FHLB maturities, and whether reported available liquidity remains accessible under stress.
- Monitor loan growth, past-due and non-accrual trends, commercial real-estate exposures, and future allowance assumptions under CECL.
- Reconcile the stock repurchase disclosures: Part II reports 19,298 shares repurchased in September, while the equity statement shows 1,298 shares repurchased in Q3; the cash-flow statement reports $21,000 of repurchases. The filing text does not explain this apparent inconsistency.