Business Context and Reporting Period
Company: First United Corporation (FUNC)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2024
Business Overview: First United Corporation is a Maryland bank holding company and financial holding company. Its primary subsidiary is First United Bank & Trust, a community bank operating 22 offices in Western Maryland and Northeastern West Virginia. The Corporation also operates a Wealth Management segment and holds interests in low-income housing partnerships. As of December 31, 2024, the Corporation had total assets of $2.0 billion, net loans of $1.5 billion, and deposits of $1.6 billion.
Key Financial Metrics
| Metric | 2024 | 2023 |
|---|---|---|
| Net Income (GAAP) | $20.6 million | $15.1 million |
| Adjusted Net Income (Non-GAAP) | $21.0 million | $18.8 million |
| Diluted EPS (GAAP) | $3.15 | $2.25 |
| Diluted EPS (Non-GAAP) | $3.21 | $2.81 |
| Total Assets | $1.97 billion | $1.91 billion |
| Total Loans | $1.48 billion | $1.41 billion |
| Total Deposits | $1.57 billion | $1.55 billion |
| Shareholders' Equity | $179.3 million | $161.9 million |
| Net Interest Margin (FTE) | 3.38% | 3.26% |
| Return on Average Assets (GAAP) | 1.06% | 0.77% |
| Return on Average Equity (GAAP) | 12.16% | 9.65% |
| Allowance for Credit Losses (ACL) | $18.2 million (1.23% of loans) | $17.5 million (1.24% of loans) |
| Non-Performing Assets | $11.7 million (0.59% of assets) | $9.0 million (0.47% of assets) |
Material Changes vs. Prior Period
- Profitability: GAAP net income increased 36.6% to $20.6 million, driven by higher net interest income and improved non-interest income. Non-GAAP net income increased 11.7% to $21.0 million, excluding a $4.2 million loss on the sale of securities in 2023 and $0.4 million in branch closure costs in 2024.
- Net Interest Income: Increased by $2.7 million (4.7%) on a fully-taxable equivalent (FTE) basis. Interest income rose $10.4 million due to a $87.2 million increase in average loan balances and a 53 basis point increase in loan yields. Interest expense increased $7.7 million, primarily due to higher rates on deposits and short-term borrowings.
- Loan Portfolio: Total loans grew $74.1 million. Growth was led by Commercial Real Estate (+$32.7 million), Acquisition and Development (+$18.2 million), and Residential Mortgage (+$18.9 million). Consumer loans decreased by $8.6 million.
- Asset Quality: Net charge-offs increased to $2.2 million from $0.9 million, primarily due to commercial and industrial charge-offs and consumer overdrafts. Non-accrual loans increased to $4.9 million from $4.0 million, largely due to two commercial relationships moved to non-accrual in Q1 2024.
- Deposits: Total deposits increased $23.9 million. Money market accounts grew $61.5 million, while time deposits decreased $52.4 million due to the maturity of brokered CDs and a special retail CD promotion.
Guidance, Outlook, and Risks
Management Commentary: Management reported strong mortgage production in 2024 and a strategic shift in funding sources, including the use of the Federal Reserve's Bank Term Funding Program (BTFP) and the Federal Home Loan Bank (FHLB) to lock in borrowing costs. The Bank is categorized as "well capitalized" by regulators. Management intends to hold the investment portfolio relatively stable in 2025, reinvesting cash flows to enhance yield.
Risks and Contingencies:
- Interest Rate Risk: The Corporation is currently asset-sensitive. Rising rates generally benefit net interest income, while falling rates could reduce it. Management uses simulation models to monitor exposure.
- Credit Risk: A significant portion of the loan portfolio is secured by real estate. Declines in local economic conditions or real estate values could increase credit losses. The provision for credit losses in 2024 was elevated due to specific commercial relationships.
- Liquidity: The Bank maintains significant liquidity sources, including $140.0 million in unsecured lines of credit, $36.6 million at the Federal Reserve Discount Window, and $213.6 million at the FHLB.
- Regulatory: As a financial holding company, the Bank must remain "well capitalized" and "well managed." The Corporation is subject to evolving regulations regarding consumer protection, data privacy, and capital requirements.
Key Facts for Investor Verification
- Non-GAAP Adjustments: Verify the reconciliation of GAAP to Non-GAAP net income, specifically the exclusion of the $4.2 million 2023 securities loss and the $0.4 million 2024 branch closure costs.
- Commercial Loan Concentration: Review the specific details of the two commercial and industrial relationships moved to non-accrual in Q1 2024, which drove the increase in net charge-offs and provision expense.
- Investment Portfolio Valuation: Note the $21.6 million in gross unrealized losses on Available-for-Sale (AFS) securities and the $30.9 million in unrecognized losses on Held-to-Maturity (HTM) securities, which impact Accumulated Other Comprehensive Loss (AOCL).
- Dividend Restrictions: Confirm the impact of the Trust Preferred Securities (TPS) Debentures, which prohibit dividend payments if interest is deferred, and regulatory limits on dividends from the Bank subsidiary.
- Stock Repurchases: The Corporation repurchased 201,800 shares in 2024 at a weighted average price of $19.99 per share, totaling approximately $4.0 million.