8-K: First United Corporation Reports Strong Second Quarter Earnings, Driven by Net Interest Income Growth

First United Corporation announced a solid second quarter with net income of $4.9 million, driven by improved net interest income and controlled expenses.

Summary

• First United Corporation reported a net income of $4.9 million, or $0.75 per diluted share, for the second quarter of 2024, an increase from $4.4 million in the same quarter of 2023 and $3.7 million in the first quarter of 2024.
• Year-to-date net income was $8.6 million, or $1.31 per diluted share, compared to $8.8 million, or $1.31 per diluted share, for the first six months of 2023.
• The increase in quarterly net income year-over-year was primarily driven by a $1.1 million increase in net interest income, which was partially offset by an increase of $0.8 million in provision expense.
• Net interest margin was 3.49% for the second quarter of 2024 on a non-GAAP, fully tax equivalent basis.
• Loan production saw a ramp-up with $36.9 million in commercial and $19.1 million in residential mortgage originations.
• The company repurchased 201,800 shares of its common stock and paid a $0.20 per share quarterly dividend.
• Total assets decreased by $37.3 million since December 31, 2023, to $1.9 billion.
• Total deposits decreased by $13.9 million since December 31, 2023, with shifts between different deposit types.
• The allowance for credit losses was $17.9 million at June 30, 2024, compared to $16.9 million at June 30, 2023.
• Non-accrual loans totaled $9.4 million at June 30, 2024, compared to $4.0 million at December 31, 2023.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook with strong earnings and strategic initiatives, but acknowledges challenges in the current economic environment. The company's focus on core deposits, expense management, and risk mitigation is encouraging.

Positives

• Net interest income improved due to higher loan repricing and stabilization of deposit expenses.
• Non-interest expenses declined, contributing to solid core earnings.
• Loan and wealth production were solid.
• The company took advantage of a lower stock price to repurchase common stock.
• The company repaid $15 million of higher cost brokered certificates of deposit.
• The company shifted $15 million of municipal customer balances to fully insured Intrafi Cash Service (ICS) products to increase liquidity.
• Wealth management income increased due to improving market conditions and growth of new relationships.
• Equipment and occupancy expenses decreased due to branch closures.
• The company has a robust pipeline of commercial loans at $64.9 million.

Negatives

• Deposits decreased due to consumer and commercial spending and runoff of retail certificates of deposit.
• Provision expense increased due to a $1.1 million charge-off on a non-accrual commercial and industrial credit.
• The company experienced a $2.0 million increase in interest paid on deposits due to competitive pricing pressures.
• Net charge-offs of $1.3 million were recorded for the quarter ended June 30, 2024.
• Non-accrual loans increased to $9.4 million at June 30, 2024, from $4.0 million at December 31, 2023.
• The commercial and industrial portfolio had net charge offs of 0.89% for the six-month period ended June 30, 2024.
• The consumer portfolio had net charge offs of 2.02% for the six-month period ended June 30, 2024.

Risks

• The environment is expected to remain challenging due to higher interest rates.
• Competitive pricing pressures on deposits may continue to impact interest expenses.
• The company is exposed to potential losses from non-accrual loans and charge-offs.
• The company is exposed to interest rate risk, particularly in falling rate scenarios.
• The company is exposed to cyber security and fraud risks.

Future Outlook

The company believes the environment will continue to be challenging due to higher interest rates, but they are well-positioned to continue to post solid earnings for the remainder of the year.

Management Comments

• 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.

Industry Context

The results reflect the current banking environment with rising interest rates impacting both loan yields and deposit costs. The company's focus on core deposits and expense management is consistent with industry trends.

Comparison to Industry Standards

• The net interest margin of 3.49% is within the range of regional banks, but the company's focus on repricing loans has helped it to maintain a strong margin.
• The increase in provision for credit losses due to a specific charge-off is not uncommon in the current economic climate, but the company's overall asset quality remains strong compared to peers.
• The company's efficiency ratio of 63.48% is competitive, indicating effective cost management.
• The company's capital ratios are well above regulatory requirements, which is a positive sign of financial strength.
• The company's loan to deposit ratio of 93% is within the range of regional banks.

Stakeholder Impact

• Shareholders benefit from increased earnings, stock repurchases, and dividends.
• Customers may experience changes in deposit product offerings and pricing.
• Employees may benefit from the company's focus on growth and stability.
• Communities benefit from the company's support of local causes and financial education.

Next Steps

• The company will continue to manage deposit pricing on a relationship and exception basis.
• The company will focus on deposit acquisition through short-term CD promotions and adjustable-rate money market products.
• The company will manage the maturity of $15 million in brokered CDs in August.
• The company will manage the maturity of $40 million in FHLB advances in September.
• The company will manage the maturity of $40 million in BTFP in 2025.

Key Dates

Keywords

financial results, net income, net interest income, loan production, deposit balances, asset quality, credit losses, stock repurchase, wealth management, interest rates