First United Corporation (NASDAQ: FUNC) is a bank holding company that has consistently delivered solid financial results and shareholder returns. With a rich history spanning over four decades, the company has navigated various economic cycles, demonstrating its resilience and adaptability.
Company Overview
Founded in 1985, First United Corporation is the parent company of First United Bank & Trust, a Maryland trust company with commercial banking powers. The Bank’s wholly-owned subsidiaries include OakFirst Loan Center, Inc. and OakFirst Loan Center, LLC, both of which are finance companies, as well as First OREO Trust and FUBT OREO I, LLC, which were formed to hold, service, and dispose of real estate acquired through foreclosure or deed-in-lieu.
Historical Background
First United Corporation is a financial holding company registered with the Federal Reserve System. In its early years, the company focused on building its community banking presence in western Maryland, successfully weathering the savings and loan crisis of the late 1980s and early 1990s while maintaining its capital ratios and continuing to serve local customers. During the 2000s, First United expanded its banking and trust services offerings, opened new branch locations, and grew its deposit and loan portfolios. The company navigated the Great Recession of 2008-2009 by maintaining a conservative underwriting approach and managing risk, which allowed it to emerge from the recession in a strong financial position. Over the past decade, First United has evolved its business model, investing in technology to enhance the customer experience and diversifying its revenue streams through the growth of its wealth management and insurance operations. The company has also placed a greater emphasis on commercial and small business lending to support the local economy.
Financials
The company’s diversified operations and prudent risk management have allowed it to maintain a strong financial position. As of September 30, 2024, First United Corporation had total assets of $1.92 billion, net loans of $1.43 billion, and deposits of $1.54 billion. The bank’s capital ratios remained well above regulatory requirements, with a total capital ratio of 14.53% and a Tier 1 capital ratio of 13.28%, positioning it as a well-capitalized institution.
During the first nine months of 2024, First United Corporation reported net income of $14.4 million, or $2.19 per diluted share, compared to $13.3 million, or $1.98 per diluted share, for the same period in 2023. This strong performance was driven by a 9.3% increase in interest income, primarily due to higher interest and fees on loans, coupled with the company’s ability to effectively manage its interest expense.
The bank’s loan portfolio has exhibited steady growth, with total loans increasing by $41.2 million, or 2.9%, since December 31, 2023. The commercial real estate and acquisition and development loan segments led the charge, expanding by $9.1 million and $15.8 million, respectively. This growth reflects the company’s ability to capitalize on opportunities in its local markets while maintaining a disciplined underwriting approach.
For the most recent fiscal year (2023), First United Corporation reported revenue of $71.32 million, net income of $15.06 million, operating cash flow of $22.47 million, and free cash flow of $22.12 million. In the most recent quarter (Q3 2024), the company achieved revenue of $20.27 million, net income of $5.77 million, operating cash flow of $2.64 million, and free cash flow of $2.82 million.
Year-over-year growth in the most recent quarter was impressive, with revenue increasing by 3.9%, net income by 27.8%, operating cash flow by 2.1%, and free cash flow by 2.6%. These increases were primarily driven by higher interest income on loans due to rate increases, partially offset by higher deposit and borrowing costs.
Liquidity
First United Corporation’s diversified revenue streams have also contributed to its financial resilience. In addition to its core banking operations, the company generates income from its trust and investment services, which accounted for 47% of total other operating income in the first nine months of 2024. This diversification has helped the bank weather changes in the interest rate environment and economic conditions.
The company maintains a healthy liquidity position with a debt-to-equity ratio of 0.98 and cash holdings of $62.39 million. First United Corporation has a substantial borrowing capacity of $251.01 million with the Federal Home Loan Bank (FHLB), of which $92.91 million is currently utilized. The current ratio and quick ratio both stand at 0.34, indicating the company’s ability to meet its short-term obligations.
Business Segments
First United Corporation operates through two main segments: Community Banking and Trust and Investment Services. The Community Banking segment, conducted through the Bank, is the primary driver of the Corporation’s business, generating the majority of its revenue and assets. This segment offers a broad range of financial products and services, including various loan and deposit products, to consumer, business, and not-for-profit customers. Major revenue sources for this segment include net interest income, gains on sales of mortgage loans, and service charges on deposit accounts.
The Trust and Investment Services segment, also conducted through the Bank, offers corporate trustee services, trust and estate administration, IRA administration, and custody services. Revenues for this segment are generated from administration, service and custody fees, as well as management fees derived from Assets Under Management.
In the first nine months of 2024, the Community Banking segment generated $68.27 million in total interest income and $23.99 million in total interest expense, resulting in $44.28 million in net interest income. The segment recorded $2.40 million in credit loss expense during this period. Non-interest income for the Community Banking segment was $14.49 million, while non-interest expenses were $33.66 million, leading to $15.06 million in income before income taxes.
The Trust and Investment Services segment contributed $7.92 million in non-interest income during the first nine months of 2024. This segment’s expenses totaled $3.90 million, resulting in $4.02 million in income before income taxes.
Shareholder Value
The company’s commitment to shareholder value is evident in its dividend history. First United Corporation has consistently paid quarterly dividends, with the most recent declaration of a $0.22 per share dividend payable on November 1, 2024, to shareholders of record as of October 18, 2024. This dividend yield, coupled with the company’s steady financial performance, makes First United an attractive option for income-oriented investors.
Future Outlook
Despite the challenges posed by the ongoing pandemic and volatile market conditions, First United Corporation has remained focused on prudent risk management, diversifying its revenue streams, and investing in technology to enhance its customer experience. The company’s disciplined approach to growth and its commitment to serving its local communities have positioned it well for the future.
Conclusion
In conclusion, First United Corporation’s long-standing history, robust financial position, and diversified business model make it a compelling investment opportunity for investors seeking a steady performer in the banking sector. The company’s solid financial performance, demonstrated by growth in key metrics such as revenue, net income, and cash flow, coupled with its healthy liquidity position and ample available credit, underscores its stability and potential for continued success. As First United Corporation continues to navigate the evolving market landscape, its focus on sustainable growth and shareholder value should continue to deliver positive results for its stakeholders.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.