First United (US:FUNC)2022-05-08 16:00PART I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's analysis, market risk disclosures, and internal controls for the quarter Item 1. Financial Statements This section presents the unaudited consolidated financial statements for the three months ended March 31, 2022, and 2021, including detailed notes Consolidated Statements of Financial Condition Total assets increased to $1.76 billion, driven by net loans and investment securities, while liabilities rose due to deposits Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $76,116 | $115,720 | | Net loans | $1,166,002 | $1,137,440 | | Total investment securities | $385,265 | $343,030 | | Total Assets | $1,760,223 | $1,729,838 | | Liabilities & Equity | | | | Total deposits | $1,507,555 | $1,469,374 | | Total Liabilities | $1,623,145 | $1,587,938 | | Total Shareholders' Equity | $137,078 | $141,900 | Consolidated Statements of Operations Net income significantly increased to $5.7 million in Q1 2022, driven by higher net interest income and a credit for loan losses Q1 2022 vs. Q1 2021 Performance (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income | $13,341 | $12,236 | | Provision/(credit) for loan losses | ($419) | $110 | | Total other operating income | $4,434 | $4,926 | | Total other operating expenses | $10,578 | $12,523 | | Net Income | $5,715 | $3,430 | | Diluted EPS | $0.86 | $0.49 | Notes to Consolidated Financial Statements Detailed explanations of accounting policies, including securities transfers, loan loss allowance, fair value, regulatory capital, and CECL adoption - Effective February 1, 2022, the Corporation transferred $139.0 million of securities from available-for-sale to held-to-maturity at fair value to mitigate the impact of rising interest rates. The related unrealized loss of $8.4 million was retained in accumulated other comprehensive loss (AOCL) and will be amortized over the securities' remaining life29 - The allowance for loan losses (ALL) decreased from $16.0 million at year-end 2021 to $15.3 million at March 31, 2022. The company recorded a credit provision for loan losses of $419,000 for the quarter4856 - The company will adopt the Current Expected Credit Losses (CECL) model on January 1, 2023, which will change the methodology for estimating credit losses on financial instruments. The potential impact is currently under evaluation124125 Bank Regulatory Capital Ratios (March 31, 2022) | Ratio | Actual | Required for Adequacy | Required to be Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to risk-weighted assets) | 14.77% | 8.00% | 10.00% | | Tier 1 Capital (to risk-weighted assets) | 13.59% | 6.00% | 8.00% | | Common Equity Tier 1 Capital | 13.59% | 4.50% | 6.50% | | Tier 1 Capital (to average assets) | 10.14% | 4.00% | 5.00% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting increased Q1 2022 net income, portfolio growth, and stable credit quality Results of Operations Q1 2022 net income rose to $5.7 million, primarily due to the absence of a prior-year litigation settlement and increased net interest income - The primary driver for the increase in earnings was the absence of a $3.3 million litigation settlement expense that was recorded in the first quarter of 2021137 Net Interest Income and Margin (FTE, non-GAAP) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Interest Income | $13,582 thousand | $12,475 thousand | | Net Interest Margin | 3.40% | 3.11% | Financial Condition Total assets grew to $1.8 billion, driven by loan and investment portfolio increases, funded by deposit growth, while equity declined due to AOCI - Management strategically deployed excess cash by purchasing approximately $50.0 million in short-term treasury bonds early in the first quarter of 2022157 Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Commercial real estate | $391,136 | $374,291 | | Acquisition and development | $133,031 | $128,077 | | Commercial and industrial | $194,914 | $180,976 | | Residential mortgage | $399,704 | $404,686 | | Consumer | $62,616 | $65,657 | | Total Loans | $1,181,401 | $1,153,687 | Risk Elements and Credit Quality Credit quality remained stable, with non-performing assets decreasing and the allowance for loan losses deemed adequate Key Credit Quality Metrics | Metric | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Non-accrual loans to total loans | 0.20% | 0.21% | | Non-performing assets to total assets | 0.39% | 0.42% | | Allowance for loan losses to non-accrual loans | 655.75% | 648.05% | Liquidity, Market Risk, and Capital Resources The company maintains adequate liquidity, is asset-sensitive to rising interest rates, and remains well-capitalized above regulatory requirements - As of March 31, 2022, the company was asset sensitive, with a simulation analysis showing that a 100 basis point increase in interest rates would increase net interest income by an estimated $970,000 over the next year189195 - The Bank had $130.0 million available through unsecured lines of credit and approximately $187.5 million available through the FHLB at quarter-end198 Quantitative and Qualitative Disclosures about Market Risk This section refers to prior disclosures on market risk, emphasizing the company's interest rate risk management and asset-sensitive position - The information regarding market risk is incorporated by reference from the 'Market Risk and Interest Sensitivity' section in the MD&A204 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - Based on an evaluation as of March 31, 2022, the company's Principal Executive Officer and Principal Financial Officer concluded that disclosure controls and procedures are effective at the reasonable assurance level206 - No changes in internal control over financial reporting occurred during the first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, internal controls207 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report for the quarter210 Risk Factors No material changes in risk factors have occurred since the prior year's Annual Report on Form 10-K - Management does not believe any material changes in risk factors have occurred since the last disclosure in the 2021 Form 10-K211 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported212 Exhibits This section lists the exhibits filed with the quarterly report, including officer certifications and Inline XBRL data files - Exhibits filed include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act218