First United Corporation Announces 2009 Financial Results and Declaration of Dividend
OAKLAND, Md., March 12 /PRNewswire-FirstCall/ -- First United Corporation (Nasdaq: FUNC), a financial holding company and the parent company of First United Bank & Trust, today announced a net loss attributable to common shareholders for the year ended December 31, 2009 of $12.8 million, or ($2.08) per common share, compared to net income available to common shareholders of $8.9 million, or $1.45 per common share, for 2008. The decrease in net income resulted primarily from $26.7 million in other-than-temporary impairment charges related to available-for-sale securities, increased loan loss provision expense of $2.7 million, and $3.5 million of increased FDIC premiums. The increase in FDIC premiums resulted from the special assessment charge of $.8 million recognized in June 2009, the revised FDIC rate structure and the credit which offset 2008 premiums charged. Core operations remained strong as net interest income for 2009 increased $1.1 million when compared to the same period of 2008. However, the Corporation's net interest margin decreased from 3.68% in 2008 to 3.56% in 2009 as a result of an increase in non-accruing loans and management's desire to increase our liquidity position. The provision for loan losses was $15.6 million for 2009, compared to $12.9 million for the same period of 2008.
Consolidated net loss attributable to common shareholders for the fourth quarter of 2009 totaled $9.7 million, or ($1.58) per common share, compared to a net loss attributable to common shareholders of $.24 million, or ($.04) per common share, for the same period of 2008. The net loss recorded for the fourth quarter was due primarily to $15.8 million in non-cash other-than-temporary impairment charges on nine of the trust preferred securities in our investment portfolio.
William B. Grant, Chairman and Chief Executive Officer stated, "2009 was a challenging year for businesses and consumers as the full effect of the economic recession took its toll. First United Corporation felt these effects in our loan and investment portfolios as we experienced high loan loss provisions and recorded impairment charges on our investment portfolio. Our Company also participated with the banking industry in supporting the FDIC fund through increased premiums and a special assessment, as well as by pre-funding the next three years of FDIC premiums. Our core operations continue to be strong as we experienced a record year for net interest income before provision and continued to build our trust and insurance lines of business. First United Corporation remains well capitalized with a Tier 1 leverage ratio of 8.53% and a risk-based capital ratio of 11.20%. The company has also built high levels of liquidity as is prudent during recessionary periods. We look forward to a more prosperous economic environment which will allow us to reduce loan provision expense and capitalize on the current liquidity position through lending and through other growth opportunities."
For the year ended December 31, 2009, the Corporation's annualized return/ (loss) on average assets and average shareholders' equity were (.67%) and (11.02%), respectively, compared to .55% and 9.31%, respectively, for 2008.
Total assets were $1.7 billion at December 31, 2009, an increase of $104.6 million since December 31, 2008. During this time period, gross loans decreased $12.7 million, cash and interest bearing deposits in banks increased $170.4 million and the investment portfolio decreased $80.8 million. Total liabilities increased approximately $76.8 million during 2009, reflecting increases in total deposits of $81.3 million offset by a $2.9 million decrease in short-term borrowings and also a decrease of $6.9 million in long-term borrowings. The increase in deposits is due primarily from a $75.7 million increase in our IRA and regular certificates of deposit as a result of 13-month and 24-month specials offset by declines in interest bearing demand and savings products. Shareholders' equity also increased from December 31, 2008 to December 31, 2009 by $27.9 million.
Cash and cash equivalents were $189.7 million at December 31, 2009, an increase of $170.4 million from December 31, 2008. The increase was primarily attributable to the accumulating of cash from calls on securities in the investment portfolio in order to enhance our liquidity position.
Gross loans were $1.12 billion at December 31, 2009, a decrease of $12.7 million (1.1%) from gross loans at December 31, 2008. The residential mortgage and construction portfolio decreased $11.8 million and the installment portfolio decreased $29.3 million. These decreases were offset by growth of $28.4 million in the commercial portfolio as a result of in-house production and commercial participations with other financial institutions. We experienced growth in both fixed rate and adjustable rate products.
Total deposits were $1.30 billion at December 31, 2009, compared to $1.22 billion at December 31, 2008. The increase in deposits is due primarily from a $75.7 million increase in our IRA and regular certificates of deposit as a result of 13-month and 24-month specials offset by declines in interest bearing demand and savings products. The Corporation is shifting its focus to longer-term liabilities as it anticipates a rising interest rate environment in the future.
Comparing December 31, 2009 to December 31, 2008, shareholders' equity increased from $72.7 million to $100.6 million. The increase of $27.9 million in shareholders' equity is attributable to receipt of $30 million in January 2009 from the sale of preferred stock to the U.S. Treasury, and an $11.3 million net operating loss offset by a $14.3 million increase in other comprehensive income. Dividends of $5.6 million were paid from capital during 2009. The book value of our common share decreased from $11.89 per share at December 31, 2008 to $11.49 per share at December 31, 2009.
At December 31, 2009, there were 6,143,641 outstanding shares of the Corporation's common stock, an outstanding immediately exercisable warrant to purchase 326,323 shares of the Corporation's common stock, and 30,000 outstanding shares of the Corporation's Fixed Rate Cumulative Perpetual Preferred Stock, Series A.
Net- Interest Income (Tax Equivalent Basis)
Net interest income increased $1.4 million during 2009 over 2008 due to a $10.9 million (25.4%) decrease in interest expense, offset by a $9.6 million (9.9%) decrease in interest income. The decrease in interest income resulted primarily from a decrease in interest rates on loans, an increase in non-accrual assets and a desire to maintain higher cash levels when compared to 2008. Interest expense decreased during 2009 when compared to the same period of 2008 due to a reduction in interest rates on interest-bearing liabilities. Average interest-bearing liabilities increased in 2009 by $82.4 million when compared to 2008. The effect of the decreasing rate environment throughout 2008 and 2009, management's decision to increase special rates for full relationship customers and the short duration of our portfolio resulted in a 92 basis point decrease in the average rate paid on average interest-bearing liabilities from 3.11% for the year ended December 31, 2008 to 2.19% for the same period of 2009.
The net result of the aforementioned factors was a 12 basis point decrease in the net interest margin during 2009 to 3.56% from 3.68% for the same time period of 2008.
Net interest income for the fourth quarter of 2009 decreased $1.0 million in comparison to the fourth quarter of 2008. This slight decrease resulted from a $2.3 million decrease in interest expense during the period offset by a decrease in interest income of $3.3 million. Although deposits continued to increase during the fourth quarter of 2009, the decrease in interest expense resulted from a decrease in rates paid on interest-bearing deposits. The decrease in interest income is due to a combination of decreased interest rates, the increase in non-accrual assets and management's decision to increase its liquidity position.
Asset Quality
The ratio of non-performing and 90 days past-due loans to total loans at December 31, 2009 was 4.30%, compared to 2.47% at December 31, 2008. The ratio of non-performing and 90 days past-due loans to total assets at December 31, 2009 was 2.77%, compared to 1.71% at December 31, 2008. Performing loans considered impaired loans, as defined and identified by management, amounted to $84.6 million at December 31, 2009 and $56.5 million at December 31, 2008. Loans are identified as impaired when the loan is classified as substandard and management determines that it is probable that the borrower will not be able to pay principal and interest according to the contractual terms of the loan. These loans consist primarily of acquisition and development loans. The fair values are generally determined based upon independent third party appraisals of the collateral or discounted cash flows based upon the expected proceeds. Specific allocations have been made where management believes there is insufficient collateral and no secondary source of repayment is available.
The allowance for loan losses increased to $20.1 million at December 31, 2009, compared to $14.3 million at December 31, 2008. Several factors contributed to the $5.8 million increase in the balance of the allowance in 2009, including: a significant increase in the balance of non-accrual loans, from $24.6 million in 2008 to $46.6 million in 2009; changes to the qualitative factors which are reviewed quarterly and reflect the current economic environment; an increase in impaired loans from $83.3 million in 2008 to $131.2 million in 2009; and an increase in the percentage of net charge-offs to average outstanding loans from .54% in 2008 to .87% in 2009. Non-accrual loans and impaired loans consist primarily of real estate development loans and commercial real estate that have experienced a slowdown in the level of sales activity during the current year. The provision for loan losses was $15.6 million for 2009, compared to $12.9 million for the same period of 2008.
"Many of our customers, from developers to small businesses to homeowners, have been significantly impacted by this recession. While we have worked closely with, and will continue to work closely with, these customers, our efforts cannot prevent all losses given the magnitude of the economic downturn," Grant said.
Non-Interest Income and Non-Interest Expense
Other operating income decreased $24.4 million during the 12 months of 2009 when compared to the same period of 2008. The decrease is primarily attributable to the recognition of $26.7 million in non-cash other-than-temporary impairment charges, a $.4 million realized loss on the investment portfolio, as a result of moving four securities to trading, and a decrease of $.8 million in service charge income due to decreased consumer spending. Much of our other-than-temporary impairment stems from deterioration of quality within our trust preferred securities portfolio. These investments, which were investment grade at the time of acquisition, are supported by underlying debt obligations of several financial institutions. A number of these institutions have been adversely impacted by the recession and have either defaulted under or deferred the payment of interest under the debt obligations. It is possible that the continuation or worsening of the current economic recession could cause currently performing institutions to likewise default or defer payments, which could result in further credit losses in these investments. Applicable accounting guidance requires that the Corporation recognize a credit loss in earnings when that loss is determined.
Trust department revenue and income on our bank owned life insurance policies also decreased due to declines in the market values of assets under management and reduced interest rates, respectively. These declines were offset slightly by a $.7 million increase in insurance commissions as a result of the Insurance Group's acquisition of books of business in December 2008. Other operating income for the fourth quarter of 2009 decreased $10.2 million when compared to the fourth quarter of 2008. The decrease in the fourth quarter is primarily attributable to the $15.8 million other-than-temporary impairment charges on the investment portfolio
Other operating expenses increased $6.2 million for 2009 when compared to 2008. For the fourth quarter 2009, other operating expenses increased $2.2 million when compared to the same time period of 2008. The increase was due to increases in personnel expenses, occupancy and equipment expenses as we continued our expansion in Morgantown, West Virginia, Frederick, Maryland and in the markets served by the Insurance Group. In addition, expense for the Corporation's defined benefit pension plan increased $1.0 million in 2009 when compared to 2008 which resulted from the decline in market value of the plan assets and the lower discount rate. The Corporation has also recognized increases in other expenses directly attributable to the FDIC assessments of $3.5 million when compared to the same time period of 2008.
Dividend Declaration
The Corporation's Board of Directors has reduced the quarterly cash dividend on the common stock for the first quarter of 2010 to $.01 per share from $.10 per share for the fourth quarter of 2009. The first quarter dividend will be paid on April 30, 2010 to shareholders of record as of April 14, 2010. The reduction in the quarterly cash dividend should allow the Company to retain approximately $2.2 million in additional common equity per year.
"While regrettable, our Board's decision underscores its commitment to preserving a strong balance sheet as the Company, and indeed the nation, navigate through this difficult economic cycle," said William B. Grant, Chairman and CEO of First United. "Core earnings remain strong for the Company, but bottom-line earnings have been negatively impacted by challenges in the loan portfolio and certain securities in the investment portfolio. The Company's capital remains stable, and exceeds the regulatory requirements to be considered 'well capitalized'. The Board clearly understands the importance of the dividend to many of the Company's long-term shareholders. Today's action, in light of today's economic and market conditions, enables us to conserve shareholder equity."
ABOUT FIRST UNITED CORPORATION
First United Corporation is the parent company of First United Bank & Trust, a Maryland trust company (the "Bank"), and First United Insurance Group, LLC, a full service insurance provider organized under Maryland law. The Bank is the parent company of OakFirst Loan Center, Inc., a West Virginia finance company, and OakFirst Loan Center, LLC, a Maryland finance company. These entities operate a network of offices throughout Garrett, Allegany, Washington, and Frederick Counties in Maryland, as well as Mineral, Hardy, Berkeley, and Monongalia Counties in West Virginia. The Corporation's website is www.mybank4.com.
FORWARD-LOOKING STATEMENTS
This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements do not represent historical facts, but are statements about management's beliefs, plans and objectives about the future, as well as its assumptions and judgments concerning such beliefs, plans and objectives. These statements are evidenced by terms such as "anticipate," "estimate," "should," "expect," "believe," "intend," and similar expressions. Although these statements reflect management's good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. For a discussion of these risks and uncertainties, see the section of the periodic reports that First United Corporation files with the Securities and Exchange Commission entitled "Risk Factors".
FIRST UNITED CORPORATION
Oakland, MD
Stock Symbol: FUNC
(Dollars in thousands, except per share data)
Three Months Ended
unaudited
31-Dec 31-Dec 30-Sep 30-Jun 31-Mar
2009 2008 2009 2009 2009
EARNINGS SUMMARY
Interest income $20,458 $23,730 $21,138 $21,373 $22,373
Interest expense $7,714 $10,011 $7,833 $8,010 $8,547
Net interest
income $12,744 $13,719 $13,305 $13,363 $13,826
Provision for
loan and lease
losses $4,751 $6,355 $6,917 $1,871 $2,049
Noninterest
income $(11,302) $1,081 $(4,530) $2,565 $2,590
Noninterest
expense $11,757 $9,592 $11,500 $12,550 $10,986
Income tax
(benefit)/
expense $(5,800) $(904) $(4,056) $358 $1,002
Net (loss)/income $(9,266) $(243) $(5,586) $1,149 $2,379
Net (loss)
attributable to/
income available
to common
shareholder $(9,655) $(243) $(5,975) $756 $2,120
Cash dividends
paid $1,228 $1,104 $1,223 $1,221 $1,221
Twelve Months Ended
unaudited
31-Dec 31-Dec
2009 2008
EARNINGS SUMMARY
Interest income $85,342 $95,216
Interest expense $32,104 $43,043
Net interest
income $53,238 $52,173
Provision for
loan and lease
losses $15,588 $12,925
Noninterest
income $(10,677) $13,769
Noninterest
expense $46,793 $40,573
Income tax
(benefit)/
expense $(8,496) $3,573
Net (loss)/income $(11,324) $8,871
Net (loss)
attributable to/
income available
to common
shareholder $(12,754) $8,871
Cash dividends
paid $4,893 $4,774
Three Months Ended
unaudited
31-Dec 31-Dec 30-Sep 30-Jun 31-Mar
2009 2008 2009 2009 2009
PER COMMON SHARE
Basic/ Diluted
Net Income Per
Common Share $(1.58) $(0.04) $(0.97) $0.12 $0.35
Book value $11.49 $11.89 $12.35 $11.62 $10.95
Closing market
value $6.00 $13.48 $10.57 $11.25 $8.38
Common shares
outstanding at
period end 6,143,641 6,112,940 6,132,448 6,121,549 6,122,410
PERFORMANCE RATIOS
(Period End, annualized)
Return on
average assets -0.67% 0.55% -0.16% 0.43% 0.58%
Return on average
shareholders'
equity -11.02% 9.31% -2.68% 7.07% 9.66%
Net interest margin 3.56% 3.68% 3.53% 3.76% 3.83%
Efficiency ratio 104.69% 59.85% 81.99% 70.43% 64.87%
PERIOD END BALANCES
31-Dec 31-Dec
2009 2008
Assets $1,743,736 $1,639,104
Earning assets $1,439,941 $1,489,609
Gross loans $1,121,884 $1,134,546
Consumer Real Estate $406,537 $418,350
Commercial $604,410 $575,962
Consumer $110,937 $140,234
Investment securities $273,784 $354,595
Total deposits $1,304,166 $1,222,889
Noninterest bearing $106,976 $107,749
Interest bearing $1,197,190 $1,115,140
Shareholders' equity $100,566 $72,690
CAPITAL RATIOS
Period end capital to risk- 31-Dec 31-Dec
weighted assets: 2009 2008
Tier 1 9.60% 10.59%
Total 11.20% 12.18%
ASSET QUALITY
Net charge-offs for the quarter $1,590 $3,526
Nonperforming assets:
(Period End)
Nonaccrual loans $46,584 $24,553
Restructured loans $35,481 $468
Loans 90 days past due and
accruing $1,770 $3,476
Foreclosed real estate $7,591 $2,424
Total nonperforming assets
and past due loans $48,354 $28,029
Allowance for credit losses
to gross loans, at period end 1.79% 1.26%
Nonperforming and 90 day
past-due loans to gross
loans, at period end 4.31% 2.47%
Nonperforming loans and 90 day
past-due loans to total assets,
at period end 2.77% 1.71%
SOURCE First United Corporation
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