OAKLAND, Md., Nov. 7 /PRNewswire-FirstCall/ -- First United Corporation , a financial holding company and the parent company of First United Bank & Trust, announces net income for the quarter ended September 30, 2008 of $1.9 million, or earnings per share of $.30, compared to $3.6 million, or earnings per share of $.58, for the third quarter of 2007. The decrease in net income for the quarter is attributable primarily to $4.2 million of expense recorded in our provision for loan losses related to three loan relationships. This expense was offset by increased earnings on interest-earning assets, primarily from a restructuring of the investment portfolio implemented throughout 2007 and the first half of 2008 and reduced interest expense on our deposit products and other liabilities. As a result, our net interest income for the third quarter of 2008 increased $2.0 million when compared to the same time period of 2007. Our net interest margin increased from 3.52% for the third quarter of 2007 to 3.67% for the third quarter of 2008.
According to William B. Grant, Chairman of the Board and Chief Executive Officer for First United Corporation, "2008 has been a historic and challenging period for the financial industry. We have not been immune to the economic downturn as we, like many banks, have experienced higher provision expense as a result of the slowed economy and declining real estate values. However, we are very proud as an organization to be able to deliver to our shareholders solid earnings through our management of net interest income and operating expenses. Our strong capital position affords us the opportunity to continue lending and serving our customers in our geographic market areas."
Net income for the first nine months of 2008 was $9.1 million (earnings per share of $1.49), compared to $8.8 million (earnings per share of $1.43) for the first nine months of 2007. The increase in net income resulted primarily from a $6.3 million increase in net interest income. This increase was offset by a $5.3 million increase in the provision for loan losses. We have experienced increased earnings on interest-earning assets, primarily from a restructuring of the investment portfolio as well as leverage strategies implemented throughout 2007 and during the first half of 2008. Interest expense on our interest-bearing liabilities decreased by $3.3 million due to declining interest rates during the first nine months of 2008 as well as the enhanced efforts of an internal treasury committee. As a result, our net interest income for the first nine months of 2008 increased $6.3 million when compared to the same period of 2007, and our net interest margin increased from 3.48% in the first nine months of 2007 to 3.67% in the first nine months of 2008. The provision for loan losses was $6.6 million for the nine months ended September 30, 2008, compared to $1.3 million for the same period of 2007. The increased provision is due to an increase in specific allocations, non-accrual loans, loan growth and declining economic indicators during the first nine months of 2008.
For the nine-month period ended September 30, 2008, the Corporation's annualized return on average assets and average shareholders' equity were .77% and 12.31%, respectively, compared to .84% and 11.84%, respectively, for the same period in 2007.
Total assets were $1.63 billion at September 30, 2008, an increase of $150.6 million (10.2%) since December 31, 2007. During this time period, gross loans increased $58.2 million and our investment portfolio increased $79.1 million. Total liabilities increased by approximately $165.4 million during the first nine months of 2008, reflecting increases in total deposits of $50.1 million and increases in long-term and short-term borrowings of $99.2 million and $15.7 million, respectively. The increases in long-term borrowings reflect the funding of investment purchases in late 2007 and the first half of 2008 and management's desire to lengthen the duration of liabilities in anticipation of rising interest rates.
Gross loans were $1.10 billion at September 30, 2008, compared to $1.04 billion at December 31, 2007, an increase of $58.2 million (5.6%). Continued growth in commercial loans ($55.8 million) and in the residential mortgage portfolio ($14.8 million) was offset by a decline in our installment portfolio ($12.4 million). The decrease in installment loans is primarily attributable to a decline in the indirect loan portfolio resulting from a slowdown in economic activity and management's de-emphasis on this form of lending product. The growth in the commercial portfolio is a result of both in-house production and commercial participations with other institutions. At September 30, 2008, approximately 76% of the commercial loan portfolio was collateralized by real estate.
Total deposits were $1.14 billion at September 30, 2008, compared to $1.09 billion at December 31, 2007, an increase of $50.4 million. Interest-bearing demand deposits decreased $16.5 million and time deposits increased $64.1 million due to a successful retail promotion of three- and five-year time deposit products and increased use of the CDARs product and brokered deposits. We have shifted our focus to longer-term liabilities as we anticipate a flat to rising interest rate environment.
Comparing September 30, 2008 to December 31, 2007, shareholders' equity decreased 14.1%, from $104.7 million to $89.9 million, resulting in a decrease in book value per share from $17.05 at December 31, 2007 to $14.70 at September 30, 2008. This decline is attributable to the unrealized losses on investment securities which are reported in capital, net of taxes through Accumulated Other Comprehensive Loss. At September 30, 2008, there were 6,113,886 issued and outstanding shares of the Corporation's common stock.
Net-Interest Income (Tax Equivalent Basis)
Net interest income increased $6.4 million during the first nine months of 2008 over the same period in 2007 due to a $3.1 million (4.4%) increase in interest income and a decrease of $3.3 million (9.1%) in interest expense. The increase in interest income resulted from an increase in average interest-earning assets of $167.0 million (13.0%) during the first nine months of 2008 when compared to the first nine months of 2007. The increase in interest-earning assets is primarily attributable to the growth that we experienced in both our loan portfolio and our investment portfolio during the latter half of 2007 and the beginning of 2008.
Interest expense decreased during the first nine months of 2008 when compared to the same period of 2007. Average interest-bearing liabilities increased in the first nine months of 2008 by $208.8 million when compared to the same time period for 2007, with average interest-bearing deposits increasing by approximately $126.4 million since September 30, 2007. The effect of the decreasing rate environment and the efforts of our internal treasury committee to control rates resulted in a 98 basis point decrease in the average rate paid on our average interest-bearing liabilities from 4.23% for the nine months ended September 30, 2007 to 3.25% for the same period of 2008. The net result of the aforementioned factors was a 19 basis point increase in the net interest margin during the first nine months of 2008 to 3.67% from 3.48% during the same period of 2007.
Net interest income for the third quarter of 2008 increased $2.0 million when compared to the same period of 2007 due to a $.5 million decrease in interest income accompanied by a decrease in interest expense of $2.5 million.
Asset Quality
The ratio of non-performing and 90 days past-due loans to total loans at September 30, 2008 was 2.89%, compared to .83% at December 31, 2007 and .91% at September 30, 2007. The ratio of non-performing and 90 days past-due loans to total assets at September 30, 2008 was 1.95%, compared to .59% at December 31, 2007 and .65% at September 30, 2007. Problem loans were $31.9 million at September 30, 2008, a $23.1 million increase since December 31, 2007. This increase is directly attributable to the movement of several large commercial loans to non-accrual status. Management has performed an extensive review of these loan relationships and the impaired loans and believes that the collateral securing the loans is adequate to protect our interests. Where necessary, specific allocations have been provided.
The allowance for loan losses increased to $11.5 million at September 30, 2008, compared to $7.3 million at December 31, 2007. The provision for loan losses was $6.6 million for the first nine months of 2008, compared to $1.3 million for the same period of 2007. The increase in the provision for loan losses in the first nine months of 2008 compared to the same period of 2007 was in response to the increase in net charge-offs and non-performing loans, loan growth, the results of our quarterly review of the adequacy of the factors discussed previously, and specific allocations for impaired loans. As part of our loan review process, management has noted an increase in foreclosures and bankruptcies in the geographic areas where we operate. Additionally, the current economic environment has caused a decline in real estate sales. Consequently, we have closely reviewed and applied a sensitivity analysis to collateral values to more adequately measure potential future losses. Where necessary, we have obtained new appraisals on collateral. Specific allocations of the allowance have been provided in instances where losses may occur. Approximately $1.8 million of the recorded expense is attributable to an acquisition and development loan in Hardy County, West Virginia and another loan relationship outside of the Corporation's market area. Additional provision expense was booked because the company that services a loan in which the Bank holds a participation interest failed to remit $1.2 million in principal payments made by the borrower that were due to the Bank. The Bank is reviewing its rights with respect to its insurance carriers and the servicing company's insurance carriers and bonding companies, but there can be no assurance that the Bank will ultimately recover any of this loss.
Non-Interest Income and Non-Interest Expense
Other operating income increased $2.2 million during the first nine months of 2008 when compared to the same period of 2007. The increase is primarily due to the realization in the first nine months of 2008 of $.5 million in securities gains, compared to $1.6 million in securities losses realized in the same period of 2007. Other operating income for the third quarter of 2008 decreased $.3 million when compared to the third quarter of 2007. Increases in service charge income were offset by flat revenue in our trust department and insurance operations and decreases in BOLI income and other income. Although we have experienced favorable sales growth in both the trust and insurance divisions, unfavorable market conditions have reduced the fees and commissions on our existing accounts under management. The decrease in other income is due primarily to a decrease in secondary market income as the Company has seen growth in the in-house mortgage portfolio versus selling to the secondary market.
Other operating expenses increased $2.3 million in the first nine months of 2008 when compared to the same time period of 2007. For the third quarter of 2008, other operating expenses increased $.4 million when compared to the third quarter of 2007. The increases for both time periods were principally due to increases in personnel expenses that resulted from the hiring of several regional market presidents to strengthen our presence in key market areas and to normal merit increases.
In July 2007, the Board of Directors approved the conversion of our core operating system, which was completed in April 2008. The expense for the conversion process is a large portion of the other expense category. We anticipate that this conversion will create operating efficiencies and better position the organization to respond to future advances in technology.
ABOUT FIRST UNITED CORPORATION
First United Corporation offers full-service banking products and services through its trust company subsidiary, First United Bank & Trust, and consumer finance products through its consumer finance subsidiaries, OakFirst Loan Center, Inc. and OakFirst Loan Center, LLC. The Corporation also offers a full range of insurance products and services to customers in its market areas through First United Insurance Group, LLC. 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 http://www.mybankfirstunited.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 30-Sep 30-Sep 30-Jun 31-Mar 2008 2007 2008 2008 EARNINGS SUMMARY Interest income $23,777 $24,262 $23,851 $23,858 Interest expense $10,576 $13,021 $10,627 $11,829 Net interest income $13,201 $11,241 $13,224 $12,029 Provision for loan and lease losses $4,217 $790 $966 $1,387 Noninterest income $3,778 $4,063 $4,570 $4,340 Noninterest expense $9,976 $9,626 $10,651 $10,354 Income taxes $921 $1,333 $2,063 $1,493 Net income $1,865 $3,555 $4,114 $3,135 Cash dividends paid $1,220 $1,199 $1,224 $1,226 PER COMMON SHARE Earnings per share Basic/Diluted $0.30 $0.58 $0.68 $0.51 Nine Months Ended unaudited 30-Sep 30-Sep 2008 2007 EARNINGS SUMMARY Interest income $71,486 $68,521 Interest expense $33,032 $36,321 Net interest income $38,454 $32,200 Provision for loan and lease losses $6,570 $1,320 Noninterest income $12,688 $10,442 Noninterest expense $30,981 $28,705 Income taxes $4,477 $3,796 Net income $9,114 $8,821 Cash dividends paid $3,670 $3,596 PER COMMON SHARE Earnings per share Basic/Diluted $1.49 $1.43 Three Months Ended unaudited 30-Sep 30-Sep 30-Jun 31-Mar 2008 2007 2008 2008 Book value $14.70 $16.40 $15.50 $16.69 Closing market value $19.90 $21.16 $18.17 $19.66 Common shares outstanding at period end 6,113,886 6,157,579 6,105,008 6,121,374 PERFORMANCE RATIOS (Period End, annualized) Return on average assets 0.77% 0.84% 0.93% 0.82% Return on average shareholders' equity 12.31% 11.84% 14.16% 11.92% Net interest margin 3.67% 3.48% 3.67% 3.56% Efficiency ratio 58.99% 65.39% 59.87% 61.52% PERIOD END BALANCES 30-Sep 31-Dec 30-Sep 2008 2007 2007 Assets $1,629,546 $1,478,909 $1,458,646 Earning assets $1,490,024 $1,352,219 $1,334,816 Gross loans $1,101,492 $1,043,266 $1,031,864 Consumer Real Estate $412,160 $397,371 $394,179 Commercial $548,110 $492,302 $473,343 Consumer $141,222 $153,593 $164,342 Investment securities $383,994 $304,908 $299,105 Total deposits $1,143,102 $1,092,740 $1,056,901 Noninterest bearing $104,896 $97,976 $104,318 Interest bearing $1,038,206 $994,764 $952,583 Shareholders' equity $89,872 $104,665 $100,978 CAPITAL RATIOS 30-Sep 31-Dec 30-Sep Period end capital to 2008 2007 2007 risk-weighted assets: Tier 1 11.22% 11.40% 11.30% Total 12.63% 12.51% 12.38% ASSET QUALITY Net charge-offs for the quarter $1,577 $559 $368 Nonperforming assets: (Period End) Nonaccrual loans $29,098 $5,443 $7,160 Restructured loans $- $- $519 Loans 90 days past due and accruing $2,754 $3,260 $2,260 Other real estate owned $714 $825 $462 Total nonperforming assets and past due loans $40,200 $16,896 $16,549 Allowance for credit losses to gross loans, at period end 1.05% 0.70% 0.67% Nonperforming and 90 day past-due loans to total loans, at period end 2.89% 0.83% 0.91% Nonperforming loans and 90 day past-due loans to total assets, at period end 1.95% 0.59% 0.65%
