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.