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| 8-K - 8-K - FIRST UNITED CORP/MD/ | tv500691_8k.htm |
Exhibit 99.1
FIRST UNITED CORPORATION ANNOUNCES
SECOND QUARTER 2018 EARNINGS
OAKLAND, MARYLAND—August 8, 2018: First United Corporation (NASDAQ: FUNC), a bank holding company and the parent company of First United Bank & Trust (the “Bank”), announces consolidated net income available to common shareholders was $5.5 million for the first six months of 2018, compared to $3.5 million for the same period of 2017. Basic and diluted net income per common share for the first six months of 2018 were both $.78, compared to basic and diluted net income per common share of $.52 for the same period of 2017. The increase in earnings was primarily due to an increase in net interest income of $2.2 million, an increase of $.4 million in wealth management income, a $.2 million decrease in provision for loan loss expense, and a decrease of $.8 million in preferred stock dividends due to the $10.0 million redemptions of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) in November 2016 and March 2017. These changes were offset by a $1.2 million increase in salaries and benefits attributable to new hires in late 2017, merit increases, and an increase in life and health insurance related to increased claims, an increase of $.4 million in equipment, occupancy and data processing expenses, and an increase in other real estate owned (“OREO”) expenses due to valuation allowance write-downs on properties. The net interest margin for the first six months of 2018, the year ended December 31, 2017 and the first six months of 2017, on a fully tax equivalent (“FTE”) basis, was 3.71%, 3.37% and 3.35%, respectively.
Consolidated net income available to common shareholders was $3.0 million for the second quarter of 2018, compared to $2.1 million for the same period of 2017. Basic and diluted net income per common share for the second quarter of 2018 were both $.43, compared to basic and diluted net income per common share of $.30 for the same period of 2017. The increase in earnings was primarily due to an increase in net interest income of $.9 million, an increase of $.1 million in wealth management income, a decrease of $.2 million in preferred stock dividends due to the $10.0 million redemptions of Series A Preferred Stock in both November 2016 and March 2017. These changes were offset by a $.6 million increase in salaries and benefits attributable to new hires in late 2017, merit increases and an increase in life and health insurance related to increased claims, an increase of $.2 million in equipment, occupancy and data processing expenses, an increase in OREO expenses due to valuation allowance write-downs on properties. The net interest margin for the second quarter of 2018, the year ended December 31, 2017 and the second quarter of 2017, on an FTE basis, was 3.73%, 3.37% and 3.42%, respectively.
According to Carissa L. Rodeheaver, Chairman, President and Chief Executive Officer, “The financial results continue to improve as a result of our continued focus on improving core earnings. We have changed the mix on our balance sheet to improve our net interest income through our loan portfolio, have reduced our non-earning assets and continue to grow our low-cost deposits. Additionally, our wealth management department has been successful in growing and developing relationships, resulting in higher fee income. The positive financial results are attributable to our outstanding team of associates and their passion for providing customized financial solutions to our customers.”
Financial Highlights Comparing the Six and Three Months Ended June 30, 2018 and 2017:
| · | The ratio of the allowance for loan losses (“ALL”) to loans outstanding was 1.04% at June 30, 2018, 1.12% at December 31, 2017 and 1.11% at June 30, 2017. |
| · | Provision for loan losses was $.7 million for the six months ended June 30, 2018 and $.9 million for the six months ended June 30, 2017. The reduction in provision expense for the first six months of 2018 was primarily driven by a reduction of historical loss factors due to the continued improvement of the loan portfolio offset by loan growth. |
| · | Net interest income increased $2.2 million when comparing the six-month periods ended June 30, 2018 and June 30, 2017. Interest income, when comparing these same periods, increased $2.1 million due primarily to increased interest and fees on the loan portfolio due to loans repricing at higher rates, new loans booked at higher rates as well as the collection of interest and late charges on a payoff of a commercial non-accrual loan in the first quarter of 2018. Net interest income increased $.9 million when comparing the second quarter of 2018 to the second quarter of 2017. Interest income, when comparing these same periods, increased $1.0 million due primarily to increased interest and fees on the loan portfolio from loans repricing at higher rates and new loans booked at higher rates. Interest expense, when comparing the six-month periods ended June 30, 2018 and June 30, 2017, increased slightly by $.1 million due primarily to increased pricing on the full relationship customers offset by lower borrowing costs. |
| · | Other operating income increased $.6 million during the first six months of 2018 when compared to the same period of 2017. This increase was primarily attributable to increased wealth management income, service charges, debit card income, and net gains from the investment portfolio. These increases were offset by slight declines in bank owned life insurance (“BOLI”) and other income. Other operating income increased $.4 million during second quarter of 2018 when compared to the same period of 2017. This increase was primarily attributable to increased wealth management and debit card income, and net gains on the investment portfolio. |
| · | Operating expenses increased $2.0 million in the first six months of 2018 when compared to the same period of 2017. The increase was due primarily to a $1.2 million increase in salaries and benefits attributable to new hires in late 2017, merit increases and an increase in life and health insurance related to increased claims, an increase of $.4 million in equipment, occupancy and data processing expenses, and an increase in OREO expenses due to valuation allowance write-downs on properties, offset by a slight decrease in other miscellaneous expenses such as marketing, personnel related expense, and postage. Operating expenses increased $.8 million in the second quarter of 2018 when compared to the same period of 2017. The increase was due primarily to a $.6 million increase in salaries and benefits attributable to new hires in late 2017, merit increases and an increase in life and health insurance related to increased claims, an increase of $.2 million in equipment, occupancy and data processing expenses, and an increase in OREO expenses due to valuation allowance write-downs on properties. |
Balance Sheet Overview
Total assets at June 30, 2018 remained unchanged at $1.3 billion when compared to December 31, 2017. During the first six months of 2018, cash and interest-bearing deposits in other banks decreased $58.4 million, the investment portfolio decreased $7.5 million and gross loans increased $48.7 million. Premises and equipment increased $4.3 million due to bank-wide building renovation projects associated with our new brand efforts. Total liabilities decreased $17.7 million during the first six months of 2018 primarily due to a $20.0 million reduction in repurchase agreements where customers (primarily municipalities) are using funds in their Treasury Management accounts. The $20.0 million reduction in long-term borrowings was due to the repayment of two Federal Home Loan Bank (“FHLB”) advances totaling $5.0 million at maturity in January 2018 and the shift of a $15.0 million FHLB advance from long-term borrowings to short-term borrowings at maturity on April 30, 2018. Total deposits increased slightly by $1.7 million.
Comparing June 30, 2018 to December 31, 2017, outstanding loans increased by $48.7 million (5.4%). Commercial real estate (“CRE”) loans increased $7.5 million due primarily to several new large relationships in the first six months of 2018. Acquisition and development (“A&D”) loans increased $1.2 million. Commercial and industrial (“C&I”) loans increased $11.5 million due to several new relationships as well as new balances for one large existing relationship of approximately $5.0 million. Residential mortgages increased $18.6 million primarily due to the purchase of a $15.0 million 1-4 family mortgage pool in February 2018, and in house growth continuing in our professional program, offset slightly by amortization on existing balances. The consumer portfolio increased $9.8 million due to the purchase of a $10.0 million student loan pool in the first quarter of 2018 offset by regular amortization. Approximately 28% of the commercial loan portfolio was collateralized by real estate at both June 30, 2018 and December 31, 2017.
Total investment securities available-for-sale decreased by $4.2 million since December 31, 2017. At June 30, 2018, the securities classified as available-for-sale included a net unrealized loss of $6.7 million, which represents the difference between the fair value and amortized cost of securities in the portfolio.
Total deposits increased $1.7 million during the first six months of 2018 when compared to deposits at December 31, 2017. During the first six months of 2018, non-interest bearing deposits increased $19.7 million. This growth is due to new account openings as well as increased balances in existing accounts. Traditional savings accounts increased $6.5 million due to continued growth in our Prime Saver product. Total demand deposits decreased $.1 million and total money market accounts decreased $12.4 million due to decreased balances in our ICS money market account relating to the re-allocation of cash in our trust accounts. Time deposits less than $100,000 decreased $4.0 million and time deposits greater than $100,000 decreased $7.9 million. The decrease in time deposits greater than $100,000 was due to the maturity of one large certificate of deposit for a municipality in the first quarter of 2018.
The book value of the Corporation’s common stock was $15.95 per share at June 30, 2018, compared to $15.34 per share at December 31, 2017.
At June 30, 2018, there were 7,082,443 outstanding shares of the Corporation’s common stock.
Net- Interest Income (Tax-Equivalent Basis)
Net interest income, on an FTE basis, increased $2.3 million (11.5%) during the first six months of 2018 over the same period in 2017 due to a $2.2 million (9.3%) increase in interest income and a $.1 million (2.3%) decrease in interest expense. The net interest margin for the first six months of 2018 was 3.71%, compared to 3.35% for the first six months of 2017.
Comparing the first six months of 2018 to the same period of 2017, the increase in interest income was due to increases of $1.9 million in interest and fees on loans and $.3 million in interest income on investments. The increase in interest and fees on loans was due primarily to an increase in the rate earned of 27 basis points attributable to loans repricing, new loans booked at higher rates and increased balances related to the purchases of a $10.0 million student loan pool and a $15.0 million pool of 1-4 family mortgage loans in the first quarter of 2018. The increase in investment interest income was due primarily to an increase in the rate earned of 21 basis points related to the CDO portfolio.
Interest expense on our interest-bearing liabilities decreased by $.1 million during the six months ended June 30, 2018 when compared to the same period of 2017 due primarily to a $14.2 million reduction in average long-term borrowings, which resulted from the repayment of two FHLB advances totaling $5.0 million at maturity in January 2018, the shift of a $15.0 million FHLB advance that matured on April 30, 2018 to short-term borrowings, and the repayment of $10.8 million of TPS Debentures held by Trust III in March 2017. During the six months ended June 30, 2018, interest expense on deposits increased slightly as pricing pressures continued in all markets. We continued to offer empowered pricing on full relationship customers.
Net interest income, on an FTE basis, increased $1.0 million (9.9%) during the second quarter of 2018 over the same period in 2017 due to a $1.1 million (9.2%) increase in interest income and a $.1 million (5.3%) increase in interest expense. The net interest margin for the second quarter of 2018 was 3.73%, compared to 3.42% for the second quarter of 2017.
Comparing the second quarter of 2018 to the same period of 2017, the increase in interest income was due to increases of $1.0 million in interest and fees on loans and $.1 million in interest income on investments. The increase in interest and fees on loans was due primarily to an increase in the rate earned of 24 basis points attributable to loans repricing at higher rates, new loans booked at higher rates and increased balances related to the purchases of a $10.0 million student loan pool and a $15.0 million pool of 1-4 family mortgage loans in the first quarter of 2018. The increase in investment interest income was due primarily to an increase in the rate earned of 12 basis points related to the CDO portfolio.
Interest expense on our interest-bearing liabilities increased slightly by $.1 million during the second quarter of 2018 when compared to the same period of 2017 due primarily to increased interest expense on deposits as we offered product specials and increased pricing on the full relationship customer.
Asset Quality
The ALL was $9.8 million at June 30, 2018 and $10.0 million at December 31, 2017. The provision for loan losses for the first six months of 2018 was $.7 million, compared to $.9 million for the first six months of 2017. Net credit losses of $.9 million were recorded for both the six months ended June 30, 2018 and the six months ended June 30, 2017. The ratio of the ALL to loans outstanding was 1.04% at June 30, 2018, 1.12% at December 31, 2017, and 1.11% at June 30, 2017.
The ratio of net charge-offs to average loans for both the six months ended June 30, 2018 and the six months ended June 30, 2017 was an annualized .20%, compared to .28% for the year ended December 31, 2017. The CRE portfolio had an annualized net charge-off rate of .58% as of June 30, 2018, compared 1.43% as of December 31, 2017. The increased charge-offs in 2017 were related to one large commercial loan. The A&D loans had an annualized net recovery rate of .29% as of June 30, 2018, compared to .11% as of December 31, 2017. The C&I loans had a net recovery rate of .05% as of June 30, 2018, compared to 2.21% as of December 31, 2017. The reduction in recoveries in the C&I portfolio in 2018 was due to a large recovery on a loan on an ethanol plant in the first quarter of 2017 that had been charged off in prior years. The residential mortgage ratios were a net charge-off rate of .09% as of June 30, 2018, compared to .01% as of December 31, 2017, and the consumer loan ratios were net charge-off rates of .68% and .53% as of June 30, 2018 and December 31, 2017, respectively.
Non-accrual loans totaled $5.0 million at June 30, 2018, compared to $7.1 million at December 31, 2017. The decrease in non-accrual balances at June 30, 2018 was primarily due to payoffs of two relationships totaling $2.5 million and a charge-off of $.8 million on one relationship, offset by the addition of one large commercial real estate credit of $1.9 million. Non-accrual loans that have been subject to partial charge-offs totaled $.9 million at June 30, 2018, compared to $2.1 million at December 31, 2017. Loans secured by 1-4 family residential real estate properties in the process of foreclosure were $.1 million at June 30, 2018 and $.4 million at December 31, 2017.
Accruing loans past due 30 days or more decreased to .31% of the loan portfolio at June 30, 2018, compared to .63% at December 31, 2017. The decrease for the first six months of 2018 was due primarily to improvements in the commercial real estate and residential mortgage portfolios.
Non-Interest Income and Non-Interest Expense
Other operating income, exclusive of gains, increased $.5 million during the first six months of 2018 when compared to the same period of 2017. This increase was primarily attributable to increased wealth management income, service charges and debit card income. These increases were offset by slight declines in BOLI and other income
Net gains of $.2 million were reported in other income for the first six months of 2018, compared to net gains of $14 thousand during the same period of 2017.
Other operating income, exclusive of gains, increased $.3 million during the second quarter of 2018 when compared to the same period of 2017. This increase was primarily attributable to increased wealth management and debit card income.
Net gains of $.1 million were reported in other income for the second quarter of 2018, compared to net gains of $9 thousand during the same period of 2017.
Operating expenses increased $2.0 million in the first six months of 2018 when compared to the same period of 2017. The increase was due primarily to a $1.2 million increase in salaries and benefits attributable to new hires in late 2017, merit increases and an increase in life and health insurance related to increased claims, an increase of $.4 million in equipment, occupancy and data processing expenses, an increase in OREO expenses due to valuation allowance write-downs on properties, offset by a slight decrease in other miscellaneous expenses such as marketing, personnel related expense, and postage.
Operating expenses increased $.8 million in the second quarter of 2018 when compared to the same period of 2017. The increase was due primarily to a $.6 million increase in salaries and benefits attributable to new hires in late 2017, merit increases and an increase in life and health insurance related to increased claims, an increase of $.2 million in equipment, occupancy and data processing expenses, and an increase in OREO expenses due to valuation allowance write-downs on properties.
ABOUT FIRST UNITED CORPORATION
First United Corporation is the parent company of First United Bank & Trust, a Maryland trust company with commercial banking powers, and three statutory trusts that were used as financing vehicles. The Bank has four wholly-owned subsidiaries: OakFirst Loan Center, Inc., a West Virginia finance company; OakFirst Loan Center, LLC, a Maryland finance company, First OREO Trust, a Maryland statutory trust, and FUBT OREO I, LLC, a Maryland company, both formed for the purposes of holding, servicing and disposing of the real estate that the Bank acquires through foreclosure or by deed in lieu of foreclosure. The Bank also owns 99.9% of the limited partnership interests in Liberty Mews Limited Partnership; a Maryland limited partnership formed for the purpose of acquiring, developing and operating low-income housing units in Garrett County, Maryland. The Corporation’s website is www.mybank.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 | Six Months Ended | |||||||||||||||||||
| unaudited | unaudited | |||||||||||||||||||
| 30-Jun | 30-Jun | 31-Mar | 30-Jun | 30-Jun | ||||||||||||||||
| 2018 | 2017 | 2018 | 2018 | 2017 | ||||||||||||||||
| EARNINGS SUMMARY | ||||||||||||||||||||
| Interest income | $ | 12,724 | $ | 11,691 | $ | 12,362 | $ | 25,086 | $ | 23,018 | ||||||||||
| Interest expense | $ | 1,856 | $ | 1,762 | $ | 1,780 | $ | 3,636 | $ | 3,720 | ||||||||||
| Net interest income | $ | 10,868 | $ | 9,929 | $ | 10,582 | $ | 21,450 | $ | 19,298 | ||||||||||
| Provision for loan losses | $ | 269 | $ | 299 | $ | 447 | $ | 716 | $ | 908 | ||||||||||
| Other Operating Income | $ | 3,735 | $ | 3,482 | $ | 3,676 | $ | 7,411 | $ | 6,959 | ||||||||||
| Net Gains | $ | 147 | $ | 9 | $ | 34 | $ | 181 | $ | 14 | ||||||||||
| Other Operating Expense | $ | 10,625 | $ | 9,859 | $ | 10,691 | $ | 21,316 | $ | 19,329 | ||||||||||
| Income before taxes | $ | 3,856 | $ | 3,262 | $ | 3,154 | $ | 7,010 | $ | 6,034 | ||||||||||
| Income tax expense | $ | 840 | $ | 952 | $ | 648 | $ | 1,488 | $ | 1,745 | ||||||||||
| Net income | $ | 3,016 | $ | 2,310 | $ | 2,506 | $ | 5,522 | $ | 4,289 | ||||||||||
| Accumulated preferred stock dividends | $ | - | $ | 225 | $ | - | $ | - | $ | 765 | ||||||||||
| Net income available to common shareholders | $ | 3,016 | $ | 2,085 | 2,506 | $ | 5,522 | $ | 3,524 | |||||||||||
| Three Months Ended | ||||||||||||
| unaudited | ||||||||||||
| 30-Jun | 30-Jun | 31-Mar | ||||||||||
| 2018 | 2017 | 2018 | ||||||||||
| PER COMMON SHARE | ||||||||||||
| Basic/ Diluted Net Income Per Common Share | $ | 0.43 | $ | 0.30 | $ | 0.35 | ||||||
| Book value | $ | 15.95 | $ | 15.36 | $ | 15.73 | ||||||
| Closing market value | $ | 20.45 | $ | 14.90 | $ | 19.20 | ||||||
| Market Range: | ||||||||||||
| High | $ | 24.32 | $ | 15.80 | $ | 20.25 | ||||||
| Low | $ | 18.50 | $ | 13.80 | $ | 16.60 | ||||||
| Common shares outstanding at period end | 7,082,443 | 7,067,425 | 7,067,425 | |||||||||
| PERFORMANCE RATIOS (Period End, annualized) | ||||||||||||
| Return on average assets | 0.84 | % | 0.68 | % | 0.76 | % | ||||||
| Return on average shareholders' equity | 9.94 | % | 7.40 | % | 9.13 | % | ||||||
| Net interest margin | 3.71 | % | 3.35 | % | 3.68 | % | ||||||
| Efficiency ratio | 72.10 | % | 72.80 | % | 72.30 | % | ||||||
| PERIOD END BALANCES | 30-Jun | 31-Dec | 30-Jun | |||||||||
| 2018 | 2017 | 2017 | ||||||||||
| Assets | $ | 1,323,316 | $ | 1,336,470 | $ | 1,325,685 | ||||||
| Earning assets | $ | 1,170,681 | $ | 1,129,331 | $ | 1,120,346 | ||||||
| Gross loans | $ | 941,201 | $ | 892,518 | $ | 895,955 | ||||||
| Commercial Real Estate | $ | 290,695 | $ | 283,162 | $ | 283,574 | ||||||
| Acquisition and Development | $ | 111,779 | $ | 110,530 | $ | 111,678 | ||||||
| Commercial and Industrial | $ | 88,174 | $ | 76,723 | $ | 73,691 | ||||||
| Residential Mortgage | $ | 417,282 | $ | 398,648 | $ | 403,198 | ||||||
| Consumer | $ | 33,271 | $ | 23,455 | $ | 23,814 | ||||||
| Investment securities | $ | 232,598 | $ | 240,102 | $ | 227,552 | ||||||
| Total deposits | $ | 1,041,120 | $ | 1,039,390 | $ | 1,037,712 | ||||||
| Noninterest bearing | $ | 271,743 | $ | 252,049 | $ | 253,986 | ||||||
| Interest bearing | $ | 769,377 | $ | 787,341 | $ | 783,726 | ||||||
| Shareholders' equity | $ | 112,974 | $ | 108,390 | $ | 118,561 | ||||||
| CAPITAL RATIOS | 30-Jun | 31-Dec | 30-Jun | |||||||||
| 2018 | 2017 | 2017 | ||||||||||
| Period end capital | ||||||||||||
| Tier 1 to risk weighted assets | 15.30 | % | 14.97 | % | 15.49 | % | ||||||
| Common Equity Tier 1 to risk weighted assets | 12.77 | % | 12.54 | % | 12.11 | % | ||||||
| Tier 1 Leverage | 11.63 | % | 11.00 | % | 11.55 | % | ||||||
| Total risk based capital | 16.28 | % | 15.98 | % | 16.51 | % | ||||||
| ASSET QUALITY | ||||||||||||
| Net charge-offs for the quarter | $ | 970 | $ | 1,508 | $ | 1,960 | ||||||
| Nonperforming assets: (Period End) | ||||||||||||
| Nonaccrual loans | $ | 5,016 | $ | 7,118 | $ | 9,472 | ||||||
| Loans 90 days past due | ||||||||||||
| and accruing | $ | 431 | $ | 595 | $ | 1,216 | ||||||
| Total nonperforming loans | ||||||||||||
| and 90 days past due loans | $ | 5,447 | $ | 7,713 | $ | 10,688 | ||||||
| Restructured loans | $ | 5,124 | $ | 5,955 | $ | 8,938 | ||||||
| Other real estate owned | $ | 8,503 | $ | 10,141 | $ | 11,556 | ||||||
| Allowance for loan losses | ||||||||||||
| to gross loans, at period end | 1.04 | % | 1.12 | % | 1.11 | % | ||||||
| Nonperforming and 90 day past due loans | ||||||||||||
| to total loans, at period end | 0.58 | % | 0.86 | % | 1.19 | % | ||||||
| Nonperforming loans and 90 day past due | ||||||||||||
| loans to total assets, at period end | 0.41 | % | 0.58 | % | 0.81 | % | ||||||