Activist investor Driver Management Co. LLC raised various questions concerning First United Corp.'s third-quarter earnings in a letter to Chairman, President and CEO Carissa Rodeheaver.
The investor has renewed its call for a sale of the company and another investor, Rangeley Capital LLC, has made the same call.
The activist investor raised concerns about credit quality, with Driver requesting more information on a $7.0 million acquisition and development loan placed on nonaccrual and net recoveries that contributed to a negative loan loss provision. It also questioned First United's funding costs, including what the Oakland, Md.-based bank's target deposit beta is and what the average rate and maturity of jumbo certificates of deposits added year-to-date are.
Driver said third-quarter deposit costs increased more than 4% from the second quarter and jumbo time deposits continue to increase.
In its earnings results, First United said it discontinued selling a special time deposit product and reduced special rates on a money market product during the third quarter due to the Federal Reserve's rate cuts. The bank forecasts more net interest margin compression in the fourth quarter "as lending pricing pressures continue in each of our markets that we serve."
Costs of deposits were tallied at 0.74% in the third quarter and the bank said funding costs "remained low."
Driver also asked about the bank's voluntary employee separation plan, questioning how cost savings from the plan will fare in comparison with a sale of First United. The investor also said loan balances have declined for three consecutive quarters and asked whether its dividend increase indicates that it is not seeing any good lending opportunities.
First United reported third-quarter net income of $4.5 million, or 63 cents per share, up from $2.8 million, or 39 cents per share, in the year-ago period. Net interest margin for the quarter was 3.67%, down from 3.70% in the previous quarter and 3.71% in the year-ago period.
The bank recorded a reserve release of $13,000 in the quarter, compared with a loan loss provision of $471,000 in the third quarter of 2018.