First United Corporation
Annual Report 2016

Plain-text annual report

1 New look. Renewed passion. 2016 Annual Report My bank is passionate about people. dedicated to service. always helpful. building customized solutions. trusted. here for local business. involved in this community. personal. My bank is First United. 01 Table of Contents Shareholder Letter Summary of Selected Financial Data Inspiring Through Education Board of Directors Advisory Groups 03 06 07 08 10 11 12 13 2016 Community Outreach Sharing the Passion Executive Team SHAREHOLDER LETTER We have a new look and a renewed passion for knowing and understanding our customers and providing unique, customized solutions. 03 Dear Shareholders, Associates, Customers and Community, Times are changing and so is First United Bank & Trust! 2016 was a very exciting year for First United and I am pleased to communicate our progress to you on behalf of our Board of Directors and management team. Our goal was to become more relevant to our customers and communities. Today, more than ever, we recognize that customers have many options when it comes to choosing their financial services providers. How our Bank delivers financial products and services must continue to evolve with technology and with the changing demographics of our communities. So, we continued the evolution of our Bank in 2016 by introducing a new look and feel for First United Bank & Trust. We held focus groups comprised of our existing customers, prospective customers, associates and shareholders, to learn what is important for banking now and in the future. We listened to what they told us and incorporated their suggestions into our new logo, colors and the re-branding of our Bank. We may be 117 years old, but we have a bold new look and a renewed passion for knowing and understanding our customers and providing unique, customized financial solutions. I am sure you are asking yourselves, “just how does a bank become more relevant?” We do this through continuous change. It is necessary for our retail offices to appeal to customers of all ages in both design and functionality. We are blending our products and services to provide both personalized customer service and technology to make the banking experience both efficient and welcoming. We are training our associates to cater to all customers so that we can satisfy all needs immediately – whether it is a simple question about a transaction, opening new accounts or downloading apps on mobile devices. As we continue this evolution over the next few years, customers will experience a shift to brighter, more relaxed environments where they can easily approach a relationship advisor, use a state-of-the-art automated teller machine or step up to a mobile tablet and complete a transaction while enjoying a cup of coffee. Our associates will be dedicated to proactively building relationships and leveraging our team approach and specialist knowledge to engage customers in meaningful financial conversations. We are building a broad range of We understand that it is necessary to invest in our future by adding new technology and innovative products and services and by updating and modernizing our (cid:70)(cid:82)(cid:80)(cid:80)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:192)(cid:70)(cid:72)(cid:3) network. innovative service packages that will enable our clients to meet or exceed their personal and business-related financial goals. As shareholders, it is our expectation that you will benefit from a growing customer base, more profitable accounts and innovative delivery methods, resulting in an increase in the value of our Company. I am very pleased to report that our 2016 financial results reflected our commitment to improving shareholder return. Our stock price improved from $11.70 at December 31, 2015 to $15.95 at December 30, 2016, a 36% increase. We expect to see continued improvements in our stock price as earnings increase over time and we execute our capital initiatives. Our net income available to common shareholders in 2016 was $5.3 million or $.84 per common share, compared to $10.3 million or $1.65 per common share for 2015 (which included a one-time, pre-tax arbitration settlement of $11.6 million). Core earnings improved in 2016 when compared to 2015 driven by increased net interest income, increased other income and decreased expenses. Asset size remained stable as compared to 2015. Loan production was very strong during 2016 in both commercial and residential mortgage lending but was offset by repayments as we continued to strive for higher loan yield and continued to reduce our adversely classified loan portfolio. We funded our loan growth with lower cost, core deposits as evidenced by our lower interest expense. The community office network continued its success in changing the mix in the deposit portfolio toward core accounts linked to full customer relationships. In addition, other operating income continued to improve in 2016 as we increased our service charge income and saw a slight increase in our wealth management income. Provision expense was higher than anticipated as we continued to proactively set aside capital for potential loan losses. However, other expenses were relatively flat as compared to previous years. Your management team and our associates regularly implement efficiencies in our operations to reduce and control both current and future expenses. However, we understand that it is necessary to invest in our future by adding new technology and innovative products and services, and by updating and modernizing our community office network. We will continue to incorporate cost savings through consolidation, contract negotiation and workforce efficiencies, to offset the expenses associated with future innovation. 05 Late in the year, we announced a rights offering to all shareholders of record as of November 28, 2016. Through the offering, which closed on March 17, 2017, we sold an additional 783,626 shares of common stock and raised gross proceeds of approximately $9.3 million. The proceeds from this offering will be used to offset our planned redemption of $10 million, or 10,000 shares, of our Fixed Rate Cumulative Perpetual Preferred Stock, Series A, and to repay $10.8 million of outstanding junior subordinated debentures. We anticipate that the redemption of the Preferred Stock and repayment of the debentures will be accretive to earnings in the future. Your Board of Directors believed that the rights offering provided shareholders with an excellent opportunity to purchase additional shares of First United Corporation common stock at a discount to the then-current market price, resulting in a more cost effective capital mix for our Company. Our capital levels remain strong and should both provide us with a foundation for future growth and adequately cover the risks inherent in our balance sheet. As we look to the future, we continue to add highly qualified individuals to our workforce in our retail, mortgage, commercial and wealth management departments so that we may continue to ramp up our loan and deposit production, expand our wealth management network and extend our community reach. We also continue to invest in the education and development of our operations and support associates. We have found great synergies in our team approach to serving our community oriented business owners. We remain committed to creating value for our customers and for you, our shareholders. As your Company’s evolution continues, we will remain committed to creating value for our customers and for you, our shareholders. I strongly believe that it is our associates who are the distinction to our uncommon commitment to service and solutions. It is our passion for providing customized financial solutions that will result in every customer saying, “this is my bank – my helpful, trusted partner for life.” Thank you for your confidence in First United Corporation! Carissa L. Rodeheaver Chairman of the Board, President and Chief Executive Officer Summary of Selected Financial Data (Dollars in thousands, except per share data) Results of Operations: Tax-equivalent interest income Interest expense Tax-equivalent net interest income Tax-equivalent adjustment Provision for loan losses Net interest income after provision for loan losses Noninterest income Operating noninterest income Non-operating noninterest income: Net gains Noninterest expenses Operating noninterest expenses Income before income taxes Income tax expense Net income Accumulated preferred stock dividends Net income Available to common shareholders Net Income per FTE (Pre-tax) Per Share Data: Basic and diluted net income per common share Book value (at year end) Tangible book value (at year end) Financial Condition (at year end): Assets Deposits Net loans Investment securities Shareholders’ equity Performance Ratios (for the year): Return on average equity Return on average assets Yield on average interest-earning assets Rate on average interest-bearing liabilities Net interest spread Net interest margin (cid:40)(cid:73)(cid:192)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3) (cid:3) Capital and Credit Quality Ratios: Average equity to average assets Total risk-based capital ratio Tier 1 to risk weighted assets Tier 1 to average assets (leverage) Common equity tier 1 to risk weighted assets Allowance for loan losses to gross loans Nonperforming loans and 90 days past due loans to total assets Net charge-offs to average loans $ $ $ $ $ (cid:3) $ 2016 46,418 8,223 38,195 555 3,122 34,518 14,653 14,127 2015 % Change 45,827 9,407 36,420 795 1,054 34,571 26,008 24,992 1.29% -12.59% 4.87% -30.19% 196.20% -0.15% -43.66% -43.47% 526 $ 1,016 -48.23% 39,107 39,107 10,064 2,783 7,281 (2,025) 5,256 31,352 0.84 14.95 13.76 1,318,190 1,014,229 882,008 237,169 113,698 6.38 0.55 3.88 0.84 3.04 3.19 (cid:26)(cid:22)(cid:17)(cid:28)(cid:19)(cid:3) 8.62 16.71 14.76 10.95 10.74 1.11 1.09 0.57 41,115 41,115 19,464 6,473 12,991 (2,700) 10,291 59,893 1.65 14.51 13.20 1,323,458 998,794 867,101 275,792 120,771 $ $ $ -4.88% -4.88% -48.29% -57.01% -43.95% -25.00% -48.93% -47.65% -49.09% 3.03% 4.24% -0.40% 1.55% 1.72% -14.00% -5.86% % (cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (cid:3) % % % 11.40 0.98 3.83 0.97 2.86 3.04 (cid:25)(cid:28)(cid:17)(cid:22)(cid:19)(cid:3) 8.69 17.21 15.24 11.64 9.99 1.36 1.25 0.14 If you need assistance in any of the following areas: • Change in registration • Reporting lost certificates • Non-receipt or loss of dividend checks • Information on dividend reinvestment plan Please contact our transfer agent at: Computershare Trust Company, N.A. P.O. Box 43078 Providence, RI 02940-3078 www.computershare.com/investor First United - Direct Line: TDD for Hearing Impaired: Foreign Shareowners: TDD for Hearing Impaired: (866) 298-7858 (800) 952-9245 (781) 575-2622 (781) 575-2692 Shareholders’ Meeting The Annual Shareholders’ Meeting will be held on: Thursday, May 18, 2017, 10:00 a.m. The Wisp Resort 296 Marsh Hill Road McHenry, MD 21541 S.E.C. Form 10-K (cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:192)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:16)(cid:46)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3) Securities and Exchange Commission. This statement can be found on our investor relations website at http://investors.MyBank.com or you may request to receive a copy by calling us at 1-888-692-2654. A statement may also be requested by mail, without charge, to any shareholder who requests it in writing to: (cid:3) (cid:55)(cid:82)(cid:81)(cid:92)(cid:68)(cid:3)(cid:46)(cid:17)(cid:3)(cid:54)(cid:87)(cid:88)(cid:85)(cid:80) Corporate Secretary First United Corporation c/o First United Bank & Trust 19 South Second Street Oakland, MD 21550 650 combined hours of community education outreach INSPIRING THROUGH mission to enrich the lives of our communities by simply Our idea of service has no beginning or end. We are on a EDUCATION being helpful. Like the people we serve, we live, work, volunteer and support our educational efforts to build community relationships that last a lifetime. First United has positioned itself to continue delivering new and innovative products and services that customers want. These technological advancements will help customers better manage their finances and provide them with the unified banking experience that we want to deliver. A personal, interactive and one-on-one approach to delivering this information and education is our commitment to our customers and our communities. We believe banking should be an experience, not a transaction! 15,500 pounds of food donated to the MBA Embrace Life, Nurture Success Food Drive In 2016, First United renewed our passion in our communities with a wide variety of cause efforts, all aimed at helping those in need. Associates bank-wide contributed to helping those in each of our local communities through food drives, cash and supply donations, bake sales, cake walks, shoe drives and coat drives. They participated in walk-a-thons, marathons and served as bell ringers for the Salvation Army. Associates volunteered their time at shelter locations, at food banks and across a large range of local organizations and non-profits. 400 cases of water donated to assist with WV Flood Relief 11 6,500 dollars raised for the charity Ronald McDonald House 200,000 dollars in contributions to our local communities 40,000 combined hours of volunteerism for 2016 23,000 dollars raised for United Way through Annual First United Golf Tournament SHARING THE PASSION In August, First United associates, executives, board members and our families were invited to gather at the fairgrounds at Deep Creek Lake to enjoy the day together with games, food, fun and fellowship. At the event, associates were also given the first look at the exciting, new and modernized design of the First United brand. The energy and excitement from associates displayed a renewed spirit toward the Bank’s mission and vision, and a renewed passion that was shared with our families. 13 Executive Team Carissa L. Rodeheaver Chairman of the Board, Chief Executive Officer & President Keith R. Sanders Senior Vice President & Senior Trust Officer R.L. Fisher Senior Vice President & Chief Lending Officer Beverly A. Sines Senior Vice President & Chief Credit Officer Robin E. Murray Senior Vice President & Director of Retail Banking Jason B. Rush Senior Vice President & Chief Operating Officer Tonya K. Sturm Senior Vice President & Chief Financial Officer, Corporate Secretary & Treasurer Karen L. Malecki Vice President & Director of Strategic Initiatives Board of Directors John F. Barr Owner, Ellsworth Electric, Inc. Brian R. Boal Principal, Boal & Associates, PC M. Kathryn Burkey Certified Public Accountant, Owner, M. Kathryn Burkey, CPA Carissa L. Rodeheaver Chairman of the Board, Chief Executive Officer & President of First United Corporation and First United Bank & Trust Gary R. Ruddell President, Total Biz Fulfillment, Inc. I. Robert Rudy President, I.R. Rudy’s, Inc. Robert W. Kurtz Retired, Former President, Chief Risk Officer, Secretary and Treasurer of First United Corporation and First United Bank & Trust Marisa A. Shockley Owner, Shockley, Inc. John W. McCullough Certified Public Accountant, Retired as Partner of Ernst & Young, LLP Robert G. Stuck Realtor, Taylor-Made; Retired, Former Vice President, Oakview Motors, Inc. Elaine L. McDonald Owner, Elaine L. McDonald, PC (not pictured) H. Andrew Walls, III President, Morgantown Printing & Binding; Member, MEGBA, LLC Advisory Groups Philip L. Rodeheaver Market President serving Garrett & Allegany County, MD & Mineral County, WV Kimberly R. Moyers Market President serving Monongalia County, WV David G. Esworthy Market President serving Frederick County, MD GARRETT Mark Boucot, President, Garrett Regional Medical Center ALLEGANY & MINERAL Chris Lockard, Retired R.C. Marker Company Brian Brenneman, CPA, The Rodeheaver Group Dr. Ken Buczynski Gary Willmon, Wellspring Family Medicine Dave Hare & Jennifer Walsh Hare, Attornies, Kazary Hare & Walsh PC Ed Huber, Tim Michaels, Mindy Kirkwood, Huber Michaels & Co., Certified Public Accountants Nicole Christian, President & CEO, Garrett County Chamber of Commerce Jim Kaufman, Owner, Criterion Inc. Melinda Gibson, President, Keystone Lime Company Kevin Liller, Owner / Broker, Railey Realty Sheldon Maust, CFO, Beitzel Corp / Pillar Innovations Alex McCoy, Director of Economic Development Kathy Shaffer, CEO, Shaffer Ford Mike Tumbarello, Garrett Information Enterprise Center, Garrett College Hugh Umbel Sherry Gosnell, Umbel Enterprises Mark Farris, VP, General Counsel, CFO, The Belt Group/Carl Belt, Inc. Steve Peer, Retired, Mineral County Board of Education Tom Marsh, Owner, Chat n Chew Greg, Tim, Linda and Jeff Uhl, Owners, Uhl Enterprises Mary Beth Pirolozzi, Executive Director, County United Way Jason Bennett, CPA Director of Finance Allegany County Commissioners Leanne Mazer, Executive Director, Tri-County Council Bruce Kirkwood, Attorney, Kirkwood & Rogers PA Rick Gornall, President, Gornall Construction Inc Dr. John Gustafson, Hi Rock Animal Hospital 13 15 FREDERICK Amy Bednarcik, Executive Vice President, Association Services of America Brett Hess, Owner, Business Management Company Catherine Mock, Business Development Strategist, CorpOHS Dani Gurrie, Owner, Tots2tweens.com Denise Jacoby, Executive Officer, Frederick County Building Industry Association George Cox, Ph.D, JD, Chief Legal Officer, Vizuri Health Sciences, LLC Jamie Stup, Creative Director, Wood Street, Inc. Jason Lee, CEO, Lee Building Maintenance Jonathan Warner, Owner, Warner Commercial Real Estate Joshua B. Pedersen, President & CEO, 2-1-1 Maryland, Inc. Sri R. Konduru, President, Srisai Biopharmaceutical Solutions, LLC Connie Phillips, President, Connie Phillips Insurance, Inc. Patricia E. Young Market President serving Washington County, MD & Berkeley County, WV MONONGALIA Russell Bonasso, II, Owner, Micro Outdoors, LLC Nikki Bowman, Publisher & Editor, New South Media, Inc. Holly Childs, CEcD, President & CEO, Morgantown Area Economic Partnership, Director, Monongalia Co. Development Authority Tyler Etris, Architect, Paradigm Architecture Bonnie Fisher, Program Director, TwoPointO, LLC Brian Gallagher, Managing Member, Steptoe & Johnson, PLLC Lincoln Kinkade, PT, Owner, Dynamic Physical Therapy, LLC Morgan (Mike) Mosser, Owner, Mosser Resources Consulting, LLC Randy Neal, Associate Broker, KLM Properties, Inc., General Appraiser, Chico Appraisal Services Mark J. Nesselroad, Chief Operating Officer & General Counsel, Glenmark Holding, LLC, Broker, Black Diamond Realty Kelly Palmer, Monongalia County Chief Tax Deputy Daniel J. Powell, CPA, Partner, Cunningham Powell Alexander, A.C. Joshua Rogers, Partner, Dinsmore & Shohl Jack Thompson, Corporate Relations Manager, West Virginia University C. Seth Wilson, Partner, Bowles Rice, LLP Tom S. Witt, Ph.D., Chief Economist, Witt Economics, LLC WASHINGTON BERKELEY Jim and Tammy Aaron, Total Comfort Heating and Air Michael Bush, Real Property Solutions Lee Cloughfeather, Daily Companions, Inc. Dr. Kay W. Gilpin, Shenandoah Veterinary Hospital William S. Haines, A-1 Services & ASi Pools & Spa William G. Hearn, Sr., Retired US Government Susan E. and Jason M. Johnson, Owners, Johnson and Johnson Heating and Air Conditioning, Inc. Walter M. Johnson III, Fairway Homes Services & Artisan Kitchens Clarence “Butch” Pennington, Penn & Penn, Inc., J-Bird, LLC Amanda M. Stevens, Principal, Marlow Elementary School Marissa A. Velasquez, Johnson and Johnson Heating and Air Conditioning, Inc. Manuel H. Washington, Jr., Groves Cleaning Service, LLC David R. Welch, Multi-Media Communications, Inc. John Barr, Ellsworth Electric & First United Director Peggy Bushey, The Cavetown Planning Mill Co. Paul Cox, Sr., Professional Tax Service & Former First United Director George “Glenn” Fuscsick, CPA Michael Guessford, Applause Catering Michele Hatzes, Trickling Springs Creamery Dale Martin, Agri Services Tim McSherry, Carpet Gallery Rick and Shari Metzger, Cavetown Auto Parts Jay Miller, Miller Construction Robin Miller, Miller Construction Bob Rankin, Manager, Minnich Funeral Home Jim Reed, Antietam Tractor and Equipment Richard Tydings, Reliable Craftsmanship Bonnie Winders, Bonnie A. Winders Attorney MyBank.com 

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