Innovation. Technology.
Personal. Experience.
Community.
2017 Annual Report
2017
Delivering the ultimate
banking experience
When we unite our strengths under a shared mission
to serve, we can accomplish just about anything.
Last year we continued to demonstrate to our
customers and communities that First United
is committed to delivering the ultimate banking
experience. We’re a transformation in progress,
innovating, drawing from the best that technology
has to offer, and always staying true to our values
in providing highly sophisticated and extremely
personalized solutions.
Table of Contents
02 Shareholder Letter
05 Summary of Selected Financial Data
06 Innovation
07 Technology
08 Personal
10 Experience
11 Community
12 Directors and Officers
Shareholder
Letter
2
Dear Shareholders, Associates,
Customers and Community,
Innovation spurred by technology and mixed with
personal service
leads
to
the ultimate banking
experience for customers of all ages, demographics
and differing levels of technical expertise. In 2017,
we continued our transformation by updating our
community office network, hiring associates who
emulate our values and incorporating our brand into
every customer experience.
Technology is top of mind for both our community
oriented business owners and consumer customers as
they are anxious to adopt new and innovative methods
of banking like mobile deposit capture, person-to-
person payments, and internet banking. We are
dedicated to providing the necessary safeguards to
protect their financial information and to educate them
on how they can minimize and avoid risk. Our associates
now have the ability to assist with new product
set-up, maintenance and technical questions; within our
community offices, at our customers’ locations or by
phone. Additionally, our state-of-the-art, highly trained
Customer Care Center provides extended weekday and
weekend assistance when needed.
Customer service extends beyond our Customer
Care Center and is the heart of what we do. Daily, we
challenge our associates to provide an uncommon
commitment to service and solutions. This is our vision,
and it can only be accomplished through personal
interaction with our customers and communities, as
well as personal attention to our processes and every
touch point, including both the physical and virtual
banking venues. We understand that the perfect blend
of personal service and technology differs by customer
and that it is our responsibility to ask questions, review
customer relationships and provide the level of service
needed to culminate in an exceptional customer
banking experience — every time we interact with our
customer.
From the shareholder perspective, creating the exceptional banking experience is
expected to result in increased earnings and increased shareholder return. Our
net income available to common shareholders in 2017 was $4.1 million or $.58 per
common share, compared to $5.3 million or $.84 per common share for 2016. 2017
earnings were negatively impacted by a one-time tax expense of $3.2 million, or
approximately $.49 per share, due to the reduction in the valuation of our deferred
tax assets. This reduction was due to the new Tax Cuts and Jobs Act, which was
signed into law by the President of the United States on December 22, 2017. For
businesses, the Act reduces the corporate tax rate from a maximum of 35% to a flat
21% rate effective on January 1, 2018. Going forward, the Corporation will benefit
from the new reduced corporate income tax rate. Absent this one-time expense,
2017 core earnings showed continued improvement over 2016.
To provide the ultimate community office environment, banking technology and
skilled personal attention to our customers, we must continue to provide high
value that allows us to price accordingly. This results in a higher level of core
earnings. 2017 core earnings continued to increase, driven by our loan and deposit
production, an increase in wealth management and other fee income as well as
our ability to control expenses. 2017 provision expense and charge-off activity was
higher than anticipated driven by one deteriorating loan relationship. However,
overall asset quality has improved significantly as we are focused on providing
loans to our local communities and continuing to exit the out of market participation
relationships. Our ability to reduce our overall cost of funds, rising interest rates
and a higher yield on our loan portfolio offset flat loan growth.
The most meaningful and satisfying change in our balance sheet was our ability to
redeem $10.8 million of Trust Preferred debentures and to redeem the final $20.0
million of Series A preferred stock. This was possible due to our successful $9.2
million common stock rights offering during the first quarter of 2017 and our strong
capital position. The rights offering was three times oversubscribed and gave our
existing shareholders the opportunity to experience an immediate return on their
investment as they exercised their rights at a discount to market. Even better, the
offering was accretive to earnings as we used the proceeds for the redemptions of
the higher cost debentures and preferred stock, resulting in a more cost-effective
capital mix for our Company. Our capital levels remain strong and provide us with
a solid foundation for future growth and adequately cover the risks inherent in our
balance sheet.
The innovative blend of technology and personal service that we have incorporated
into delivering our service and solutions has allowed us to continue to grow our
customer base and net profits resulting in an increasing shareholder return. Our
stock price improved from $15.95 at December 31, 2016 to $17.40 at December 29,
2017, a 9% increase.
Daily, we
challenge our
associates
to provide an
uncommon
commitment
to service and
solutions.
3
However, the most exciting news for me to share with you, our shareholders,
is the recent announcement of the upcoming payment of a common stock
dividend. On March 7, 2018, your Company declared the payment of $.09
per common share payable on May 2, 2018. I know that it has been a long
On March 7, 2018,
wait and I personally thank you for your patience and confidence in First
United Corporation over the past several years as we improved asset quality
your Company
declared the
payment of $.09
per common
share payable on
May 2, 2018.
4
and core earnings, changed our capital composition and positioned our
company to once again provide an additional return on your investment
through the payment of a dividend. As your recent shareholder letter
indicated, provided that our financial performance continues to support the
payment, it is our intention to continue this dividend, at this level, for the
foreseeable future.
As we look to the future, our 2018 strategic focus will be to assess and
increase the contribution of profits we receive from each of our six market
regions. Our teams of retail, mortgage, commercial and wealth management
specialists will work together to profitably deepen customer relationships,
seek new relationships and to build our net interest income and fee income.
Increasing the penetration and customer use of our technology and
implementing operational efficiencies into our processes will also be a focus
as we seek to deliver on our promise of delivering an uncommon, hassle-
free banking experience. We are challenging our associates to look for new
and different ways to satisfy our customers’ financial needs and to provide
innovative solutions. After all, as I stated earlier, innovation spurred by
technology and mixed with personal service will lead to the ultimate banking
experience.
We will continue to create value for our customers and for you, our
shareholders, as we strive to be a high-performing community bank. Our
point of difference is and will continue to be our people, our associates. They
do make the difference and I thank each one for their dedication, passion
and uncommon commitment to provide 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 &
Chief Executive Officer
Summary of Selected Financial Data
(Dollars in thousands, except per share data)
2017
2016
% Change
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
Non-interest income
Operating non-interest income
Non-operating non-interest income:
$ 47,586
7,371
40,215
637
2,534
37,044
14,288
14,259
Net gains-other
Non-interest expenses
Income before income taxes
Income tax expense (includes $3,226 from tax reform impact)
Net Income
Preferred stock dividends
Net Income Available to Common Shareholders
$ 29
$ 39,118
12,214
6,945
5,269
(1,215)
4,054
$ 46,418
8,223
38,195
555
3,122
34,518
14,653
14,127
$ 526
39,107
10,064
2,783
7,281
(2,025)
5,256
2.52 %
- 10.36 %
5.29 %
14.77 %
- 18.83 %
7.32 %
- 2.49 %
0.93 %
- 94.49 %
0.03 %
21.36 %
149.55 %
- 27.63 %
- 40.00 %
- 22.87 %
Per Share Data:
Basic and diluted net income per common share $ 0.58
15.34
Book value (at year end)
14.34
Tangible book value (at year end)
$ 0.84
14.95
13.76
- 29.76 %
2.61 %
4.22 %
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
Net interest margin
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
$ 1,340,839
1,039,390
882,546
240,102
108,390
$ 1,318,190
1,014,229
882,008
237,169
113,698
1.72 %
2.48 %
0.06 %
1.24 %
- 4.67 %
4.52 %
0.40
3.37
6.86 %
0.55
3.19
8.82 %
8.62 %
15.98
14.97
11.00
12.54
1.12
0.58
0.28
16.71
14.77
10.95
10.75
1.11
1.09
0.57
5
Innovation
We continued to take our customers on a journey to better banking in 2017, proving there
is always space for a newer and more innovative way to get down to business. Welcome to
the beginnings of a revolutionized branch design and the launch of universal banker. Our
inventive spirit and ambitious nature mean we always have our eye on the future, anticipating
the evolving needs of our customers and leading this community forward.
6
Scan to take a
3D tour of our
newly renovated
home office.
Technology
Using the very best in technology to make banking faster, easier, safer and more convenient
has become a major focus for First United. Last year was especially notable as we began our
efforts to craft a welcoming, engaging and technologically advanced environment in each
of our branch locations. In addition, our highly trained Customer Care Center has become
unstoppable in its ability to support our customers’ technology needs and they are only a
phone call away!
7
8
Here’s to 2017. At a
glance, we are optimistic,
with a focus on innovative
conveniences, inspiring
spaces and brand clarity.
Personal
As bankers, we’re in a unique position to partner with our customers during some of the most
important financial decisions they’ll ever make. That level of responsibility is humbling. It shapes
how and why we serve. In 2017, we built upon our commitment to provide customized products
and services — and to be there when needed. We made new connections, volunteered in our
communities, inspired people, guided business owners, forged relationships built on trust, and
consistently demonstrated our passion for helping people.
9
Experience
When we blend high-tech with high-touch, our customers get a banking experience like no
other. Last year, we embraced new advances in our ongoing mission to stay one step ahead
of our customers’ needs. We’re maximizing technology to be as accessible as possible. We’re
continuing to go the extra mile and lead with compassion, because our customers expect it
and deserve it. While our branch transforms, our customers are seeing firsthand how we strive
to fulfill our purpose of delivering the ultimate banking experience.
10
Community
At First United, we are passionate about helping our communities. We strongly support the
local businesses and non-profits that make our communities better every day. As a result, in
some of our renovated spaces, we have created dedicated community rooms with modern
technology that allows them to conduct meetings and do business in ways they may not
otherwise be able to, at no cost to them. We think of it not just as an investment into our
facilities but an investment into the community.
Scan to take a 3D tour of
our Community Room.
11
Directors and Officers
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
Robert W. Kurtz
Retired, Former President, Chief Risk Officer,
Secretary and Treasurer of First United Corporation
and First United Bank & Trust
John W. McCullough
Certified Public Accountant, Retired as Partner of
Ernst & Young, LLP
Elaine L. McDonald
Owner, Elaine L. McDonald, PC
Officers
Carissa L. Rodeheaver
Chairman of the Board, President &
Chief Executive Officer
R.L. Fisher
Senior Vice President & Chief Lending Officer
Robin E. Murray
Senior Vice President & Director of Retail Banking
Carissa L. Rodeheaver
Chairman of the Board, President &
Chief Executive Officer 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.
Marisa A. Shockley
Owner, Shockley, Inc.
Robert G. Stuck
Realtor, Taylor-Made; Retired,
Former Vice President, Oakview Motors, Inc.
H. Andrew Walls, III
President, Morgantown Printing & Binding;
Member, MEGBA, LLC
Keith R. Sanders
Senior Vice President & Senior Trust Officer
Beverly A. Sines
Senior Vice President & Chief Credit Officer
Tonya K. Sturm
Senior Vice President & Chief Financial Officer,
Corporate Secretary & Treasurer
Jason B. Rush
Senior Vice President & Chief Operating Officer
Karen L. Malecki
Vice President & Director of Strategic Initiatives
Market Presidents
Gordon M. Cooley
Market President
Frederick County, MD
Kimberly R. Moyers
Market President
Monongalia County, WV
Harrison County, WV
Denise D. Phelps
Market President
Berkeley County, WV
12
Philip L. Rodeheaver
Market President
Garrett County, MD
Allegany County, MD
Mineral County, WV
Patricia E. Young
Market President
Washington County, MD
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: 1-866-298-7858
TDD for Hearing Impaired: 1-800-952-9245
Foreign Shareowners: 1-781-575-2622
TDD for Hearing Impaired: 1-781-575-2692
Shareholders’ Meeting
The Annual Shareholders’ Meeting will be held on:
Thursday, May 17, 2018, 10:00 a.m.
The Wisp Resort
296 Marsh Hill Road
McHenry, MD 21541
S.E.C. Form 10-K
The Corporation files an annual report on Form 10-K with the 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:
Tonya K. Sturm
Corporate Secretary
First United Corporation
c/o First United Bank & Trust
19 South Second Street
Oakland, MD 21550
MyBank.com