First United Corporation
Annual Report 2021

Plain-text annual report

Trust. Integrity. Community. Together. FIRST UNITED CORPORATION 2021 ANNUAL REPORT 2021 Trust. Integrity. Community. Together. First United Bank and Trust is committed to being the bank of the future. We believe that companies can and should be doing better. Our commitment to the future, serving our clients and communities, has been unwavering for more than 120 years. We are a progressive team of thinkers doing business with integrity. We know each financial journey is unique and we welcome the opportunity to design solutions to reach everyone’s personal and financial goals. Our reputation is built on the idea that cultivating trust and inclusion creates relationships that last a lifetime. Table of Contents 02 Shareholder Letter 05 Summary of Selected Financial Data 06 Talent, Culture and Inclusion 08 Community and Customer Commitment 10 Business Ethics and Governance 12 Our ESG Journey Carissa L. Rodeheaver Chairman of the Board, President and Chief Executive Officer Shareholder Letter Dear Shareholders, Associates, Customers and Communities, First United is creating relationships that last a lifetime. The last few years have been challenging for all of us as we navigated the COVID-19 pandemic. Through this time, our associates have focused on serving our clients and communities and we have done so by crafting solutions that were customized to each individual need. Whether it was a business challenged due to mandated closures, an individual coping with the loss of a job, or a business owner needing access to a Paycheck Protection Program (“PPP”) loan and assistance with its subsequent forgiveness, First United was there, serving as a trusted advisor to provide the financial relief needed. Over the past couple of years, we have received many positive emails, letters, and comments from our clients, community leaders and other business professionals praising our associates for their integrity, level of knowledge and steadfast communication, and thanking the Bank for our professional response during this unprecedented time. Our associates worked together tirelessly with an unwavering passion to provide an uncommon commitment to service and solutions for our clients and communities, the response everyone has come to expect and value from First United Bank & Trust. On behalf of the board, the management team and you, our shareholders, we thank this dedicated and caring group of individuals. Trust. Integrity. Community. Together. Despite the continued health and economic challenges across the world, 2021 was a record earnings year for First United driven by reduced interest expense, release of provision, strong production in mortgage and wealth management and our ability to manage our core operating expenses. During the year, we worked to realign the balance sheet which should provide future expense savings. The Bank is well-positioned for the anticipated rising interest John W. McCullough rates and remains well-capitalized for future growth. Lead Director 2 Net income available to common shareholders in 2021 was $19.8 million. Basic and diluted net income per share for 2021 were both $2.95, a 49.0% increase when compared to basic and diluted net income per share of $1.98 and $1.97, respectively, for 2020. Our balance sheet remained stable with assets at $1.7 billion at year-end. We experienced strong loan production in both our consumer and commercial portfolios. The production was offset by the decline of $172.6 million associated with 1,631 PPP loans as we assisted our community business owners through the Small Business Administration forgiveness process. Deposit growth in 2021 was strong, allowing us to fully prepay a portfolio of Federal Home Loan Bank (“FHLB”) advances as well as to increase our investment portfolio. Net interest income, the difference between the income earned on our loans and investments and the expenses attributable to our deposits and borrowings, improved as compared to 2020, driven by a reduction in our interest expense and the collection of fees attributable to the PPP loan forgiveness process. Our associates worked together tirelessly with an unwavering passion to provide an uncommon commitment to service and solutions. Our allowance for loan losses remains strong following higher provision expense in 2020 that reflected the uncertainty of the economic environment related to the COVID-19 pandemic. As asset quality remained strong in 2021 and our business owners showed strength in operations, we reported net recoveries of previously charged off loans and were able to release a portion of our allowance, resulting in a credit in provision expense for the year. This credit was a contributor to our strong earnings in 2021. Our wealth department had a stellar year, growing assets under management to approximately $1.5 billion. Fee income earned from the wealth department as well as gains on the sale of mortgage loans to the secondary market, strong debit card income and a reimbursement from our insurance company resulted in strong other income. Other operating expenses, exclusive of a settlement of litigation, the penalty associated with the prepayment of the FHLB advances and the funding of the First United Community Dreams Foundation, were stable as management continued to be focused on cost efficiencies. We are particularly excited about the creation of the Foundation, as it will allow us to provide additional resources to our communities so that they can increase the availability of financial literacy programs, enhance arts and culture programming, support affordable housing options and promote the health and well-being of our neighbors. The board and management were also appreciative that our profitability allowed us to pay a special performance bonus to every associate, recognizing their outstanding efforts and contribution to the financial success achieved in 2021. Above all, we are pleased that the market reacted favorably following the release of our 2021 earnings. As of February 28, 2022, our total shareholder returns exceeded market indices and our peer group, at 36% for one- year, 51% for three-years and 82% for five-years. The dividend was increased from $.13 per share in the first quarter to $.15 per share for the remaining three quarters. For 2021, based on the year-end closing price of $18.76 per share, this resulted in a dividend yield of 3.09%. 3 Strategically, in 2022 we are focused on two important initiatives: 1. Utilizing data analytics to assist us in targeted marketing and growing profitable customer relationships. 2. Increasing our partnerships with Fintech firms to continually improve technology offerings to our clients and to improve efficiencies in our day-to-day operations. Additionally, we will opportunistically increase market penetration and expand our footprint via our Financial Center model, Wealth Management acquisitions, and strategic bank partnerships. Understanding the importance of a knowledgeable and community oriented associate base, we will continue to hire and retain passionate, diverse talent. This will allow us to engage with clients and prospects across broader demographics, to provide customized financial solutions and personal service, thereby expanding our client relationships and enhancing loyalty and trust. As we execute our plan, we are committed to being dedicated stewards of our clients’ well-being and our environment and continuing to manage risk through our well-developed and monitored enterprise risk management program. First United Bank & Trust’s passionate people and We are committed to being dedicated unrivaled culture will continue to be a driving force for our success. Together, we are devoted to becoming stewards of our trusted advisors for our clients and creating relationships that will last a lifetime. We are dedicated to improving the lives of those in our local communities. We will do all of this with the highest level of integrity and with the end goal of delivering a strong shareholder return. clients’ well-being and our environment. Trust. Integrity. Community. Together. Thank you for your support and confidence in First United Corporation and First United Bank & Trust! Carissa L. Rodeheaver Chairman of the Board, President and Chief Executive Officer John W. McCullough Lead Director 4 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/(credit) for loan losses Net interest income after provision for loan losses Non-interest income Operating non-interest income Non-operating non-interest income: Net gains-other 2021 2020 % Change $ 59,195 5,714 53,481 939 (817) 53,359 20,714 19,519 $ 59,118 9,655 49,463 917 5,401 43,145 18,577 15,789 0.13% 40.82% 8.12% 2.40% 15.13% 23.67% 11.50% 23.62% $ 1,195 $ 2,788 -57.14% Non-interest expenses Operating non-interest expenses 47,764 47,764 43,934 43,934 8.72% 8.72% Income before income taxes Income tax expense Net Income Common Dividends paid Net Income per FTE (Pre-tax) Per Share Data: Basic net income per share Diluted net income per share Common Dividends paid 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 Efficiency ratio 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 total loans (as %) Nonperforming and 90 days past due loans to total assets (as %) Net recoveries/(charge-offs) to average loans (as %) $ $ $ $ $ $ $ 26,309 6,539 19,770 3,891 40,575 2.95 2.95 0.58 21.41 19.61 $ $ $ $ $ $ $ 17,788 3,947 13,841 3,646 37,011 1.98 1.97 0.52 18.73 16.25 $ 1,729,838 1,469,374 1,137,440 343,030 141,900 $ 1,733,414 1,422,366 1,149,596 295,148 131,047 47.90% 65.67% 42.84% 6.72% 9.63% 48.99% 49.75% 11.54% 14.31% 20.68% 0.21% .30% 1.06% 6.22% 8.28% 14.92% 1.12% 3.63% 0.51% 3.12% 3.28% 64.71% 7.51% 15.89% 14.64% 10.80% 12.50% 1.38% 0.42% 0.02% 10.89% 0.86% 3.99% 0.91% 3.08% 3.34% 70.26% 7.88% 16.08% 14.83% 10.36% 12.61% 1.41% 0.78% (0.13)% 5 Talent, Culture & Inclusion Our passionate people and unrivaled culture is a driving force for success. Our associates strongly believe in our core values and are dedicated to helping customers, community, and each other. Attracting and fostering talent with various backgrounds, ensures that we have the people in place to execute our values. 6 7 We support our communities, friends and neighbors in a variety of ways. We volunteer. We financially support local non-profits. We bank at home and on the road. We teach children about the value of money and how to save for the future. By pairing valuable financial education with secure and affordable product options, we can enrich the lives of those we serve. 8 Want to stay up-to-date? Sign up for shareholder communications at MyBank.com/shareholder Community & Customer Commitment Our devotion is to serving our clients and improving the lives of those in our local communities. 9 Business Ethics & Governance We are dedicated to doing business with integrity. Executive Officers Carissa L. Rodeheaver Chairman of the Board, President & Chief Executive Officer R.L. Fisher Senior Vice President & Chief Revenue Officer Jason B. Rush Senior Vice President & Chief Operating Officer Keith R. Sanders Senior Vice President & Senior Trust Officer Tonya K. Sturm Senior Vice President & Chief Financial Officer, Corporate Secretary & Treasurer Our leadership team, including our Board and Executive team, reflect the diversity of thought from the communities we serve and are committed to upholding the high ethics, governance, and environmental stewardship standards our stakeholders expect of us. 10 Board of Directors John F. Barr Owner, Ellsworth Electric, Inc. Patricia Milon Senior Regulatory Expert, Macro Financial Solutions Brian R. Boal Principal, Boal & Associates, PC Carissa L. Rodeheaver Chairman of the Board, President & CEO, First United Corporation and First United Bank & Trust Sanu Chadha Managing Partner, M&S Consulting I. Robert Rudy President, I.R. Rudy’s, Inc. Christy DiPietro Chartered Financial Analyst, Hidden Code Advisory Marisa A. Shockley Owner, Shockley, Inc. John W. McCullough Lead Director, CPA Retired as Partner of Ernst & Young, LLP H. Andrew Walls, III President, MPB Print & Sign Superstore; Member, MEGBA, LLC 11 Our ESG Journey Our service to our communities is not limited to delivering innovative banking products and services. Rather, we believe our service extends to nurturing, helping and partnering with the people and organizations that strive to make our communities a better, safer place to live, work and play. My Financial Steps Program Diversity Engagement Employee Group First United Community Dreams Foundation Associate Wellness Program Environmental stewards Unconscious Bias Training 12 Please contact our transfer agent, Computershare, 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 Computershare Phone 1-781-575-2622 or Toll Free 1-866-298-7858 Computershare P.O. Box 505000 Louisville, KY 40233-5000 Overnight correspondence should be sent to: Computershare 462 South 4th Street, Suite 1600 Louisville, KY 40202 Return envelopes for the proxy: PO Box 505008, Louisville, KY 40233-9814 Questions & Inquiries via our website http://www.computershare.com/investor Hearing Impaired #: TDD: 1-800-952-9245 1-866-298-7858 First United-Direct Line: 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 virtually on: Thursday, May 12, 2022, 10:00 a.m. SEC 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 Want to stay up-to-date? Sign up for shareholder communications at www.MyBank.com/shareholder. 13 MyBank.com 

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