First · NASDAQ:FUNC
First — First United — Q3 2020 Earnings Presentation
44 slides from First's earnings presentation, Nov 13, 2020
Slide 1: Investor Presentation Third Quarter 2020
Investor Presentation Third Quarter 2020
Slide 2: Forward looking statements
2 2 Forward looking statements This presentation 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 fut
Slide 3: Table of Contents
3 3 Table of Contents I. First United II. COVID - 19 Response III. Operating and Financial Performance IV. Our Commitment To Strong Governance V. Appendix
Slide 4: I. First United
4 4 I. First United
Slide 5: Executive Summary
5 5 Executive Summary First United is proactively responding to COVID - 19 Our strategy is producing steady profitable growth Our Board is continuing to strengthen its governance profile – The health and well - being of our associates and clients is guiding the implementation and execution of our pa
Slide 6: Q3 2020 Highlights
6 6 Q3 2020 Highlights Highlights • Increased pre - tax, pre - provision income to $6.5 million in 3Q20 from $5.5 million in 3Q19 • Paycheck Protection Program (“PPP”) production of $4.5 million, resulting in total portfolio of $148.9 million • Mortgage production, primarily in loans sold to the sec
Slide 7: Mission Statement and Company Overview
7 7 Mission Statement To enrich the lives of our customers, our employees and our shareholders through uncommon commitment to service and effective financial solutions Company Overview Founded: 1900 Headquarters: Oakland, Maryland Branches: 25 Business Lines: Commercial & Retail Banking, Trust Servi
Slide 8: Our Core Markets
8 8 Our Core Markets (As of September 30, 2020) Note: Out of market loans and trust deposits represent $62 million and $67 million, respectively, and are not reflected in th e a bove table (1) Source: FDIC Market Share Data, most current. Deposit market share for each region includes the following c
Slide 9: Our Core Strengths
9 9 Our Core Strengths Engaged and Diverse Board & Management • Our diverse and experienced Board challenges management and has been conducting a robust refreshment plan, which has been in place since 2014 Core Deposit Franchise Diversified Revenue Stream Forward - Thinking Approach Robust Enterpris
Slide 10: II. COVID-19 Response
10 10 II. COVID - 19 Response
Slide 11: COVID-19 Response for Stakeholders
11 11 COVID - 19 Response for Stakeholders • Quickly responded to COVID - 19 through our well - designed and tested Business Continuity Plan, focusing on the health, safety, and financial well - being of our associates and clients • Proactive communication and outreach with shareholders , clients an
Slide 12: Clients and Associates COVID-19 Response
12 12 Clients • 90% of associates (excluding front line community office staff) are working remotely each week; no furloughs or layoffs • Pandemic Pay Policy and flexible scheduling for associates who are unable to work, such as those who need to care for family members during the crisis • Financial
Slide 13: Active COVID-19 Modifications
13 13 Active COVID - 19 Modifications 97% of the active commercial loan modifications are for deferred P&I, and 3% are for extended interest only Industry Category # of Loans (**) Balance (000s) Balance as % of Total Portfolio # of Loans (**) Balance (000s) Balance as % of Category # of Loans (**) B
Slide 14: Summary Statistics by Industry
14 14 Summary Statistics by Industry Industry Category Balance (000s) Balance as % of Total Portfolio Balance (000s) Balance as % of Category % 30+ Days Delinquent and NPL Criticized Balances (**) % of Category Criticized RE/Rental/Leasing - NOO 124,370$ 20.5% -$ 0.0% 0.1% 2,727$ 2.2% RE/Rental/Leas
Slide 15: Status of PPP Loans at 11/10/20
15 15 Status of PPP Loans at 11/10/20 < $150K $150K - $350K >$350K - $2M >$2M Forgiveness Review In Process $3,135 $1,951 $4,193 Forgiveness Approved by SBA $3,451 $2,160 $5,301 $18,416 Forgiveness Pending SBA Review $3,829 $3,175 $9,464 $10,183 Forgiveness Not Yet Sought $27,314 $14,964 $33,012 $8,
Slide 16: III. Operating and Financial Performance
16 16 III. Operating and Financial Performance
Slide 17: Key Initiatives and Strategic Priorities
17 17 Key Initiatives and Strategic Priorities Optimize shareholder return through a keen focus on future growth, profitability, efficiencies, the client experience, and a reimagined future Create Exceptional Client Experience • Provide seamless client experience across all business lines using inte
Slide 18: Strong Risk Management, Monitoring and Mitigation
18 18 Strong Risk Management, Monitoring and Mitigation Underlies all strategic priorities Asset Quality • Low net charge offs and strong asset quality as a result of conservative and proactive credit culture • Protective provision expense of $5.7 million YTD related to qualitative factor adjustment
Slide 19: Our Strategic Plan is Generating Reliable Growth
19 19 $13.2 $14.7 $15.5 $17.8 $16.9 2016 2017 2018 2019 YTD 9/30/20 $1,014 $1,039 $1,068 $1,142 $1,377 2016 2017 2018 2019 9/30/2020 $882 $882 $996 $1,039 $1,173 2016 2017 2018 2019 9/30/2020 $1,024 Our Strategic Plan is Generating Reliable Growth… Pre - tax Pre - Provision Income ($ in millions) Ta
Slide 20: As Well As Improved Profitability
20 20 …As Well As Improved Profitability • First United has consistently improved return on assets and return on average equity enabling us to fund the dividend and invest in future growth • Conservative provisioning for loan losses, given the uncertain duration of the pandemic and its impact on the
Slide 21: Proactive Loan Portfolio Management
21 21 Total 1 - 4 Family CRE - OO CRE - NOO Multi - family C&D C&I Consumer PPP Proactive Loan Portfolio Management • Diverse portfolio loan types and industries reduce Commercial portfolio risk • Focus on risk mitigation and managing of concentrations – CRE / Total Capital: 230% – ADC / Total Capit
Slide 22: Construction and Development Portfolio
22 22 Commercial Acquisition and Development Commercial Construction 1 - 4 Family Commercial Construction Amortizing Consumer Lot Loans 1 - 4 Family Residential Construction Construction and Development Portfolio • Geographically diverse construction and development portfolio mitigates risk to portf
Slide 23: Marked Asset Quality Improvement
23 23 Marked Asset Quality Improvement NPAs / Total Assets ALL / Loans Excluding one non - performing loan added in Q1 2019 of $8.3 million, NPAs to TA would be 0.46% Note: ISS and Proxy peer groups are defined in the Appendix to this presentation Excluding PPP Loans, which are guaranteed, ALL = 1.5
Slide 24: Industry Leading Deposit Franchise
24 24 Industry Leading Deposit Franchise • The strength of our deposit franchise is driven by both our stable legacy markets and our growing portfolio of commercial deposit accounts • Community office upgrades and forward - thinking technology enhancements have driven an increase in low - cost depos
Slide 25: Significant Net Interest Margin Improvement
25 25 Significant Net Interest Margin Improvement • Disciplined loan and deposit pricing has produced a strong and stable margin that is in line with our peers • Margin has expanded more than 31 basis points since 2016, primarily as a result of increased loan volume and rates, reduced long - term bo
Slide 26: Diversified Fee Income an Advantage to First United
26 26 Diversified Fee Income an Advantage to First United • Federal Reserve actions early in 2020 have led to industry - wide decreases in net interest margin – Fee - based business provides stable growth and a diversified revenue stream not directly tied to interest rates, as well as opportunities
Slide 27: Expense Discipline
27 27 Expense Discipline • Significant portion of earnings improvement can be attributed to expense reductions • First United’s investment in its wealth management business line generates additional expenses; even so, efficiency ratio has decreased ~5 points since 2016 and is approaching peer levels
Slide 28: Prudential Capital Management
28 28 Prudential Capital Management $13.19 $13.78 $14.97 $16.17 $17.06 2016 2017 2018 2019 9/30/2020 Growing Tangible Book – TBV/Share 6.33% 7.35% 7.72% 8.03% 7.12% 2016 2017 2018 2019 9/30/2020 Historical Capital Trends – TCE/TA 16.71% 15.98% 15.91% 16.29% 16.14% 2016 2017 2018 2019 9/30/2020 Histo
Slide 29: Total Shareholder Return
29 29 Total Shareholder Return Source: S&P Global Market Intelligence; includes price change and reinvested cash dividends (1) SNL U.S. $1B - $5B Bank Index (2) Peer groups are defined in the Appendix to this presentation. Peer group refers to median unless stated otherwise • Our long - term perform
Slide 30: Strategic Targets Post-COVID
30 30 Strategic Targets Post - COVID - 19 Metric Actual 12/31/2018 Actual 12/31/2019 Long Term Strategic Target Range Strong Shareholder Return EPS Growth (YoY) 156% 23% 10% - 15% Dividend Payout Ratio 17.9% 21.7% 20% - 25% ROAA 0.81% 0.93% 1.00% - 1.20% ROAE 9.39% 10.44% 10% - 13% TCE Ratio 7.72% 8
Slide 31: IV. Our Commitment to Strong Corporate Governance
31 31 IV. Our Commitment to Strong Corporate Governance
Slide 32: Ongoing Board Refreshment Program
32 32 Ongoing Board Refreshment Program Our ongoing Board evolution will result in the strategic refreshment of a majority of our independent directors, maintain our commitment to diversity, and continuously update the skill set of our Board • In July 2020 , Elaine McDonald retired, and a search is
Slide 33: Our Governance Enhancements
33 33 Our Governance Enhancements Board Declassification • In response to feedback from our institutional investors and market views on best - in - class governance practices, First United's Board will propose to declassify, instituting annual election of directors • This proposal will be voted upon
Slide 34: Formalized Lead Independent Director Role
34 34 Formalized Lead Independent Director Role • Mr. McCullough is a retired partner of Ernst & Young, LLP and is a Certified Public Accountant • Holds significant accounting, auditing, public company and M&A advisory experience, particularly with financial institutions • Serves on board of directo
Slide 35: Strong Investor Relations and Shareholder Communications and Engagement
35 35 Strong Investor Relations and Shareholder Communications and Engagement Clear long - term strategic plan with performance targets x Dedicated Investor Relations contact x Investor non - deal roadshows x Members of the Board and senior management routinely engage with shareholders and other sta
Slide 36: V. Appendix
36 36 V. Appendix
Slide 37: Historical Financial Highlights
37 37 Historical Financial Highlights YTD 2016Y 2017Y 2018Y 2019Y 202009 2019Q3 2019Q4 2020Q1 2020Q2 2020Q3 Total Assets 1,317,675$ 1,335,867$ 1,383,760$ 1,442,027$ 1,685,907$ 1,440,964$ 1,442,027$ 1,461,513$ 1,639,636$ 1,685,907$ Total Loans 891,588 892,089 1,007,150 1,051,431 1,192,345 997,284 1,0
Slide 38: Selected Peer Groups
38 38 Selected Peer Groups • Proxy peers can be found in First United’s definitive proxy statement found here: https://www.sec.gov/Archives/edgar/data/763907/000110465920048280/tm2016149d1_defc14a.htm – Proxy peers include: ACNB, ASRV, CFFI, CHMG, CVLY, CZFS, CZNC, EVBN, FDBC, FRAF, MVBF, NKSH, OPOF
Slide 39: Our Dedicated Management Team
39 39 Our Dedicated Management Team Our management team has the right set of skills and experience to effectively execute on our strategy and continue driving shareholder returns Carissa Rodeheaver CEO & Chair • 27 - year career with First United with in depth industry, sales, wealth management, fin
Slide 40: Board of Directors
40 40 Board of Directors Our directors know our markets and customers and are leaders in the communities we serve Name / Affiliation Unique Expertise Carissa Rodeheaver CEO & Chair • Certified Public Accountant, ABA and MBA with 27 - year career at First United and in - depth industry, company, and
Slide 41: Our Relationships with Clients in the Communities We Serve
41 41 Our Relationships with Clients in the Communities We Serve are Critical to Our Success in Dealing with COVID - 19 Client Satisfaction “We have worked with several banks between our two offices and you guys are LIGHT YEARS ahead of all of the others. I am so glad you are able to take on new cus
Slide 42: Feedback on the PPP Program
42 42 Our Relationships with Clients in the Communities We Serve are Critical to Our Success in Dealing with COVID - 19 Feedback on the PPP Program “I was about to decide to close the business on Monday because there was a major payment discrepancy with MSDE. The PPP loan will literally save our com
Slide 43: First United Well-Positioned for Next Recession
43 43 First United Well - Positioned for Next Recession Significant resources dedicated to Enterprise Risk Management, increased emphasis on low - cost core deposit relationships, a more diversified loan portfolio and decreased reliance on participations, reduction of adversely classified assets and
Slide 44: Non-GAAP Reconciliation
44 44 Non - GAAP Reconciliation ($000s, except where otherwise noted) YTD LTM 2016 2017 2018 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 9/30/2020 9/30/2020 Tangible common equity to tangible assets Total common stockholders' equity 93,698$ 108,390$ 117,066$ 125,940$ 129,339$ 125,940$ 118,549$ 124,