SCHEDULE
14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
Filed
by the Registrant
x
Filed
by a Party other than the Registrant
¨
Check
the appropriate box:
¨
Preliminary Proxy Statement
¨
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x
Definitive Proxy Statement
¨
Definitive Additional Materials
¨
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
First
United Corporation
(Name
of Registrant as Specified in Its Charter)
N/A
(Name
of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x
No fee required.
¨
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title
of each class of securities to which transaction applies: N/A
(2) Aggregate
number of securities to which transaction applies: N/A
(3) Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): N/A
(4) Proposed
maximum aggregate value of transaction: N/A
(5) Total
fee paid: N/A
¨
Fee paid previously with preliminary materials: N/A
¨
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of
its filing.
(1) Amount
previously paid:
(2) Form,
Schedule or Registration Statement no.:
(3) Filing
Party:
(4) Date
Filed:
To
Our Shareholders:
On
behalf of the Board of Directors and the whole First United Team, I cordially invite you to attend the Annual Meeting of Shareholders
to be held on Thursday, May 10, 2012, at 10:00 a.m., at The Wisp Resort, 296 Marsh Hill Road, McHenry, Maryland 21541. The notice
of meeting and proxy statement accompanying this letter describe the specific matters to be acted upon. In addition, there will
be a report on the progress of your Corporation.
Your
vote on the matters to be acted upon at the Annual Meeting is important, regardless of the number of shares you own.
Whether
or not you plan to attend the Annual Meeting in person, it is important that your shares be represented. To ensure that your shares
are represented, I urge you to execute and return the enclosed Proxy Card or to submit your Proxy by telephone or Internet promptly.
If you attend the meeting, you may withdraw your Proxy and vote in person, if you so desire.
There
will be a reception with light refreshments immediately following the meeting for all registered shareholders. I look forward to
seeing you there.
We
are taking advantage of the Securities and Exchange Commission’s rules that allow companies to furnish proxy materials to
their shareholders through the Internet. We believe these rules allow us to provide you with the information you need while lowering
the costs of delivery and reducing the environmental impact of the Annual Meeting.
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Sincerely yours,
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WILLIAM B. GRANT
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Chairman of the Board &
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Chief Executive Officer
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P.O.
Box 9 Oakland, MD 21550-0009 Telephone 888-692-2654
FIRST UNITED CORPORATION
19 South Second Street
P.O. Box 9
Oakland, Maryland 21550-0009
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Shareholders of First United Corporation:
Notice is hereby given
that the Annual Meeting of the Shareholders of First United Corporation (the “Corporation”) will be held at The Wisp
Resort, 296 Marsh Hill Road, McHenry, Maryland 21541. The meeting is scheduled for:
THURSDAY, MAY 10, 2012, at 10:00 a.m.
The purposes of the
meeting are:
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1.
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To vote on the election of the four (4) nominees named in the attached Proxy Statement and form
of Proxy to serve on the Board of Directors until the 2015 Annual Meeting of Shareholders and until the election and qualification
of their successors.
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2.
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To ratify the appointment of ParenteBeard, LLC as the Corporation’s independent registered
public accounting firm for 2012.
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3.
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To approve, by a non-binding advisory vote, the Corporation’s executive compensation program
and policies.
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4.
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To transact such other business as may be properly brought before the meeting or any adjournment
thereof.
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The Board of Directors
has fixed February 27, 2012 as the record date for purposes of determining shareholders who are entitled to notice of and to vote
at the Annual Meeting of Shareholders.
Anyone acting as proxy
agent for a shareholder must present a Proxy that has been properly executed by the shareholder, that authorizes the agent to so
act, and that is in form and substance satisfactory to the judges of election and consistent with the Corporation’s Amended
and Restated Bylaws, as amended.
By order of the Board of Directors
CARISSA L. RODEHEAVER
Secretary
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST UNITED CORPORATION
19 South Second Street
P.O. Box 9
Oakland, Maryland 21550-0009
(800) 470-4356
PROXY STATEMENT
This
Proxy Statement is furnished in connection with the solicitation by the Board of Directors of First United Corporation (the “Corporation”)
of the accompanying Proxy to be voted at the Annual Meeting of Shareholders to be held on May 10, 2012, at 10:00 a.m. at The Wisp
Resort, 296 Marsh Hill Road, McHenry, Maryland 21541, and any adjournment or postponements thereof. The cost of soliciting proxies
will be borne by the Corporation. In addition to solicitation by mail, proxies may be solicited by officers, Directors and regular
employees of the Corporation
personally or by telephone, electronic mail and/or facsimile. No additional remuneration will
be paid to officers, Directors or regular employees who solicit proxies. The Corporation may reimburse brokers, banks, custodians,
nominees and other fiduciaries for their reasonable out-of-pocket expenses in forwarding proxy materials to their principals. The
approximate date on which this Proxy Statement and the related Proxy Card will be sent or given to shareholders is March 26, 2012.
As used in this Proxy
Statement, the terms “the Corporation”, “we”, “us”, and “our” refer to First United
Corporation and its consolidated subsidiaries unless the context clearly requires otherwise.
OUTSTANDING SHARES; VOTING RIGHTS; QUORUM
AND REQUIRED VOTE
Shareholders
of record at the close of business on February 27, 2012 (the “Record Date”) of issued and outstanding shares of the
Corporation’s common stock, par value $.01 per share (“Common Stock”), are entitled to notice of and to vote
at the Annual Meeting. As of the Record Date, the number of outstanding shares of Common Stock entitled to vote is 6,182,757, each
of which is entitled to one vote.
The
presence, in person or by proxy, of shareholders entitled to cast a majority of all votes entitled to be cast at the Annual Meeting
shall constitute a quorum. Withheld votes (in the case of the election of directors), abstentions and broker non-votes will all
be counted for purposes of determining whether a quorum is present.
Directors
are elected by the affirmative vote of a majority of all shares of Common Stock voted at the Annual Meeting. Accordingly, the withholding
of a vote for a director nominee, as described in Proposal 1, will constitute a vote against that nominee, but a broker non-vote
with respect to the election of directors will have no impact on the outcome of that vote. The ratification of the appointment
of the Corporation’s independent registered public accounting firm, as described in Proposal 2, and the approval of the Corporation’s
executive compensation, as described in Proposal 3, each require the affirmative vote of a majority of all shares of Common Stock
voted at the Annual Meeting. Accordingly, an abstention or a broker non-vote with respect to Proposal 2 or Proposal 3 will have
no impact on the outcome of those proposals. Except in cases of certain extraordinary matters for which the Corporation’s
governing instruments or applicable law require a different proportion, the affirmative vote of a majority of all shares of Common
Stock voted at the Annual Meeting is sufficient to approve any motion that comes before the meeting pursuant to Proposal 4, as
described in this Proxy Statement. Abstentions and broker non-votes with respect to any motion that comes before the meeting pursuant
to Proposal 4 (other than certain extraordinary matters as discussed above) will have no impact on the outcome of the vote on such
motion.
All
properly executed Proxies received pursuant to this solicitation will be voted as directed by the shareholders in their Proxies.
If no direction is given in your Proxy, your shares will be voted FOR ALL NOMINEES named in Proposal 1, FOR ratification of the
appointment of the Corporation’s independent registered public accounting firm named in Proposal 2, FOR approval of the Corporation’s
executive compensation as described in Proposal 3, and in the discretion of the proxies as to any other matters that may properly
come before the meeting, as described in Proposal 4.
Proxies
may be revoked at any time before a vote is taken or the authority granted is otherwise exercised. Revocation may be accomplished
by: (i) the execution of a later dated Proxy; (ii) the execution of a later casted Internet or telephone vote with regard to the
same shares; (iii) giving written notice to Carissa L. Rodeheaver, Secretary, First United Corporation, P.O. Box 9, Oakland, Maryland
21550-0009; or (iv) giving written notice to the Secretary in person at the 2012 Annual Meeting. Any shareholder who attends the
2012 Annual Meeting and revokes his/her proxy may vote in person. However, attendance by a shareholder at the 2012 Annual Meeting
alone will not have the effect of revoking that shareholder’s validly executed Proxy.
Methods of Voting
Shareholders
may vote on matters that are properly presented at the 2012 Annual Meeting in four ways:
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By completing the accompanying Proxy Card and returning it to the Corporation at the address
noted on the Proxy Card;
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By submitting your vote telephonically;
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·
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By submitting your vote electronically via the Internet; or
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·
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By attending the 2012 Annual Meeting and casting your vote in person.
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For
the 2012 Annual Meeting, the Corporation is offering registered shareholders the opportunity to vote their shares electronically
through the Internet or by telephone. Instead of submitting the accompanying Proxy Card by mail, shareholders may vote by telephone
or via the Internet by following the procedures described on the Proxy Card. To vote via telephone or the Internet, please have
the Proxy Card in hand, and call the number or go to the website listed on the Proxy Card and follow the instructions. The telephone
and Internet voting procedures are designed to authenticate shareholders’ identities, to allow shareholders to give their
voting instructions, and to confirm that shareholders’ instructions have been recorded properly. Shareholders voting through
the Internet should understand that they may bear certain costs associated with Internet access, such as usage charges from their
Internet service providers.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER MEETING TO BE HELD ON MAY 10, 2012
This
Proxy Statement, the accompanying Proxy Card, and the Corporation’s Annual Report to Shareholders (including its Annual Report
on Form 10-K for the year ended December 31, 2011) are available at
http://materials.proxyvote.com/33741H.
Information on this website, other than this Proxy Statement, is not a part of this Proxy Statement.
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY
PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table
sets forth information as of the Record Date relating to the beneficial ownership of the Common Stock by (i) each person or group
known by the Corporation to own beneficially more than five percent (5%) of the outstanding shares of Common Stock; (ii) each of
the Corporation’s Directors, Director nominees and named executive officers (as defined below under “REMUNERATION OF
EXECUTIVE OFFICERS”); and (iii) all Directors, Director nominees and executive officers of the Corporation as a group.
Generally,
a person “beneficially owns” shares if he or she has or shares with others the right to vote those shares or to invest
(or dispose of) those shares, or if he or she has the right to acquire such voting or investment rights, within 60 days of the
Record Date (such as by exercising stock options or similar rights).
Except as otherwise noted, the address of each person
named below is the address of the Corporation. So that shareholders can see how beneficial ownership has chanced since the record
date for the 2011 annual meeting of shareholders, the table also provides beneficial ownership as of February 25, 2011. This 2011
information is derived from the beneficial ownership table that appeared in the Corporation’s definitive proxy statement
for the 2011 annual meeting of shareholders and, as noted above, is based on ownership as of the record date for that meeting.
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2012
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2011
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Common Stock
Beneficially Owned
as of
February 27, 2012
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Percent of
Outstanding
Common
Stock
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Common Stock
Beneficially
Owned as of
February 25, 2011
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Change in
Ownership
2012 vs. 2011
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Directors, Nominees and Named Executive Officers:
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David J. Beachy
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9,757
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.16
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%
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8,177
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1,580
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Tracy Bemiller
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1
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0
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%
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-
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1
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M. Kathryn Burkey
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17,707
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(1)
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.29
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%
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9,850
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7,857
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Paul B. Cox, Jr.
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4,766
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.08
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%
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3,886
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880
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Jeannette R. Fitzwater
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13,723
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(2)
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.22
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%
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13,723
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-
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William B. Grant
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21,825
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(3)
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.35
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%
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10,566
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11,259
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Robert W. Kurtz
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5,470
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(4)
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.09
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%
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3,493
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1,977
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John W. McCullough
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10,272
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.17
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%
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7,632
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2,640
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Elaine L. McDonald
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18,890
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(5)
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.31
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%
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9,509
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9,381
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Donald E. Moran
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122,346
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(6)
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1.98
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%
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74,706
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47,640
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Robin E. Murray
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1,077
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(7)
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.02
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%
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725
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352
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Carissa L. Rodeheaver
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1,216
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(8)
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.02
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%
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1,216
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-
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Gary R. Ruddell
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6,997
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(9)
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.11
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%
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3,277
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3,720
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I. Robert Rudy
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43,067
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(10)
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.70
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%
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37,308
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5,759
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Jason B. Rush
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953
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.02
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%
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953
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-
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Keith Sanders
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1,229
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(11)
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.29
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%
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-
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1,229
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Richard G. Stanton
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17,861
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(12)
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.02
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%
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16,541
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1,320
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Robert G. Stuck
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6,521
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.11
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%
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5,641
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880
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H. Andrew Walls
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26,931
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.44
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%
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3,621
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23,310
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Directors, Nominees & Executive Officers as a group (19 persons)
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330,609
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5.35
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%
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______
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5% Beneficial Owners:
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Firstoak & Company
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P.O. Box 557
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Oakland, Maryland 21550
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338,720
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5.48
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%
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346,216
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42,504
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United States Department of the Treasury
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1500 Pennsylvania Avenue, NW
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Washington, D.C. 20220
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326,323
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5.28
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%
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326,323
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-
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Total
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995,652
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16.10
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%
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(1)
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Includes 247 shares owned by spouse.
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(2)
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Includes 5,971 shares owned jointly with spouse, 1,146 shares
owned by Fitzwater LLC which is owned by spouse, 1,136 shares owned by spouse and son, 1,014 shares owned by spouse and daughter,
and 1,081 shares owned by spouse and daughter.
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(3)
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Includes 6,887 shares owned jointly with spouse, six shares
owned by daughter, 2,425 shares owned in a 401(k) plan, 405 shares owned by spouse’s IRA, 219 shares owned by spouse and
daughter, and 11,500 shares of phantom stock held in a deferred compensation plan account (“Phantom Stock”). Each share
of Phantom Stock represents a deemed investment of deferred compensation funds in one share of Common Stock and gives the officer
the right to receive one share of Common Stock or the cash value thereof following the officer’s separation from service
with the Corporation. The officer may transfer the funds held in the plan account into an alternative deemed investment option
at any time.
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(4)
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Includes 2,055 owned jointly with spouse.
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(5)
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Includes 230 shares held by spouse’s IRA, 5,001 shares
held in trust of which Ms. McDonald is a beneficiary, and 1,000 shares held by grantor trust of which Ms. McDonald is trustee and
beneficiary, which shares are pledged to secure a line of credit.
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(6)
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Includes 55,000 shares owned by spouse.
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(7)
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Includes 151 shares owned jointly with spouse, 352 shares
owned by spouse, and 574 shares held in a 401(k) plan account.
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(8)
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Includes 409 shares held jointly with spouse, 17 shares held
by spouse for benefit of a minor child, and 790 shares held in a 401(k) plan account.
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(9)
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Includes 520 shares owned by Ruddell, LLC of which Mr. Ruddell
is owner.
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(10)
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Includes 905 shares owned jointly with spouse, 6,815 shares
owned by spouse, 4,229 shares owned by daughters, and 2,000 shares of Phantom Stock in a deferred compensation plan account.
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(11)
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Includes 500 shares owned jointly with spouse.
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(12)
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Includes 9,008 shares owned jointly with spouse and 1,748
shares held in spouse’s IRA.
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(13)
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Shares held in the name of Firstoak & Company, as nominee,
are administered by the Trust Department of First United Bank & Trust in a fiduciary capacity. Firstoak & Company disclaims
beneficial ownership of such shares.
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ELECTION
OF DIRECTORS (PROPOSAL 1)
Directors
are divided into three classes, as nearly equal in number as possible, with respect to the time for which the Directors may hold
office. Each Director is elected to hold office for a term of three years, and the terms of one class of Directors expire each
year. The terms of Class II Directors expire this year, the terms of Class III Directors expire in 2013, and the terms of Class
I Directors expire in 2014. In all cases, Directors serve until their successors are duly elected and qualify.
At
this year’s Annual Meeting, shareholders will be asked to vote for the election of the four Director nominees identified
in the table below. Each of the nominees is a current Class II Director, was nominated by the Nominating and Governance Committee
(the “Nominating Committee”) and elected by shareholders. In the event a nominee declines or is unable to serve as
a Director, which is not anticipated, the proxies will vote in their discretion with respect to a substitute nominee named by the
Board.
Information
about the principal occupations, business experience and qualifications of these nominees is provided below under the heading “QUALIFICATIONS
OF DIRECTOR NOMINEES AND CONTINUING DIRECTORS”.
Class II Directors
(Term expires in 2015)
Name
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Age
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Robert W. Kurtz
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65
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Elaine L. McDonald
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63
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Donald E. Moran
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81
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Gary R. Ruddell
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64
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The Board of Directors recommends that shareholders vote
FOR ALL NOMINEES
named above.
CONTINUING DIRECTORS
The
following tables identify each Director of the Corporation whose term does not expire in 2012. Information about the principal
occupations, business experience and qualifications of these continuing Directors is provided below under the heading “QUALIFICATIONS
OF DIRECTOR NOMINEES AND CONTINUING DIRECTORS”.
Class III Directors
(Term expires in 2013)
Name
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Age
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M. Kathryn Burkey
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61
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I.Robert Rudy
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59
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Richard G. Stanton
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72
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Robert G. Stuck
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65
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H. Andrew Walls, III
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51
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Nominees for Class I Directors
(Term expires in 2014)
Name
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Age
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David J. Beachy
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71
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Paul Cox, Jr.
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72
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William B. Grant
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58
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John W. McCullough
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62
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QUALIFICATIONS OF DIRECTOR NOMINEES AND
CURRENT DIRECTORS
In
addition to bringing extensive knowledge of the communities served by the Corporation through their involvement with their communities,
as business partners and volunteers, the Nominating Committee believes that all Director nominees and continuing Directors possesses
a diverse balance of skills, business experience and expertise necessary to provide leadership to the Company. The following discussion
sets forth the specific experience, qualifications, other attributes and skills of each Director nominee and continuing Director
that led the Nominating Committee to determine that such person should serve on the Board of Directors. All current Directors also
serve on the board of directors of First United Bank & Trust (the “Bank”), the Corporation’s wholly-owned
subsidiary.
David J. Beachy
possesses significant Board experience obtained from his service as a director of the Corporation and the Bank since 1985. As a
retired business owner of Fred E. Beachy Lumber Company, a successful building supply company, for over 40 years, he also possesses
substantial business experience.
M. Kathryn Burkey
has a vast amount of accounting and business experience through her education, her certification as a Certified Public Accountant,
and her ownership and operation for the past 23 years of M. Kathryn Burkey, CPA, an accounting firm. She has gained director experience
through her service as past Chairman of the Board of Western Maryland Health System, where she also served on its Compensation
Committee, Audit Committee, and Finance Committee, and through her service as a Director of the Corporation and the Bank since
2005. She is also the past president of Maryland Association of Certified Public Accountants.
Paul Cox, Jr.
is very active in the community in Washington County, a market area served by the Corporation. He possesses significant business
and tax experience gained through the ownership and operation of Professional Tax Service, a tax preparation business. Mr. Cox
has served as a Director of the Corporation and the Bank since 1993.
William B. Grant
is the Chairman of the Board, Chief Executive Officer (“CEO”), and President of the Bank and the Corporation. Mr. Grant
has 32 years of banking experience, which experience includes service as a Director of the Corporation and the Bank since 1995.
He also has legal expertise gained through the practice of law. Mr. Grant is a graduate of Stonier Graduate School of Banking and
Northwestern Trust Graduate School. He is also a Certified Financial Planner.
Robert W. Kurtz
has 37 years of banking experience through his service as past President, Chief Risk Officer, and Chief Financial Officer (“CFO”)
of the Corporation and its affiliates, as well as through his service as a Director of the Corporation and the Bank since 1990.
John W. McCullough
,
a retired partner of Ernst & Young, LLC, possesses substantial tax and accounting experience. He is a Certified Public Accountant
and obtained his B.S. degree in accounting from the University of Maryland. Mr. McCullough has served as a Director of the Corporation
and the Bank since 2004.
Elaine L. McDonald
brings valuable knowledge of the local real estate industry to the Board that she gained as a realtor with Long and Foster Realtors.
She also possesses substantial business experience gained through her ownership and operation for 24 years of Alpine Village, Inc.,
a successful motel and restaurant. She also has knowledge with fundraising activities for national and community based non-profits.
Ms. McDonald has served as a Director of the Corporation and the Bank since 1995.
Donald E. Moran
has served as a Director of the Corporation and the Bank since 1988. He obtained a B.A. degree in pre-law, with a split minor in
History and Geography, from the University of Maryland. His business experience includes service as the president, secretary, and
treasurer of Moran Coal Company since 1955. In addition to experience gained as a Director, Mr. Moran was the past president of
First National Bank of Piedmont.
Gary R. Ruddell
obtained a B.A. degree in marketing from the University of Maryland and has also attended various Maryland Banking sessions. His
business experience includes service as the president and chief executive officer of Total Biz Fulfillment, a successful logistical
and back-office support services business. Mr. Ruddell is involved in his community and holds officer and director positions with
various community organizations. He has served as a Director of the Corporation and the Bank since 2004.
I. Robert Rudy
has served as a Director of the Corporation and the Bank since 1992. His education includes a Bachelor of Business Administration
degree from Ohio University. His vast business experience has been gained through his ownership and operation of I. R. Rudy’s,
Inc., a retail apparel and sporting goods store. His director experience includes Chairman of the Board of Sports Specialists,
Ltd, a national retail buying group, and as trustee of The Ohio University Foundation. He also has leadership experience gained
from and involvement with various societies, boards and commissions, including the Ohio University College of Business Society
of Alumni and Friends from 2003 to 2006, Ohio University College of Business Executive Advisory Board since 2006, Ohio University
College of Business Global Competitive Program during 2008 and 2009, Ohio University President’s CEO Roundtable, Maryland
Fire Prevention Commission – Commissioner, and Oakland Planning and Zoning Commission. Mr. Rudy is also a retired Chief of
the local Volunteer Fire Department.
Richard G. Stanton
has significant banking and business experience through 38 years of service with various financial institutions, including as past
Chief Executive Officer of the Corporation. He has served as a Director of the Corporation and the Bank since 1985 and is very
active in the communities of Garrett County, a key market for the Corporation.
Robert G. Stuck
has many years of business experience gained through his ownership and operation of Oakview Motors, Inc., an automobile dealership.
He also brings local real estate knowledge to the Board through his service as a real estate agent for Long and Foster Realtors.
Mr. Stuck has served as a Director of the Corporation and the Bank since 1995.
H. Andrew Walls,
III
has significant business experience gained as the owner and operator of Morgantown Printing & Binding, a large printing
company, for 15 years. He is active in the communities of Monongalia County, West Virginia, one of the Corporation’s market
areas. In addition to serving as a Director of the Corporation and the Bank since 2006, Mr. Walls has acquired director experience
through his service on the boards of directors of the United Way, the Public Theatre, the Red Cross, and the Salvation Army.
CORPORATE GOVERNANCE MATTERS
Committees of the Board of Directors
The Board of Directors
has an Audit Committee, an Asset and Liability Management Committee, an Executive Committee, a Strategic Planning Committee, a
Compensation Committee, and a Nominating and Governance Committee.
These committees are discussed below.
Audit Committee
– The Audit Committee is established pursuant to Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and consists of M. Kathryn Burkey, Paul Cox, Jr., John W. McCullough (Chairperson), Elaine L.
McDonald, Richard G. Stanton, and Robert G. Stuck. The committee is responsible for the hiring, compensation and oversight of
the Corporation’s independent registered public accounting firm, and it also assists the Board in monitoring the integrity
of the financial statements, in monitoring the performance of the Corporation’s internal audit function, and in monitoring
the Corporation’s compliance with legal and regulatory requirements. In carrying out its duties, the committee meets with
the internal and independent auditors, with and without management present, to discuss the overall scope and plans for their respective
audits, the results of their examinations, their evaluations of the Corporation’s internal controls, and the overall quality
of the Corporation’s financial reporting. The Board has determined that all audit committee members are financially literate
and that Ms. Burkey, and Messrs. McCullough and Stanton each qualify as an “audit committee financial expert” as that
term is defined by the Securities Exchange Commission (the “SEC”) in Item 407 of Regulation S-K. This committee met
five times in 2011. The Board of Directors has adopted a written charter for the Audit Committee, a copy of which is available
on the Corporation’s website at
www.mybank4.com
.
Asset and Liability
Management Committee
– The Asset and Liability Management Committee consists of M. Kathryn Burkey, Paul Cox, Jr., William
B. Grant, Robert W. Kurtz, John W. McCullough, Donald E. Moran, Gary R. Ruddell, I. Robert Rudy, Richard G. Stanton, and Robert
G. Stuck. The committee reviews and recommends changes to the Corporation’s Asset and Liability, Investment, Liquidity, and
Capital Plans. This committee met four times in 2011.
Executive Committee
– The Executive Committee consists of David J. Beachy, M. Kathryn Burkey, William B. Grant, Robert W. Kurtz, Elaine L.
McDonald, Gary R. Ruddell, Robert G. Stuck, and H. Andrew Walls, III. The committee has the authority to review and recommend changes
to the Corporation’s insurance program, review the Corporation’s compliance with the Charter and Bylaws, monitor the
performance of the Corporation and its subsidiaries, and recommend changes to the personnel policies of the Corporation and its
subsidiaries. The Executive Committee is empowered to act on behalf of the full Board between meetings of the Board. This committee
did not meet in 2011.
Strategic Planning
Committee
– The Strategic Planning Committee consists of David J. Beachy, M. Kathryn Burkey, Paul Cox, Jr., William B.
Grant, Robert W. Kurtz, John W. McCullough, Elaine L. McDonald, Donald E. Moran, Gary R. Ruddell, I. Robert Rudy, Richard G. Stanton,
Robert G. Stuck and H. Andrew Walls, III. The committee focuses on long-term planning to insure that management’s decisions
take into account the future operating environment, the development of corporate statements of policy, and review of management’s
internal and external information and communications systems. This committee met one time in 2011.
Compensation Committee
– The Compensation Committee, which met four times in 2011, consists of David J. Beachy, M. Kathryn Burkey (Chairman),
Paul Cox, Jr., John W. McCullough, Donald E. Moran, and Robert G. Stuck. The committee is responsible for recommending to the
Board a compensation policy for the executive officers and Directors of the Corporation and its subsidiaries, overseeing the Corporation’s
various compensation plans, and recommending changes for executive and Director compensation. The committee determines executive
compensation pursuant to the principles discussed below under the heading “REMUNERATION OF EXECUTIVE OFFICERS”. The
Board reviews and, where appropriate, approves or ratifies committee recommendations. The Compensation Committee has adopted a
written charter, a copy of which is available on the Corporation’s website at
www.mybank4.com
.
Nominating
and Governance Committee
– The Nominating Committee consists of David J. Beachy, M. Kathryn Burkey, Paul Cox, Jr.,
Elaine L. McDonald, Donald E. Moran, and Richard G. Stanton. The committee is responsible for developing qualification
criteria for Directors, reviewing Director candidates recommended by shareholders (see “Director Recommendations and
Nominations” below), actively seeking, interviewing and screening individuals qualified to become Directors,
recommending to the Board those candidates who should be nominated to serve as Directors, and developing and recommending to
the Board the Corporate Governance Guidelines applicable to the Corporation and its subsidiaries. This Committee met one time
in 2011. The Nominating Committee has a written charter, a copy of which is available on the Corporation’s website at
www.mybank4.com
.
Director Independence
Pursuant to Rule 5605(b)(1)
of The NASDAQ Stock Market Rules (the “NASDAQ Rules”), a majority of the Corporation’s Directors must be “independent
directors” as that term is defined by NASDAQ Rule 5605(a)(2). The Corporation’s Board of Directors has determined that
each of David J. Beachy, M. Kathryn Burkey, Paul Cox, Jr., John W. McCullough, Elaine L. McDonald, Donald E. Moran, Gary R. Ruddell,
Richard G. Stanton, and Robert G. Stuck is an “independent director”, and these independent Directors constitute a
majority of the Corporation’s Board of Directors. Each of the members of the Compensation Committee and of the Nominating
Committee is an “independent director”. Each member of the Audit Committee satisfies the independence requirements
of NASDAQ Rule 5605(c)(2)(A). In making these independence determinations, the Board, in addition to the transactions described
below under “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS”,
considered the Bank’s purchase of goods
from a retailer affiliated with Mrs. Burkey.
Board Leadership and Role in Risk Oversight
The Corporation is
a one-bank holding company and the parent of the Bank, a $1.4 billion community bank serving four counties in Maryland and four
counties in West Virginia. Since its inception in 1984, the Corporation has had three CEOs, and each of these CEOs also served
as Chairman of the Board. The Corporation’s predecessor, First United Bank of Oakland, also employed this form of governance
for a number of years.
The Corporation has
a well-developed and well-seasoned Board of Directors, comprised of the Chairman/CEO and 12 additional Directors, nine of whom
are “independent directors” as defined by the NASDAQ Rules.
The Board believes
that the Corporation has been well-served by this form of leadership. By having one person serve as both Chairman and CEO, the
Board believes that the Corporation demonstrates to shareholders, customers, employees, vendors, regulators, and other stakeholders
that we are under strong leadership, with a single individual setting the tone and having primary responsibility for managing and
leading the Corporation. The Board believes this structure reduces the potential for confusion or duplication of efforts and assures
clarity of leadership.
The Board believes
that such a structure is viable when it is reinforced with a strong, competent and independent board of directors as is the case
with the Corporation. As noted above, nine of the 13 Directors are independent. The Board believes that this high percentage of
independence, coupled with the fact that only one Director – the Chairman/CEO – is employed by the Corporation, assures
an objective and shareholder-based view of the Corporation’s operations.
Of these independent
directors, four members qualify as “audit committee financial experts” as defined by rules adopted by the SEC pursuant
to the Sarbanes-Oxley Act of 2002. While the credentials of the entire Board are noted elsewhere, it is worth illustrating the
credentials of these four members that make them eligible for this distinction:
|
1.
|
M. Kathryn Burkey – Mrs. Burkey is a practicing Certified Public Accountant, with significant
experience in audit. She has also served as chair of the board of Western Maryland Health System, and is the past president of
the Maryland Associates of CPAs.
|
|
2.
|
Robert W. Kurtz – Mr. Kurtz retired from the Corporation and the Bank in December 2009, after
nearly four decades of service. For several years prior to his retirement, Mr. Kurtz served as President & Chief Risk Officer
of the Corporation and the Bank.
|
|
3.
|
John W. McCullough – Mr. McCullough is a retired partner of the accounting firm Ernst &
Young, LLP. During a significant portion of his career, Mr. McCullough was heavily engaged in the audit of financial institutions.
Mr. McCullough serves as the Chair of the Corporation’s Audit Committee.
|
|
4.
|
Richard G. Stanton – Prior to his retirement in 1996, Mr. Stanton served as Chairman and
CEO of the Corporation. Since that time, he has remained on the Board of Directors, where he serves on numerous committees.
|
In an effort to hone
their skills, and to assure their continued independence, members of the Board of Directors undertake regular training. A number
of methods are employed to provide in-depth training. On frequent occasions, internal training is provided to familiarize the Board
with regulatory requirements imposed on financial institutions by applicable laws such as the Bank Secrecy Act and the Community
Reinvestment Act. Periodically, Directors attend seminars related to banking issues, which offer them the additional benefit of
meeting with directors of other financial institutions. All Directors have direct access to the American Bankers Association website
which enables them to keep abreast of issues pertinent to the banking industry and to research banking materials. Finally, plans
are underway to incorporate specific board education under a program recently introduced by the Federal Reserve System.
The strength of the
Board, and a valuable counter balance to management, is found in the risk management practices employed by the Board, directly
and through its various specialized committees. The Board, as part of its oversight and governance functions, regularly reviews
risks and appropriate modeling of Asset Liability Management, loan concentrations, liquidity, management succession and capital
planning. Consistent with this, the Corporation was one of the early institutions in its market area to name a Chief Risk Officer,
having done so in 2006. Further, in 2009, the Board created a special committee focused on the Corporation’s risk elements.
This committee, which meets monthly, reviews classified credits and the appropriate plans for them, as well as examining regulatory
mandates and assuring that they are fulfilled.
To assist the Board
with tracking and reviewing Board and Committee activities, all Directors have 24/7 access to all policies and reports, the minutes
of every meeting of the Board and its committees over the last two years, and numerous other reports and models prepared by or
for the Corporation.
To maintain a level
of independence from management, the Board conducts regular executive sessions. These sessions are lead by the independent Chair
of the Corporation’s Nominating Committee, Donald Moran.
The governance of the
Corporation through a combination of the Chairman and CEO is appropriate also in light of the strength and experience of the Chairman/CEO.
Since its beginning, the Corporation has had very experienced individuals in this combined role. Courtney R. Tusing, the first
to have the role, came to the Corporation with over 20 years of banking experience, the majority of which were with the Corporation.
During his tenure, he also served as President of the Maryland Bankers Association. Richard G. Stanton held the position from 1987
to 1996. He had nearly three decades of experience prior to the position, and had served as Director for a number of years. During
his tenure, he served on the Government Relations Committee of the American Bankers Association, which enabled him to help formulate
banking policy. The Current Chairman and CEO has held the position since 1996, having joined the Board the year before. With now
over 30 years of banking experience, he is past Chairman of the Maryland Bankers Association and is currently on the Board of Directors
of the Baltimore Branch of the Federal Reserve Bank of Richmond as well as the America’s Community Bankers Council of the
American Bankers Association.
In conclusion, the
Board believes that a single leader, serving as Chairman and CEO, together with an overwhelmingly independent Board, is the most
appropriate leadership structure for the Corporation. The Board may, from time to time, review this structure under the guidance
of the Nominating Committee, reporting up to the Board of Directors. The position is supported by academic research on board governance,
which endorses such a structure so long as there exists an independent and well-seasoned board, which exists at the Corporation.
1
Attendance at Board Meetings
The Board of Directors
held 10 Board meetings in 2011. Each Director who served as such during 2011 attended at least 75% of the aggregate of (i) the
total number of meetings of the Board of Directors (held during the period served) and (ii) the total number of meetings held
by all committees of the Board on which that person served (held during the period served).
1
See
The Harvard Law School Forum on Corporate Governance and Financial Regulation “Drafting Disclosure Relating to Board Leadership
and Risk Oversight”, Posting by Jeffrey Stein, King & Spaulding, January 3, 2010
Director Recommendations and Nominations
The Nominating Committee
will from time to time review and consider candidates recommended by shareholders. Shareholder recommendations should be labeled
“Recommendation of Director Candidate” and be submitted in writing to: Carissa L. Rodeheaver, Corporate Secretary,
First United Corporation, P.O. Box 9, Oakland, Maryland 21550; and must specify (i) the recommending shareholder’s contact
information, (ii) the class and number of shares of the Corporation’s capital stock beneficially owned by the recommending
shareholder, (iii) the name, address and credentials of the candidate for nomination, (v) the number of shares of the Corporation’s
capital stock beneficially owned by the candidate; and (iv) the candidate’s written consent to be considered as a candidate.
Such recommendation must be received by the Corporate Secretary no less than 150 days nor more than 180 days before the date of
the Annual Meeting of Shareholders for which the candidate is being recommended. For purposes of this requirement, the date of
the meeting shall be deemed to be on the same day and month as the Annual Meeting of Shareholders for the preceding year.
Candidates may come
to the attention of the Nominating Committee from current Directors, executive officers, shareholders, or other persons. The Nominating
Committee does not have a formal policy under which it considers the diversity of candidates for directorship when making nomination
recommendations. The Nominating Committee periodically reviews its list of candidates available to fill Board vacancies and researches
the talent, skills, expertise, and general background of these candidates. In evaluating candidates for nomination, the Nominating
Committee uses a variety of methods and regularly assesses the size of the Board, whether any vacancies are expected due to retirement
or otherwise, the need for particular expertise on the Board, and whether the Corporation’s market areas are adequately represented
by Board members. In nominating director candidates, the Nominating Committee generally seeks to choose individuals that have skills,
education, experience and other attributes that will compliment and/or broaden the strengths of the existing directors.
In 2003, the Corporation
created an “advisory council” consisting of local business owners in each of the geographic regions that we serve.
The primary purpose of the advisory council is to tap the knowledge and experience of the advisory council members to better market
in, expand into and serve our market areas. From time to time, promising Director candidates come to the attention of the Nominating
Committee through their service on the advisory council, although such service is not a requirement of being considered for nomination.
A person is typically appointed to the advisory council by the Board after being nominated by a Director, a member of our management
team, or another advisory council member.
Whether recommended
by a shareholder or another third party, or recommended independently by the Nominating Committee, a candidate will be selected
for nomination based on his or her talents and the needs of the Board. The Nominating Committee’s goal in selecting nominees
is to identify persons that possess complimentary skills and that can work well together with existing Board members at the highest
level of integrity and effectiveness. A candidate, whether recommended by a Corporation shareholder or otherwise, will not be considered
for nomination unless he or she maintains strong professional and personal ethics and values, has relevant management experience,
and is committed to enhancing financial performance. Certain Board positions, such as Audit Committee membership, may require other
special skills, expertise or independence from the Corporation.
It should be noted
that a shareholder recommendation is not a nomination, and there is no guarantee that a candidate recommended by a shareholder
will be approved by the Nominating Committee or nominated by the Board of Directors. A shareholder who is entitled to vote for
the election of Directors and who desires to nominate a candidate for election to be voted on at a Meeting of Shareholders may
do so only in accordance with Section 4 of Article II of the Corporation’s Amended and Restated Bylaws, which provides that
a shareholder may nominate a Director candidate by written notice to the Chairman of the Board or the President not less than 150
days nor more than 180 days prior to the date of the meeting of shareholders called for the election of Directors which, for purposes
of this requirement, shall be deemed to be on the same day and month as the Annual Meeting of Shareholders for the preceding year.
Such notice shall contain the following information to the extent known by the notifying shareholder: (a) the name and address
of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the
Corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; (e) the number of
shares of capital stock of the Corporation owned by the notifying shareholder; (f) the consent in writing of the proposed nominee
as to the proposed nominee’s name being placed in nomination for Director; and (g) all information relating to such proposed
nominee that would be required to be disclosed by Regulation 14A under the Exchange Act and Rule 14a-11 promulgated thereunder,
assuming such provisions would be applicable to the solicitation of proxies for such proposed nominee.
Shareholder Communications with the Board of Directors
Shareholders may communicate
with the Board of Directors,
including the outside Directors
,
by sending a letter to First United Corporation Board
of Directors, c/o Carissa L. Rodeheaver, Secretary, First United Corporation, P.O. Box 9, Oakland, Maryland, 21550. The Secretary
will deliver all shareholder communications directly to the Board of Directors for consideration.
The Corporation believes
that the Annual Meeting of Shareholders is an opportunity for shareholders to communicate directly with Directors and, accordingly,
expects that all Directors will attend each Annual Meeting of Shareholders. If you would like an opportunity to discuss issues
directly with our Directors, please consider attending this year’s Annual Meeting of Shareholders. The 2011 Annual Meeting
of Shareholders was attended by 11 persons who served on the Board of Directors as of the date of that meeting.
Family Relationships Among Directors, Nominees and Executive
Officers
Director nominee I.
Robert Rudy and Senior Vice President Jeannette R. Fitzwater
are siblings.
DIRECTOR COMPENSATION
The following table
provides information about compensation paid to or earned by the Corporation’s Directors during 2011 that were not also “named
executive officers” (as defined below in the section entitled “REMUNERATION OF EXECUTIVE OFFICERS”).
DIRECTOR COMPENSATION
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Fees earned or
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All other
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Name
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paid in cash
|
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Stock Awards
|
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compensation
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Total
|
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($)
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($)(1)
|
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($)(2)
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($)
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David J. Beachy
|
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22,402
|
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|
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4,998
|
|
|
|
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27,400
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M. Kathryn Burkey
|
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31,402
|
|
|
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4,998
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|
|
|
|
|
|
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36,400
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Paul Cox, Jr.
|
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28,002
|
|
|
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4,998
|
|
|
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1,281
|
|
|
|
34,281
|
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Robert W. Kurtz
|
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28,102
|
|
|
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4,998
|
|
|
|
|
|
|
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33,100
|
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John W. McCullough
|
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22,705
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|
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14,995
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|
|
|
|
|
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37,700
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Elaine L. McDonald
|
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24,202
|
|
|
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4,998
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|
|
|
|
|
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29,200
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Donald E. Moran
|
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8,305
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|
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14,995
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|
|
|
225
|
|
|
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23,525
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Gary R. Ruddell
|
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14,505
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|
|
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14,995
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|
|
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|
|
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29,500
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I. Robert Rudy
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24,002
|
|
|
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7,498
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|
|
|
|
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31,500
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Richard G. Stanton
|
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23,502
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7,498
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31,000
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Robert G. Stuck
|
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25,402
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4,998
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|
|
|
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30,400
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H. Andrew Walls, III
|
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26,902
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4,998
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350
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32,250
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(1)
|
Amounts relate to the grant of 880 fully-vested shares of Common Stock to each non-employee director in 2011 and reflect the
grant date fair value of the award computed in accordance with FASB ASC Topic 718, “Accounting for Share-based Payments”.
See Note 1 to the consolidated audited financial statements contained in the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2011 regarding assumptions underlying valuation of equity awards. The grant date fair value of these
awards was $59,981. No other equity awards were outstanding as of December 31, 2011.
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(2)
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Certain Directors are required to travel significantly greater distances than others to attend Board and committee meetings.
The amounts shown include a travel allowance paid to these Directors.
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In setting Director
compensation, the Compensation Committee considers the legal responsibilities that Directors owe to the Corporation and its shareholders
in connection with their service on the Board and/or a committee of the Board, and the risks to the Directors associated with their
service, and reviews the fees and benefits paid to directors of similar institutions in and around the Corporation’s market
areas. The Compensation Committee’s current Director compensation arrangement contemplates a mix of cash and equity awards,
as discussed below.
Directors who are not
employees of the Corporation or the Bank (“Non-Employee Directors”) receive cash in the amount of $400 for attending
each meeting of the Corporation’s Board and cash in the amount of $400 for attending each meeting of a committee on which
the Director serves. Non-Employee Directors also receive an annual cash retainer fee of $10,000. The Chairperson of each of the
Audit Committee (Mr. McCullough), Compensation Committee (Mrs. Burkey) and Nominating Committee (Mr. Moran) receives an additional
annual cash retainer of $2,500. All Directors also serve on the board of directors of the Bank receive cash in the amount of $400
for attending each meeting of the Bank’s board and cash in the amount of $300 for attending each meeting of a committee of
the Bank board. Beginning in 2011, Directors were given the option to receive some or all of their retainers in shares of common
stock, to be paid under the Corporation’s 2006 Omnibus Equity Compensation Plan (the “Omnibus Plan”). The number
of shares paid is determined by dividing the portion of the retainer to be paid in stock by the mean between the high and low sales
price of a share of Common Stock on the trading day immediately preceding the payment date, as reported on The NASDAQ Stock Market.
In addition to cash
fees, Non-Employee Directors receive an annual grant of fully-vested shares of Common Stock under the Corporation’s Omnibus
Equity Compensation Plan valued at $5,000. The number of shares granted is determined by dividing $5,000 by the mean between the
high and low sales price of a share of Common Stock on the trading day immediately preceding the grant date, as reported on The
NASDAQ Stock Market. All Directors are permitted to participate in the Corporation’s Amended and Restated Executive and Director
Deferred Compensation Plan (the "Deferred Compensation Plan"). The material terms of the Deferred Compensation Plan are
discussed below under the heading "REMUNERATION OF EXECUTIVE OFFICERS".
AUDIT COMMITTEE REPORT
The
Audit Committee has (i) reviewed and discussed the Corporation’s audited consolidated financial statements for the year ended
December 31, 2011 with the Corporation’s management; (ii) discussed with ParenteBeard LLC, the Corporation’s independent
auditors, all matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards,
Vol. 1, AU § 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and (iii) received the written
disclosures and the letter from ParenteBeard LLC required by applicable requirements of the Public Company Accounting Oversight
Board regarding ParenteBeard LLC’s communications with the Audit Committee concerning its independence, and discussed with
ParenteBeard LLC its independence. Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors
that the audited consolidated financial statements for the year ended December 31, 2011 be included in the Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2011.
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By:
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AUDIT COMMITTEE
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M. Kathryn Burkey
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Paul Cox, Jr.
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John W. McCullough
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Elaine L. McDonald
|
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Richard G. Stanton
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Robert G. Stuck
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EXECUTIVE OFFICERS
Information about the
Corporation’s executive officers is set forth below. All officers are elected annually by the Board of Directors and hold
office at its pleasure. Unless indicated otherwise, officers serve in the same capacities for the Corporation and the Bank.
William B. Grant, age
58, serves as Chairman of the Board, CEO and President. Mr. Grant has been Chairman of the Board and CEO since 1996
and as President since December 16, 2009. Prior to holding these positions, he served as Secretary and Executive Vice
President.
Carissa L. Rodeheaver,
age 45, serves as Executive Vice President, CFO, Secretary and Treasurer. Ms. Rodeheaver, who is a Certified Public
Accountant, was appointed CFO on January 1, 2006, Executive Vice President on March 19, 2008, and Treasurer and Secretary on December
16, 2009. Prior to these times, Ms. Rodeheaver served as Trust Officer of the Bank from 1992 to 2000, as Vice President
and Trust Department Sales Manager of the Bank from 2000 to 2004, and as Vice President and Assistant CFO of the Corporation from
2004 to December 31, 2005. In addition to her service with the Corporation, Ms. Rodeheaver owns and operates Country
Treasures, an unincorporated retail seller of home furnishings and décor, Rodeheaver Rentals, an unincorporated entity that
owns and leases commercial and residential real property, and several residential apartments that she leases to tenants.
Robin M. Murray, age
53, serves as Senior Vice President and Director of Retail Banking. Ms. Murray was appointed to this position in 2006. From
2003 until 2006, she served as the Bank’s Senior Vice President of Marketing and Retail Sales and as Vice President of Marketing
and Retail Services Manager from 1998 to 2003.
Jeannette R. Fitzwater,
age 51, serves as Senior Vice President and Director of Corporate Services. Ms. Fitzwater was appointed to this position
in 1997. Prior to this time, she served as Senior Vice President & Director of Human Resources from 1997 to 2009,
and as First Vice President, Director of Marketing, and Regional Sales Manager of the Bank from 1994 to 1997.
Jason Rush, age 40,
serves as a Senior Vice President and Chief Risk Officer and Director of Operations & Support. Mr. Rush has been
employed by the First United organization since October 1993. Prior to his current position, Mr. Rush served as Vice
President, Director of Operations & Support since March 2006, and before that as Vice President and Regional Manager/Community
Office Manager from January 2005 to February 2006; Vice President and Community Office Manager/Manager of Cash Management from
May 2004 to December 2004; Assistant Vice President and Community Office Manager from April 2001 to April 2004; Community Office
Manager from August 1998 to April 2001; Customer Service Officer from March 1997 to July 1998; Assistant Compliance Officer from
July 1995 to February 1997; and Management Trainee from October 1993 to July 1995. Mr. Rush also serves as the Treasurer
of Rush Services, Inc., a family-owned business in which he has a fifty percent ownership interest. He also participates
with his brother in farming and land investment.
Keith R. Sanders, age
42, serves as First Vice President and Senior Trust Officer. Mr. Sanders has been employed by the Corporation since August 2002.
He served as Senior Trust Sales Officer from August 2002 until December 2005, and as Senior Trust/Investment Sales Manager from
January 2006 until October 2011. He was named First Vice President and Senior Trust Officer on November 1, 2011.
REMUNERATION OF EXECUTIVE OFFICERS
Both the Corporation
and the Bank maintain various compensation plans and arrangements for their respective employees. All of the Corporation’s
executive officers are also executive officers of the Bank. Where appropriate, most of these plans and arrangements are structured
to apply to employees of the consolidated group.
The following table
sets forth, for each of the last two fiscal years, the total remuneration awarded to, earned by, or paid to (i) the Corporation’s
CEO, (ii) the Corporation’s two most highly compensated executive officers other than the CEO who were serving as such as
of December 31, 2011 and whose total compensation (excluding above-market and preferential earnings on nonqualified deferred compensation)
exceeded $100,000 during 2011, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant
to the foregoing item (ii) had they been serving as executive officers of the Corporation as of December 31, 2011 (the CEO and
such other persons are referred to as the “named executive officers”). In calendar years 2011 and 2010, executive compensation
included annual base salary and income related to certain employee benefit plans.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
|
|
|
All other
|
|
|
|
|
|
|
Year
|
|
|
Salary
|
|
|
earnings
|
|
|
compensation
|
|
|
Total
|
|
Name and principal position
|
|
|
|
|
($)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
($)
|
|
William B. Grant,
|
|
|
2011
|
|
|
|
257,500
|
|
|
|
-
|
|
|
|
9,768
|
|
|
|
267,268
|
|
Chairman/CEO/President (1)
|
|
|
2010
|
|
|
|
257,500
|
|
|
|
-
|
|
|
|
4,984
|
|
|
|
262,484
|
|
Carissa L. Rodeheaver, EVP / CFO
|
|
|
2011
|
|
|
|
184,730
|
|
|
|
|
|
|
|
7,037
|
|
|
|
191,767
|
|
|
|
|
2010
|
|
|
|
182,000
|
|
|
|
-
|
|
|
|
6,737
|
|
|
|
188,737
|
|
Keith R. Sanders, First Vice
|
|
|
2011
|
|
|
|
96,737
|
|
|
|
|
|
|
|
101,726
|
|
|
|
198,463
|
|
President / Senior Trust Officer (4)
|
|
|
2010
|
|
|
|
81,856
|
|
|
|
-
|
|
|
|
83,417
|
|
|
|
165,273
|
|
|
(1)
|
Mr. Grant also serves as a Director of the Corporation and of the Bank but receives no separate
remuneration for such service.
|
|
(2)
|
Mr. Grant did recognize non-qualified deferred compensation plan earnings for 2011, but such earnings
are not required to be disclosed because they were not above-market or preferential.
|
|
(3)
|
Amounts include premiums related to bank-owned life insurance policies (see “Split Dollar
Life Insurance Arrangements”, below) and group term life insurance available to all employees, and matching contributions
to the 401(k) Profit Sharing Plan. The dollar value of premiums related to the bank-owned life insurance policies and the group
life insurance program is as follows: Mr. Grant, $1,193 for 2011 and $1,384 for 2010; Ms. Rodeheaver, $630 for 2011 and $355 for
2010; and Mr. Sanders, $307 for 2011 and $238 for 2010. Matching contributions made by the Corporation for the named executive
officers under the 401(k) Profit Sharing Plan are as follows: Mr. Grant, $8,575 for 2011 and $3,600 for 2010; Ms. Rodeheaver, $6,407
for 2011 and $6,382 for 2010; and Mr. Sanders, $7,168 for 2011 and $5,580 for 2010. Additionally, for 2011, the amounts shown for
Mr. Sanders include commission income of $69,250 for 2011 and $77,531 for 2010 earned in connection with his sales of trust and
investment services; and $25,000 in relocation expense reimbursements. The commission income was earned for sales activity prior
to his being named as a senior executive officer.
|
|
(4)
|
Mr. Sanders was appointed to the position of First Vice President and Senior Trust Officer effective
November 1, 2011.
|
Overview of Compensation Philosophy and Objectives
The Compensation Committee of the Board of Directors is responsible
for overseeing and administering employee benefit plans and policies, and for annually reviewing and recommending for approval
by the Board all compensation decisions relating to the executive officers, including the named executive officers. The Compensation
Committee submits its decisions regarding compensation to the independent Directors of the Board. The Compensation Committee has
the authority and resources to obtain, independent of management, advice and assistance from internal and external legal, human
resource, accounting or other experts, advisors, or consultants as it deems desirable or appropriate.
The Compensation Committee
is composed of a minimum of three independent directors who are appointed each year by the Board of Directors, after considering
the recommendations and views of the CEO. Six members of the Corporation’s Board of Directors serve on the Compensation Committee,
each of whom is an independent director as defined by the NASDAQ Rules. The Chair of the Compensation Committee reports on committee
actions at meetings of the Company’s Board.
The Compensation Committee
recognizes the importance of balancing the need to attract and retain qualified executive officers with the need to maintain sound
principles for the development and administration of compensation and benefit programs. The Compensation Committee has taken steps
to enhance the Compensation Committee’s ability to effectively carry out its responsibilities as well as ensure that the
Company maintains strong links between executive pay and performance. Examples of procedures and actions that the Compensation
Committee utilized in 2011 include:
|
·
|
Incorporating executive sessions (without management present) into all Compensation Committee meetings;
|
|
·
|
Using an independent compensation consultant to advise on executive compensation issues;
|
|
·
|
Reviewing elements and amounts of executive compensation paid by competitors, including peer group performance and the impact
of such performance on executive compensation;
|
|
·
|
When it deems appropriate, realigning the Corporation’s compensation structure in light of its peer group reviews; and
|
|
·
|
Performing annual reviews for all executive officers; and
|
|
·
|
Conducting semi-annual reviews of all compensation and incentive plans for appropriate corporate strategic alignment and avoidance
of excessive or unnecessary risk-taking by executive officers.
|
The Compensation Committee
believes that the compensation paid to executive officers should be closely tied to the Corporation’s performance on both
a short-term and long-term basis. Overall, the Compensation Committee believes that a performance-based compensation program can
assist the Corporation in attracting, motivating and retaining the quality executives critical to long-term success. Accordingly,
the Compensation Committee’s goal is to structure total compensation programs to provide a significant focus on enhancing
overall financial performance.
In prior years, this
was accomplished through the grant of cash award possibilities under the Corporation’s short-term incentive plan, known as
the Executive Pay for Performance Plan (the “EPP Plan”), and the grant of equity award possibilities under the Corporation’s
Long-Term Incentive Compensation Plan (the “LTIP”), which is a sub-plan of the Corporation’s Omnibus Equity Compensation
Plan. These elements were not available in 2011 because of the Corporation’s participation in the Troubled Asset Relief Program
Capital Purchase Program (“TARP”) of the United States Department of the Treasury (the “Treasury”). See
the discussion below under the heading “Impact of Recent Legislation on Executive Compensation” for further information.
For 2011, executive
compensation consisted primarily of base salary, which is targeted to recognize each executive officer’s performance and
contributions to success in light of salary standards in the marketplace. Going forward, the Compensation Committee expects to
explore and possibly alter the Corporation’s compensation practices in light of the restrictions the Corporation faces under
TARP to continue to align compensation with performance and to ensure that the Corporation remains competitive.
In setting the CEO’s
compensation, the Compensation Committee meets with the CEO to discuss his performance and compensation package. Decisions regarding
his package are based solely upon the Compensation Committee’s independent deliberations, as well as input from the committee’s
compensation consultant if one is engaged for that purpose. The CEO makes recommendations to the Compensation Committee with respect
to the other executives, and the committee then reviews these recommendations and, if approved, reports its actions to the Board.
Input and data from the CEO, CFO, Human Resources Department and outside consultants and advisors are provided as a matter of practice
and as requested. The Compensation Committee occasionally requests one or more members of top management to be present at Compensation
Committee meetings where executive compensation and corporate or individual performance are discussed and evaluated. Only Compensation
Committee members are allowed to vote on decisions regarding executive compensation, and only during its executive sessions.
In addition to reviewing
competitive market values, the Compensation Committee also examines the total compensation mix, pay-for-performance relationship,
and how all elements, in the aggregate, comprise each executive’s total compensation package. The Compensation Committee
also examines all incentive compensation plans at least semi-annually to insure that such plans do not encourage employees to take
unnecessary or excessive risks that threaten the Corporation’s value.
Employment Arrangements
All executive officers
are employed on an at-will basis and are not parties to any written employment agreement.
In addition to base
salaries paid in 2011, the Corporation’s employment arrangements with executive officers make them eligible to receive benefits
under and/or participate in the 401(k) Profit Sharing Plan, the Pension Plan, the Split Dollar Life Insurance arrangements, the
Deferred Compensation Plan, and, except for Mr. Sanders, the Supplemental Executive Retirement Plan (the “SERP”). The
material terms of these plans and arrangements and the compensation and benefits available there under are discussed below. In
addition, all executive officers are entitled to employee benefits that the Corporation makes available to all eligible employees,
including health, dental and vision insurance, long-term disability insurance, and group term life insurance. Mr. Grant is also
provided with the use of a company-owned automobile.
In 2007, the Corporation
adopted a plan that provides for cash payments and employee benefits continuation to executive officers if they experience a separation
from service in connection with a change in control of the Corporation, known as the Change in Control Severance Plan (the “Severance
Plan”). Because of its participation in TARP, however, the Corporation is currently prohibited from paying any benefits under
the Severance Plan. Notwithstanding this prohibition, the material terms of the Severance Plan are discussed below because executive
officers would be eligible to receive change in control benefits if the Corporation were to repay its TARP obligations.
Salaries proposed to
be paid in 2011 to the named executive officers are as follows: Mr. Grant, $257,500; Ms. Rodeheaver, $189,353; and Mr. Sanders,
$158,100.
401(k) Profit Sharing Plan
In furtherance of the
Corporation’s belief that every employee should have the ability to accrue retirement benefits, the Corporation adopted the
401(k) Profit Sharing Plan, which is available to all employees, including executive officers. Employees are automatically entered
in the plan on the first of the month following completion of 30 days of service to the Corporation and its subsidiaries. Employees
have the opportunity to opt out of participation or change their deferral amounts under the plan at any time. In addition to contributions
by participants, the plan contemplates employer matching and the potential of discretionary contributions to the accounts of participants.
The Corporation believes that matching contributions encourage employees to participate and thereby plan for their post-retirement
financial future. Beginning with the 2008 plan year, the Corporation enhanced the match formula to 100% on the first 1% of salary
reduction and 50% on the next 5% of salary reduction. This match is accrued for all Participants, including executive officers,
immediately upon entering the plan on the first day of the month following the completion of 30 days of employment. The employee
must be a plan participant and be actively employed on the last day of the plan year to share in the employer matching contribution,
except in the case of death, disability or retirement of the participant.
Pension Plan
Prior to 2010, all
employees were eligible to participate in the Pension Plan, which is a qualified defined benefit plan, upon completion of one year
of service and the attainment of the age of 21. Retirement benefits are determined using an actuarial formula that takes into account
years of service and average compensation. Normal retirement age for the defined benefit pension plan is 65 years of age with the
availability of early retirement at age 55. Pension benefits are fully vested after five years of service. A year of service is
defined as working at least 1,000 hours in a plan year. Effective April 30, 2010, the plan was amended, resulting in a “soft
freeze”, the effect of which prohibits new entrants into the plan and ceases crediting of additional years of service, after
that date.
Supplemental Executive Retirement Plan
(SERP)
The Bank adopted and
designed the SERP so that executives could reach a targeted retirement income. The SERP is available only to a select group of
management or highly compensated employees, including Mr. Grant and Ms. Rodeheaver. Mr. Sanders does not participate in the SERP.
The SERP was created to overcome qualified plan regulatory limits or the “reverse discrimination” imposed on highly
compensated executives due to IRS contribution and compensation limits. In connection with the adoption of the Severance Plan,
the Compensation Committee decided to credit participants with 24 years of service, regardless of actual years of service, to minimize
certain income taxes that could be imposed under Section 280G of the Internal Revenue Code (the “Code”) upon a separation
from service. In the event a SERP participant voluntarily terminates employment without good reason, his or her credited years
of service will revert to actual years of service as of the date of termination. Future participants in the plan, if any, will
be credited with actual years of service. The Compensation Committee excluded the SERP benefits payable to Mr. Grant from the Code
Section 280G limitation noting that the risk that he would be terminated following a change in control is likely greater than for
other executives.
The SERP benefit is
equal to 2.5% of the executive’s Final Pay for each year of service through age 60 (up to a maximum of 24 years) plus 1%
of Final Pay for each year of service after age 60 (up to a maximum of 5 years), for a total benefit equal to 65% of Final Pay.
The Compensation Committee chose this plan design to provide competitive retirement benefits and to encourage service. The SERP
was designed primarily to supplement benefits payable under the Pension Plan and, as such, it would be appropriate to measure SERP
benefits using an actuarial formula (
i.e.
, years of service and final pay) similar to that used under the Pension Plan.
Accordingly, the SERP benefits are offset by any accrued benefits payable under the Pension Plan and 50% of the social security
benefits received by the participant. For purposes of the SERP, “Final Pay” means the average of the three highest
amounts of annual cash compensation actually paid to the Participant over the five years preceding the year in which the Participant’s
Separation from Service occurs. For purposes of the foregoing, “cash compensation” means annual base salary plus any
cash bonus or cash incentive compensation actually paid to the Participant as remuneration for services rendered to the Bank in
a particular calendar year, and excludes imputed income, Bank contributions and any other income related to or benefit paid under
any insurance policy, retirement plan or other employee benefit plan or arrangement.
The normal retirement
SERP benefit is paid following Normal Retirement, which is defined as a Separation from Service (as defined in the SERP) after
attaining age 60 and providing at least 10 years of service. Each participant is entitled to elect, upon initial participation,
whether to receive the benefit in a single lump sum or in the form of a lifetime annuity, a 10-year guaranteed payment lifetime
annuity, a 50% joint and survivor annuity, a 75% joint and survivor annuity, or a 100% joint and survivor annuity. Annuity payments
will be made on a monthly basis and are subject to actuarial adjustments. Payments under a lifetime annuity will be determined
based on the expected remaining number of years of life for the annuitant and actuarial tables as of the time the annuity begins.
Payments under any form of annuity other than a lifetime annuity will be determined using the same actuarial equivalent assumptions
used for the Pension Plan. If a participant fails to make an election, he or she will receive the benefit as a lifetime annuity.
A participant vests
in his or her accrued normal retirement SERP benefit upon 10 years of service, upon Normal Retirement, upon a Separation from Service
due to Disability (as defined in the SERP), and upon the participant’s death. Upon a Separation from Service following a
Change in Control (as defined in the SERP) and a subsequent Triggering Event (as defined in the SERP), a participant will vest
in the greater of (i) 60% of Final Pay or (ii) his or her accrued normal retirement SERP benefit through the date of the Separation
from Service.
Generally, the distribution
of a participant’s SERP benefit will begin following the participant’s Normal Retirement. If the participant suffers
a Separation from Service due to death or following a Disability, then the participant or his or her designated beneficiaries will
receive a lump sum payment equal to the actuarial equivalent of his or her accrued SERP benefit. If the participant suffers a Separation
from Service other than due to “Cause” (as defined in the SERP) after 10 years of service but prior to Normal Retirement,
then he or she will receive the normal retirement SERP benefit that has accrued through the date of the Separation from Service
at age 60, in the form elected. If the participant suffers a Separation from Service following a Change in Control and subsequent
Triggering Event, then the distribution of his or her normal retirement SERP benefit that has accrued through the date of the Separation
from Service will begin, in the form elected, once the participant reaches age 60. If the participant dies following the commencement
of distributions but prior to the complete distribution of his or her vested and accrued SERP benefit, then distributions will
be paid to his or her beneficiaries only if he or she chose a joint and survivor annuity form of distribution or a 10-year guaranteed
payment lifetime annuity (and then only until the guaranteed payments have been made).
A participant will
lose all SERP benefits if he or she is terminated for Cause (as defined in the SERP). In addition, each participant has agreed
that the receipt of any SERP benefits is conditioned upon his or her (i) refraining from competing with the Corporation and its
subsidiaries in their market areas for a period of three years following his or her Separation from Service, (ii) refraining from
disclosing the Corporation’s confidential information following a Separation from Service, and (iii) remaining available
to provide up to six hours of consultative services for twelve months after his or her Separation from Service. Items (i) and (iii)
do not apply, however, if the Separation from Service results from a Change in Control and subsequent Triggering Event. If a participant
breaches any of these conditions, then he or she is obligated to return all SERP benefits paid to date plus interest on such benefits
at the rate of 10% per year.
The amounts that could be paid to Mr. Grant
and Ms. Rodeheaver under the SERP upon a separation from service are shown below in the table contained in the section entitled
“Benefits Upon a Separation from Service”.
Split Dollar Life Insurance Arrangements
The Bank purchased
BOLI policies in the aggregate amounts of $18 million in 2001, $2.3 million in 2004, $2.8 million in 2006 and $10 million in 2009
to help offset the costs of providing benefits under all benefit plans and arrangements. The Bank is the sole owner of these BOLI
policies, has all rights with respect to the cash surrender values of these BOLI policies, and is the sole death beneficiary under
these BOLI policies.
Because the Compensation
Committee believes that it is important to reward officers for their loyalty and service, the Corporation has agreed, pursuant
to Endorsement Split Dollar Agreements, to assign a portion of the cash benefits payable under these BOLI policies to the executive
officers’ named beneficiaries in the event they die while employed. Participation under the Split-Dollar Life Insurance arrangements
can be terminated for any reason, at any time, by either the Bank or the covered officer. The Bank terminates each covered officer’s
participation at retirement. The current death benefits payable to the beneficiaries of the named executive officers under these
arrangements are shown below in the table contained in the section entitled “Benefits Upon a Separation from Service”.
Deferred Compensation Plan
The Corporation’s
directors and those executives selected by the Compensation Committee are permitted to participate in the Deferred Compensation
Plan. Each of the named executive officers is entitled to participate. The Deferred Compensation Plan permits directors and executives
to elect, each year, to defer receipt of up to 100% of their directors’ fees, salaries and bonuses, as applicable, to be
earned in the following year. The deferred amounts are credited to an account maintained on behalf of the participant (a “Deferral
Account”) and are deemed to be invested in certain investment options established from time to time by the Investment Committee
of the Bank’s Trust Department. Additionally, the Corporation may make discretionary contributions for the benefit of a participant
to an Employer Contribution Credit Account (the “Employer Account”), which will be deemed to be invested in the same
manner as funds credited to the Deferral Account. Each Deferral Account and Employer Account is credited with the gain or loss
generated on the investments in which the funds in those accounts are deemed to be invested, less any applicable expenses and taxes.
To date, the Corporation has not made any discretionary contributions to the Employer Account.
A participant is at
all times 100% vested in his or her Deferral Account. The Corporation is permitted to set a vesting date or event for the Employer
Account, and such date may be based on the performance by the participant of a specified number of completed years of service with
the Corporation, may be based on the participant’s performance of specified service goals with respect to the Corporation,
may be limited to only certain termination of employment events (e.g., involuntary termination, those following a change of control,
etc.), or may be based on any other standard, at the Corporation’s sole and absolute discretion. Notwithstanding the foregoing,
a participant will become 100% vested in his or her Employer Account if he or she terminates employment (or, in the case of a participant
who is a non-employee director, terminates membership on the Board of Directors) because of death or Total and Permanent Disability
(as defined in the Deferred Compensation Plan). Each participant will also become 100% vested in his or her Employer Account in
the event of a Change in Control (as defined in the Plan). To date, the Corporation has not made any contributions to the Employer
Account of any participant.
Generally, a participant
is entitled to choose, pursuant to an election form, the date on which his or her account balances are to be distributed, subject
to any restrictions imposed by the Corporation and the trustee under the Rabbi Trust in their sole and absolute discretion and
applicable law. If a participant fails to select a distribution date, then distributions will begin on or about the date of the
participant’s termination of employment or director status with the Corporation. The participant may choose whether his or
her account balances are to be distributed in one lump sum or in ten equal annual installments. If a participant fails to elect
a payment date or the method of payment, then the account balances will be distributed in one lump sum following termination of
employment. If distributions are made in installments, then the undistributed balance will continue to be deemed invested in the
chosen investment options, and the accounts will be credited or debited accordingly, until all amounts are distributed.
If a participant dies
or experiences a Total and Permanent Disability before terminating his or her employment or director status with the Corporation
and before the commencement of payments, then the entire balance of the participant’s accounts will be paid to the participant
or to his or her named beneficiaries, as applicable, as soon as practicable following death or Total and Permanent Disability.
If a participant dies after the commencement of payments but before he or she has received all payments to which he or she is entitled,
then the remaining payments will be paid to his or her designated beneficiaries in the manner in which such benefits were payable
to the participant. Upon a Change in Control, the entire balance of a participant’s accounts will be paid in a single lump
sum payment.
The Deferred Compensation
Plan provides for limited distributions in the event of certain financial hardships.
The Corporation did
not make any discretionary contributions for the benefit of any named executive officer in 2011. Only Mr. Grant realized earnings
in 2011 under the Deferred Compensation Plan ($8,391).
Benefits upon a Separation from Service
In addition to the
SERP and the Split Dollar Life Insurance arrangements, the Corporation adopted the Severance Plan and entered into change in control
severance agreements (each, a “Severance Agreement”) with certain executive officers, including Mr. Grant and Ms. Rodeheaver.
As noted above, because of the Corporation participation in TARP, the Corporation is not currently permitted to provide benefits
to any executive officer under the Severance Plan. Because Mr. Sanders became an executive officer following the Corporation’s
participation in TARP, he does not participate in the Severance Plan.
If the Corporation
were to repay its obligations under TARP, then its obligations under a Severance Agreement would be triggered if the participating
executive officer’s employment is terminated by the Corporation without “Cause” (as defined in the Severance
Agreement) or by the executive for “Good Reason” (as defined in the Severance Agreement) during the period commencing
on the date that is 90 days before a “Change in Control” (as defined in the Severance Plan) and ending on the first
anniversary of a Change in Control (the “Protection Period”). In such case, the executive officer is entitled to receive
a lump sum cash payment equal to two times (2.99 times for Mr. Grant) his or her “Final Pay”, the immediate vesting
of all equity-based compensation awards that have been granted to the executive, continued coverage for 24 months under the Corporation’s
group health and dental plan (or, if the executive is not eligible for such coverage, a monthly cash payment equal to the monthly
premium for a similar policy), and outplacement services for up to 12 months.
For all participating
executive officers, other than Mr. Grant, the Severance Agreement provides that the amount of all severance benefits described
above, plus the amount of all benefits under any other plan or arrangement, the payment of which is deemed to be contingent upon
a change in the ownership or effective control of the Corporation (as determined under Section 280G of the Code), may not exceed
2.99 times the participant’s “annualized includable compensation for the base period” (i.e., the average annual
compensation that was includable in his or her gross income for the last five taxable years ending before the date on which the
Change in Control occurs). In the event the amount of the benefits payable to Mr. Grant under his Severance Agreement and all other
arrangements the payment of which is deemed to be contingent on a Change in Control exceeds 2.99 times his annualized includable
compensation for the base period, he will be entitled to a tax gross-up payment from the Corporation to cover any excise tax imposed
by Section 4999 of the Code or any similar state or local tax law, and any interest or penalties payable with respect to such taxes,
on the amount of such benefits and the gross-up tax payment.
Each Severance Agreement
has a one-year term, which automatically renews for additional one-year terms unless the Corporation provides the participant with
six months’ prior notice of its intention not to renew the Severance Agreement, except that the Severance Agreement will
automatically terminate at the expiration of the Protection Period.
The table that follows
shows the estimated present value of benefits (as of December 31, 2011) that could be paid to the named executive officers under
the Severance Plan, the SERP and the Split Dollar Life Insurance Arrangements upon a separation from service. As discussed above,
subject to certain conditions, participants in the SERP are entitled to receive their vested benefits (offset by Pension Plan benefits,
50% of social security benefits and, in the case of death, benefits paid under the Split Dollar Life Insurance arrangements described
above) if they suffer a separation from service other than for cause. No SERP benefits are payable if a participant’s separation
from service was for cause. Except in the cases of a separation from service due to death or disability, the payment of SERP benefits
does not commence until the later of normal retirement or attainment of age 60.
Name
|
|
Reason for
Termination
|
|
Severance
Plan
Cash
Benefit
($)(1)
|
|
|
Severance
Plan Benefit
Continuation
($)(1)(2)
|
|
|
Estimated
SERP
Benefit
($)(3)
|
|
|
Estimated
Split- Dollar
Benefit
($)
|
|
|
Total ($)
|
|
Mr. Grant
|
|
Change in control,
disability, involuntary termination other than for cause, or voluntary termination for good reason
|
|
|
1,077,895
|
|
|
|
22,607
|
|
|
|
1,049,433
|
|
|
|
-
|
|
|
|
2,149,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
|
|
|
-
|
|
|
|
-
|
|
|
|
1,049,433
|
|
|
|
25,000
|
|
|
|
1,074,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination without good reason
|
|
|
-
|
|
|
|
-
|
|
|
|
1,049,433
|
|
|
|
-
|
|
|
|
1,049,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Rodeheaver
|
|
Change in control,
disability, involuntary termination other than for cause, or voluntary termination for good reason
|
|
|
480,298
|
|
|
|
30,191
|
|
|
|
257,171
|
|
|
|
-
|
|
|
|
767,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
|
|
|
-
|
|
|
|
-
|
|
|
|
257,171
|
|
|
|
25,000
|
|
|
|
282,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination without good reason
|
|
|
-
|
|
|
|
-
|
|
|
|
257,171
|
|
|
|
-
|
|
|
|
257,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Sanders (4)
|
|
Change in control,
disability, involuntary termination other than for cause, or voluntary termination for good reason
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Death
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination without good reason
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
The Corporation is prohibited from providing change in control benefits to the named executive
officers under the Severance Plan agreements for so long as the Corporation is obligated under TARP.
|
|
(2)
|
Amounts reflect the value of two years’ continued coverage under the Corporation’s
benefit plans. Such amounts are calculated at current rates and current cost sharing formulas, as futures costs are unknown.
|
|
(3)
|
The SERP benefit payable to any named executive officer who terminates his or her employment without
good reason is based on actual years of service rather than 24 years of credited service. Accordingly, benefits shown for Ms. Rodeheaver
in connection with a voluntary termination without good reason are based on 20 actual years of service. Mr. Grant has over 24 actual
years of service. Mr. Sanders is not a participant in the SERP Plan.
|
|
(4)
|
Mr. Sanders was appointed as an executive officer while the Corporation had outstanding financial
assistance under TARP, so he is not a participant under the Severance Plan.
|
Role of Compensation Consultants
The Compensation Committee has
the authority and resources necessary to engage independent consultants during the year to provide assistance and direction
with respect to executive compensation and benefits. In 2011, the Compensation Committee did not engage a compensation
consultant to assist it with the determination of the amount or form of executive compensation.
Impact of Recent Legislation on Executive Compensation
On January 30, 2009,
the Corporation participated in TARP by selling shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series
A Preferred Stock”) to Treasury and issuing a 10-year common stock purchase warrant (the “Warrant”) to Treasury.
As part of these transactions, the Corporation adopted the standards adopted by the Treasury under the Emergency Economic Stabilization
Act (“EESA”) for executive compensation and corporate governance for the period during which Treasury holds any shares
of the Series A Preferred Stock and/or any shares of common stock that may be acquired upon exercise of the Warrant. On February
17, 2009, the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) was signed into law, which, among
other things, imposed additional restrictions on the payment of executive compensation by institutions that participate in TARP.
The Recovery Act’s restrictions apply to the Corporation for as long as Treasury holds any of the Series A Preferred Stock
(the “Covered Period”).
Treasury’s standards
under EESA for executive compensation apply to the Corporation’s named executive officers and include: (i) a prohibition
on incentive compensation plans and arrangements for named executive officers that encourage unnecessary and excessive risks that
threaten the value of the Corporation; (ii) a clawback of any bonus or incentive compensation paid (or under a legally binding
obligation to be paid) to a named executive officer on materially inaccurate financial statements or other materially inaccurate
performance metric criteria; (iii) a prohibition on making “golden parachute payments” to named executive officers;
and (4) an agreement not to claim a deduction, for federal income tax purposes, for compensation paid to any of the named executive
officers in excess of $500,000 per year.
The Recovery Act continued
all of the same compensation and governance restrictions imposed under EESA, and added substantially to these restrictions in several
areas. The new standards include (but are not limited to): (i) prohibitions on bonuses, retention awards and other incentive compensation
to certain of the Corporation’s five most highly compensated employees, other than restricted stock grants, in an amount
not more than one-third of the employee’s total annual compensation which do not fully vest during the Covered Period; (ii)
prohibitions on making severance payments to any named executive officer or any of the Corporation’s next five most highly
compensated employees; (iii) an expanded clawback of bonuses, retention awards, and incentive compensation if payment is based
on materially inaccurate statements of earnings, revenues, gains or other criteria; (iv) prohibitions on compensation plans that
encourage manipulation of reported earnings; (v) retroactive review of bonuses, retention awards and other compensation previously
provided by Capital Purchase Program participants if found by the Treasury to be inconsistent with the purposes of such program
or otherwise contrary to public interest, (vi) required establishment of a company-wide policy regarding “excessive or luxury
expenditures”; and (vii) inclusion in a CPP participant’s proxy statements for annual shareholder meetings of a non-binding
“Say-on-Pay” proposal to allow a shareholder vote to approve the compensation of executives.
Accordingly, for so
long as Treasury holds any shares of the Series A Preferred Stock, the Corporation may not (i) pay any Severance Plan benefits
to the named executive officers or (ii) make payments under the EPP Plan or, unless future awards comply with the above requirements,
the LTIP to the Corporation’s five most highly compensated employees. These prohibitions have materially limited the Compensation
Committee’s ability to tie executive compensation to the Corporation’s performance. Each of the named executive officers
are among the Corporations’ five most highly compensated employees.
In addition, the rules
adopted in furtherance of TARP require the Compensation Committee to periodically review the Corporation’s executive compensation
programs to determine and address, if necessary, the risks inherent in those programs and to include certifications regarding the
same in its report that appear in the Corporation’s proxy statements. The CEO and the CFO are required to make certain certifications
in the Corporation’s Annual Reports on Form 10-K relating to the foregoing reviews and to the Corporation’s general
compliance with the rules adopted in furtherance of TARP.
It is impossible to
predict when, if at all, Treasury will dispose of the Series A Preferred Stock. At the time of the Corporation’s participation
in TARP, Treasury’s stated intention was to sell the Series A Preferred Stock as it is able to do so, and the Corporation
filed a registration statement with the SEC to register the Series A Preferred Stock and the Warrant for resale. The Recovery Act
permits the Corporation to repay TARP assistance at any time after approval by the appropriate regulators.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last two
fiscal years, the Bank has had banking transactions in the ordinary course of its business with certain Directors and officers
of the Corporation and with their associates. These transactions were on substantially the same terms, including interest rates,
collateral, and repayment terms on loans, as those prevailing at the same time for comparable transactions with person who are
not related to the Bank.
In addition to the
foregoing, Morgantown Printing & Binding, a corporation owned by director H. Andrew Walls, III and a trust established for
the benefit of his minor children, provides various printing, fulfillment, and related services to the Corporation. Total fees
paid by the Corporation to this corporation in 2011 and 2010 were $289,765 and $317,275, respectively. These fees relate to the
printing of marketing materials, account statements, and other routine items as well as providing a fulfillment service to the
Corporation. The Corporation has again retained Morgantown Printing & Binding to provide these and other services in 2012,
for which it expects to pay approximately $300,000. Management believes that all of the foregoing transactions with this corporation
are or will be on terms that are substantially similar to those that would be available if an unrelated third-party were involved.
The Corporation and
the Bank have adopted written policies and procedures to help ensure that the Corporation and the Bank comply with all legal requirements
applicable to related party transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Pursuant to Section
16(a) of the Exchange Act and the rules promulgated thereunder, the Corporation’s executive officers and Directors, and persons
who beneficially own more than 10% of the Corporation’s Common Stock, are required to file certain reports regarding their
ownership of Common Stock with the SEC. Based solely on a review of copies of such reports furnished to the Corporation, or written
representations that no reports were required, the Corporation believes that such persons timely filed all reports required to
be filed by Section 16(a) during the year ended December 31, 2011.
RATIFICATION OF APPOINTMENT OF PARENTEBEARD
LLC AS THE CORPORATION’S
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (Proposal 2)
At the 2012 Annual
Meeting, shareholders will also be asked to ratify the Audit Committee’s appointment of ParenteBeard LLC to audit the books
and accounts of the Corporation for the fiscal year ended December 31, 2012. ParenteBeard LLC has served as the Corporation’s
independent registered public accounting firm since October 1, 2009. ParenteBeard LLC has advised the Corporation that neither
the accounting firm nor any of its members or associates has any direct financial interest in or any connection with the Corporation
other than as independent public auditors. A representative of ParenteBeard LLC is not expected to be present at this year’s
Annual Meeting of Shareholders.
The Board of Directors
recommends that shareholders vote
FOR
the ratification of the appointment of ParenteBeard LLC as the Corporation’s
independent registered public accounting firm for 2012.
Because your vote is
advisory, it will not be binding upon the Audit Committee, overrule any decision made by the Audit Committee, or create or imply
any additional fiduciary duty by the Audit Committee. The Audit Committee may, however, take into account the outcome of the vote
when considering future auditor appointments.
AUDIT FEES AND SERVICES
The following table
shows the fees paid or accrued by the Corporation in 2011 and 2010 for the audit and other services provided by ParenteBeard, LLC
for those years:
|
|
FY 2011
|
|
|
FY 2010
|
|
Audit Fees
|
|
$
|
260,866
|
|
|
$
|
275,635
|
|
Audit Related Fees
|
|
|
-
|
|
|
|
-
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
All Other Fees
|
|
|
22,000
|
|
|
|
-
|
|
Total
|
|
$
|
282,866
|
|
|
$
|
275,635
|
|
Audit Fees for 2011
and 2010 include fees associated with the annual audits, the reviews of the Corporation’s quarterly reports on Form 10-Q,
and the attestation of management’s reports on internal control over financial reporting contained in the Annual Reports
on Form 10-K for those years. All Other Fees for 2011 include those fees associated with the professional services rendered for
compliance with filing requirements with the SEC using Extensible Business Reporting Language (XBRL).
The Audit Committee
has reviewed summaries of the services provided by ParenteBeard, LLC and the related fees and has determined that the provision
of non-audit services was compatible with maintaining the independence of ParenteBeard, LLC.
It is the Audit Committee’s
policy to pre-approve all audit services and permitted non-audit services (including the fees and terms thereof) to be performed
for the Corporation by its independent registered public accounting firm, subject to the de minimis exceptions for non-audit services
described in Section 10A(i)(l)(B) of the Exchange Act, which, when needed, are approved by the Audit Committee prior to the completion
of the independent registered public accounting firm’s audit. All of the 2011 and 2010 services described above were pre-approved
by the Audit Committee.
NON-BINDING ADVISORY VOTE ON EXECUTIVE
COMPENSATION (Proposal 3)
As stated above, the
Recovery Act was signed into law on February 17, 2009. In addition to a wide variety of programs intended to stimulate the economy,
the Recovery Act imposes significant new requirements for and restrictions relating to the compensation arrangements of financial
institutions that received government funds through TARP, including institutions like the Corporation that participated in the
CPP prior to the enactment of the Recovery Act. These restrictions apply until a participant repays the financial assistance received
through TARP (the “TARP Period”).
One of the requirements
is that any proxy for a meeting of shareholders at which directors are to be elected which is held during the TARP Period permit
a non-binding advisory vote on the compensation of the executive officers of the TARP participant, as described in the participant’s
proxy statement. This advisory vote is commonly referred to as a “Say on Pay” proposal.
As a shareholder, you
are being provided with the opportunity to endorse or not endorse the Corporation’s executive compensation program and policies,
as discussed above under the heading “REMUNERATION OF EXECUTIVE OFFICERS”. At the annual meeting, shareholders will
be asked to adopt the following resolution:
Resolved, that the shareholders
approve the compensation of the Corporation’s executive officers, as described in the section of this Proxy Statement entitled
“REMUNERATION OF EXECUTIVE OFFICERS”.
Because your vote is
advisory, it will not be binding upon the Board of Directors or its Compensation Committee, overrule any decision made by the Board
of Directors or its Compensation Committee, or create or imply any additional fiduciary duty by the Board of Directors or its Compensation
Committee. The Board and/or the Compensation Committee may, however, take into account the outcome of the vote when considering
future executive compensation arrangements.
The Board of Directors
and its Compensation Committee believe that the Corporation’s compensation policies and procedures are reasonable in comparison
both to the Corporation’s peer group and to the Corporation’s performance during 2011.
The Board of Directors
unanimously recommends that shareholders vote
FOR
approval of the Corporation’s executive compensation program and
policies.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR
2013 ANNUAL MEETING
A shareholder who desires
to present a proposal pursuant to Rule 14a-8 under the Exchange Act to be included in the proxy statement and voted on by the shareholders
at the 2012 Annual Meeting of Shareholders must submit such proposal in writing, including all supporting materials, to the Corporation
at its principal office no later than November 26, 2012 (120 days before the date of mailing based on this year’s proxy statement
date) and meet all other requirements for inclusion in the proxy statement. Additionally, pursuant to Rule 14a-4(c)(1) under the
Exchange Act, if a shareholder intends to present a proposal for business to be considered at the 2011 Annual Meeting of Shareholders
but does not seek inclusion of the proposal in the Corporation’s proxy statement for such meeting, then the Corporation must
receive the proposal by February 10, 2013 (45 days before the date of mailing based on this year’s proxy statement date)
for it to be considered timely received. If notice of a shareholder proposal is not timely received, then the proxies will be authorized
to exercise discretionary authority with respect to the proposal.
As of the date of this proxy statement,
the Board is not aware of any matters, other than those stated above, that may properly be brought before the meeting. If other
matters should properly come before the meeting or any adjournment thereof, persons named in the enclosed proxy or their substitutes
will vote with respect to such matters in accordance with their best judgment.
|
By order of the Board of Directors
|
|
|
|
CARISSA L. RODEHEAVER
|
|
Secretary
|
APPENDIX A
FORM OF PROXY
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