FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 2003
Commission file number 0-14237
-------
First United Corporation
------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1380770
- -------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification no.)
19 South Second Street, Oakland, Maryland 21550-0009
----------------------------------------------------
(address of principal executive offices) (zip code)
(301) 334-4715
--------------
Registrant's telephone number, including area code
Not Applicable
--------------
Former name, address and former fiscal year, if
changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate by check mark whether the registrant is an accelerated filer (As
defined in Rule 12b-2 of the Exchange Act). Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date: 6,087,433 shares of common
---------------------------
stock, par value $.01 per share, as of March 31, 2003.
- -----------------------------------------------------
INDEX TO REPORT
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2003
(unaudited) and December 31, 2002.
Consolidated Statements of Income (unaudited) - For the three
months ended March 31, 2003 and 2002.
Consolidated Statements of Cash Flows (unaudited) - For the three
months ended March 31, 2003 and 2002.
Notes to Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
CERTIFICATIONS
PART I. FINANCIAL INFORMATION
FIRST UNITED CORPORATION
Consolidated Balance Sheets
March 31, December
2003 31, 2002
(unaudited)
----------- -----------
Assets (in thousands)
Cash and due from banks $ 17,039 $ 18,242
Federal funds sold 4,075 -
Interest-bearing deposits in banks 13,238 6,207
Investment securities: Available for Sale
U.S. Treasury Securities - -
Obligations of other US Government Agencies 24,239 20,851
Obligations of State and Local Government 30,482 31,348
Other investments 162,146 163,037
----------- -----------
Total investment securities 216,867 215,236
Federal Home Loan Bank stock, at cost 8,974 9,158
Loans and Leases 685,909 665,826
Reserve for probable credit losses (6,200) (6,068)
----------- -----------
Net loans 679,709 659,758
Bank premises and equipment 13,788 13,163
Accrued interest receivable and other assets 31,287 31,913
----------- -----------
Total Assets $984,977 $953,677
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Non-interest bearing deposits $ 73,496 $ 72,789
Interest bearing deposits 623,212 577,071
----------- -----------
Total deposits 696,708 649,860
Reserve for taxes, accrued interest, and other liabilities 10,933 9,211
Federal Home Loan Bank borrowings
and other borrowed funds 196,302 214,261
Dividends payable 1,064 1,062
----------- -----------
Total Liabilities 905,007 874,394
Shareholders' Equity
Preferred stock -no par value
Authorized and unissued; 2,000 Shares
Capital Stock -par value $.01 per share:
Authorized 25,000 shares; issued and outstanding 6,087 61 61
shares at March 31, 2003, 6,081 outstanding
at December 31, 2002
Surplus 20,324 20,199
Retained earnings 57,128 55,743
Accumulated comprehensive income 2,457 3,280
----------- -----------
Total Shareholders' Equity 79,970 79,283
Total Liabilities and Shareholders' Equity $984,977 $953,677
=========== ============
2
FIRST UNITED CORPORATION
Consolidated Statement of Income
(in thousands, except per share data)
Three Months Ended March 31,
2003 2002
------------- -------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 12,133 $ 12,220
Interest on investment securities:
Taxable 1,739 1,649
Exempt from federal income tax 363 312
-------------- --------------
2,102 1,961
Interest on federal funds sold 5 25
-------------- --------------
Total interest income 14,240 14,206
Interest expense
Interest on deposits:
Savings 56 64
Interest-bearing transaction accounts 456 310
Time, $100,000 or more 959 1,104
Other time 2,070 3,024
Interest on Federal Home Loan Bank
borrowings and other borrowed funds 2,605 1,890
-------------- --------------
Total interest expense 6,146 6,392
-------------- --------------
Net interest income 8,094 7,814
Provision for probable loan and lease 656 656
losses
-------------- --------------
Net interest income after provision for probable credit 7,438 7,158
losses
Other operating income
Trust department income 635 682
Service charges on deposit accounts 714 585
Insurance premium income 314 260
Security (losses) 530 -
gains
Other income 878 807
-------------- --------------
Total other operating income 3,071 2,334
Other operating expenses
Salaries and employees benefits 4,046 3,506
Occupancy expense of 336 311
premises
Equipment 562 494
expense
Data processing 295 299
expense
Deposit assessments and related 48 44
fees
Other expense 1,823 1,689
-------------- --------------
Total other operating expenses 7,110 6,343
-------------- --------------
Income before income taxes 3,399 3,149
Applicable income taxes 947 822
------------- --------------
Net income $2,452 $2,327
============== ==============
Earnings per share $0.40 $0.38
============== ==============
Dividends per share $0.175 $0.17
============== ==============
3
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
2003 2002
-------------------- ----------------
(Unaudited)
Operating activities
Net $ 2,452 $ 2,328
Income
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for probable loan and lease 656 656
losses
Provision for 501 436
depreciation
Net accretion and amortization of investment (538) (82)
security discounts and premiums
Realized gain on sale of investment securities (530) -
Decrease in accrued interest and other assets 626 2,747
Increase/(Decrease) in reserve for taxes, accrued
interest and other liabilities 1,722 (567)
------------------ -------------
Net cash provided by operating activities 4,889 5,518
Investing activities
Net increase in Interest Bearing Deposits (7,031) (3,639)
Proceeds from maturities of available-for-sale 152,944 13,046
securities
Purchases of available-for-sale (154,144) (15,395)
securities
Net (increase)/decrease in (20,607) 10,585
loans
Purchases of premises and (1,127) (552)
equipment
------------------ --------------
Net cash (used in)/provided by investing (29,965) 4,045
activities
Financing activities
(Decrease)/increase in Federal Home Loan Bank (17,959) 400
borrowings and other borrowed money
Net increase in demand deposit accounts and 8,147 625
savings accounts
Net increase/(decrease) in certificates of 38,700 (15,259)
deposits
Cash dividends paid or (1,065) (1,040)
declared
Proceeds from issuance of common stock 125 -
----------------- -------------
Net cash provided by/(used in) financing 27,948 (15,274)
activities
----------------- -------------
Cash and cash equivalents at beginning of the 18,242 32,702
year
Increase/(Decrease) in cash and cash 2,872 (5,711)
equivalents
----------------- -------------
Cash and cash equivalents at end of $21,114 $26,991
period
================= =============
4
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 2003
Note A -- Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation, consisting of normal recurring items have been
included. Operating results for the three-month period ended March 31, 2003 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. The enclosed consolidated financial statements should
be read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 2002.
Earnings per share are based on the weighted average number of shares
outstanding of 6,087,433 for the three months ended March 31, 2003 and 6,080,589
for the three months ended March 31, 2002.
Note B - Accumulated Comprehensive Income
Accumulated comprehensive income represents the unrealized gains and losses
on the Company's available-for-sale securities, net of income taxes. During the
first three months of 2003 and 2002, total comprehensive income, net income plus
the change in unrealized gains (losses) on available-for-sale securities,
amounted to $2.45 million and $2.33 million, net of income taxes, respectively.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report of First United Corporation (the "Corporation") filed
on Form 10-Q may contain forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Readers of this report should
be aware of the speculative nature of "forward-looking statements." Statements
that are not historical in nature, including those that include the words
"anticipate," "estimate," "should," expect," "believe," "intend," and similar
expressions, are based on current expectations, estimates and projections about,
among other things, the industry and the markets in which the Corporation
operates, and they are not guarantees of future performance. Whether actual
results will conform to expectations and predictions is subject to known and
unknown risks and uncertainties, including risks and uncertainties discussed in
this report; general economic, market, or business conditions; changes in
interest rates, deposit flow, the cost of funds, and demand for loan products
and financial services; changes in the Corporation's competitive position or
competitive actions by other companies; changes in the quality or composition of
loan and investment portfolios; the ability to manage growth; changes in laws or
regulations or policies of federal and state regulators and agencies; and other
circumstances beyond the Corporation's control. Consequently, all of the
forward-looking statements made in this document are qualified by these
cautionary statements, and there can be no assurance that the actual results
anticipated will be realized, or if substantially realized, will have the
expected consequences on the Corporation's business or operations. For a more
complete discussion of these risk factors, see "Risk Factors" in Part I, Item 1
of the Corporation's Annual Report on Form 10-K for the year ended December 31,
2002. Except as required by applicable laws, the Corporation does not intend to
publish updates or revisions of any forward-looking statements it makes to
reflect new information, future events or otherwise.
The following discussion should be read and reviewed in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operation set forth in the Corporation's Annual Report on Form 10-K for the year
ended December 31, 2002.
THE COMPANY
The Corporation, headquartered in Oakland, Maryland, is a one-bank
financial holding company with four non-bank subsidiaries. The Corporation was
organized under the laws of the State of Maryland in 1985.
The direct subsidiaries of the Corporation include First United Bank &
Trust, a Maryland chartered trust company (the "Bank"), Oakfirst Life Insurance
Corporation, an Arizona reinsurance company, OakFirst Loan Center, Inc., a West
Virginia finance company, OakFirst Loan Center, LLC, a Maryland finance company,
and First United Capital Trust, a Delaware statutory business trust (the
"Trust").
The Corporation maintains an Internet site at www.mybankfirstunited.com on
which it makes available, free of charge, its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to the foregoing on its Internet site as soon as reasonably practicable after
these reports are electronically filed with, or furnished to, the Securities and
Exchange Commission (the "SEC").
On February 13, 2003, the Corporation and the Bank entered into a Purchase
and Assumption Agreement with The Huntington National Bank to purchase four
branch offices located in Berkeley County, West Virginia for an amount based on
an 11% deposit premium. The acquisition will involve the assumption of
approximately $140 million in deposit liabilities and the purchase of $54
million in outstanding loans as well as three buildings and fixed assets at
these locations. The fourth building is leased, which lease will be assumed by
the Bank. The acquisition is subject to regulatory approval and is expected to
be consummated in July of 2003.
6
FINANCIAL CONDITION
The Corporation's total assets were $984.98 million at March 31,
2003,compared to $953.68 million at December 31, 2002, increasing $31.30 million
or 3.28%. Earning assets increased $32.50 million or 3.65% to $922.86 million at
March 31, 2003, from $890.36 million at December 31, 2002.
Growth in net loans for the first three months of 2003 was $19.95 million
or 3.02% to a total of $679.71 million. Commercial loans, including mortgage
loans, installment loans, and lines of credit increased $18.58 million during
the first three months of 2003. Consumer installment loans increased $6.18
million. Home equity loans had a $.06 million decrease. The historically high
re-financings that occurred in 2002 in the consumer mortgage portfolio continued
throughout the first quarter of 2003. Residential mortgage loans decreased $5.02
million during the first quarter of 2003. The OakFirst Loan Centers, the
Corporation's consumer finance companies, contributed $.27 million in growth in
the first quarter of 2003. Net loans declined during the first quarter of 2002
by $11.24 million.
The investment portfolio that consists solely of available-for-sale
securities increased $1.63 million during the first three months of 2003.
Deposits totaled $696.71 million at March 31, 2003. This is an increase of
$46.85 million from the December 31, 2002 total of $649.86 million. Non-interest
bearing deposits grew $.71 million in the first quarter of 2003. Interest
bearing deposits grew $46.14 in the first quarter. This increase in interest
bearing deposits includes a net-brokered deposit growth of $35.00 million.
Deposits decreased $15.69 million during the first quarter of 2002. This
decrease was primarily attributable to a decline in the certificates of deposit
portfolio.
MARKET RISK MANAGEMENT
The Corporation's principal market risk exposure is to interest rates. The
Corporation intends to effectively manage the adverse effects of changing
interest rates on earnings, long-term shareholder value, and liquidity through
the use of a simulation model. The simulation model captures optionality factors
such as call features and interest rate caps and floors imbedded in investment
and loan portfolio contractual obligations. As of March 31, 2003, the simulation
analysis shows that net interest income would decline by 7.90% or $2.68 million
over a twelve-month period given an interest rate decrease of 100 basis points.
The Corporation's policy states that a net interest income change of 5.00% or
less requires no action. For a net interest income change of greater than 5.00%
but less than 10.00%, the Asset/Liability Committee must be informed at the next
regularly scheduled quarterly meeting. An increase in interest rates impacts the
Corporation's net interest income favorably. In terms of the economic value of
equity given the same shift in interest rates, the fair value of the
Corporation's capital would decrease 16.20% or $16.98 million as compared to a
policy limit of 10.00%. A change in the fair value of equity of greater than
10.00% but less than 20.00% requires that the Asset/Liability Committee be
informed at the next regularly scheduled quarterly meeting. An increase in
interest rates would increase the fair value of the Corporation's capital.
LIQUIDITY AND CAPITAL MANAGEMENT
The Corporation derives liquidity through increased customer deposits,
maturities in the investment portfolio, loan repayments and income from earning
assets. To the extent that deposits are not adequate to fund customer loan
demand, liquidity needs can be met in the short-term funds markets through
arrangements with the Corporation's correspondent banks. The Corporation's bank
subsidiary, First United Bank (the "Bank"), is also a member of the Federal Home
Loan Bank of Atlanta, which provides another source of liquidity. There are no
known trends or demands, commitments, events or uncertainties of which
management is aware that will materially affect the Corporation's ability to
maintain liquidity at satisfactory levels.
The Corporation recorded a total risk-based capital ratio of 14.84% at
March 31, 2003 as compared to 14.31% at December 31, 2002. The Tier 1 risk-based
capital ratio was 11.16% at March 31, 2003 as compared to 11.39% at December 31,
2002. Capital adequacy was well-above regulatory requirements. The regulatory
requirements for total risk-based capital and Tier 1 capital are 8.00% and
4.00%, respectively, to maintain capital adequacy. The risk-based capital rules
have been further supplemented by a leverage ratio, defined as Tier I capital
divided by average assets, after certain adjustments. The
7
minimum leverage ratio is 3% for banking organizations that do not anticipate
significant growth and have well-diversified risk (including no undue interest
rate risk exposure), excellent asset quality, high liquidity and good earnings.
The leverage ratio at March 31, 2003 was 11.33%. Shareholder's equity at March
31, 2003 was $79.97 million as compared to $79.28 million at December 31, 2002
The Corporation paid a cash dividend of $.175 on February 1, 2003. On March
19, 2003, the Corporation declared another dividend of an equal amount, to be
paid May 1, 2003, to shareholders of record at April 18, 2003.
RESULTS OF OPERATIONS
Consolidated net income for the first quarter of 2003 totaled $2.45
million or $.40 per share compared to $2.33 million or $.38 per share for the
same period of 2002. This is a net income increase of 5.39% and earnings
per share increase of 5.26%. This increase in net income includes net securities
gains of $.53 million that were recognized during the first quarter of 2003.
The Corporation's performance ratios remain stable. Annualized Returns on
Average Equity ("ROAE") were 12.44% and 13.06% for the three-month periods
ending March 31, 2003 and March 31, 2002, respectively. The ROAE for the year
ended December 31, 2002 was 12.75%. Annualized Returns on Average Assets
("ROAA") were 1.03% and 1.17% for the first three months of 2003 and 2002,
respectively. This ratio was 1.13% for the year ended December 31, 2002. The
efficiency ratio is a key measuring tool for profitability and operating
efficiency. A lower ratio equals higher profitability and operating
efficiencies. The Corporation's efficiency ratio remained steady at 62.39% for
the periods ended March 31, 2003 and December 31, 2002. This ratio was 61.31%
for the period ended March 31, 2002.
Despite decreasing rates in the market, the Corporation's net interest
income year to date was $8.09 million, an increase of $.28 million over the
$7.81 million reported in 2002 for the same time period. Average earning assets
totaled $908.80 million and $743.72 million at March 31, 2003 and March 31,2002,
respectively. The yield on earning assets for those same time periods was 6.46%,
and 7.72%, respectively. The average cost of funds for the period ending March
31, 2003 was 2.73% as compared to 3.46% at March 31, 2002. The net interest
margin decreased from 4.26% at March 31, 2002 to 3.73% at March 31, 2003.
For the three months ended March 31, 2003, the provision for probable loan
and lease losses was $.66 million. This was the same as March 31, 2002. Net
charge-offs for the three-month period ended March 31, 2003 were $.52 million as
compared to $.54 million for the same time period in 2002. The over 30-day
delinquency ratio was .83% at March 31, 2003 as compared to .98% for the period
ending March 31, 2002. This same ratio was 1.05% at December 31, 2002.
Non-performing loans were .48% of gross loans as of March 31, 2003, and the
Corporation's loan and lease loss reserve was .90% of gross loans representing
193.39% of non-performing loans. Non-performing loans were .50% of gross loans
as of December 31, 2002, and the Corporation's loan loss reserve was .91% of
gross loans representing 184.05% of non-performing loans. An analysis of loan
and lease losses can be referenced on page 10.
For the three months ended March 31, 2003, other operating income was $3.07
million, compared to $2.33 million for the same time period in 2002. During the
first quarter of 2003, net securities gains of $.53 million were recognized. The
net securities gains included gains on the sale of securities of $.88 million
and $.35 million in write-downs on two securities exhibiting
other-than-temporary impairment. In this historically low interest rate
environment, First United chose to sell several mortgage-backed securities that
were exhibiting accelerated payback thus resulting in reduced yield for the
Corporation. The proceeds from these sales were reinvested in securities in
which the underlying collateral is consumer mortgage loans originated at lower
interest rates, which management believes are less likely to experience
accelerated payback. A write-down of $.01 million was taken on a Federal Home
Loan Mortgage Corporation. Preferred Stock equity security and a write-down of
$.34 million was taken on a Freddie Mac Preferred Stock equity security. There
were no security gains recognized during the first quarter of 2002. As a part of
other operating income, trust services income of $.64 million during the first
three months of 2003 was down from the $.68 million as of March 31, 2002. The
performance of the equity and bond markets continues to affect
8
trust financial performance. The Bank's trust department managed accounts whose
market values were $315.53 million at March 31, 2003 as compared to $296.88 at
March 31, 2002.
Other operating expense for the three-month period ended March 31, 2003
totaled $7.11 million, compared to $6.34 million for the same period in 2002,
representing an increase of $.77 million or 12.09%. The largest item in this
category, salaries and employee benefits, increased $.54 million or 15.40% in
2003. Increased incentive payments related to employee performance contributed
to this increase as well as increased pension costs. Other items that
contributed to this increase are equipment purchases resulting in increased
equipment depreciation expense and vendor commission expense.
The increase in earnings resulted in an increase in income tax expense of
$.13 million for the first three months of 2003 as compared to the same time
period in 2002. The effective tax rate for the first quarter of 2003 was 27.86%
as compared to 26.10% for the first quarter of 2002.
9
Summary of Loan and Lease Loss Experience
ANALYSIS OF THE RESERVE FOR PROBABLE LOAN AND LEASE LOSSES
March 31, 2003
--------------
Balance, January 1 $6,068
Charge-offs:
Domestic:
Commercial 0
Real estate - mortgage 5
Installment loans to individuals 609
-------------
614
-------------
Recoveries:
Domestics:
Commercial 1
Real estate - mortgage 1
Installment loans to individuals 88
-------------
90
-------------
Net Charge-offs 524
-------------
Provision for Probable Loan and Lease Losses 656
-------------
Balance at end of period $ 6,200
=============
Ratio of net charge-offs during the period to average
loans outstanding during the period, annualized .31%
=============
Risk Elements of Loan Portfolio
The following table provides a comparison of the Risk Elements of the Loan
Portfolio in the format prescribed by Item III-C of Industry Guide 3. The Bank
has no foreign loans. The Bank has a single commercial loan defined as a
troubled debt restructuring with an outstanding balance of $.56 million. The
status of the restructured debt at March 31, 2003 is current. Management
believes that because the restructured debt is fully collateralized, there will
be no loss on the loan. Further, the Bank has no knowledge of any potential
problem loans other than those in the table below. As of March 31, 2003, the
Corporation's non-accrual loans increased $.25 million from the year-end total
of $1.85 million.
March 31 December 31
2003 2002
-------------------------------
Non-accrual loans 2,101 $1,847
Accruing loans past due 90 days or more 1,111 1,458
Information with respect to non-accrual loans at
March 31, 2003 and December 31, 2002, are as follows:
Non-accrual Loans $2,101 $1,847
Interest income that would have been
recorded under original terms 27 25
Interest income recorded during the period 5 1
10
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is discussed under "Market Risk
Management" in Part I, Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Within the 90 days
prior to the date of this report, the Corporation carried out an evaluation
("Evaluation"), under the supervision and with the participation of the
Corporation's management, including the Corporation's Chief Executive Officer
("CEO") and its President/Chief Financial Officer ("CFO"), of the effectiveness
of the design and operation of the Company's disclosure controls and procedures
("Disclosure Controls") and its internal controls and procedures for financial
reporting ("Internal Controls").
Disclosure Controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Securities Exchange Act of 1934 ("Exchange Act"), such as this Quarterly
Report, is recorded, processed, summarized and reported within the time periods
specified in the rules and forms issued by the SEC. Disclosure Controls are also
designed with the objective of ensuring that such information is accumulated and
communicated to our management, including the CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure. Internal Controls are
procedures that are designed with the objective of providing reasonable
assurance that (i) our transactions are properly authorized; (ii) our assets are
safeguarded against unauthorized or improper use; and (iii) our transactions are
properly recorded and reported, all to permit the preparation of our financial
statements in conformity with generally accepted accounting principles.
CEO and CFO Certifications
Appearing immediately following the Signatures section of this Quarterly
Report there are "Certifications" of the CEO and the CFO. The Certifications are
required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002. The
section of the Quarterly Report that you are currently reading is the
information concerning the Evaluation, and this information should be read in
conjunction with the Certifications for a more complete understanding of the
topics presented.
Limitations on the Effectiveness of Controls
The Corporation's management, including the CEO and CFO, does not expect
that our Disclosure Controls or our Internal Controls will prevent all error and
all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Corporation have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the control. The design of any system of controls also is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions; over time, control may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
Conclusions
Based upon the Evaluation, the Corporation's CEO and the CFO have concluded
that the Corporation's Disclosure Controls are effective in timely alerting them
to material information relating to the
11
Corporation (including its consolidated subsidiaries) required to be included in
the Corporation's periodic SEC filings, and that our Internal Controls are
effective to provide reasonable assurance that our financial statements are
fairly presented in conformity with generally accepted accounting principles.
(b) Changes in Internal Controls. There were no significant changes in the
Corporation's Internal Controls or in other factors that could significantly
affect those Internal Controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 of the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998)
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3(ii) of the Company's Annual Report on Form 10-K for
the year ended December 31, 1997)
99.1 Certifications of the Chief Executive Officer and of the
President/Chief Financial Officer pursuant to 18 U.S.C. Section
1350 (filed herewith)
(b) Reports on Form 8-K
On February 14, 2003, the Corporation filed a Current Report on
Form 8-K to report in Item 5 thereof that the Corporation and
the Bank executed a definitive Purchase and Assumption
Agreement to acquire four banking offices located in Berkeley
County, West Virginia from Huntington Bancshares Incorporated,
and its bank subsidiary, The Huntington National Bank.
12
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date: May 13, 2003 /s/ William B. Grant
----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date May 13, 2003 /s/ Robert W. Kurtz
----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
13
CERTIFICATIONS
I, William B. Grant, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (this "Report") of First
United Corporation (the "Company");
2. Based on my knowledge, this Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Report;
4. The Company's Chief Financial Officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and
c) presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Company's Chief Financial Officer and I have disclosed, based on our most
recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls that could adversely affect the Company's ability to record, process,
summarize and report financial data and have identified for the Company's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls;
and
6. The Company's Chief Financial Officer and I have indicated in this Report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
Date: May 13, 2003 /s/ William B. Grant
-----------------------------------
William B. Grant
Chairman of the Board/CEO
14
I, Robert W. Kurtz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (this "Report") of First
United Corporation (the "Company");
2. Based on my knowledge, this Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Report;
4. The Company's Chief Executive Officer and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the Company and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of the date within 90 days prior to the filing date of this report
(the "Evaluation Date"); and
c) presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The Company's Chief Executive Officer and I have disclosed, based on our most
recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls that could adversely affect the Company's ability to record, process,
summarize and report financial data and have identified for the Company's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal controls;
and
6. The Company's Chief Executive Officer and I have indicated in this Report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weakness.
Date: May 13, 2003 /s/ Robert W. Kurtz
-----------------------------------
Robert W. Kurtz
President/Chief Financial Officer
15
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 of the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998)
3.2 Amended and Restated By-Laws (incorporated by reference to Exhibit
3(ii) of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997
99.1 Certifications of the Chief Executive Officer and of then President/
Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (filed
herewith)