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,June 30, 2003
Commission file number 0-14237
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First United Corporation
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(Exact name of registrant as specified in its charter)
Maryland 52-1380770
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification no.)
19 South Second Street, Oakland, Maryland 21550-0009
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(address of principal executive offices) (zip code)
(301) 334-4715
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Registrant's telephone number, including area code
Not Applicable
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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 -- --__
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Indicate by check mark whether the registrant is an accelerated filer (As
defined in Rule 12b-2 of the Exchange Act). Yes X No -- --__
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicalpracticable date: 6,087,433 shares of common
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stock, par value $.01 per share, as of MarchJuly 31, 2003.
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INDEX TO REPORT
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31,June 30, 2003
(unaudited) and December 31, 2002.
Consolidated Statements of Income (unaudited) - For the three and six
months ended March 31,June 30, 2003 and 2002.
Consolidated Statements of Cash Flows (unaudited) - For the threesix months
ended March 31,June 30, 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,
June 30, December
2003 31, 2002
(unaudited)
----------- -------------------------- --------------
Assets (in thousands)
Cash and due from banks $ 17,039 $ 18,242$22,805 $18,242
Federal funds sold 4,0753,725 -
Interest-bearing deposits in banks 13,2388,223 6,207
Investment securities: Availableavailable for Sale
U.S. Treasury Securities - -sale
Obligations of other US Government Agencies 24,239U.S. government agencies 38,630 20,851
Obligations of Statestate and Local Government 30,482local government 31,673 31,348
Other investments 162,146138,499 163,037
----------- -------------------------- --------------
Total investment securities 216,867208,802 215,236
Federal Home Loan Bank stock, at cost 8,9748,824 9,158
Loans and Leases 685,909leases 712,427 665,826
Reserve for probable creditloan and lease losses (6,200)(5,785) (6,068)
----------- -------------------------- --------------
Net loans 679,709706,642 659,758
Bank premises and equipment 13,78813,930 13,163
Accrued interest receivable and other assets 31,28731,600 31,913
----------- -------------------------- --------------
Total Assets $984,977$1,004,551 $953,677
=========== ========================== ==============
Liabilities and Shareholders' Equity
Liabilities
Non-interest bearing deposits $ 73,49671,346 $ 72,789
Interest bearing deposits 623,212639,235 577,071
----------- -------------------------- --------------
Total deposits 696,708710,581 649,860
Reserve for taxes, accrued interest, and other liabilities 10,93314,750 9,211
Federal Home Loan Bank borrowings
and other borrowed funds 196,302194,542 214,261
Dividends payable 1,064 1,062
----------- -------------------------- --------------
Total Liabilities 905,007920,938 874,394
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 61 61
Surplus 20,324 20,199
Retained earnings 57,12859,369 55,743
Accumulated other comprehensive income 2,4573,860 3,280
----------- -------------------------- --------------
Total Shareholders' Equity 79,97083,614 79,283
Total Liabilities and Shareholders' Equity $984,977$1,004,551 $953,677
=========== =========================== ==============
2
FIRST UNITED CORPORATION
Consolidated Statement of Income
(in thousands, except per share data)
Three
Six Months Ended
March 31,June 30,
2003 2002
------------- --------------------------- --------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 12,13324,404 $ 12,22024,267
Interest on investment securities:
Taxable 1,739 1,6493,568 3,204
Exempt from federal income tax 363 312727 673
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2,102 1,9614,295 3,877
Interest on federal funds sold 5 2512 43
-------------- --------------
Total interest income 14,240 14,20628,711 28,187
Interest expense
Interest on deposits:
Savings 56 64101 130
Interest-bearing transaction accounts 456 310931 779
Time, $100,000 or more 959 1,1041,986 2,156
Other time 2,070 3,0243,763 5,759
Interest on Federal Home Loan Bank
borrowings and other borrowed funds 2,605 1,8905,215 3,814
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Total interest expense 6,146 6,39211,996 12,638
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Net interest income 8,094 7,81416,715 15,549
Provision for probable loan and lease 656 656
losses 339 1,216
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Net interest income after provision for probable
credit 7,438 7,158loan and lease losses 16,376 14,333
Other operating income
Trust department income 635 6821,270 1,364
Service charges on deposit accounts 714 5851,446 1,235
Insurance premium income 314 260603 550
Security gains (losses) 530 -
gains337 (6)
Other income 878 8071,923 1,577
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Total other operating income 3,071 2,3345,579 4,720
Other operating expenses
Salaries and employeesemployee benefits 4,046 3,5067,838 6,814
Occupancy expense of 336 311
premises 645 624
Equipment 562 494
expense 1,152 1,054
Data processing 295 299
expense 586 566
Deposit assessments and related 48 44
fees 90 86
Other expense 1,823 1,6893,599 3,454
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Total other operating expenses 7,110 6,34313,910 12,598
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Income before income taxes 3,399 3,1498,045 6,455
Applicable income taxes 947 822
-------------2,274 1,757
-------------- --------------
Net income $2,452 $2,327$5,771 $4,698
============== ==============
Earnings per share $0.40 $0.38$0.94 $0.77
============== ==============
Dividends per share $0.175 $0.17
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3
FIRST UNITED CORPORATION
Consolidated Statement of Income
(in thousands, except per share data)
Three Months Ended
June 30,
2003 2002
-------------- --------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 12,271 $ 12,048
Interest on investment securities:
Taxable 1,830 1,555
Exempt from federal income tax 363 361
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2,193 1,916
Interest on federal funds sold 7 18
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Total interest income 14,471 13,982
Interest expense
Interest on deposits:
Savings 46 66
Interest-bearing transaction accounts 486 478
Time, $100,000 or more 1,027 1,052
Other time 1,682 2,725
Interest on Federal Home Loan Bank
borrowings and other borrowed funds 2,609 1,925
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Total interest expense 5,850 6,246
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Net interest income 8,621 7,736
Provision for probable loan and lease losses (317) 560
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Net interest income after provision for probable
loan and lease losses 8,938 7,176
Other operating income
Trust department income 635 682
Service charges on deposit accounts 732 650
Insurance premium income 289 290
Security (losses) gains (192) (6)
Other income 1,045 770
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Total other operating income 2,509 2,386
Other operating expenses
Salaries and employees benefits 3,792 3,308
Occupancy expense of premises 310 313
Equipment expense 590 560
Data processing expense 291 267
Deposit assessments and related fees 42 43
Other expense 1,776 1,765
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Total other operating expenses 6,801 6,256
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Income before income taxes 4,646 3,306
Applicable income taxes 1,325 935
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Net income $3,321 $2,371
============== ==============
Earnings per share $0.54 $0.39
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Dividends per share $0.175 $0.17
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4
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three Months Ended March 31,
2003 2002
-------------------- ----------------
(Unaudited)
Six Months Ended June 30,
2003 2002
-------------- --------------
(Unaudited)
Operating activities
Net Income $ 2,4525,771 $ 2,328
Income4,697
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for probable loan and lease 656 656339 1,216
losses
Provision for 501 436
depreciation 1,014 882
Net accretion and amortization of investment (538) (82)
security
discounts and premiums (998) (168)
Realized gain(gain)/loss on sale of investment securities
(530) -(337) 6
Decrease in accrued interest receivable and
other assets 626 2,747
Increase/(Decrease)313 1,208
Increase in reserve for taxes, accrued interest
and other liabilities 1,722 (567)
------------------ -------------5,539 706
-------------- --------------
Net cash provided by operating activities 4,889 5,51811,641 8,547
Investing activities
Net increase in Interest Bearing Deposits (7,031) (3,639)interest bearing deposits (2,016) (698)
Proceeds from maturities of available-for-sale 152,944 13,046available-for-
sale securities 208,110 32,426
Purchases of available-for-sale (154,144) (15,395)
securities (199,440) (38,553)
Net (increase)/decreaseincrease in (20,607) 10,585
loans (47,223) (10,623)
Purchases of premises and (1,127) (552)
equipment ------------------(1,782) (1,095)
-------------- --------------
Net cash (used in)/provided byused in investing (29,965) 4,045
activities (42,351) (18,543)
Financing activities
(Decrease)/increase in Federal Home Loan
Bank (17,959) 400
borrowings and other borrowed money (19,719) 6,040
Net increase in demand deposit accounts and
8,147 625
savings accounts 20,284 25,818
Net increase/(decrease) in certificates of
38,700 (15,259)
deposits 40,423 (31,915)
Cash dividends paid or (1,065) (1,040)
declared (2,115) (2,069)
Proceeds from issuance of common stock 125 -
----------------- --------------------------- --------------
Net cash provided by/(used in) financing
27,948 (15,274)
activities ----------------- -------------38,998 (2,126)
-------------- --------------
Cash and cash equivalents at beginning of the
year 18,242 32,702
year
Increase/(Decrease)(decrease) in cash and cash
2,872 (5,711)
equivalents
----------------- -------------Equivalents 8,288 (12,122)
Cash and cash equivalents at end of $21,114 $26,991
period ================= =============$26,530 $20,580
============== ==============
45
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31,June 30, 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,June 30, 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 threesix months ended March 31,June 30, 2003 and 6,080,589
for the threesix months ended March 31,June 30, 2002.
Note B - Accumulated Comprehensive Income
Accumulated other comprehensive income represents the unrealized gains
and losses on the Company's available-for-sale securities, net of income taxes.
During the first threesix 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, amounted to $6.35 million and $6.00 million,
respectively.
5Note C - Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities" ("VIEs"), an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to
improve financial reporting of special purpose and other entities. A VIE is a
partnership, limited liability company, trust or other legal entity that does
not have sufficient equity to permit it to finance its activities without
additional subordinated financial support from other parties, or whose investors
lack certain characteristics associated with owning a controlling financial
interest. Business enterprises that represent the primary beneficiary of a VIE
must consolidate the entity in its financial statements. Prior to the issuance
of FIN 46, consolidation generally occurred when an enterprise controlled
another entity through voting interests. The consolidation provisions of FIN 46
apply to VIEs entered into after January 31, 2003, and for preexisting VIEs in
the first interim reporting period after June 15, 2003.
With respect to other interests in entities subject to FIN 46, the
Company has initially determined that the provisions of FIN 46 may require
de-consolidation of the Company's subsidiary trusts, which issued mandatorily
redeemable preferred capital securities to third-party investors. At adoption of
FIN 46, the grantor trusts may be de-consolidated and the junior subordinated
debentures of the Company will be reported in the Consolidated Balance Sheets as
"Long-term debt", while the Company's equity interest in the trusts will be
reported as "Other assets". For regulatory reporting purposes, the Federal
Reserve Board has indicated that the preferred securities will continue to
qualify as Tier 1 Capital until further notice.
6
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,"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").
RECENT DEVELOPMENTS
On February 13,July 25, 2003, the Corporation andCorporation's bank subsidiary, First United Bank
& Trust (the "Bank"), consummated the Bank entered into a Purchase
and Assumption Agreement with The Huntington National Bank to purchase of four branch offices locatedbanking centers in
Berkeley County, West Virginia from The Huntington National Bank for an amount based onwhich it
paid an 11% deposit premium. The acquisition will involvepremium on acquired deposits, or approximately $14.38 million. As
part of this transaction, the assumption of
approximately $140Bank assumed $130.72 million in deposit
liabilities and the purchase of $54purchased $49.45 million in outstanding loans as well as three
buildings and fixed assets at these locations. The fourth building is leased,
which lease will bewas assumed by the Bank. The Bank will account for the acquisition
is subject to regulatory approval and is expected to
be consummatedas a business combination in Julyaccordance with Statement of 2003.
6Financial Accounting
Standards No. 147, Acquisitions of Certain Financial Institutions.
7
FINANCIAL CONDITION
The Corporation's total assets were $984.98 million$1.00 billion at March 31,June 30, 2003compared to $953.68 million at December 31, 2002, increasing $31.30$50.87 million or
3.28%5.33%. Total assets increased $19.57 million or 1.99% from the $984.98 million
reported at March 31, 2003. Earning assets increased $32.50$45.85 million or 3.65%5.15% to
$922.86$936.21 million at March 31,June 30, 2003, from $890.36 million at December 31, 2002.
During the second quarter of 2003, earning assets increased $13.35 million or
1.45%.
Growth in net loans for the first threesix months of 2003 was $19.95$46.88 million
or 3.02%7.11% to a total of $679.71$706.64 million. Commercial loans, including mortgage
loans, installment loans, and lines of credit increased $18.58$38.55 million during
the first threesix months of 2003. Consumer installment loans increased $6.18$5.85
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.increased $1.13 million. Residential mortgage loans
decreased $5.02$.25 million during the first quartersix months of 2003. The OakFirst Loan
Centers, the Corporation's consumer finance companies, contributed $.27$.63 million
in growth in the first quartersix months of 2003. Net loans declinedincreased during the first
quartersix months of 2002 by $11.24$9.41 million. Growth in net loans for the second quarter
of 2003 was $26.23 million.
Table 1 - Analysis of Gross Loans and Leases
The following table presents the trends in the composition of the gross loan and
lease portfolio at the dates indicated:
(In thousands) June 30, 2003 % December 31, 2002 %
- --------------------------------------------------------------------------------
Commercial $ 281,699 39.54% $ 242,470 36.42%
Residential-Construction 11,204 1.57% 11,072 1.66%
Residential-Mortgage 235,273 33.02% 233,887 35.13%
Installment 180,798 25.38% 173,578 26.07%
Lease Financing 3,453 0.49% 4,819 0.72%
--------- ------- --------- -------
Total Loans and Leases $ 712,427 100.00% $ 665,826 100.00%
The investment portfolio that consists solely of available-for-sale
securities increased $1.63decreased $6.43 million during the first threesix months of 2003. Within
the investment portfolio, the category, Other investments decreased $24.54
million during the first six months of 2003. Two items contributed to this
decrease. One, the Corporation decided to sell two specific issues of FreddieMac
securities that were initially written down to market value in December 2002
under an interpretation of the other-than-temporary impairment rules. At the
time of the sale, these securities had a book value of $4.29 million. Two, the
Corporation chose to sell several mortgage-backed securities that were
exhibiting accelerated payback thus resulting in reduced yield for the
Corporation. These securities had a book value of $23.82 million. The proceeds
from these sales were reinvested in agency securities in which the underlying
collateral is consumer mortgage loans originated at lower interest rates;
therefore, being less likely to experience accelerated payback. The Corporation
accepted a slightly lower coupon on the securities and extended the average life
of the investments to slightly greater than four years as compared to the
average life of one year for the original investments.
8
Table 2 - Analysis of Investment Portfolio
The following table presents the trends in the composition of the investment
portfolio at the dates indicated:
(In thousands) June 30, 2003 % December 31, 2002 %
- --------------------------------------------------------------------------------
U.S. Treasury $ 304 0.15% $ 305 0.14%
Federal Agencies 38,630 18.50% 30,390 14.12%
State Municipal 31,673 15.17% 31,354 14.57%
Other 138,195 66.18% 153,187 71.17%
--------- ------- --------- -------
Total Investment Securities $ 208,802 100.00% $ 215,236 100.00%
Deposits totaled $696.71$710.58 million at March 31,June 30, 2003. This is an increase
of $46.85$60.72 million from the December 31, 2002 total of $649.86 million.
Non-interest bearing deposits grew $.71declined $1.44 million in the first quartersix months of
2003. Interest bearing deposits grew $46.14 in$62.16 million for the first quarter.same time period.
This increase in interest bearing deposits includes a net-brokerednet brokered deposit growth
of $35.00$45.00 million. Deposit growth during the second quarter of 2003 was $13.87
million. Deposits decreased $15.69$6.10 million during the first quartersix months of 2002.
This
decrease was primarily attributable to a declineTable 3 - Analysis of Average Deposits
The following table presents the trends in the certificatescomposition of deposit
portfolio.average deposits
at the dates indicated:
(In thousands) June 30, 2003 % December 31, 2002 %
- -------------------------------------------------------------------------------------------
Noninterest-bearing demand deposits $ 72,040 10.53% $ 65,284 10.55%
Interest-bearing demand deposits 217,688 31.80% 178,572 28.86%
Savings deposits 47,512 6.94% 43,655 7.05%
Time deposits $100,000 or more 139,668 20.40% 102,201 16.52%
Time deposits $100,000 or less 207,636 30.33% 229,114 37.02%
--------- ------- ---------- -------
Total Average Deposits $ 684,544 100.00% $ 618,826 100.00%
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,June 30, 2003, the simulation
analysis shows that net interest income would decline by 7.90%8.90% or $2.68$2.95 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 which measures the long-term risk in the balance sheet by valuing the
bank's assets and liabilities at "market", given the same shift in interest
rates, the fair value of the Corporation's capital would decrease 16.20%18.40% or
$16.98$18.78 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.
9
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.banks or through the purchase
of brokered certificates of deposit. 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%14.66% at
March 31,June 30, 2003 as compared to 14.31% at December 31, 2002. The Tier 1 risk-based
capital ratio was 11.16%11.35% at March 31,June 30, 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,June 30, 2003 was 11.33%10.34%. Shareholder's equityEquity at March
31,June 30, 2003 was $79.97$83.61
million as compared to $79.28 million at December 31, 20022002.
The Corporation paid a cash dividend of $.175 per share on FebruaryMay 1, 2003.
On March
19,June 18, 2003, the Corporation declared another dividend of an equal amount,
to be paid MayAugust 1, 2003, to shareholders of record at AprilJuly 18, 2003.
RESULTS OF OPERATIONS
Consolidated net income for the first quartersix months of 2003 totaled $2.45$5.77
million or $.40$.94 per share compared to $2.33$4.70 million or $.38$.77 per share for the
same period of 2002. This is a net income increase of 5.39%22.77% and earnings per
share increase of 5.26%22.08%. Net income for the three months ended June 30, 2003
was $3.32 million, or $.54 per share compared to $.39 per share for the same
period of 2002. This increase in net income includesis comprised of two items: net
securities gains of $.53$.34 million that were recognized during the first six
months of 2003; and adjustments made to the reserve for probable loan and lease
losses during the second quarter of 2003.
The methodology that is used in the calculation for reserve for
probable loan and lease losses indicated that the Corporation had a higher level
of reserve than what was required for the current credit quality of the loan and
lease portfolios. Additionally, a re-evaluation of the collateral for a large
commercial loan, currently in non-accrual status proved that the Bank is in a
secure collateral position relative to the loan balance, with no loss
anticipated, resulting in a special allocation for that loan facility being
removed from the reserve. Both of these factors contributed to a negative
provision for probable loan and lease losses of $.32 million for the second
quarter of 2003.
The Corporation's performance ratios remain stable. Annualized Returns
on Average Equity ("ROAE") were 12.44%14.36% and 13.06%12.98% for the three-monthsix-month periods
ending March 31,June 30, 2003 and March 31,June 30, 2002, respectively. The ROAE for the year
ended December 31, 2002 was 12.75%. Annualized Returns on Average Assets
("ROAA") were 1.03%1.19% and 1.17% for the first threesix months of 2003 and 2002,
respectively. This ratio was 1.13% for the year ended December 31, 2002.
The Corporation uses a non-GAAP traditional efficiency ratio isas 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%is used by
management as part of its evaluation of its management of non-interest expenses.
This ratio is not a substitute for the period ended March 31, 2002.an analysis of performance based on GAAP
measures. The traditional and GAAP based efficiency ratios are presented and
reconciled in Table 4.
10
Table 4 - GAAP based and traditional efficiency ratios
Six Months Ended
- --------------------------------------------------------------------------------
June 30,
- --------------------------------------------------------------------------------
(in thousands) 2003 2002
- --------------------------------------------------------------------------------
Noninterest expenses - GAAP based $13,910 $12,598
Net interest income plus noninterest income-
GAAP based 22,294 20,269
Efficiency ratio - GAAP based 62.39% 62.15%
======== =========
Noninterest expenses - GAAP based 13,910 12,598
Less non-GAAP adjustments: - -
-------- ---------
Noninterest expenses-traditional ratio 13,910 12,598
Net interest income plus noninterest income-
GAAP based 22,294 20,269
Plus non-GAAP adjustment:
Tax-equivalency 432 412
Less non-GAAP adjustments:
Securities gains (losses) 337 (6)
-------- --------
Net interest income plus noninterest
Income - traditional ratio 22,389 20,687
Efficiency ratio - traditional 62.13% 60.90%
======== =========
Despite decreasing rates in the market, the Corporation's net interest
income year to date was $8.09$16.38 million, an increase of $.28$2.04 million over the
$7.81$14.33 million reported in 2002 for the same time period. Net interest income
for the second quarter of 2003 was $8.94 million as compared to $7.34 million
for the same time period of 2002. Average earning assets totaled $908.80$915.10 million
and $743.72$743.95 million at March 31,June 30, 2003 and March 31,2002,June 30,2002, respectively. The yield
on earning assets for those same time periods was 6.46%6.39%, and 7.72%7.59%,
respectively. The average cost of funds for the period ending March
31,June 30, 2003 was
2.73%2.63% as compared to 3.46%3.38% at March 31,June 30, 2002. The net interest margin decreased
from 4.26%4.21% at March 31,June 30, 2002 to 3.73%3.76% at March 31,June 30, 2003.
For the three and six months ended March 31,June 30, 2003, the provision for
probable loan and lease losses was $.66 million. This was$-.32 million and $.34 million, respectively.
For the same as March 31, 2002.time period of 2002, the provision for probable loan and lease
losses was $.56 million and $1.22 million, respectively. Net charge-offs for the
three-monthsix-month period ended March 31,June 30, 2003 were $.52$.62 million as compared to $.54$.80
million for the same time period in 2002. The over 30-day delinquency ratio was
.83%..90% at March 31,June 30, 2003 as compared to .98% for the period
ending March 31,1.13% at June 30, 2002. This same ratio was
1.05% at December 31, 2002. Non-performing loans were .48%.42% of gross loans as of
March 31,June 30, 2003, and the Corporation's reserve for probable loan and lease loss reservelosses
was .90%.81% of gross loans representing 193.39%192.64% of non-performing loans.
Non-performing loans were .50% of gross loans as of December 31, 2002, and the
Corporation's reserve for probable loan loss reserveand lease losses was .91% of gross loans
representing 184.05% of non-performing loans. An analysis of loan and lease
losses can be referenced on page 10.14.
11
For the threesix months ended March 31,June 30, 2003, other operating income was
$3.07$5.58 million, compared to $2.33$4.72 million for the same time period in 2002.
During the first quartersix months of 2003, net securities gains of $.53$.34 million were
recognized. TheDuring the first six months of 2002, a 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-downloss of $.01
million was taken on a Federal Home
Loan Mortgage Corporation. Preferred Stock equity securityrecognized. Other operating income for the three months ended June
30, 2003 and a write-down2002 was $2.51 million and $2.39 million, respectively. During the
second quarter of $.34 million was taken on a2003, First United Corporation decided to sell two specific
issues of Freddie Mac Preferred Stock equity security.that exhibited a decline in market value
under an interpretation of the other-than-temporary impairment rules. The sale
of these two securities resulted in a loss of $.34 million for the second
quarter. There were no security gains recognized during the firstsecond quarter of
2002. As a part of other operating income, trust services income of $.64$1.27
million during the first threesix months of 2003 was down from the $.68$1.36 million as
of March 31,June 30, 2002. For the three months ended June 30, 2003, trust services
income was $.64 million as compared to $.68 million for the same time period
2002. The performance of the equity and bond markets continues to affect 8
trust
financial performance. The Bank's trust departmentTrust Department managed accounts whose market
values were $315.53$331.64 million at March 31,June 30, 2003 as compared to $296.88$299.30 at March 31,June 30,
2002.
Other operating expense for the three-monthsix-month period ended March 31,June 30, 2003
totaled $7.11$13.91 million, compared to $6.34$12.60 million for the same period in 2002,
representing an increase of $.77$1.31 million or 12.09%10.40%. The largest item in this
category, salaries and employee benefits, increased $.54$1.02 million or 15.40%15.03% in
2003. Increased incentive payments related to employee performance contributed
to this increase as well as increased pension costs. Other items that
contributed to thisthe increase in other operating expense are equipment purchases
resulting in increased equipment depreciation expense and vendor commission expense.a loss on disposal of
property of $.05 million, which was recorded during the second quarter.
Comparing the second quarter of 2003 with the same period of 2002, other
operating expense was $6.80 million and $6.26 million, respectively.
The increase in earnings resulted in an increase in income tax expense
of $.13$.52 million for the first threesix months of 2003 as compared to the same time
period in 2002. The effective tax rate for the first quartersix months of 2003 was
27.86%28.27% as compared to 26.10%27.22% for the first quartersix months of 2002.
912
Summary of Loan and Lease Loss Experience
ANALYSIS OF THE RESERVE FOR PROBABLE LOAN AND LEASE LOSSES
March 31,June 30, 2003
-----------------------------
Balance, January 1 $6,068
Charge-offs:
Domestic:
Commercial 05
Real estate - mortgage 5
Installment loans to individuals 609
-------------
614
-------------845
---------------
855
---------------
Recoveries:
Domestics:
Commercial 14
Real estate - mortgage 19
Installment loans to individuals 88
-------------
90
-------------220
---------------
233
---------------
Net Charge-offs 524
-------------charge-offs 622
---------------
Provision for Probable Loanprobable loan and Lease Losses 656
-------------lease losses 339
---------------
Balance at end of period $ 6,200
=============$5,785
===============
Ratio of net charge-offs during the period to average
loans outstanding during the period, annualized .31%
=============.18%
===============
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,June 30, 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,June 30, 2003, the
Corporation's non-accrual loans increased $.25$.03 million from the year-end total
of $1.85 million.
March 31June 30 December 31
2003 2002
--------------------------------------------------------
Non-accrual loans 2,101$1,874 $1,847
Accruing loans past due 90 days or more 1,1111,153 1,458
Information with respect to non-accrual loans at March 31,June 30, 2003
and December 31, 2002, are as follows:
Non-accrual Loans $2,1011,874 $1,847
Interest income that would have been
recorded under original terms 2728 25
Interest income recorded during the period 57 1
1013
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, theThe 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'smaintains 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
ensuringto ensure that information required to be disclosed in ourthe Company's
reports filed under the Securities Exchange Act of 1934 ("Exchange Act"),with the SEC, such as
this Quarterly Report, is recorded, processed, summarized and reported within
the time periods specified in thethose rules and forms, issued by the SEC. Disclosure Controls are also
designed with the objective of ensuringand that such information
is accumulated and communicated to ourthe Corporation's management, including the
CEOChief Executive Officer ("CEO") and CFO,the Chief Financial Officer ("CFO"), as
appropriate, to allow for 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.
BecauseAn evaluation of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occureffectiveness of these disclosure controls, as of
June 30, 2003, was carried out under the supervision and not be detected.
Conclusionswith the participation
of the Corporation's management, including the CEO and the CFO. Based uponon that
evaluation, the Evaluation,Corporation's management, including the Corporation's CEO and the CFO, havehas
concluded that the Corporation's Disclosure Controlsdisclosure controls and procedures are
effective in timely alerting them
to material information relating toeffective.
During the 11
Corporation (including its consolidated subsidiaries) required to be includedsecond quarter of 2003, there was no change in the
Corporation's periodic SEC filings, andinternal control over financial reporting that our Internal Controls are
effectivehas materially
affected, or is reasonably likely 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 inmaterially affect, 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.internal control over financial reporting.
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.
14
Item 4. Submission of Matters to a Vote of Security Holders.
None.The Corporation's annual meeting of stockholders was held on April 29,
2003. At this meeting, the stockholders elected four individuals to serve as
directors until the 2006 annual meeting of stockholders and until their
successors are duly elected and qualify. The Corporation submitted the matter to
a vote through solicitation of proxies. The results of the elections are as
follows:
Class II (Term expires 2006) FOR AGAINST ABSTAINED
01 Raymond F. Hinkle 4,411,100 46,282 N/A
02 Robert W. Kurtz 4,411,100 46,282 N/A
03 Elaine L. McDonald 4,411,100 46,282 N/A
04 Donald E. Moran 4,411,100 46,282 N/A
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation (incorporatedincorporated by
reference to Exhibit 3.1 of the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998)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)
99.110.1 First United Bank & Trust Supplemental Executive Retirement
Plan ("SERP") (filed herewith)
10.2 Form of SERP Participation Agreement between the Bank and each
of William B. Grant, Robert W. Kurtz, Jeannette R. Fitzwater,
Phillip D. Frantz, Eugene D. Helbig, Jr., Steven M. Lantz,
Robin M. Murray, Frederick A.Thayer, IV (filed herewith)
10.3 Endorsement Split Dollar Agreement between the Bank and
William B. Grant (filed herewith)
10.4 Endorsement Split Dollar Agreement between the Bank and Robert
W. Kurtz (filed herewith)
10.5 Endorsement Split Dollar Agreement between the Bank and
Jeannette R. Fitzwater (filed herewith)
10.6 Endorsement Split Dollar Agreement between the Bank and
Phillip D. Frantz (filed herewith)
10.7 Endorsement Split Dollar Agreement between the Bank and Eugene
D. Helbig, Jr. (filed herewith)
10.8 Endorsement Split Dollar Agreement between the Bank and Steven
M. Lantz (filed herewith)
10.9 Endorsement Split Dollar Agreement between the Bank and Robin
M. Murray (filed herewith)
10.10 Endorsement Split Dollar Agreement between the Bank and
Frederick A. Thayer, IV (filed herewith)
31.1 Certifications of the Chief Executive OfficerCEO pursuant to Section 302 of the
Sarbanes-Oxley Act (filed herewith)
31.2 Certifications of the CFO pursuant to Section 302 of the
Sarbanes-Oxley Act (filed herewith)
32.1 Certifications of the CEO and of the President/Chief Financial OfficerCFO pursuant to 18
U.S.C. Section
1350 (filedU.S.C.ss.1350 (furnished herewith)
15
(b) Reports on Form 8-K
On February 14,April 29, 2003, the CorporationCompany filed a Current Report on Form
8-K to report in Item 5 thereof thatwhich the CorporationCompany furnished results of operations for
the first three months of 2003 and statements made by
management at 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
2003 Annual Stockholders Meeting.
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,August 14, 2003 /s/ William B. Grant
-------------------------------------------------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date May 13,August 14, 2003 /s/ Robert W. Kurtz
-------------------------------------------------------------------------------
Robert WW. 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
1516
EXHIBIT INDEX
3.1 Amended and Restated Articles of Incorporation (incorporatedincorporated by
reference to Exhibit 3.1 of the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998)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
99.11997)
10.1 First United Bank & Trust Supplemental Executive Retirement
Plan ("SERP") (filed herewith)
10.2 Form of SERP Participation Agreement between the Bank and each
of William B. Grant, Robert W. Kurtz, Jeannette R. Fitzwater,
Phillip D. Frantz, Eugene D. Helbig, Jr., Steven M. Lantz,
Robin M. Murray, Frederick A.Thayer, IV (filed herewith)
10.3 Endorsement Split Dollar Agreement between the Bank and
William B. Grant (filed herewith)
10.4 Endorsement Split Dollar Agreement between the Bank and Robert
W. Kurtz (filed herewith)
10.5 Endorsement Split Dollar Agreement between the Bank and
Jeannette R. Fitzwater (filed herewith)
10.6 Endorsement Split Dollar Agreement between the Bank and
Phillip D. Frantz (filed herewith)
10.7 Endorsement Split Dollar Agreement between the Bank and Eugene
D. Helbig, Jr. (filed herewith)
10.8 Endorsement Split Dollar Agreement between the Bank and Steven
M. Lantz (filed herewith)
10.9 Endorsement Split Dollar Agreement between the Bank and Robin
M. Murray (filed herewith)
10.10 Endorsement Split Dollar Agreement between the Bank and
Frederick A. Thayer, IV (filed herewith)
31.1 Certifications of the Chief Executive OfficerCEO pursuant to Section 302 of the
Sarbanes-Oxley Act (filed herewith)
31.2 Certifications of the CFO pursuant to Section 302 of the
Sarbanes-Oxley Act (filed herewith)
32.1 Certifications of the CEO and of then President/
Chief Financial Officerthe CFO pursuant to 18
U.S.C. Section 1350 (filedU.S.C.ss.1350 (furnished herewith)