-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F0WgYeYHwI8WgJL4vdY3xKbOIrjv7QyJ842VkYQPk53WY1hAVBiST+7cQVBx0Cs6 E0ho7OAT04f1mXc7s6YIRA== 0001169232-03-003277.txt : 20030429 0001169232-03-003277.hdr.sgml : 20030429 20030429150132 ACCESSION NUMBER: 0001169232-03-003277 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030429 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNITED CORP/MD/ CENTRAL INDEX KEY: 0000763907 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 521380770 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14237 FILM NUMBER: 03669204 BUSINESS ADDRESS: STREET 1: 19 S SECOND ST CITY: OAKLAND STATE: MD ZIP: 21550 BUSINESS PHONE: 3013349471 MAIL ADDRESS: STREET 1: 19 S SECOND ST CITY: OAKLAND STATE: MD ZIP: 21550 8-K 1 d55379_8-k.txt CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): April 29, 2003 First United Corporation (Exact name of registrant as specified in its charter) Maryland 0-14237 52-1380770 (State or other jurisdiction of (Commission file number) (IRS Employer incorporation or organization) Identification No.) 19 South Second Street, Oakland, Maryland 21550 (Address of principal executive offices) (Zip Code) (301) 334-9471 (Registrant's telephone number, including area code) N/A (Former Name or Former Address, if Changed Since Last Report) ITEM 7. Financial Statements and Exhibits. (c) Exhibit 99.1 Press Release dated April 28, 2003. Exhibit 99.2 2003 Annual Shareholders' Meeting Presentation. ITEM 9. Regulation FD Disclosure. The information contained in this paragraph, which is intended to be furnished under "Item 12. Results of Operations and Financial Condition," is instead being furnished under "Item 9. Regulation FD Disclosure" pursuant to SEC Release No. 33-8216. On April 28, 2003, First United Corporation (the "Company") issued a press release describing the Company's financial results for the quarter ended March 31, 2003, which is furnished as Exhibit 99.1 and is incorporated herein by reference. Additionally, on April 29, 2003, the Company held its Annual Meeting of Shareholders at which several officers of the Company presented information, including certain financial data and performance trends, for fiscal year 2002 and the most recent quarter ended 2003, which presentations are furnished as Exhibit 99.2 and are incorporated herein by reference. The information contained in this Item 9 (whether or not furnished pursuant to Item 12) shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing. Forward-looking Statements In addition to historical information, the information contained in this report, including the exhibits attached hereto, includes certain "forward-looking" statements. Forward-looking statements are based on current expectations that involve risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially. These risks include, but are not limited to, changes in regulations applicable to the business of the Company and its affiliates, the possibility of economic recession or slow down (which could impact credit quality, adequacy of loan loss reserve and loan growth), changes in the general interest rate environment, competitive factors in the Company's marketplace, and business risk associated with credit extensions and trust activities. For a more complete discussion of these and other risk factors, please see "Risk Factors" in Part I, Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2002. - 2 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Dated: April 28, 2003 By: /s/ Robert W. Kurtz ---------------------------- Robert W. Kurtz President and CFO - 3 - EXHIBIT INDEX Exhibit Number Description - ------ ----------- Exhibit 99.1 Press Release dated April 28, 2003. Exhibit 99.2 2003 Annual Shareholders' Meeting Presentation. EX-99.1 3 d55379_ex99-1.txt PRESS RELEASE DATED APRIL 28, 2003 Exhibit 99.1 FIRST UNITED ANNOUNCES FIRST QUARTER EARNINGS First United Corporation, (Nasdaq: FUNC) a financial holding company and the parent company of First United Bank & Trust, has announced net income for the first quarter of 2003 of $2.45 million or $.40 earnings per share compared to $2.33 million or $.38 earnings per share for the same time period of 2002. This is a net income increase of 5.39% and an earnings per share increase of 5.26%. Book value per share was $13.14 as of March 31, 2003, as compared to $11.87 as of March 31, 2002. Returns on average assets for the three months ended March 31, 2003 and 2002 were 1.03 % and 1.17% respectively. Returns on average shareholders' equity were 12.44% and 13.06% for the three months ended March 31, 2003 and 2002 respectively. The efficiency ratio, a ratio that measures the percent of revenue supporting overhead expenses, was 62.39% as of March 31, 2003, which is higher than the 61.31% reported as of March 31, 2002. First United's risk based capital ratio at March 31, 2003 was 14.84%, which is well above the regulatory minimum of 8.00%, and the regulatory level to be considered well capitalized of 10.00%. This ratio was 16.11% at March 31, 2002. Balance Sheet Review Comparing March 31, 2003 balances with March 31, 2002, total assets were $984.98 million as compared to $804.44 million, a 22.44% increase. Gross loans and leases increased $89.92 million to a total of $685.91 million, or 15.09%. Total deposits increased $94.57 million or 15.71% to a total of $696.71 million. Shareholder's equity increased $7.7 million or 10.76% during the same 12-month period. During the first quarter of 2003, gross loans and leases increased $20.08 million or 3.02% to a total of $685.91 million. The growth during the first quarter was due primarily to growth of $18.58 million within the commercial lending portfolio. "The historically high refinancings that occurred in 2002 in the consumer mortgage portfolio continued throughout the first quarter of 2003 causing residential mortgage loans to decrease $5.02 million during the first quarter of 2003", stated Mr. Grant. Consumer installment loans increased $4.90 million for the same time period. During the first quarter of 2003 deposits grew $46.85 million. This growth was attributed to growth in brokered deposits of $35.00 million and $11.85 million in core deposits. Net Interest Income Net interest income was $8.09 million for the first quarter of 2003. This is an increase of $.28 million as compared to the same time period of 2002. Although interest income remained flat when compared to the first quarter of 2003, interest expense decreased 3.85% when comparing the same time periods. In comparing March 31, 2003 ratios with March 31, 2002, the yield on average earnings assets was 6.46% as compared to 7.72%, and the average cost of funds was 2.73% as compared to 3.46%. First United's net interest margin has decreased from 4.26% to 3.71% during this same 12-month period. Operating Income For the first quarter of 2003 total operating income totaled $3.07 million as compared to $2.33 million for the same time period of 2002. This is an increase of $.74 million or 31.56%. Items affecting this increase were net securities gains as well as increases in service charges on deposit accounts. 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; therefore, being less likely to experience accelerated payback. "These securities sales were executed to better position the Corporation during what appears to be a longer than originally anticipated period of low interest rates. First United 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 investment", stated William B. Grant and Chairman of the Board. Unrelated to the sale of securities was a write-down on two securities under an interpretation of the other-than-temporary impairment rules. Mr. Grant continued, "These were the same securities that were adjusted at year-end 2002. The adjustment on the securities was caused by the continued record low-rate environment, and the impact it has on securities such as these. While we believe there is no credit risk associated with the securities, their value has been adversely impacted by low interest rates. It is expected that the market value of the securities will increase with a rise in interest rates." Operating Expense Total operating expense was $7.11 million for the first quarter of 2003, as compared to $6.34 million for the same time period in 2002. The largest item in this category, salaries and employee benefits increased $.54 million or 15.40% in 2003 as compared to the same time period in 2002. Increased incentive payments related to employee performance and increased pension costs contributed to this increase. Asset Quality First United's asset quality continues to be high. The provision for probable credit losses was $.66 million for the first quarter of 2003. The provision for probable credit losses for the first quarter of 2002 was $.66 million as well. The loan delinquency ratio at March 31, 2003 was .83%, as compared to .98% at March 31, 2002. Non-accrual loans totaled $2.10 million as of March 31, 2003 as compared to a total of $1.73 million at March 31, 2002. "Of the $2.10 million in non-accrual loans, there is one credit totaling $1.46 million. This credit is well-secured, and no loss is anticipated", stated Mr. Grant. Total non-performing loans were $7.67 million at March 31, 2003 as compared to $7.50 million at March 31, 2002. The reserve for loan and lease losses as a percentage of gross loans equaled .92% as of March 31, 2003 as compared to .99% as of March 31, 2002. First United Corporation offers full-service banking through its banking subsidiary, First United Bank & Trust, and consumer finance products through its subsidiaries, OakFirst Loan Center, Inc. and OakFirst Loan Center, LLC. These subsidiaries operate a network of offices throughout Garrett, Allegany, Washington, and Frederick counties in Maryland, as well as Mineral, Hardy, Hampshire, and Berkeley counties in West Virginia. First United's website can be located at www.mybankfirstunited.com. As of March 31, 2003 the Corporation posted assets of $984.98 million and had 6,087,433 shares outstanding. First United Corporation has made certain "forward-looking" statements with respect to this earnings release. Such statements should not be construed as guarantees of future performance. Actual results may differ from "forward-looking" information as a result of any number of unforeseeable factors, which include, but are not limited to, the effect of prevailing economic conditions, the overall direction of government policies, unforeseeable changes in the general interest rate environment, competitive factors in the marketplace, business risk associated with credit extensions and trust activities, and other risk factors. These and other factors could lead to actual results, which differ, materially from management's statements regarding actual performance. FIRST UNITED CORPORATION Oakland, MD Stock Symbol : FUNC (Dollars in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------- Three Months Ended (unaudited) March 31 March 31 2003 2002 % Change EARNINGS SUMMARY Interest income $ 14,240 $ 14,206 0.24% Interest expense $ 6,146 $ 6,392 -3.85% Net interest income $ 8,094 $ 7,814 3.58% Provision for credit losses $ 656 $ 656 0.00% Noninterest income $ 3,071 $ 2,334 31.56% Noninterest expense $ 7,110 $ 6,343 12.09% Income taxes $ 947 $ 822 15.20% Net income $ 2,452 $ 2,327 5.39% Cash dividends paid $ 1,065 $ 1,034 3.00% PER COMMON SHARE Earnings per share Basic $ 0.40 $ 0.38 5.26% Diluted $ 0.40 $ 0.38 5.26% Book value $ 13.14 $ 11.87 10.68% Closing market value $ 21.42 $ 15.58 37.48% Common shares outstanding Basic 6,087,433 6,080,589 0.11% Diluted 6,087,433 6,080,589 0.11% PERFORMANCE RATIOS Return on average assets 1.03% 1.17% -11.97% Return on average shareholders' equity 12.44% 13.06% -4.75% Net interest margin 3.71% 4.26% -12.91% Efficiency ratio 62.39% 61.31% 1.76% PERIOD END BALANCES Assets $ 984,976 $ 804,438 22.44% Earning assets $ 922,862 $ 743,649 24.10% Gross loans and leases $ 685,909 $ 595,988 15.09% Consumer Real Estate $ 240,152 $ 220,941 8.70% Commercial $ 261,737 $ 204,072 28.26% Consumer $ 184,020 $ 170,975 7.63% Investment securities $ 225,841 $ 138,909 62.58% Total deposits $ 696,708 $ 602,135 15.71% Noninterest bearing $ 73,496 $ 58,684 25.24% Interest bearing $ 623,213 $ 543,451 14.68% Shareholders' equity $ 79,969 $ 72,202 10.76% CAPITAL RATIOS Period end capital to risk- weighted assets: Tier 1 11.16% 12.67% Total 14.84% 16.11% ASSET QUALITY Net charge-offs $ 524 $ 535 -2.06% Nonperforming assets: Nonaccrual loans $ 2,101 $ 1,725 21.80% Restructured loans $ 564 $ -- Loans 90 days past due and accruing $ 1,111 $ 823 34.99% Other real estate owned $ 263 $ 271 -2.95% Total nonperforming assets and past due loans $ 7,672 $ 7,497 2.33% Allowance for credit losses to gross loans, at period end 0.92% 0.99% Nonperforming and past-due loans to total loans at period end 0.48% 0.43% Nonperforming loans and past-due loans to total assets, at period end 0.33% 0.32% - -----------------------------------------------------------------------------------------------------
FIRST UNITED CORPORATION STATEMENT OF CONDITION (In Thousands)
------------------------------------------------------ 3/31/2003 12/31/2002 $CHANGE % CHANGE ------------------------------------------------------ ASSETS 1 Cash and due from banks 17,039 18,242 -1,204 -6.60% 2 Interest Bearing Deposits in Banks 13,238 6,207 7,031 113.27% 3 Investments: 4 U.S. Treasury securities 0 0 0 0 5 Obligations of other U.S. Government agencies 24,239 20,851 3,388 16.25% 6 Obligations of state and political subdivisions 30,482 31,348 -866 -2.76% 7 Other investments 171,120 172,195 -1,075 -0.62% ------------------------------------------------------ 8 Total investment securities 225,841 224,394 1,447 0.64% 9 10 Federal funds sold 4,075 0 4,075 0 11 Loans 685,909 665,826 20,084 3.02% 12 Reserve for probable credit losses -6,200 -6,068 -132 2.18% ------------------------------------------------------ 13 Net Loans 679,709 659,758 19,952 3.02% 14 15 Bank Premises and equipment 13,788 13,163 625 4.75% 16 Accrued interest receivable and other assets 31,287 31,913 -626 -1.96% ------------------------------------------------------ 17 TOTAL ASSETS 984,976 953,676 31,300 3.28% ====================================================== 18 19 20 21
------------------------------------------------------- 22 3/31/2003 12/31/2002 $CHANGE % CHANGE ------------------------------------------------------- 23 LIABILITIES 24 Deposits: 25 NonInterest Bearing deposits 73,496 72,789 707 0.97% 26 Interest-bearing deposits 623,213 577,071 46,142 8.00% ------------------------------------------------------- 27 Total Deposits 696,708 649,860 46,848 7.21% 28 29 Fed funds purchased & other borrowed money 173,302 191,261 -17,959 -9.39% 30 Reserve for taxes, interest, and other liabilities 10,933 9,211 1,722 18.69% 31 Dividends Payable 1,064 1,062 2 0.15% ------------------------------------------------------- 32 33 TOTAL LIABILITIES 882,007 851,394 30,613 3.60% ------------------------------------------------------- 34 35 OTHER SUBORDINATED DEBT 36 Trust Preferred Securities 23,000 23,000 0 0.00% ------------------------------------------------------- 37 38 SHAREHOLDERS' EQUITY 39 40 Capital stock-par value: 61 61 0 -0.21% 41 Surplus 20,324 20,199 125 0.62% 42 Retained earnings 57,128 55,743 1,385 2.48% ------------------------------------------------------- 43 Total shareholders' equity before FASB 115 77,512 76,003 1,509 1.99% 44 Unrealized gain (loss) on available-for-sale securities 2,457 3,280 -823 -25.09% ------------------------------------------------------- 45 TOTAL SHAREHOLDERS' EQUITY 79,969 79,282 686 0.87% 46 47 TOTAL LIABILITIES & 48 SHAREHOLDERS' EQUITY 984,976 953,676 31,298 3.28% =======================================================
FIRST UNITED CORPORATION STATEMENT OF CONDITION (In Thousands)
---------------------------------------------------- 3/31/2003 3/31/2002 $CHANGE % CHANGE ---------------------------------------------------- ASSETS 1 Cash and due from banks 17,039 17,201 -162 -0.94% 2 Interest Bearing Deposits in Banks 13,238 4,808 8,430 175.33% 3 Investments: 4 U.S. Treasury securities 0 0 0 0 5 Obligations of other U.S. Government agencies 24,239 33,227 -8,988 -27.05% 6 Obligations of state and political subdivisions 30,482 27,410 3,072 11.21% 7 Other investments 171,120 78,272 92,848 118.62% ---------------------------------------------------- 8 Total investment securities 225,841 138,909 86,932 62.58% 9 10 Federal funds sold 4,075 9,790 -5,715 -58.38% 11 Loans 685,909 595,988 89,921 15.09% 12 Reserve for probable credit losses -6,200 -5,845 -355 6.07% ---------------------------------------------------- 13 Net Loans 679,709 590,143 89,566 15.18% 14 15 Bank Premises and equipment 13,788 11,644 2,144 18.42% 16 Accrued interest receivable and other assets 31,287 31,944 -657 -2.06% ---------------------------------------------------- 17 TOTAL ASSETS 984,976 804,438 180,538 22.44% ==================================================== 18 19 20 21
---------------------------------------------------- 22 3/31/2003 3/31/2002 $CHANGE % CHANGE ---------------------------------------------------- 23 LIABILITIES 24 Deposits: 25 NonInterest Bearing deposits 73,496 58,684 14,812 25.24% 26 Interest-bearing deposits 623,213 543,451 79,762 14.68% ---------------------------------------------------- 27 Total Deposits 696,708 602,135 94,573 15.71% 28 29 Fed funds purchased & other borrowed money 173,302 97,504 75,798 77.74% 30 Reserve for taxes, interest, and other liabilities 10,933 8,565 2,368 27.65% 31 Dividends Payable 1,064 1,032 32 3.07% ---------------------------------------------------- 32 33 TOTAL LIABILITIES 882,007 709,236 172,771 24.36% ---------------------------------------------------- 34 35 OTHER SUBORDINATED DEBT 36 Trust Preferred Securities 23,000 23,000 0 0.00% ---------------------------------------------------- 37 38 SHAREHOLDERS' EQUITY 39 40 Capital stock-par value: 61 61 0 -0.21% 41 Surplus 20,324 20,199 125 0.62% 42 Retained earnings 57,128 51,546 5,582 10.83% ---------------------------------------------------- 43 Total shareholders' equity before FASB 115 77,512 71,806 5,706 7.95% 44 Unrealized gain (loss) on available-for-sale securities 2,457 397 2,060 518.91% ---------------------------------------------------- 45 TOTAL SHAREHOLDERS' EQUITY 79,969 72,202 7,766 10.76% 46 47 TOTAL LIABILITIES & 48 SHAREHOLDERS' EQUITY 984,976 804,438 180,537 22.44% ====================================================
FIRST UNITED CORPORATION STATEMENT OF INCOME (In Thousands)
---------------------------------------------- 03/31/03 03/31/02 $CHANGE % CHANGE YTD YTD ---------------------------------------------- INTEREST INCOME 1 Interest and fees on loans 12,133 12,220 (87) -0.71% 2 Taxable 1,739 1,649 90 5.46% 3 Exempt from federal income taxes 363 312 51 16.35% ---------------------------------------------- 2,102 1,961 141 7.19% 4 Interest on federal funds sold 5 25 (20) -79.26% ---------------------------------------------- 5 TOTAL INTEREST INCOME 14,240 14,206 34 0.24% INTEREST EXPENSE 6 Interest on deposits: 7 Savings 56 64 (8) -12.80% 8 Interest-bearing transaction accounts 456 310 146 47.18% 9 Time, $100,000 or more 959 1,104 (145) -13.10% 10 Other time 2,070 3,024 (954) -31.56% ---------------------------------------------- 11 TOTAL INTEREST ON DEPOSITS 3,541 4,502 (961) -21.34% Interest on Fed Funds Purchased and 12 Other borrowed money 2,605 1,890 715 37.82% ---------------------------------------------- 13 TOTAL INTEREST EXPENSE 6,146 6,392 (246) -3.85% ---------------------------------------------- 14 NET INTEREST INCOME 8,094 7,814 279 3.58% 15 Provision for probable credit losses 656 656 0 0.02% ---------------------------------------------- NET INTEREST INCOME AFTER PROVISION 16 FOR PROBABLE CREDIT LOSSES 7,438 7,158 280 3.92% ---------------------------------------------- OPERATING INCOME 17 Trust department income 635 682 (47) -6.89% 18 Broker/Dealer Commission 127 116 11 9.40% 19 Service charges on deposit accounts 714 585 129 22.11% 20 Insurance premium income 314 260 54 20.76% 21 Security Gains/(Losses) 530 0 530 #DIV/0! 22 Other income 751 691 60 8.66% ---------------------------------------------- 23 TOTAL OPERATING INCOME 3,071 2,334 737 31.56% OPERATING EXPENSES 24 Salaries and employee benefits 4,046 3,506 540 15.40% 25 Occupancy expense of premises 336 311 25 7.90% 26 Equipment expense 562 494 68 13.69% 27 Data processing expense 295 299 (4) -1.32% 28 OCC/FDIC Premium 48 44 4 10.16% 29 Other expense 1,823 1,689 134 7.95% ---------------------------------------------- 30 TOTAL OPERATING EXPENSES 7,110 6,343 767 12.09% ---------------------------------------------- 30 INCOME BEFORE INCOME TAXES 3,399 3,149 250 7.95% 31 Applicable income taxes 947 822 125 15.20% ---------------------------------------------- 32 NET INCOME 2,452 2,327 125 5.39% ==============================================
EX-99.2 4 d55379_ex99-2.txt 2003 ANNUAL SHAREHOLDERS' MEETING PRESENTATION Exhibit 99.2 2003 Annual Shareholders' Meeting Presentation William B. Grant Chairman of the Board and Chief Executive Officer Good afternoon, fellow shareholders and special guests, and welcome to the 2003 Shareholders' Meeting. As has become our practice, you will have the opportunity to hear from several members of your management group, who will report to you on various aspects of your Company's performance last year, and our look to the future. I have heard from several of you that this type of meeting format is useful and informative. The year 2002 was indeed very challenging, with decreased interest rates, and the ongoing sluggishness of our economy. We were challenged on many fronts, and you will hear about these in our reports today. Even with all of this, your Company posted record earnings. Here to explain this further is Bob Kurtz, President and CFO. Robert W. Kurtz President and Chief Financial Officer Good Afternoon Approximately two years ago, one of my co-workers put a cartoon on my door. The cartoon showed two men walking down the street with the caption saying, "I wonder what the Fed will do when they run out of interest rates to lower?" Well, that was a joke two years ago, but it is reality today. There was an article in the April 9, 2003 issue of the Wall Street Journal, entitled "Fed Weighs Alternative Stimulus Plans", with a subtitle entitled, "Fed Moves to Reach Beyond Cuts in Short-Term Rates, Which Are Nearing Zero." With some short term deposit rates paying under one percent and prime rate at 4.25%, we are experiencing rates that are at 41-year lows. There is some commentary that suggests that if the economy remains sluggish we will see yet another rate cut from the Federal Reserve. They meet again next week, May 6th. How low can they go? The cartoon suggests that they can go to zero. As I mentioned last year, these rates impact each of you as savers or borrowers of First United or any other financial institution that you may deal with. These market rates directly affect what we are able to pay on your deposit and what we charge on your loan. As a saver or investor, I know that you are not happy with your return; but as a borrower, these rates are most likely as low as you have ever experienced. Each of these scenarios presents challenges to your Company, First United. With a series of slides, I want to illustrate what affect interest rates has had on our Balance Sheet and Income Statement, which directly affects each of you as Shareholders and customers of First United. Three Year Loan Growth We experienced excellent loan growth in 2002, growing $56 million or 9% over 2001. Unlike previous years, where we would see growth in our 1-4 residential lending or our indirect automobile lending portfolios, the majority of our growth in 2002 was attributed to the commercial lending sector. One of our biggest challenges in the lending area last year was to find a balance between meeting the needs of our home borrower and controlling the urge to place 30-year fixed rate mortgages on our balance sheet. Some of us were in banking during the seventies and eighties, a time when we remember what happened to the Savings and Loan Industry. During the time leading up to the end of the 1970's the S&L Industry loaded their balance sheets with 30-year fixed rate mortgages, funded with short term deposits. When interest rates went up, they soon found that their short term deposits were rolling over into rates there were above the return that they were getting on most of their assets, namely mortgages. As you will recall, this scenario was the demise of the industry. We currently are in an interest rate environment, where we see interest rates lower than what plagued the S&L Industry. We are seeing 30-year fixed rate mortgage rates as low as 5.875%. When deposit interest rates increase, and they will increase, it is just a matter of when, those financial institutions that booked a large number of these fixed rate mortgages on their balance sheet today, will begin to see earnings problems in the future. First United has been very diligent about not bringing that risk to our Balance Sheet, thus finding alternative solutions for our customers. Three Year Deposit Growth During 2002, we experienced a $33 million or 5% increase in deposits. With the low interest rate environment, it proved somewhat difficult to gather deposits within our market area. With the less than satisfactory performance of the equity markets, we were able to experience some growth from those deposits flowing from the equity markets into the banking industry, where the depositor sought a guarantee that would protect their principal. Our commercial Cash Management product as well as the new Easy Access CD product that was introduced in 2002, proved to be two very popular products which contributed significantly to our deposit growth. Net Interest Income The remaining slides will illustrate trends and ratios from the Income Statement. Net Interest Income is basically the amount that we earn on loans, less the interest expense that is incurred on deposits. This chart shows a $2.6 million increase over 2001, more than double the increase we experienced the previous year. As Federal Reserve continues to decrease short term interest rates, which has an immediate affect on the rate that we offer our borrowers, the Bank is pressured into lowering deposit rates. With loans being the greatest source of income to the Bank, it is imperative that we protect this margin between what we earn and what we pay out. Our strategies during 2002 did protect this income growth, and also our net interest margin, as we see on the next slide. -2- Net Interest Margin Net interest margin is the result of taking net interest income and converting that number to a percent of assets. When we do that, we see our net interest margin increase from 3.86% in 2001 to 4.09% in 2002. Non-Interest Income (fee income) Aside from the interest earned on our loans and investments, non-interest income is our other source of income. Even though we saw an increase in net interest income last year, as we discussed on the two preceding slides First United, as well as the rest of the financial industry, needs to become more and more dependent on non-interest income. This non-interest income category needs to continue to grow as we see our interest margins squeezed, as a result of the low interest rate environment. 2002 was the first year in many years, where non-interest income did not grow from one year to the next. Security gains and losses is one category that makes up other income. In 2001 we had $578 thousand in securities gains, while in 2002, we experienced $366 thousand in securities losses. Netting out those gains and losses, non-interest income would have grown $637 thousand or 7% over the previous year. Of course the realities are that we had those gains and losses, but I only show the comparison, because our core earnings that make up non-interest income are steadily growing. Non-Interest Expense Non-Interest expense increased significantly from $23.4 million to $26 million, a $2.6 million or 11% increase. Fifty-four percent of that increase is attributed to the increase in salaries and employee benefits. The cost to retain and attract the highest quality of personnel in our market place, continues to increase this cost. The other major category that contributed to 33% of the increase was Other Expense. The Other Expense category is made up of approximately sixty miscellaneous expense accounts, some of which are marketing, legal and professional, consulting services, contract labor and postage, just to name a few. First United has formal programs in place where all of these expenses are reviewed and analyzed, all in the interest of controlling the increase in these expenses. Income Taxes Another trend that we have been working on very diligently, is trying to reduce our effective tax rate. Through various tax strategies, the Company has been successful in reducing our effective tax rate on Federal and State taxes from 31.16% in 2000 to 27.7% in 2002. Based on the gross income that we experienced in 2002 and applying our effective tax rate that we had in 2000, First United would have paid $461 thousand more taxes in 2002, if we had not developed programs to lower these taxes. Net Income The net income slide shows that your Company recorded another year of record earnings. Net income for 2002 was $9.7 million, an increase of $486 thousand or 5.3%. The last three slides show the results of three key ratios that we watch very closely at First United. Return on Equity The Return on Equity or the amount of earnings as a percent of average equity, decreased to 12.75%. Even though we saw an increase of 5% in net income, our equity or capital grew 11%, which had the affect of lowering our return. -3- Earnings Per Share Earnings Per Share or the amount of income that each share earned, continues to show a positive trend, increasing from $1.51 to $1.59 per share. Efficiency Ratio The third and final ratio, the Efficiency Ratio, represents the percent of net revenue required to cover our overhead expenses. Unlike other ratios, where we like to see an upward trend, the lower the ratio, the more efficiently your Company is operating. At a current ratio of 62.39%, this means that $.62 out of every revenue dollar goes toward covering our non-interest expenses. This increase is a result of our increase in non-interest expenses. What is in store for 2003? To say the least, it is going to be a very challenging year for First United and the financial industry. Fortunately, the war in Iraq has come to an end in relatively short time. This may or may not revive the confidence of the consumer and corporate markets. The consumer, having extra money due to mortgage refinancings, has paid down some debt and is ready to resume spending. Until we can get Corporate America back in a spending mode, where jobs are created, the economists that I listen to, do not see any economic recovery in the near term. The current economic environment, will continue to keep rates at historical low levels, which will continue to put pressure on the financial industries' growth and ability to make money. Obviously, we will see markets within the Country that will perform better than others. We feel that the markets we serve are some of those areas that will outperform the average. Because of this, your Management team knows that there are challenges ahead, but we feel confident that we are ready to meet those challenges as we go forward. Thank you. Steven M. Lantz Senior Vice President and Senior Lending Officer Welcome--thank you for attending Last year I spoke about the national dilemma of increased bankruptcy filings and problem loans on a national basis and the fact First United was also adversely affected. I am pleased to report 2002 was an improving year with respect to the banks credit quality. This is welcome relief after 3 years of increasing troubled debt locally and nationally. Banks generally use a couple gauges of the effectiveness of its underwriting philosophy and collection efforts. The first is non current loans as a percent of gross loans and the trend in 2002 is good as can be seen by the chart. As of year-end 2002 this represented 35 basis points, which puts us well below peers which averaged 77 basis points. This means our non-performing loans were lower than other comparable institutions. The second ratio is net chargeoffs to average loans. Again, as can be seen by the chart we improved significantly in this category. As of year end 2002 this represented 19 basis points, which is below our peers which averaged 26 basis points. This means our net charge-offs were lower than other comparable institutions The summary point is the credit quality of our loans is much better than 2001 with improved trends. -4- Last year I spoke about the banner year our commercial lending group experienced in 2001. They grew loan balances by $37 million or 22%. Well, the group did it again in 2002. They grew $54 million, which represents 28% growth for the year. As can be seen from the graph, commercial loans has been a key component in loan growth for our organization. So far this year the trend continues to support this as our main driver of growth in interest income. The other revenue engines are residential mortgages and consumer loans, with both of these areas having positive impacts for the bank last year. Our residential lending team had yet another year of frantic refinancing based on continued very low rates. Some of the areas we improved were our processing and closing procedures to improve turnaround time, as well as we were able to hire some new associates to backfill our staffing needs. We had a record year in brokered origination's yielding the bank over $185,000 in fee revenue. The indirect auto franchise closed over 5,000 car loans and grew over $3 million in balances. More importantly the quality of this portfolio has improved based on our collection experience. The tightening of our credit standards in 2000 and 2001 as I reviewed with you last year has paid us major benefits as can be seen by our charge-off experience. In addition, the auto franchise derived over $75,000.00 in ancillary fee income for the year. As we look forward we see an abundance of opportunities for growth, especially in the commercial loan area. In addition, we are out to a fast start this year in consumer lending. Auto loans volume is very bullish during the 1st quarter, we also have various marketing initiatives for the Home Equity product currently underway this spring, and our mortgage origination's are on target for a record year. On behalf of our entire team we thank you for your support. Frederick A. Thayer, IV Senior Vice President and Director of Sales Good afternoon ladies and gentlemen. I would like to take a few moments to update you on three areas of our retail banking effort; specifically, branch expansion in Martinsburg, WV, customer service levels, and cash management services for our business clients. As you have heard, we are in the process of acquiring four offices in the Martinsburg area from Huntington National Bank. After the purchase is complete, we will have five offices in that area, and we will have the second largest market share in Berkley County. This is very exciting for us. Perhaps more important than the increased presence in Martinsburg we will enjoy, is the quality of the leadership and staff that is coming to us from Huntington. Our plans are to have the purchase completed by the last week of July. To further support our efforts in Martinsburg, we are constructing a new regional hub there as shown on the slide. The new office will bring together all of our lines of business under one -5- roof. We believe this will provide the same benefits we have seen at the Lake office in Garrett County and the new Hagerstown regional office. Our new Hagerstown office opened in January, and we have already seen the benefits of the hub concept and a prime location. For example, since December, total deposits at the office have grown from $21 million to $25.2 million. Last year I mentioned that customer service was one of our points of difference from our competition. To test that claim, we started a program of mystery shopping in our branch offices. As you can see from the slide, the 2002 results showed significant room for improvement. I am pleased to report that the first round of mystery shopping in 2003 did show a marked improvement over 2002. Our challenge now is to sustain this level over the balance of the year. Finally, our cash management division had a strong year in 2002. We grew deposit balances in that area in 2002 by $16.3 million to $48.6 million, adding 40 customers. And, we accomplished this while converting to a new Internet based program that gives increased functionality to our customers, while saving the bank $84,000 a year in expense. 2003 is shaping up to be a challenging year as you have already heard. This is certainly true in the retail area as well. I believe we are well positioned to successfully meet those challenges. Thank you. Robin E. Murray Senior Vice President and Director of Marketing Good afternoon, At this time, I am pleased to share with you the many achievements of our Customer Service Center and the marketing strategies for your Company. Our Call Center continues to grow and has proven to be an extremely valuable delivery channel for our customers and our organization. Last year, the Call Center Officers received over 152,000 calls and conducted over 11,000 outbound calls. This team surpassed their annual referral sales goal by an impressive 59%, with half of their referral sales resulting in new money to the bank and our mortgage area. We continue to staff our Call Center with well-trained associates in customer service and sales and have continued that commitment by adding specialists. Our Call Center Mortgage Specialist handled approximately 525 mortgage inquires over the phone and closed over $4 million in mortgage loans last year. We continue to build value for our customers by making it so easy to do business with us, even with our specialized services. Our organization has made great strides on the path to become more customer-focused and to enhance our relationship building process. Last year, our customers told us that they were looking for a solution to the deposit interest rate environment. The My Easy Access CD is a perfect example of how we continue to build lasting relationships with our customers by offering them a unique investment which allows them to receive market rates, while maintaining access to their money. -6- An excellent measurement of our progress in our relationship building efforts is the strong level of customer satisfaction, which was evident in our recent customer survey conducted by an outside, independent firm. Our customers told us that they were highly satisfied with our bank. Our overall satisfaction rating was well above the industry standards. We continue to hone our marketing skills and to better understand our customers and the markets we serve. The Marketing Team now has a new analytical tool, BancIntelligence, that will enable us to become more sensitive to our diverse markets. BancIntelligence is providing us with necessary market analysis to access the growth potential of our franchise and to assist us in prioritizing our marketing efforts. From this marketing tool, we will identify segmented pricing strategies and fine tune our direct mail techniques for specific product and service penetration, to maximize our return on investment. This team will also be utilizing BancIntelligence to build a comprehensive marketing plan for our "best kept secret in Martinsburg", the recent acquisition of four new offices in this market. The end result will enable our experienced staff to engage the customer one-on-one and provide the financial solutions that our customers need and want most. Building customer relationships by providing personalized service continues to be our competitive advantage and we must employ one of our critical success factors, continuous improvement, to become the best at providing this type of service. We are very excited about the opportunities that this new marketing tool will present to your Company. The marketing strategies in 2003 will remain focused on creating value propositions that customers find attractive and create value for our shareholders, much like we have done with our relationship banking packages and The President's Club Program. We will remain focused on the retention of key customers, growth of our top priority customer relationships, and attraction of targeted prospects, while at the same time continue to find methods to reduce our costs of service delivery to all other customers. Thank you Terry R. Helbig Gonder Insurance Agency, Inc. President and Chief Operations Officer The property and casualty insurance marketplace continues to pose special problems for insurance agencies. Traditionally, the use of excess and surplus lines insurance markets has been for placement of what insurers considered less desirable or more risky lines of business. That definition has not changed in the new, tougher market we face today. What has changed is many standard insurers' definition of desirable business and risky business. More independent agents and brokers are finding surplus lines carriers want their business, while standard insurers are finding ways to decline it. Years of cash flow underwriting, which is buying market share with low premiums and making up underwriting losses with investment income, helped keep the cost of insurance lower for -7- businesses and individuals. With the loss in investment income insurance companies have stricter underwriting guidelines, are taking sizeable rate increases, and are re-inspecting and reviewing their current book of business for profitability. Our markets change constantly and usually not for the better. Despite the marketplace realities we grew at a record pace in 2002 and went over $1 million in income (almost a 17% increase) and our pre-tax net profit increased by 315%. We feel this growth is occurring for various reasons: 1) Our staff is hardworking and dedicated to finding insurance solutions for our clients needs. We restructured the agency last year and made various changes to gain efficiency. This included bringing Val Teagarden from the bank's Cash Management department to become agency manager at Gonder Insurance. To better serve our clients we hired additional personal lines agents to help sell and service auto and homeowners insurance. We expanded our commercial lines department to two producers and three CSR's. Jon Zeigler came from the bank's MIS department to become our finance manager and we hired Dan Sheehe to become a life insurance specialist. 2) We feel we have an excellent line up of companies and brokerage houses to work with. While some agents face moratoriums on writing new auto and/or homeowners insurance, or cannot find coverage for certain types of business we have markets to meet the needs of our clients most of the time. 3) The large financial investment we made in technology continues to pay off and last year we started transactional filing which will be a time saver for our agents. Eventually, paper files will not have to be retrieved to work with a client and all our customers insurance information will be on our system. With Jon's expertise we are better utilizing the bank's automation system as well as our agency management system. 4) The insurance referrals come in daily from all departments and branches of the bank. This is a great way of deepening the relationship with customers and when a bank client buys insurance from us it reinforces that My Bank is a one stop shop for all their banking and insurance needs. 5) Sales teams from all regions meet on a regular basis and are comprised of branch managers, cash management, commercial lenders, mortgage originators, trust officers, primevest brokers, and an insurance agent. Many business, personal lines, and life & health insurance leads and sales are generated from these meetings. For 2003 we are continuing aggressive sales of personal lines insurance and are focusing on growing our books of business insurance and life insurance. In closing, because of our performance the Board of Directors called for a study to grow the insurance franchise throughout the other regions. Val produced a Strategic Insurance White Paper and presented to the board how this could be accomplished. With the boards' approval we are now working on acquiring other agencies. -8- Eugene D. Helbig, Jr. Senior Vice President and Senior Trust Officer A very pleasant good afternoon. I would like to begin with a review of historical performance of the Equity markets and the yield curve. As you view the charts behind me, please note that the Trust Department generates its revenue from two sources, the market value of accounts under management and the income generated from those accounts. This first chart shows how drastic the Dow and S&P indices have steadily decreased over the last three years. Although sales of new revenue, as I will discuss later, have been strong, the decrease in market value of Equity negatively affects our revenue. Likewise, the continued decrease in interest rates impacts our earnings. Since our managed portfolios are generating lower yields on bond and other fixed income instruments, our Trust revenues are reduced. The next chart reflects Trust Gross Income and as you can see, the 2002 amount is lower. Prime Vest Brokerage is also part of my responsibility. As you can see its net income continues to increase. Current initiatives to broaden the distribution of investment products, such as annuities, should maintain this growth. This following slide will show what percentage of corporate earning per share is attributed to the Trust and Prime Vest Departments. As I mentioned earlier, sales of new Trust Revenue continues to be strong. This slide reflects that even in the face of tough economic cycles, our sales force continues to excel. Our investment team continues to post returns comparable to, or better than relative indices. These returns of our MAP portfolios reflect the overall investment performance of various objectives. The more conservative objectives reflect modest returns while the more aggressive did not perform as well. During the last quarter of 2002 the Trust Department conducted an independent survey of all its clients. The results of this survey are very positive. With 5 being the highest rating, our clients tell us they hold these attributes to be important. This next chart shows that our department is rated very high in Courtesy, Comfort level, (what we call "sleep well at night"), trustworthiness and accuracy. Communication with our clients continues to be very important as noted behind me. Overall satisfaction reveals that 97.8% are satisfied or better. -9- Finally, this last quote from the survey is the most important. The key driver behind the positive survey results is the knowledge and experience of our Trust Associates. Every speech I make, I invite the audience to seek out our very experienced and knowledgeable staff as they can assist you with any financial issue or problem. This survey certainly backs up my invitation. The officers and staff of Trust and Prime Vest have a wealth of experience and knowledge of most financial issues and concerns. Please seek them out to resolve any problem or concern you might have. They are eager to assist. Thank you for your continued confidence and support. Philip D. Frantz Senior Vice President and Director of Operations and Support Changing tires Filling gas tanks Cleaning windshields Monitoring computer functions Making emergency repairs These are typical functions associated with maintaining a car's normal operation. But, place these functions in a fast-paced environment such as NASCAR, and you have a precision operation. The need for accurate and fast processing of simple functions in a race can mean the difference between victory and last place. What was once looked upon as dull and dirty work became glamorized with the popularity of such pit crews as the Rainbow Warriors for Jeff Gordon. They have even become immortalized in a pizza commercial. A successful NASCAR driver must have a successful pit crew. Similarly, a successful financial institution must have a successful operations team. The incorrect processing of a transaction can mean the difference between a happy customer and someone who takes his or her business elsewhere. A branch building that does not meet the needs of those who work there can impact their ability to serve the customer. A computer system that constantly fails or works incorrectly can negatively impact the customer on many fronts. For these and many other reasons, we at First United are working hard to tune our "Pit Crew" in Operations and Support. We recognize the critical balance that must exist between the sales and service areas of any bank just like the critical balance that exists between the driver and his pit crew. We also know that we must look forward to new methods of processing and new technologies as well as the need to expand our footprint in the market area we serve. Just like those in the pits -10- are always fine tuning an engine or looking for new ways to get the most out of the technology they have, we worked hard this past year to fine-tune our own shop. As we mentioned at the last meeting, technology is moving forward to programs based on an Internet browser. So, using a program is just like browsing the Internet using Microsoft Explorer. This year, we are seeing the completion of the first phase of this project. We are installing computers at each teller station with the new LiNX product to better serve the customer and provide extra security for our information. The next phase will be the expansion of this program to include account opening and customer contact information. We are also steering into the next generation of check processing with this year's implementation of check imaging. Many of you have received your first image statement last month. This provides the customers the ability to have their checks, but in an imaged form. It will also drastically speed the research function. In the past, a small subpoena would take three to four hours to fulfill. With imaging, this can be done in 10 to 15 minutes. Our system is also primed and ready for document imaging when we are ready to implement this component. Just as each NASCAR race track is expertly designed, our Support Services area works with management to design and build branches that meet the needs of the market area. We recently completed the construction of a new branch in Hagerstown, combining the branch that was on Frederick Street and the Clock Tower Financial office together. This building will serve the needs of those staff members working there now and in the future. Ground breaking will begin this summer on a new branch in Martinsburg, WV on Edmund Miller Boulevard. Speaking of Martinsburg, as you have already heard or read, First United is in the process of acquiring four branches in this area from Huntington National Bank. This process began last year and our Conversion team is working diligently to convert these customer's accounts to our systems as well as a thousand other details. This project involves associates from almost every area of the Corporation and is being coordinated through our MIS area. Unlike acquisitions in the past, acquiring branches instead of a full bank is more difficult. We are looking forward to a July conversion, pending regulatory approval. As always, our "Pit Crew" places accuracy and teamwork as a high priority. Winning the race depends on each associate knowing his or her job well and performing it accurately. This is our goal for the coming year - training, teamwork, and enhancing our processes to provide the tools our "drivers" need to win the customer's trust and business. Jeannette R. Fitzwater Senior Vice President and Director of Human Resources Good afternoon. I am pleased once again to address our shareholders and to have a moment to share with you how the role of your human resources, our associates, separates us from our competition. -11- For several years your company has been acutely focused on ways to improve our associate retention levels. When we began this journey, we found that you lost typically a $10,000 investment when an associate chose to move from First United. Needless to say, we believe this investment is one worth protecting. I am pleased to report that in a two year period, we have decreased our turnover rate by approximately 4 percentage points, currently to a level of just over 11 percent. Essentially, this is better than a 25% improvement in retention! Each year we pledge to look for even better ways to protect your investment--never allowing ourselves to rest on our laurels. First United is known for not being satisfied with where we are today, but always reaching for tomorrow's goals. Recently your Executive Team embarked on a long-term effort to move from being Good to actually being Great. Much of the initial thoughts are gleaned from a book by that title written by Jim Collins. Shortly after beginning the process, we all agreed that the background for this transition begins with an evaluation of our staff. Put simply, it means having the right associates, fulfilling the right roles. At the same time, we must be sure that we are the company that our associates envision as Great. During 2003 we will be further identifying from our recent employee survey, areas where improvement will most enrich our associates' lives. One of our strategic issues which we completed last year helps to build our foundation. After training all supervisors, we now have system whereby all associates have a one-on-one developmental session with their supervisor each month. More efficient and effective communication is already being seen. This process will provide a perfect forum for evaluating and growing our associates. The year 2003 will truly be a time for fine-tuning this process and putting into place several specific approaches. In the early stages of this process, we have identified three initial areas for development: First, we must evaluate our staffing at all levels. Next, we need to assure that not only do we have consistent coaching sessions each month, but that common standards and quality is maintained throughout the company. Last, we must find an appropriate method for our associates to help guide their coaches on how best to meet their developmental needs --not always relying on the coach to be the evaluator. Moving from Good to Great is long-term investment. And we all know that good investments begin with a firm foundation. I am pleased to say that as we further evaluate and develop our already strong staff, we will firm our foundation, preparing us for the Great results which may just be waiting for us as we move further along on our horizon. William B. Grant Chairman of the Board And Chief Executive Office -12- I hope that this overview has been helpful to you in understanding our performance, and our plans for the future. As you may recall, we use three financial gauges in measuring the level of your Company's financial success. They are: Return on Equity, Efficiency Ratio and Non-Performing Assets. We compare our performance against the other 21 publicly traded Maryland banks. We also compare our performance with the 583 publicly traded small cap banks across the Nation. By small cap, I mean those with a total market capitalization of less than 500 million. Here is how we stacked up: In the State of Maryland - Return on Equity 6th out of 21 Efficiency Ratio 6th out of 21 Non-Performing Assets 11th out of 21 In the Small Cap Universe - Return on Equity 242 Efficiency Ratio 263 Non-Performing Assets 231 Overall 222 One of the positive notes through the first quarter of 2003 is the strong performance of our stock. While I cannot give you concrete answers as to why our stock moved as it did, we believe there may be three reasons for this. First, is the acquisition of the Huntington offices, which we discussed earlier. This news may have triggered greater interest in our stock. Secondly, this move in our stock may have triggered some technical indicators in the market. Thirdly, we are lead to believe that we may be entering the Russell 3000 Index sometime later this year. If that is the case, this may have generated some purchase interest by those funds, which attempt to mirror the Russell 3000 Index. As I begin our concluding remarks, I would like to acknowledge the long service to this Board by Maynard Grossnickle who will be retiring as an active member of our Board this year. He will remain as an Honorary Director for the next two years. As we move forward, we are committed to profitably growing the franchise with our existing markets, and some select contiguous areas. We focus our efforts towards developing deep and strong relationships with our customers. We are small enough and nimble enough to accomplish this. Yet, we have the size, diversification and expertise to meet their wants and needs. We are proud of the array of financial services, which we can deliver to our markets, and believe that we can be successful in executing our strategies. -13- All of this is made possible by a dedicated team of highly motivated associates who are interested in the success of the Company. With a team such as this, I pledge to you, our owners, our very best in building long-term shareholder value for your investment. We thank you for your support, and look forward to serving you in the years to come. Thank you. -14- ================================================================================ First United Corporation Welcome! 2002 Shareholder Meeting ================================================================================ ================================================================================ William B. Grant Chairman of the Board and Chief Executive Officer ================================================================================ ================================================================================ Robert W. Kurtz President, Chief Financial Officer and Secretary/Treasurer ================================================================================ ================================================================================ Financial Performance 2000 2001 2002 Loan Growth (Millions) $615 $610 $666 Deposit Growth (Millions) $650 $616 $650 Net Interest Income (Millions) $ 8 $ 9 $ 9 Net Income Growth (Millions) $ 8 $ 9 $ 10 ================================================================================ ================================================================================ Loan Growth 2000 2001 2002 Loan Growth (Millions) $615 $610 $666 ================================================================================ ================================================================================ Deposit Growth 2000 2001 2002 Deposit Growth (Millions) $650 $616 $650 ================================================================================ ================================================================================ Net Interest Income Interest Income: o Loans -------------------- Trends in Net o Investments on Securities Interest Income (in millions) Less Interest Expense: 2002 - $31.8 o Savings 2001 - $29.2 o Transaction Accounts 2000 - $28.1 o Time Deposits -------------------- o FHLB Borrowings Equals - Net Interest Income ================================================================================ ================================================================================ Net Interest Margin 2000 2001 2002 Net Interest Margin 3.79% 3.86% 4.09% ================================================================================ ================================================================================ Non-Interest Income (Fee Income) 2000 2001 2002 Non-Interest Income (Millions) $8 $9 $9 ================================================================================ ================================================================================ Non-Interest Expense 2000 2001 2002 Non-Interest Expense (Millions) $22 $23 $26 ================================================================================ ================================================================================ Income Taxes 2000 2001 2002 Income Taxes 31.2% 28.7% 27.7% ================================================================================ ================================================================================ Net Income Growth 2000 2001 2002 Net Income Growth (Millions) $8 $9 $10 ================================================================================ ================================================================================ Return on Equity 2000 2001 2002 Return on Equity 13.40% 13.26% 12.75% ================================================================================ ================================================================================ Earnings Per Share 2000 2001 2002 Earnings Per Share $1.31 $1.51 $1.59 ================================================================================ ================================================================================ Efficiency Ratio 2000 2001 2002 Efficiency Ratio 59.36% 58.58% 62.39% ================================================================================ ================================================================================ 2003? ================================================================================ ================================================================================ Steven M. Lantz Senior Vice President and Senior Lending Officer ================================================================================ ================================================================================ Non-Performing Loans 1997 1998 1999 2000 2001 2002 Non Performing Loans 0.20% 0.16% 0.14% 0.30% 0.54% 0.35% ================================================================================ ================================================================================ Net Charge Offs 1997 1998 1999 2000 2001 2002 Net Charge Offs 0.11% 0.11% 0.18% 0.25% 0.37% 0.19% ================================================================================ ================================================================================ Commercial Loan Growth 1998 1999 2000 2001 2002 Commercial Loan Growth (Millions) $118 $139 $168 $189 $243 ================================================================================ ================================================================================ Consumer Loan Activities [PHOTO OMITTED] [PHOTO OMITTED] My Bank! [LOGO] First United ================================================================================ ================================================================================ Frederick A. Thayer, IV Senior Vice President and Director of Sales ================================================================================ ================================================================================ Retail Banking Effort o Branch Expansion... o Customer Service... o Cash Management... ================================================================================ ================================================================================ Martinsburg [PHOTO OMITTED] 1446 Edwin Miller Blvd. Huntington National Bank 100 S. Queen Street [PHOTO OMITTED] ================================================================================ ================================================================================ Mystery Shopping Results - Bank Wide Average
1st Qtr 2002 2nd Qtr 2002 3rd Qtr 2002 1st Qtr 2003 Mystery Shopping Results 50.00% 68.00% 62.00% 91.00%
================================================================================ ================================================================================ 2002 Cash Manager Results o Deposit balances grew $16.3 million to $48.6 million. o Customers grew by 40 to 192. o New contract offers 2003 cost savings of $84,000. ================================================================================ ================================================================================ Robin E. Murray Senior Vice President and Director of Marketing and Retail Services ================================================================================ ================================================================================ Customer Service Center 1-888-MYBANK-4 [PHOTO OMITTED] [PHOTO OMITTED] * 1996 - Total Inbound Calls - 4,249 * 2002 - Total Inbound Calls - 152,000 - Plus over 11,000 Outbound Calls ================================================================================ ================================================================================ Customer Service Center 1-888-MYBANK-4 2002 - Surpassed Annual Referral Sales Goal by 59%! [PHOTO OMITTED] Checking Accounts Internet Banking [PHOTO OMITTED] [PHOTO OMITTED] [PHOTO OMITTED] [PHOTO OMITTED] Auto Loans Mortgage Certificate Services of Deposit ================================================================================ ================================================================================ Marketing Strategies Building Financial Relationships that Last a Lifetime! ----------------------------------------------- [PHOTO OMITTED] Customer-Focused! ----------------------------------------------- ----------------------------------------------- [PHOTO OMITTED] Providing solutions that meet our customers' needs! ----------------------------------------------- ----------------------------------------------- [PHOTO OMITTED] Customers are highly satisfied with First United! ----------------------------------------------- ================================================================================ ================================================================================ Marketing Strategies -------------------- ------------------------ BancIntelligence.com www.bankintelligence.com -------------------- ------------------------ o Growth potential of each market o Prioritize our marketing efforts o Identify segmented pricing strategies o Comprehensive plan o One on One personalized service ================================================================================ ================================================================================ Marketing Strategies Building Financial Relationships that Last a Lifetime! o Relationship Banking Packages [PHOTO OMITTED] My First Choice [PHOTO OMITTED] My Prime Choice [PHOTO OMITTED] My Classic Choice [PHOTO OMITTED] The President's Club Incent and reward our customers for doing business with us! ================================================================================ ================================================================================ Marketing Strategies o My Bank's 2003 Marketing Plan Retention of our key customers [PHOTO OMITTED] Growth of our existing priority relationships [PHOTO OMITTED] Attraction of targeted prospects [PHOTO OMITTED] Reduce costs of service delivery ================================================================================ ================================================================================ Terry R. Helbig President and Chief Operating Officer Gonder Insurance Agency, Inc. ================================================================================ ================================================================================ Gonder Insurance Agency [PHOTO OMITTED] ================================================================================ ================================================================================ Gonder Insurance Agency 2000 2001 2002 Gonder Pre-Tax Profit -$41,163 $25,133 $174,376 ================================================================================ ================================================================================ Gonder Insurance Agency
2000 2001 2002 Gonder Gross Commission & Contingency $802,146 $892,799 $1,043,000
================================================================================ ================================================================================ Gonder Insurance Agency Our associates: Terry Helbig President Val Teagarden Agency Manager Jon Zeigler Financial Administrator Hailey Kelley Receptionist Personal Line Agents Commercial Line Agents Patty Boehl Mary Callis Tanna Cessna Pat Gregory Lisa Cosner Marla Mayles Larissa Davis Judy Snyder Gene Harris Dawn Jubb Life & Health Brenda Yaksic Dan Sheehe ================================================================================ ================================================================================ Gonder Insurance Agency Companies Represented Property & Casualty Life & Health Allstate Aflac Carroll County Mutual Allstate Encompass Banner Life Frederick Mutual Blue Cross/Blue Shield Farm Family Canada Life Farmers Ins. Grp. Celtic Life Foremost CNA Harleysville F&G Hartford Farm Family Life IWIF First Colony Millers Capital Guardian Life Peninsula MAMSI Penn National Mutual of Omaha Progressive Sun Life of Canada Rockwood Casualty Transamerica Travelers Travelers Zurich US UNUM U.S. Life ================================================================================ Gonder Insurance Agency [PHOTO OMITTED] ================================================================================ ================================================================================ Eugene D. Helbig, Jr. Senior Vice President and Senior Trust Officer ================================================================================ Stock Market Fluctuation
Stock Market Fluctuation Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 S&P 500 1,498.58 1,454.60 1,436.51 1,320.28 1,160.33 1,224.38 1,040.94 Dow Jones Industrial 10,921.90 10,447.90 10,650.90 10,788.00 9,878.80 10,502.40 8,847.60 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 S&P 500 (cont'd) 1,148.08 1,147.39 989.82 815.28 879.82 848.18 Dow Jones (cont'd) 10,021.60 10,403.90 9,243.30 7,591.96 8,341.63 7,992.13
================================================================================ ================================================================================ Yield Curve
Yield Curve 3 Month 6 Month 2 Year 5 Year 10 Year 30 Year 1/3/2000 5.4050% 5.7790% 6.3790% 6.5000% 6.5890% 6.6217% 12/31/2002 1.1900% 1.2040% 1.5980% 2.7340% 3.8140% 4.7790% Variance -4.2152% -4.5754% -4.5754% -3.7661% -2.7752% -1.8420%
================================================================================ ================================================================================ Growth in Trust Income 2000 2001 2002 Growth in Trust Income (Millions) $2.28 $2.51 $2.14 ================================================================================ ================================================================================ Growth in PrimeVest Net Income 2000 2001 2002 Growth In PrimeVest Net Income $149,000 $135,100 $213,576 ================================================================================ ================================================================================ Contribution of Trust & PrimeVest to Corporate Income 1999 13.34% 2000 13.77% 2001 16.08% 2002 11.64% ================================================================================ ================================================================================ Trust Sales of New Reveue 2000 $304,363 2001 $419,808 2002 $437,118 ================================================================================ ================================================================================ Managed Asset Portfolio Results 2002 2001 2000 Investment Annual Annual Annual Objective Return Return Return ------------------------------------------------------ Bond Income 5.07% 6.36% 7.48% Fixed Income .78% 4.51% 4.96% Growth/Income -5.30% 2.04% 1.79% Balanced -10.59% -3.55% -4.80% Growth -14.12% -6.30% -6.43% Aggressive -17.23% -7.44% -10.38% 2002 Index Performance: S&P 500: -22.09% NASDAQ: -31.13% ================================================================================ ================================================================================ Trust Services Client Survey The highest rated attributes are: o Trustworthiness 4.80 o Knowledge 4.68 o Competitive ROI 4.55 o Attention to needs 4.54 ================================================================================ ================================================================================ Trust Services Client Survey Evaluation of First United Representatives: Clients are most satisfied with representatives' courtesy (4.82). Highest-rated attributes include: o Comfort level with Trust officer 4.69 o Trustworthiness 4.67 o Accuracy in carrying out requests 4.60 ================================================================================ ================================================================================ Trust Services Client Survey Evaluation of Communication Trust Services Client Survey Rating Provides enough information 4.50 Understandable 4.41 Ease of Contact 4.40 Written Contact 4.21 Personal Contact 4.10 Publications 4.00 Seminars 3.91 ================================================================================ Trust Services Client Survey Overall Customer Satisfaction 97.8% are satisfied or better ================================================================================ ================================================================================ Trust Services Client Survey Attributes that have the greatest impact on overall satisfaction: ---------------------------------------------------------------- "Trust officers' level of knowledge is the key driver to overall satisfaction with First United trust services. It should be noted that this attribute appears as a strength of First United trust services in the Strategic Improvement Analysis, indicating that the bank is already doing well in this area." ---------------------------------------------------------------- ================================================================================ ================================================================================ Philip D. Frantz Senior Vice President and Director of Operations and Support ================================================================================ ================================================================================ Operations and Support [PHOTOS OMITTED] ================================================================================ ================================================================================ Operations and Support [PHOTOS OMITTED] ================================================================================ ================================================================================ Operations and Support [PHOTOS OMITTED] ================================================================================ ================================================================================ Operations and Support [PHOTO OMITTED] ================================================================================ ================================================================================ Operations and Support [PHOTOS OMITTED] ================================================================================ ================================================================================ Operations and Support [PHOTOS OMITTED] ================================================================================ ================================================================================ Operations and Support [CHECK ICON] Check Imaging ================================================================================ ================================================================================ Operations and Support [PHOTO OMITTED] New Hagerstown Branch ================================================================================ ================================================================================ Operations and Support [PHOTOS OMITTED] [LOGO] Huntington ================================================================================ ================================================================================ Operations and Support - ------------------- Training - ------------------- [PHOTO OMITTED] - ------------------- Enhancing Processes - ------------------- ------------ Teamwork ------------ ================================================================================ ================================================================================ Jeannette R. Fitzwater Senior Vice President and Director of Human Resources ================================================================================ ================================================================================ Employee Retention 2000 2001 2002 Employee Retention 15.00% 13.00% 11.00% Our turnover rate decreased 4% over a two year period, representing better than 25% improvement in retention. ================================================================================ ================================================================================ Good to Great [PHOTOS OMITTED] It starts with our associates! ================================================================================ ================================================================================ Good to Great [PHOTOS OMITTED] We need a great company for our associates! ================================================================================ ================================================================================ Good to Great [PHOTOS OMITTED] The foundation is in place with consistent coaching sessions. ================================================================================ ================================================================================ Good to Great Steps to Success: 1. Evaluate staff 2. Consistency of coaching 3. Evaluation of coaches ================================================================================ ================================================================================ ================================================================================ Good to Great A smart, long-term investment. [GRAPHIC OMITTED] ================================================================================ ================================================================================ William B. Grant Chairman of the Board and Chief Executive Officer ================================================================================ ================================================================================ An Analysis of: 21 Publicly Traded Maryland Banks o Return on Equity 8th o Efficiency Ratio 6th o Non Performing Assets 11th ================================================================================ ================================================================================ An Analysis of: 583 Small Cap Banks (Market Capitalization less than $500 million) o Return on Equity 242nd o Efficiency Ratio 263rd o Non Performing Assets 231st ----------------------------------------- o OVERALL 222nd ----------------------------------------- 62nd Percentile ================================================================================ ================================================================================ My Bank! [LOGO] Thank You! 2002 Shareholder Meeting ================================================================================ -----END PRIVACY-ENHANCED MESSAGE-----