<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
____________________
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
MARCH 31, 1994
COMMISSION FILE NUMBER: 0-11916
FIRST UNITED BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Arkansas 71-0538646
(State of Incorporation) (I.R.S. Employer
Identification No.)
Main and Washington Streets
El Dorado, Arkansas 71730
(Address of principal executive offices) (Zip Code)
(501) 863-3181
(Registrant`s telephone number, including area code)
__________________
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
The number of shares outstanding of registrant's Common stock, par value $1.00
per share, at May 6, 1994 was 4,272,276.
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<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
MARCH 31, 1994
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition,
March 31, 1994 and December 31, 1993. 3
Consolidated Statements of Income for
the Three Months Ended March 31, 1994
and 1993. 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31,
1994 and 1993. 5
Notes to Consolidated Financial
Statements. 6
Item 2. Management`s Discussion and Analysis of
Financial Condition and Results of
Operation. 7-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N\A
Item 2. Change in Securities N\A
Item 3. Defaults Upon Senior Securities N\A
Item 4. Submission of Matters to a Vote of
Security Holders N\A
Item 5. Other Information
N\A
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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<PAGE> 3
Part I. FIRST UNITED BANCSHARES,
INC. Item 1 CONSOLIDATED STATEMENTS
OF CONDITION
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . . . $ 44,345,983 $ 45,012,954
----------- -----------
Short-Term Investments:
Federal Funds Sold & Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . . . . . . . . . 34,490,000 27,765,000
Other Short-Term Investments . . . . . . . . . . . . . . . . . . . 6,463,973 4,905,483
----------- -----------
Total Short-Term Investments . . . . . . . . . . . . . . . . . 40,953,973 32,670,483
----------- -----------
Securities Available For Sale . . . . . . . . . . . . . . . . . . . 302,929,173 0
----------- -----------
Securities Held For Sale . . . . . . . . . . . . . . . . . . . . . 0 83,467,753
----------- -----------
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . 130,803,258 342,067,031
----------- -----------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 411,402,093 415,386,789
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . . . (557,320) (577,497)
Allowance for Possible Loan Losses . . . . . . . . . . . . . . . (8,328,031) (8,478,102)
----------- -----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,516,742 406,331,190
----------- -----------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . 12,023,561 11,182,290
----------- -----------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,385,810 4,308,303
----------- -----------
Other Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . 890,097 896,463
----------- -----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,467,702 12,757,288
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 950,316,299 $ 938,693,755
=========== ===========
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 128,030,190 $ 123,890,533
Savings and Interest-Bearing Demand . . . . . . . . . . . . . . . 292,720,343 286,867,333
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,746,267 395,690,675
----------- -----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . 811,496,800 806,448,541
Fed Funds Purchased & Securities Sold Under
Agreements to Repurchase . . . . . . . . . . . . . . . . . . . . 31,064,030 27,108,906
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 6,572,776 6,665,382
Long-Term Debt:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . . . 2,214,290 2,214,290
Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . 5,000,000 5,000,000
----------- -----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 856,347,896 847,437,119
----------- -----------
CAPITAL ACCOUNTS
Preferred Stock(Par Value of $1.00; 500,000 shares authorized in
1994 and 1993; none outstanding) . . . . . . . . . . . . . . . . . 0 0
Common Stock(Par Value of $1.00; 12,000,000 shares authorized;
4,272,276 shares outstanding in 1994 and 1993) . . . . . . . . . . 4,272,276 4,272,276
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,125,348 11,125,348
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . . . 78,039,807 75,859,012
Unrealized Gains on Securities Available for Sale . . . . . . . . . 530,972 0
----------- -----------
Total Capital Accounts . . . . . . . . . . . . . . . . . . . . 93,968,403 91,256,636
----------- -----------
Total Liabilities and Capital Accounts . . . . . . . . . . . . $ 950,316,299 $ 938,693,755
=========== ===========
</TABLE>
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<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------
1994 1993
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . . . . . . . . . . . . $ 8,211,240 $ 7,537,481
Interest on Securities:
Taxable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 5,532,034 6,521,802
Nontaxable Securities . . . . . . . . . . . . . . . . . . . . . . . . . 703,525 607,470
Interest on Federal Funds Sold and Securities
Purchased Under Agreements to Resell . . . . . . . . . . . . . . . . . 288,246 178,025
Interest on Deposits in Banks . . . . . . . . . . . . . . . . . . . . . . 56,855 36,566
----------- -----------
TOTAL INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . 14,801,900 14,881,344
----------- -----------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 5,605,795 5,701,113
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase . . . . . . . . . . . . . . . . . . 207,085 171,499
Interest on Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . 124,913 134,457
----------- -----------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . 5,937,793 6,007,069
----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 8,864,107 8,874,275
Provision for Possible Loan Losses . . . . . . . . . . . . . . . . . . . ( 45,000) (465,000)
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . 8,819,107 8,409,275
----------- -----------
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . . . . . . . . . . . . 709,237 719,898
Trust Department Income . . . . . . . . . . . . . . . . . . . . . . . . . 253,074 251,088
Security Gains(Losses) . . . . . . . . . . . . . . . . . . . . . . . . . 930 6,481
Other Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . 191,350 280,582
----------- -----------
TOTAL OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 1,154,591 1,258,049
----------- -----------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,221,281 1,976,165
Pension and Other Employee Benefits . . . . . . . . . . . . . . . . . . . 652,172 337,388
Net Occupancy Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 447,515 374,508
Equipment Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,610 206,612
Data Processing Expense . . . . . . . . . . . . . . . . . . . . . . . . . 317,822 386,695
Other Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,892,242 1,666,586
----------- -----------
TOTAL OPERATING EXPENSE . . . . . . . . . . . . . . . . . . . . . . . 5,742,642 4,947,954
----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . . . 4,231,056 4,719,370
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,323,975 1,503,059
----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . . . . . . . . . 2,907,081 3,216,311
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 2,521,995
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,907,081 $ 5,738,306
=========== ===========
INCOME PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.68 $ 0.75
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00 0.59
----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.68 $ 1.34
=========== ===========
CASH DIVIDENDS PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . $ 0.17 $ 0.15
=========== ===========
Average Number of Shares Outstanding During
the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,272,276 4,272,276
</TABLE>
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<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 2,907,081 $ 5,738,306
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . 245,960 113,218
Amortization of Goodwill . . . . . . . . . . . . . . 110,007 86,253
Provision for Possible Loan Losses . . . . . . . . . 45,000 465,000
Change in Accounting Principle . . . . . . . . . . . 0 (2,521,995)
Provision for Deferred Taxes . . . . . . . . . . . . (70,038) (108,151)
Gain on Sales of Securities . . . . . . . . . . . . (930) (6,481)
Accretion of Bond Discount, Net . . . . . . . . . . (490,528) (474,747)
(Increase) Decrease in Other Assets . . . . . . . . 673,650 (2,473,924)
Increase (Decrease) in Other
Liabilities . . . . . . . . . . . . . . . . . . . . (22,568) (2,399,065)
----------- -----------
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . . . . . . . . . 3,352,634 940,409
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Sales of Securities . . . . . . . . . 0 0
Proceeds From Maturities of
Securities . . . . . . . . . . . . . . . . . . . . 34,574,361 28,180,619
Purchase of Securities . . . . . . . . . . . . . . . (41,463,670) (31,520,945)
(Increase) in Interest-
bearing Deposits in Other Banks,
Net . . . . . . . . . . . . . . . . . . . . . . . . 0 (7,551,923)
(Increase) Decrease in Federal
Funds, Net . . . . . . . . . . . . . . . . . . . . (2,769,876) 7,634,809
(Increase) in Other Short-term
Investments. . . . . . . . . . . . . . . . . . . . . (1,558,490) (4,232,386)
Decrease in Loans . . . . . . . . . . . . . . . . . 3,775,814 1,150,847
Capital Expenditures . . . . . . . . . . . . . . . . (899,717) (55,761)
---------- ----------
Net Cash Used in Investing Activities . . . . . . . . . (8,341,578) ( 6,394,740)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Demand, Savings and
Interest-bearing Demand Deposits . . . . . . . . . 9,992,667 422,164
(Decrease) in Time Deposits . . . . . . . . . . . . (4,944,408) (2,315,227)
Dividends Paid . . . . . . . . . . . . . . . . . . . (726,286) (640,841)
---------- -----------
Net Cash Provided by Financing
Activities . . . . . . . . . . . . . . . . . . . . . . 4,321,973 (2,533,904)
---------- ------------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . . . . (666,971) (7,988,235)
Cash and Cash Equivalents, Beginning . . . . . . . . . 45,012,954 43,734,306
---------- -----------
Cash and Cash Equivalents, Ending . . . . . . . . . . . $ 44,345,983 $ 35,746,071
========== ===========
</TABLE>
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<PAGE> 6
FIRST UNITED BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of First United Bancshares, Inc.
include the accounts of the parent company and its wholly-owned subsidiaries,
The First National Bank of El Dorado, First National Bank of Magnolia,
Merchants and Planters Bank, N.A. of Camden, City National Bank of Fort Smith
and Commercial Bank at Alma. All material intercompany transactions have been
eliminated.
The consolidated statements of condition as of March 31, 1994 and the
related consolidated statements of income for the three month period ended
March 31, 1994 and 1993 and the consolidated statements of cash flows for the
three month period ended March 31, 1994 and 1993 are unaudited; in the opinion
of management, all adjustments necessary for a fair presentation of the
financial statements are included.
2. CHANGES IN ACCOUNTING POLICIES
On January 1, 1994, First United adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". This statement addressed
the accounting and reporting for investments in debt and certain equity
securities. In connection with this adoption on January 1, 1994, debt
securities not classified as trading account securities or investment
securities expected to be held until maturity and all equity securities were
classified as securities available for sale and have been reported at fair
value, with net unrealized gains and losses reported, net of tax, as a separate
component of stockholders equity. At March 31, 1994, the amortized costs and
fair values of securities classified as available for sale were $302,929,000
and $303,752,000, respectively, which resulted in reflecting an unrecognized
gain, net of tax, of approximately $531,000 as a separate component of the
capital accounts.
There have been no other significant changes in the accounting
policies of First United since the close of business on December 31, 1993, the
date of the most recent annual report to shareholders.
3. RESULTS OF OPERATIONS
The results for the three month period ended March 31, 1994 are not
necessarily indicative of the results for the entire year of 1994. This report
should be read in conjunction with First United's 1993 Annual Report to
Shareholders and Form 10-k for a complete understanding of First United's
accounting policies and their effect on the financial statements as a whole.
4. PRIOR YEAR BALANCES
Certain reclassification have been made to previously reported
balances for 1993 to conform to the 1994 presentation. Such reclassification
are of a normal recurring nature in accordance with Rule 10-02(b)(8) of
Regulation S-X.
5. ACQUISITIONS
On December 17, 1993, First United and InvestArk Bankshares, Inc.
(InvestArk) entered into an agreement pursuant to which First United proposes
to acquire all of the issued and outstanding stock of InvestArk through the
issuance to InvestArk's shareholders of up to 985,849 shares of First United's
common stock. The agreement requires that the merger be accounted for as a
pooling of interests. InvestArk has total assets of approximately $185 million.
For the quarter ended March 31, 1994, InvestArk had net interest income and net
income of approximately $1,799,000 and $798,000, respectively.
-6-
<PAGE> 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of First United Bancshares, Inc.
("First United" or the "Company") and its subsidiaries, The First National Bank
of El Dorado ("El Dorado"), the City National Bank of Fort Smith ("Ft. Smith"),
First National Bank of Magnolia ("Magnolia"), Merchants and Planters Bank, N.A.
of Camden ("Camden") and Commercial Bank at Alma ("Alma") focuses on the
results from operations which are not otherwise apparent from the consolidated
financial statements. Reference should be made to these financial statements
and the notes to the financial statements for an understanding of this review
and discussion.
RESULTS OF OPERATIONS
Net income from continuing operations for the three months ended March
31, 1994 was $2.91 million, or $.68 per share compared with $3.22 million or
$.75 per share during the same period in 1993. Net income for the three month
period, March 31, 1993, including the cumulative effect of a change in
accounting principle was $5.74 million or $1.34 per share. The annualized
return on average assets from continuing operations for the three months ended
March 31, 1994 and 1993 was 1.25% and 1.48% respectively, while the annualized
return on average equity was 12.76% and 16.10% respectively for the same
periods. The decrease in net income was due primarily to a nonrecurring gain
of approximately $.5 million related to First United's employee benefit plans.
During the first quarter of 1993, the Company adopted the provisions
of FAS 109, "Accounting For Income Taxes." As a direct result of this
standard, the Company realized a non-recurring increase in income of
approximately $2.52 million.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the
difference between the income generated by earning assets and the total
interest cost of the funds obtained to carry them. Net interest income, as
referred to in this discussion, is on a fully tax-equivalent basis, which
adjusts for the tax exempt status of income earned on certain loans and
investments. The reported interest income for the tax-free assets is increased
by the amount of tax savings less the nondeductible portion of interest expense
incurred to acquire the tax-free assets. Net interest income is affected by
variations in both interest rates and the volume of interest-earning assets and
interest-bearing liabilities.
On a tax equivalent basis, net interest income for the first three
months of 1994 was $9.13 million compared with $9.09 million in the first three
months of 1993. Net interest income also increased when compared with the 1992
figure of $8.73 million. The increase in net interest income was the result of
the Company's liability sensitive balance sheet position during a time of
decreasing interest rates. However, during the first quarter of 1994, First
United has experienced a decline in its net interest margin. the net interest
margin through march 31, 1994 was 4.20% compared with 4.42% for all of 1993.
First United anticipates that margins for 1994 will be lower than those for
1993. During 1993, the Company has shortened the overall maturities of its
investment portfolio in order to minimize the effect of any rise in interest
rates.
First United has debt of approximately $7.21 million at March 31, 1994
and interest expense associated with this debt totaled $125 thousand during the
first three months of 1994. First United will make a principal payment of $1.11
million on its instalment note payable to an unaffiliated bank in August of
this year, with the final instalment payment of $1.11 million due in August
1995. These borrowings contain financial covenants relating to the issuance of
additional debt and maintenance of minimum tangible net worth. First United's
$5.00 million note payable to an affiliated company matures in August of 1994.
A determination has not been reached at this time as to whether this note will
be retired or renewed. The aggregate principal payments required in each of the
years 1994 and 1995 are $6.1 million and $1.1 million, respectively.
-7-
<PAGE> 8
Pursuant to the Interest Rate Control Amendment to the Constitution of
the State of Arkansas, "consumer loans and credit sales" have a maximum
limitation of 17% per annum and all "general loans" have a maximum limitation
of 5% over the Federal Reserve Discount Rate in effect at the time the loan was
made. The Arkansas Supreme Court has determined that "consumer loans and
credit sales" are "general loans" and are subject to the limitation of 5% over
the Federal Reserve Discount Rate as well as a Maximum limitation of 17% per
annum. As a general rule, the Company and its subsidiary banks are required to
comply with the Arkansas usury laws on loans made within the State of Arkansas.
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993 1992
--------- ------------------
<S> <C> <C> <C>
Yield on Earning asset 6.90% 7.28% 7.94%
Break - even yield 2.70% 2.86% 3.53%
Net interest margin 4.20% 4.42% 4.41%
Net interest spread 3.56% 3.84% 3.73%
----- ----- -----
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $411.4 million at March
31, 1994 compared with $415.4 million at December 31, 1993 and $363.1 million
at March 31, 1993. The modest decrease since December 31, 1994 is due
primarily to weak loan demand in the markets that First United serves. The
acquisition of Alma had the effect of increasing total loans by approximately
$23.1 million as of March 31, 1994. In light of the local economic outlook for
the remainder of 1994, First United does not anticipate an upturn in loan
demand. First United has no foreign loans or leases and it is the policy of
First United to avoid out of territory loans.
A sound credit policy combined with periodic and independent credit
reviews are the key factors of the credit risk management program. All
affiliate banks operate under written loan policies that help maintain a
consistent lending function and provide sound credit decisions. Credit
decisions continue to be based on the borrower's cash flow position and the
value of the underlying collateral, as well as other relevant factors. Each
bank is responsible for evaluating its loans to identify those credits
beginning to show signs of deterioration so that prompt corrective action may
be taken. In addition, an internal audit and loan review staff operate
independently of the affiliate banks. This review team performs periodic
examinations of each bank's loans and related documentation. Results of these
examinations are reviewed with the Chairman and Chief Executive Officer, the
management and board of the respective affiliate banks and the Audit
Committees.
-8-
<PAGE> 9
The following table list those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993 1992
(In thousands) --------- ------------------
<S> <C> <C> <C>
Non-performing loans:
Non-accrual loans:
Commercial & Financial $1,634 $ 1,571 $ 1,294
Real Estate 469 520 708
Consumer 23 68 59
------ ------- -------
$2,126 $ 2,159 $ 2,061
------ ------- -------
Past due 90 days or more:
Commercial $ 164 $ 64 $ 13
Real Estate 24 28 535
Consumer 126 219 156
------ ------- -------
$ 314 $ 311 $ 704
------ ------- -------
Renegotiated Commercial
Loans: $ 325 $ 223 $ 1,414
------ ------- -------
Total non-performing
Loans: $2,765 $ 2,693 $ 4,179
Other Real Estate, Net 890 896 2,612
------ ------- -------
Total non-performing
Assets: $3,655 $ 3,589 $ 6,791
====== ======= =======
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of
March 31, 1994.
Management remains committed to reducing the level of non-performing
assets and to minimize future risks by continuous review of the loan portfolio.
During the past year, First United has issued revised credit policies for real
estate lending in order to better control loan risk.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The provision for possible loan losses represents management's
evaluation of the overall loan portfolio quality and loss experience. During
management's periodic review of the provision throughout each quarter, the
amount to be provided is determined by the level of net charge-offs, the size
of the loan portfolio, the non-performing assets, anticipated and current
economic conditions and specific reviews of performing and non-performing
loans.
-9-
<PAGE> 10
During the first three months of 1994 First United made provisions for
possible loan losses of $45 thousand compared with $465 thousand for the same
period in 1993. Total non-performing loans increased $80 thousand from $2.69
million at December 31, 1993 to $2.77 million at March 31, 1994. Net
charge-offs through March 31, 1994 totaled $195 thousand compared with $101
thousand during the same period in 1993.
<TABLE>
<CAPTION>
Year Ended December 31,
March 31, 1994 1993 1992
-------------- --------------------------------
<S> <C> <C> <C>
Allowance as a
percentage of total
loans and losses 2.02% 2.04% 1.90%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 301% at March 31, 1994 compared with 315% at December
31, 1993.
The allocation of the allowance for possible loan losses by major
categories of loans is as follows:
<TABLE>
<CAPTION>
December 31,
March 31, --------------------------------
(In thousands) 1994 1993 1992
--------- --------------------------------
<S> <C> <C> <C>
Commercial & Financial $4,778 $4,370 $2,168
Real Estate 484 666 1,838
Consumer 1,122 1,028 487
Unallocated 1,945 2,414 2,406
------ ------ ------
Total $8,328 $8,478 $6,899
====== ====== ======
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize non-interest income in providing
additional revenue to the income stream. Future profitability depends upon
income derived from providing loan and deposit services, discount brokerage
fees, trust service income, mortgage service fees and service charges on
deposit accounts.
The table represented below is a comparison of the dollar and
percentage change for each component of non-interest income:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
----------------------- --------------------------
(Dollars in Thousands) 1994 1993 $ %
------- ------- --------- -------
<S> <C> <C> <C> <C>
Service Charges on
Deposit Accounts $ 709 $ 720 $ (11) (1.5%)
Trust Income 253 251 2 0.8%
Security Gains 1 6 (5) (85.7%)
Other Income 191 281 (89) (31.8%)
------ ------ -------- -------
Total Other Income $1,155 $1,258 $ (103) (8.2%)
====== ====== ======== =======
</TABLE>
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<PAGE> 11
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1994 1993 1992
--------- ---- ----
<S> <C> <C> <C>
Market Value $131,363 $342,067 $337,763
Book Value 130,803 349,164 331,297
-------- -------- --------
Difference $ 560 $ 7,097 $ 6,466
======== ======== ========
</TABLE>
At March 31, 1994, approximately 70% of First United's securities
portfolio was classified as available for sale and carried at fair value.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands) 1994 1993
--------- ------------
<S> <C> <C>
Market Value $303,752 $ 84,450
Book Value 302,929 83,468
-------- --------
Difference $ 823 $ 7,097
======== ========
</TABLE>
Those securities listed as of December 31, 1993 were classified as
Held For Sale and are included in this presentation for comparative purposes
only.
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of the Company's
major objectives. Non-interest expenses include salaries, employee benefits,
occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
------------------ ------
(Dollars in Thousands) 1994 1993 $ %
---- ----- ----- -----
<S> <C> <C> <C> <C>
Salaries $2,221 $1,976 $ 245 12.4%
Pension and Employee Benefits 652 337 315 93.3%
Net Occupancy Expense 448 375 73 19.5%
Equipment Expense 212 207 5 2.4%
Data Processing Expense 318 387 (69) (17.8%)
Other Operating Expense 1,892 1,666 226 13.5%
------ ------ ------- -----
Total Non-Interest Expense $5,743 $4,948 $ 795 16.0%
====== ====== ======= =====
</TABLE>
Pension and employee benefits increased approximately 93% during the
first three months of 1994 when compared with the same period in 1993 primarily
as a result of a non-recurring adjustment of approximately $500 thousand
related to First United's defined pension benefit plan in 1993. Excluding the
benefit of the non-recurring adjustment, employee benefit costs decreased by
approximately 22%. The $5.7 million in total non-interest expense as of March
31, 1994 included approximately $327 thousand of non- interest expense at Alma
which was accounted for as a purchase transaction. Total non-interest expense,
excluding the effect of the Alma acquisition and the non-recurring adjustment,
decreased by approximately $32 thousand when comparing 1993 with 1994.
-11-
<PAGE> 12
INCOME TAXES
The effective tax rate of the Company for the three month period ended
March 31, 1994 was 31.3% compared to 31.8% for the same period in 1993. The
increase in the 1993 effective tax rate over 1991 was due to a decrease in the
proportion of nontaxable income to total income.
CAPITAL AND LIQUIDITY
The assessment of capital adequacy depends primarily on a number of
factors which include asset quality, liquidity, stability of earnings, changing
competitive forces, economic conditions in the various markets served and
strength of management. Management of capital focuses on achieving the rate of
return for shareholders while following guidelines set forth by bank
regulators.
The Company's equity capital totaled $93.9 million at March 31, 1994,
an increase of 3% over the December 31, 1993 level of $91.3 million. The
growth and retention of earnings continues to be the Company's primary source
of additional capital. Currently, the Company does not have any plans for
issuing subordinated notes and the Company has not issued any new common or
preferred stock during 1994 or 1993.
The table presented below is a comparison of capital ratios with
unrealized gains from the securities classified as available for sale not
included in this presentation:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993 1992
--------- ---- -----
<S> <C> <C> <C>
Equity Capital to Total Assets 9.83% 9.72% 8.89%
Primary Capital to Total Assets 10.62% 10.53% 9.59%
</TABLE>
The table presented below is a comparison of the Company's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
March 31, Regulatory
1994 Requirements
--------- ------------
<S> <C> <C>
Total Capital/Total Assets 10.62% 6.00%
Primary Capital/Total Assets 10.62% 5.50%
Total Risk Based Capital 19.39% 8.00%
Tier 1 Capital 18.14% 4.00%
Leverage Ratio 10.07% 3.00%
</TABLE>
-12-
<PAGE> 13
Liquidity management is concerned with meeting the cash requirements
of customers, including the withdrawal of funds by depositors or drawing down
of approved lines of credit and commitments by borrowers. The Company is aided
significantly in meeting its short term liquidity needs by its strong capital
position, its high rate of internal capital generation and its level of loan
loss reserves.
DIVIDEND POLICY
The Company strives to maintain a balance between the retention of
earnings for the support of growth and expansion and a dividend payout that
meets the required return for investors. The Company anticipates continuing
its policy of regular cash dividends, although there is no assurance as to
future increases in dividends because they are dependent upon future earnings,
capital requirements and economic conditions.
The following table sets forth the dividend payout ratio for the last
two years and for the three months ended March 31, 1993:
<TABLE>
<CAPTION>
March 31, Year Ended
--------- ----------------------
1994 1993 1992
------ ---- ----
<S> <C> <C> <C>
Dividend payout ratio 24.98% 23.62% 24.54%
</TABLE>
-13-
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. Legal proceedings
Not Applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Matters
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Not Applicable
Reports on Form 8-
The Company filed a report on Form 8-K pursuant to Item 5 hereof on
January 10, 1994. The disclosure related to the execution of an
Agreement and Plan of Reorganization by and between the Company and
InvestArk Bankshares, Inc. whereby,if consummated, the Company will
acquire all of the issued and outstanding shares of InvestArk
Bankshares, Inc. Common Stock in exchange for a maximum 985,849 shares
of the Company's common stock.
-14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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 BANCSHARES, INC.
BY /s/ JAMES V. KELLEY
James V. Kelley
Chairman, President and Chief
Executive Officer
BY /s/ JOHN E. BURNS
John E. Burns
Chief Financial Officer and
Principal Accounting Officer
Date: May 13, 1994
-15 -
