<PAGE> 1
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): October 18, 1994
FIRST UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 0-11916 71-0538646
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
MAIN AND WASHINGTON STREETS, EL DORADO, ARKANSAS 71730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (501) 863-3181
<PAGE> 2
ITEM 5. OTHER EVENTS.
On June 14, 1994, First United Bancshares, Inc., El Dorado, Arkansas
("First United"), acquired all of the issued and outstanding common stock of
InvestArk Bankshares, Inc., Stuttgart, Arkansas ("InvestArk"), pursuant to an
Agreement and Plan of Reorganization, dated December 17, 1993 ("Agreement"),
whereby First United acquired 215,960 shares of common stock of InvestArk in
exchange for the issuance of 885,523 shares of First United common stock plus
cash payment for fractional shares. The average price of First United common
stock was defined, pursuant to the Agreement, as the average sales price per
share for all trades occurring during the period of ten (10) trading days on
which one or more trades actually takes place and which ends immediately prior
to the second trading day preceding the closing date. The average price was
$29.90 resulting in an exchange ratio of 4.1007 shares of First United common
stock for every one (1) share of InvestArk common stock. The method of
calculating the above described average sales price and exchange ratio are
fully described in First United's Form S-4 Registration Statement under the
Securities Act of 1933, Registration No. 33-52341 as filed with the Securities
and Exchange Commission ("SEC") on May 4, 1994, and which became effective May
6, 1994 ("Registration Statement"). Furthermore, information regarding the
consummation of the transaction and disclosure of certain historical and pro
forma financial data can be found in the current report on Form 8-K filed by
First United on June 16, 1994 and the amendment thereto filed under cover of
Form 8-K/A on August 12, 1994 and the Current Report on Form 8-K filed by First
United on September 9, 1994.
The transaction was accounted for by using the pooling of interest
method and therefore the below audited financial statements are being filed to
restate the consolidated statements of condition as of December 31, 1993 and
1992, and the related consolidated statements of income, changes in capital
accounts and cash flows for each of the years in a three year period ended
December 31, 1993.
2
<PAGE> 3
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CONDITION
First United Bancshares, Inc.
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . $ 52,227 $ 56,672
---------- ---------
Short-Term Investments:
Federal Funds Sold and Securities
Purchased Under Agreements to Resell . . . . . . . . . . . 27,765 36,715
Other Short-Term Investments . . . . . . . . . . . . . . . . 6,086 8,573
--------- ---------
Total Short-Term Investments . . . . . . . . . . . . . . . 33851 0.00
-------- -------
Securities Held For Sale (Estimated Fair
Value of $84,450 and $97,293 at December 31, 1993 and
1992, respectively) . . . . . .. . . . . . . . . . . . . . . 83468 95794
-------- --------
Investment Securities (Estimated Fair Value
of $439,429 and $423,170 at December 31,
1993 and 1992, respectively.) . . . . . . . . . . . . . . . . 429931 413758
-------- --------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 499,912 451,058
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . (607) (425)
Allowance for Possible Loan Losses . . . . . . . . . . . . . (9,972) (7,972)
--------- ---------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . 489333 442661
-------- --------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . 13,904 12,374
--------- ---------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,308 3,010
--------- ---------
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . 1,039 3,854
--------- ---------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . 15,537 13,054
--------- ---------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $1,123,598 $1,086,467
========== ==========
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,842 $146,737
Savings and Interest-bearing Demand . . . . . . . . . . . . . 350,325 333,870
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 468,582 462,490
-------- ---------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . 969749 943097
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase . . . . . . . . . . . . . . . 30,512 29,978
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . 7,493 9,133
Notes Payable:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . 2,723 3,821
Affiliated Company . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
--------- ---------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . 1015477 991029
------- --------
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
Commitments and Contingencies
CAPITAL ACCOUNTS
Preferred Stock(Par value of $1.00; 500
shares authorized in 1993 and 1992; none
outstanding) . . . . . . . . . . . . . . . . . . . . . . . . -0- -0-
Common Stock(Par value of $1.00; 24,000
shares authorized; 5,170 shares issued in
1993 and 1992; 5,158 shares outstanding in 1993 and 5,156
in 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . 5,170 5,170
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,524 13,518
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . 89,579 76,910
Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . (130) (157)
Unrealized Loss on Marketable Equity Securities . . . . . . . . (21) (3)
---------- ----------
Total Capital Accounts . . . . . . . . . . . . . . . . . . 108,122 95,438
---------- ----------
Total Liabilities and Capital
Accounts . . . . . . . . . . . . . . . . . . . . . . . . $1,123,598 $1,086,467
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
First United Bancshares, Inc.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . $ 37,910 $ 40,278 $ 47,595
Interest on Securities:
Taxable Securities . . . . . . . . . . . . . . . 29,292 32,796 31,862
Nontaxable Securities . . . . . . . . . . . . . . 3,809 3,505 3,533
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . 752 988 1,919
Interest on Deposits in Banks . . . . . . . . . . . 205 3 26
----------- ----------- -----------
TOTAL INTEREST INCOME 71,968 77,570 84,935
----------- ----------- -----------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . . . . 27,489 33,195 45,771
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase . . . . . . . . . . . . 750 830 1,023
Interest on Notes Payable . . . . . . . . . . . . . 666 1,034 1,431
----------- ----------- -----------
TOTAL INTEREST EXPENSE 28,905 35,059 48,225
----------- ----------- -----------
NET INTEREST INCOME . . . . . . . . . . . . . . 43,063 42,511 36,710
Provision for Loan Losses . . . . . . . . . . . . . (1,815) (2,486) (4,712)
----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . 41,248 40,025 31,998
----------- ----------- -----------
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . 3,280 3,211 3,066
Trust Department Income . . . . . . . . . . . . . . 1,515 1,407 1,356
Security Gains . . . . . . . . . . . . . . . . . . 144 454 336
Other Operating Income . . . . . . . . . . . . . . 1,724 1,947 1,803
----------- ----------- -----------
TOTAL OTHER INCOME 6,663 7,019 6,561
----------- ----------- -----------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . 10,356 9,858 9,606
Pension and Other Employee Benefits . . . . . . . . 3,211 3,065 2,691
Net Occupancy Expense . . . . . . . . . . . . . . . 2,215 2,304 2,234
Equipment Expense . . . . . . . . . . . . . . . . . 1,267 1,037 993
Data Processing Expense . . . . . . . . . . . . . . 1,744 2,026 1,733
Other Operating Expenses . . . . . . . . . . . . . 10,284 10,931 9,733
----------- ----------- -----------
TOTAL OTHER EXPENSE . . . . . . . . . . . . . . 29,077 29,221 26,990
----------- -----------
INCOME BEFORE INCOME TAX EXPENSE . . . . . . . . . 18,834 17,823 11,569
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . 5,619 5,147 3,115
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . 13,215 12,676 8,454
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE . . . . . . . . . . . . . . . . . . . . 2,522 -0- -0-
----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 15,737 $ 12,676 $ 8,454
=========== =========== ===========
EARNINGS PER SHARE
Income Before Cumulative Effect of a Change
in Accounting Principle. . . . . . . . . . . . . $ 2.56 $ 2.46 $ 1.64
Cumulative Effect of a Change in
Accounting Principle . . . . . . . . . . . . . .49 -0- -0-
----------- ----------- -----------
Earnings Per Share . . . . . . . . . . . . . . . $ 3.05 $ 2.46 $ 1.64
=========== =========== ===========
CASH DIVIDENDS PER SHARE . . . . . . . . . . . . . $ .66 $ .60 $ .50
=========== =========== ===========
AVERAGE SHARES ISSUED AND OUTSTANDING . . . . . . .
5,158 5,158 5,157
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS
First United Bancshares, Inc.
(in thousands)
<TABLE>
<CAPTION>
Common Stock
------------ Undivided Treasury
Shares Amount Surplus Profits Stock
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 5,170 $ 5,170 $ 13,518 $ 60,879 $ (119)
Net Income -0- -0- -0- 8,454 -0-
Cash Dividends -0- -0- -0- (2,331) -0-
Sale of Marketable
Equity Securities -0- -0- -0- -0- -0-
------ -------- -------- ------- --------
Balance, December 31, 1991 5,170 5,170 13,518 67,002 (119)
Net Income -0- -0- -0- 12,676 -0-
Cash Dividends -0- -0- -0- (2,768) -0-
Increase in Unrealized
Loss on Marketable
Equity Securities -0- -0- -0- -0- -0-
Purchase of Common Stock
Balance, December 31, 1992 -0- -0- -0- -0- (38)
------ -------- -------- -------- -------
Net Income 5,170 5,170 13,518 76,910 (157)
Cash Dividends -0- -0- -0- 15,737 -0-
Increase in Unrealized
Loss on Marketable
Equity Securities -0- -0- -0- (3,068) -0-
Sale of Common Stock -0- -0- -0- -0- -0-
Balance, December 31, 1993 -0- -0- 6 -0- 27
------ -------- ------- -------- -------
5,170 $ 5,170 $13,524 $ 89,579 $ (130)
====== ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Allowance for Unrealized
Losses on Marketable
Equity Securities Total
----------------- -----------
<S> <C> <C>
Balance, December 31, 1990 $ (20) $ 79,428
Net Income -0- 8,454
Cash Dividends -0- (2,331)
Sale of Marketable
Equity Securities 20 20
------ -----------
Balance, December 31, 1991 -0- 85,571
Net Income -0- 12,676
Cash Dividends -0- (2,768)
Increase in Unrealized
Loss on Marketable
Equity Securities (3) (3)
Purchase of Common
Stock
Balance, December 31, 1992 -0- (38)
------ ------------
Net Income (3) 95,438
Cash Dividends -0- 15,737
Increase in Unrealized -0- (3,068)
Loss on Marketable
Equity Securities
Sale of Common Stock (18) (18)
Balance, December 31, 1993 -0- 33
------ ------------
$ (21) $ 108,122
====== ============
</TABLE>
6
<PAGE> 7
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
First United Bancshares, Inc.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . $15,737 $12,676 $ 8,454
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . 1,460 1,268 1,250
Amortization of Goodwill . . . . . . . . . . . . . . . 345 345 328
Provision for Possible Loan Losses . . . . . . . . . . 1,815 2,486 4,713
Utilization of Tax Credit Carryforward
of Acquired Subsidiary Bank . . . . . . . . . . . . . -0- 440 -0-
Provision for Deferred Taxes . . . . . . . . . . . . . (223) (654) (1,260)
Change in Accounting Principle . . . . . . . . . . . . (2,522) -0- -0-
Gain on Sales of Securities . . . . . . . . . . . . . (129) (402) (658)
Accretion of Bond
Discount, Net . . . . . . . . . . . . . . . . . . . . (2,122) (1,663) (1,916)
(Increase) Decrease in Other Assets . . . . . . . . . . 384 2,675 (1,388)
Increase (Decrease) in Other
Liabilities . . . . . . . . . . . . . . . . . . . . . (1,916) 439 (2,534)
Minority Interest in Subsidiary Income . . . . . . . . 5 8 4
------- ------- -------
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . . . . . . . . . 12,834 17,618 6,993
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Securities . . . . . . . . 138,339 119,874 125,304
Proceeds from Sales of Securities . . . . . . . . . . . 1,000 15,421 30,045
Purchase of Securities . . . . . . . . . . . . . . . . (128,208) (207,236) (218,927)
Decrease in Interest-bearing Deposits in Other
Banks . . . . . . . . . . . . . . . . . . . . . . . . -0- -0- 1,196
Decrease in Federal Funds, Net . . . . . . . . . . . . 13,607 798 15,666
(Increase) Decrease in Other Short-
Term Investments . . . . . . . . . . . . . . . . . . 2,174 13,075 (13,080)
(Increase) Decrease in Loans . . . . . . . . . . . . . (21,830) 6,427 3,553
Capital Additions (Retirements) . . . . . . . . . . . . 751 96 (429)
Purchase of Deposits . . . . . . . . . . . . . . . . . -0- 20,696 -0-
Purchase of Subsidiary Bank . . . . . . . . . . . . . . (4,521) -0- -0-
------- ------- -------
Net Cash Provided by (Used in) Investing Activities . . .
1,312 (30,849) (56,672)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings
and Interest-bearing Demand
Deposits . . . . . . . . . . . . . . . . . . . . . .
Increase (Decrease) in Time Deposits . . . . . . . . . (2,293) 44,873 24,787
Payment on Notes Payable . . . . . . . . . . . . . . . (11,305) (32,175) 35,267
Dividends Paid . . . . . . . . . . . . . . . . . . . . (1,958) (1,777) (1,137)
Sale (Purchase) of Treasury Stock . . . . . . . . . . . (3,068) (2,768) (2,331)
33 (38) -0-
------- ------- -------
Net Cash Provided by (Used in) Financing
Activities . . . . . . . . . . . . . . . . . . . . . .
(18,591) 8,115 56,586
------- ------- -------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . . . .
(4,445) (5,116) 6,907
Cash and Cash Equivalents, Beginning . . . . . . . . . .
56,672 61,788 54,881
------- ------- -------
Cash and Cash Equivalents, Ending . . . . . . . . . . . .
$52,227 $56,672 $61,788
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First United Bancshares, Inc.
1. THE MERGER
On June 14, 1994, First United Bancshares, Inc. ("First United")
merged with InvestArk Bankshares, Inc. ("InvestArk") and in connection
therewith issued approximately 901,000 shares of common stock for all of
InvestArk's outstanding common stock (the "Merger"). The Merger was accounted
for as a pooling of interests and, accordingly, First United's financial
statements for periods prior to the Merger have been restated to include the
results of InvestArk for all periods presented. Separate and combined results
of operations are as follows (in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net Interest Income:
First United $35,553 $34,691 $29,933
InvestArk 7,510 7,820 6,777
------- ------- -------
$43,063 $42,511 $36,710
======= ======= =======
Income Before
Cumulative Effect of a
Change in Accounting
Principle:
First United $11,937 $10,443 $ 7,547
InvestArk 1,278 2,233 907
------- ------- -------
$13,215 $12,676 $ 8,454
======= ======= =======
</TABLE>
The combined companies of First United and InvestArk are hereinafter referred
to as the "Company."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles and reporting policies followed by the
Company conform with generally accepted accounting principles and with general
practices within the financial services industry. The following is a
description of the more significant of these policies:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of First
United Bancshares, Inc. and its wholly-owned subsidiaries, 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, Commercial Bank at Alma,
First Stuttgart Bank and Trust Company and The Bank of North Arkansas
(Melbourne). All significant intercompany accounts have been eliminated.
8
<PAGE> 9
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUES OF FINANCIAL INSTRUMENTS:
Disclosure of the fair value for all financial instruments as well as
the methodology and significant assumptions used in estimating fair values have
been incorporated throughout the Notes to the Consolidated Financial
Statements. In cases where quoted market prices are not available, fair values
are based on estimates using present value techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates for those assets or liabilities cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. All nonfinancial instruments, by definition, have
been excluded from these disclosure requirements. Accordingly, the aggregate
fair value amounts presented do not represent the underlying value of the
Company and may not be indicative of amounts that might ultimately be realized
upon disposition or settlement of those assets and liabilities.
Pursuant to the Interest Rate Control Amendment to the Constitution of
the State of Arkansas, all "general loans" have a maximum financing limitation
of 5% over the Federal Reserve Discount Rate. As of December 31, 1993, the
maximum financing limitation is 8%. This law limits the Company's flexibility
in pricing loans according to credit and rate risk through the use of a greater
spread in financing rates. Accordingly, the difference between the carrying
amount and estimated fair value of the Company's loans is not as great as would
be the case without such a law.
CASH AND SHORT-TERM INVESTMENTS:
The carrying amounts for cash and due from banks and short-term
investments (federal funds sold and securities purchased under agreements to
resell and other short-term investments) approximate fair value because of the
short maturity of those financial instruments.
SECURITIES HELD FOR SALE AND INVESTMENT SECURITIES:
Management determines the appropriate classification of securities at
the time of purchase. Held for sale securities are held for indefinite periods
of time and are carried at the lower of cost or fair value. Securities held for
sale include securities that Management intends to use as part of its
asset-liability management strategy and that may be sold in response to changes
in interest rates or other economic factors. The amortized costs of the
specific securities sold are used to compute gains and losses on the sale of
securities. Adjustments to market and realized gains or losses upon sale of the
securities held for sale are classified as securities gains (losses). When
Management has the intent and ability at the time of purchase to hold
securities until maturity, these securities are classified as investment
securities and carried at amortized cost.
Fair values for securities held for sale and investment securities are
based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," which the Company adopted on
January 1, 1994. This statement addresses the accounting and reporting for
investments in debt and certain equity securities. Debt securities not
classified as trading account securities or investment securities expected to
be held to maturity and all equity securities will be classified as
available-for-sale securities and reported at fair value, with net unrealized
gains and losses reported, net of tax, as a separate component of stockholders'
equity. Upon adoption of this statement on January 1, 1994, the Company
classified all of its securities held for sale and certain of its investment
securities as available-for-sale. The carrying values and fair values of
securities classified as available-for-sale on January 1, 1994 were
approximately $298,000,000 and $303,000,000, respectively, which resulted in
reflecting an unrecognized gain, net of tax, of approximately $3,200,000 as a
separate component of capital accounts.
9
<PAGE> 10
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
LOANS:
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for loan losses. Unearned income on a portion
of installment loans is recognized as income over the terms of the loans by a
method which approximates the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for
loan losses when Management believes that the collectibility of the principal
is unlikely. The allowance is an amount that Management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrower's ability to pay. Accrual of interest is discontinued
on a loan when Management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition is
such that collection of principal or interest is doubtful.
The fair value of loans, as disclosed in Note 7, is estimated for
portfolios of loans with similar financial characteristics. For variable-rate
loans that reprice frequently and with no significant change in credit risk,
fair values are based on carrying values. The fair values for certain mortgage
loans, such as one-to-four family residential properties, and other types of
loans are estimated by discounting the future cash flows using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. Fair values for non-performing
loans are estimated using the current carrying value less any specific reserve
for which the Company has provided.
The FASB has issued SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan" which becomes effective beginning in 1995. This statement
defines the measurement requirements for loans that are impaired or deemed to
be troubled debt restructurings. Management believes that the effect of this
statement upon adoption will not be material.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed over the estimated useful lives
of assets utilizing several depreciation methods as disclosed in Note 8.
Maintenance, repairs, and minor improvements are charged to operating expenses.
Gains or losses on dispositions are reflected currently in the Statement of
Income.
GOODWILL:
Goodwill represents the excess of the purchase price over the fair
market value of net assets acquired in business combinations accounted for
under the purchase method. The Company amortizes goodwill over fifteen years
using the straight-line method. Accumulated amortization of goodwill was
$1,808,000 and $1,454,000 at December 31, 1993 and 1992, respectively.
OTHER REAL ESTATE:
Other real estate owned represents properties that have been acquired
in satisfaction of debt. Other real estate is valued at the lower of its fair
value or the recorded investment in the related loan upon foreclosure. If at a
later date it is determined that the recorded investment cannot be recovered,
the loss is recognized by a charge to income. When the property is in a
condition for use or sale at the time of the foreclosure, any subsequent
holding costs are included in expense as incurred. Legal fees and other direct
costs incurred by the Company in foreclosure are expensed when they are
incurred. Payments received for the rental or lease of property held in other
real estate are recognized as income in the period in which the payment is
received. The net costs of operating other real estate (including provisions
for real estate losses and gains and losses on sales of real estate) were
approximately $342,000, $1,452,000, and $1,597,000 for the years ended December
31, 1993, 1992 and 1991, respectively.
10
<PAGE> 11
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DEPOSITS:
The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, interest-bearing demand deposits and
savings accounts are, by definition, equal to the amount payable on demand at
the reporting date, commonly referred to as the carrying value. Fair value of
certificates of deposit are based upon the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities. See Note 9 for a detail of carrying
values and fair values for all deposit liabilities.
SHORT-TERM LIABILITIES:
The carrying amounts for federal funds purchased, securities sold
under agreements to repurchase and other liabilities approximate their fair
values.
INCOME TAXES:
The Company and its subsidiaries file consolidated State and Federal
income tax returns. The Company adopted SFAS No. 109 "Accounting for Income
Taxes" effective January 1, 1993. The adoption of SFAS No. 109 changed the
Company's method of accounting for income taxes to the liability method. The
cumulative effect of adopting SFAS No. 109 on the Company's financial
statements was to increase net income in the amount of $2,522,000 or $0.49 per
share.
EMPLOYEE BENEFIT PLANS:
The Company has non-contributory pension plans covering all eligible
officers and employees of certain of its subsidiaries. As disclosed in Note
12, the provision charged to operating expenses includes current costs as well
as amortization of past service cost.
The Company has an Employee Stock Ownership Plan for substantially all
of its employees. Contributions to the Plan during any one year are determined
by the Company and limited to 15 percent of the payroll for the participants.
During 1993, 1992 and 1991, the Company's expenses totalled approximately
$362,000, $388,000, and $437,000, respectively.
During 1992, the FASB issued a new standard on accounting for
postemployment benefits. This new standard requires that the expected cost of
these benefits must be charged to expense during the years that the employees
render service. This new accounting standard will not have a material effect on
the Company.
STATEMENT OF CASH FLOWS:
For purposes of the Statement of Cash Flows, the Company considers all
currency on hand as well as all due from bank balances to be cash equivalents.
STOCK SPLIT:
On July 27, 1992, the Board of Directors of the Company declared a
2-for-1 stock split effected in the form of a 100% stock dividend. The stock
dividend was distributed on September 8, 1992. Unless otherwise indicated, all
per share data, numbers of common shares and the statements of changes in
capital accounts have been adjusted to reflect this stock split.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1992 and 1991
financial statements to conform to the 1993 method of presentation.
11
<PAGE> 12
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
On November 30, 1993, the Company acquired all of the outstanding
stock of Commerce Financial Corporation and its wholly- owned subsidiary,
Commercial Bank at Alma ("Alma"), for $5,467,000. The consolidated assets of
Alma were approximately $45,000,000 at the date of acquisition. The transaction
was accounted for as a purchase, and, accordingly, the excess of the purchase
price over the fair market value of the net assets acquired was allocated to
Goodwill. The results of operations for Alma are included in the consolidated
statements of income from the date of acquisition. Unaudited pro forma results
of operations of the Company assuming that the acquisition of Alma had been
completed at the beginning of 1992 do not differ materially from the Company's
actual results.
On March 27, 1992, Merchants and Planters Bank, N.A., of Camden
acquired substantially all of the deposits of the former Camden, Arkansas
branch of Home Federal Savings of Kansas City from the Resolution Trust
Corporation for approximately $170,000 in cash. Merchants and Planters
received cash and acquired deposits of $20,696,000.
4. SECURITIES HELD FOR SALE
The carrying values and estimated fair values of securities held for
sale at December 31, 1993 and 1992, consisted of the following (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
------- --------- ----------- ----------
<S> <C> <C> <C> <C>
1993
U.S. Treasury Securities and
Other U.S. Government
Agencies $69,582 $1,297 $ 515 $70,364
Mortgage-Backed Securities 13,886 273 73 14,086
------- ------ ------- -------
$83,468 $1,570 $ 588 $84,450
======= ====== ======= =======
1992
U.S. Treasury Securities and
Other U.S. Government
Agencies $85,970 $1,235 $ 59 $87,146
Mortgage-Backed Securities 9,824 361 38 10,147
------- ------ ------- -------
$95,794 $1,596 $ 97 $97,293
======= ====== ======= =======
</TABLE>
U.S. Treasury Securities have maturities ranging from 15 days to 4.8
years. Mortgage-Backed Securities have an average life of approximately 2.8
years. Gross gains realized from the sale of securities held for sale were
immaterial in 1993.
12
<PAGE> 13
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT SECURITIES
The carrying values and estimated fair values of investments in debt
securities as of December 31, 1993 and 1992, are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Fair Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1993
U.S. Treasury Securities
and Other U.S. Government
Agencies $ 215,849 $ 3,965 $ 447 $ 219,367
Obligations of States and
Political Subdivisions 70,942 3,823 201 74,564
Mortgage-Backed Securities 130,203 2,483 411 132,275
Other 12,937 312 26 13,223
--------- ----------- -------- ----------
$ 429,931 $ 10,583 $ 1,085 $ 439,429
========= =========== ======== ==========
1992
U.S. Treasury Securities
and Other U.S. Government
Agencies $ 186,828 $ 3,756 $ 403 $ 190,181
Obligations of States and
Political Subdivisions 54,513 2,334 238 56,609
Mortgage-Backed Securities 153,031 3,078 193 155,916
Other 19,386 1,099 21 20,464
---------- ---------- --------- ----------
$ 413,758 $ 10,267 $ 855 $ 423,170
========= =========== ======== ==========
</TABLE>
The carrying value and estimated fair value of debt securities at December
31, 1993, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
Due in One Year or Less $ 39,876 $ 39,681
Due After One Year Through Five Years 189,350 193,513
Due After Five Years Through Ten Years 48,980 51,892
Due After Ten Years 21,522 22,067
Mortgage-Backed Securities 130,203 132,276
-------- --------
$429,931 $439,429
======== ========
</TABLE>
13
<PAGE> 14
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Proceeds from sales of investments in debt securities and related gains
and losses during 1993 were not material.
Securities with a carrying value of $163,998,000 at December 31, 1993,
were pledged to secure public deposits and for other purposes required by law.
As discussed in Note 2, effective January 1, 1994, the Company adopted
SFAS No. 115 and reclassified a portion of its investment securities portfolio
as available-for-sale.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The changes in the allowance for possible loan losses during 1993, 1992,
1991, were as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $7,972 $ 7,499 $ 7,111
Allowance Applicable to Loans of
Acquired Bank 520 -0- -0-
Provision Charged Against Income 1,815 2,486 4,385
Recoveries on Loans Charged-Off 1,299 1,267 1,037
Loans Charged-Off (1,634) (3,280) (5,034)
------ -------- --------
Balance at End of Year $9,972 $ 7,972 $ 7,499
====== ======== ========
</TABLE>
7. LOANS
Loans consist of the following categories (in thousands):
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
TYPE
Real Estate Loans Collateralized by -
Residential Properties, Primarily Single
Family Residences $159,844 $142,948
Commercial Properties 149,706 146,906
Commercial and Industrial Loans, Other Than
Real Estate and Energy-Related 92,465 72,251
Energy-Related Loans 16,514 19,164
Consumer Loans 78,289 65,717
Loans for Purchasing or Carrying
Securities 2,655 3,035
Financing Leases 439 1,037
-------- --------
$499,912 $451,058
======== ========
</TABLE>
The estimated fair value of these loans was $501,297,000 and $460,540,000
at December 31, 1993 and 1992, respectively.
14
<PAGE> 15
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
In the normal course of business, officers and directors of the Company
and their related interests maintain certain loan relationships with the
Company's subsidiary banks. At December 31, 1993 and 1992, officers, directors,
and related parties had loans of approximately $15,045,000 and $14,909,000,
respectively. During the year ended December 31, 1993, loans made to these
parties totalled $15,905,000 and repayments totalled $10,709,000. Loans to
related parties at December 31, 1992 included loans of $5,060,000 to directors
who retired during 1993.
The Company is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include standby letters of credit and
commitments to extend credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the Statement of Condition.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on Management's credit evaluation of the counterparty. The extent of
collateral varies for each commitment but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most
guarantees expire in 1994. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Company holds collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments at December 31, 1993, varies from 0 percent to 100 percent; the
average amount collateralized is 50 percent.
Financial instruments whose amounts represent credit risk as of December 31,
1993, and 1992, are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Commitments to Extend Credit $62,112 $55,922
Standby Letters of Credit 7,012 4,564
</TABLE>
The fair value of loan commitments and letters of credit would approximate
the fees currently collected (which are immaterial) on such instruments.
A summary of non-performing assets as of December 31, 1993 and 1992, is as
follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Non-Accrual Loans $2,633 $2,507
Past Due Loans (90 Days or more and still
accruing) 342 804
Renegotiated Loans 223 1,414
------ ------
3,198 4,725
Other Real Estate 1,039 3,854
------ ------
Total Non-Performing Assets $4,237 $8,579
====== ======
</TABLE>
15
<PAGE> 16
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The Company's non-accrual policy had the effect of reducing interest and
fees on loans in 1993 and 1992 by approximately $208,000 and $299,000,
respectively. Substantially all payments on non-accrual loans were applied to
principal.
8. PREMISES AND EQUIPMENT
Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Principal
Depreciation Estimated
Method Useful Life 1993 1992
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Land $ 3,909 $ 3,818
Buildings and Leasehold
Improvements Straight-line 5-40 years 16,807 15,951
Furniture, Fixtures and
Equipment Declining Balance 3-10 years 9,062 9,426
------- --------
29,778 28,695
Less: Accumulated
Depreciation (15,874) (16,321)
------- --------
$13,904 $ 12,374
======= ========
</TABLE>
Depreciation included in other expense, net occupancy expense and
equipment expense was $1,476,000 in 1993, $1,268,000 in 1992, and $1,250,000 in
1991.
First National Bank of El Dorado leases land on which two branches are
located and rents on a monthly basis the main bank's employee parking lot from
First Land & Timber Corporation, a company with common officers and directors
of the Company. Rentals paid to First Land & Timber Corporation on these
arrangements were approximately $20,000 for each of the years ended December
31, 1993, 1992 and 1991.
9. DEPOSITS
At December 31, 1993 and 1992, deposits consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1993 Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
Non-interest-bearing Demand
Deposits $150,842 $150,842
Savings and Interest-bearing
Demand Deposits 350,325 350,325
Certificates of Deposit 468,582 470,669
-------- --------
$969,749 $971,836
======== ========
</TABLE>
16
<PAGE> 17
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1992 Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
Non-interest-bearing Demand
Deposits $146,737 $146,737
Savings and Interest-bearing
Demand Deposits 333,870 333,870
Certificates of Deposit 462,490 464,642
-------- --------
$943,097 $945,249
======== ========
</TABLE>
As disclosed in Note 2, SFAS No. 107 defines fair value of demand deposits
as the amount payable upon demand and prohibits adjusting fair value for any
value derived from retaining these deposits for an expected future period in
time. That component, commonly referred to as a core deposit intangible, is
not considered in the above fair value amounts.
10. INCOME TAXES
Income tax expense is composed of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Currently Payable $ 5,842 $ 5,802 $ 3,801
Deferred:
Effects of Temporary
Differences (223) (655) (1,261)
Alternative Minimum Tax
Effect -0- -0- 575
-------- -------- --------
$ 5,619 $ 5,147 $ 3,115
======== ======== ========
</TABLE>
The income tax provision included $56,000, $173,000 and $128,000 for the
years ended December 31, 1993, 1992 and 1991, respectively, resulting from
securities transactions.
The effective income tax rates in the accompanying statements of income
are less than the statutory income tax rate because of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Statutory Federal Income Tax Rate 35.0% 34.0% 34.0%
Less:
Non-Taxable Interest Income (5.6) (6.9) (9.0)
State Income Taxes 1.2 -0- 0.9
Other Items, Net (0.8) 1.8 1.0
---- ---- ----
Effective Income Tax Rate 29.8% 28.9% 26.9%
==== ==== ====
</TABLE>
17
<PAGE> 18
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Accumulated deferred income taxes as of December 31, 1992, included in
other liabilities, were $48,000. At December 31, 1993, temporary differences
between the financial statement carrying amounts and the tax bases of assets
and liabilities give rise to the following net deferred tax asset, which is
included in other assets (in thousands).
<TABLE>
<S> <C>
Accelerated Depreciation $ (813)
Provision for Possible Loan Losses 3,184
Effects of Pension and Benefit
Plans (273)
Difference in Tax and Book Basis
of Securities (186)
Write-down of Other Real Estate 729
Other 77
-------
$ 2,718
=======
</TABLE>
The Company has evaluated the need for a valuation allowance and, based on
the weight of available evidence, has determined that it is more likely than
not that all deferred tax assets will eventually be realized.
11. NOTES PAYABLE
A summary of notes payable as of December 31, 1993 and 1992 is as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- ---------
<S> <C> <C>
Installment Note Payable to Unaffiliated
Bank, Interest at 7.9%, Principal Payments of
$1,107 Due Annually $2,213 $3,321
Promissory Note Bearing Interest at 0.375%
Below Prime (5.625% at December 31, 1993 and
1992), Principal Due 1994 5,000 5,000
Installment Note Payable, Interest at 5.5% 320 -0-
Installment Note Payable, Interest at 4.4% 190 -0-
Installment Note Payable, Interest at 6.0% -0- 500
------ -----
$7,723 $8,821
====== ======
</TABLE>
The estimated fair value of these notes payable approximated their
carrying value at December 31, 1993 and 1992. The installment note payable to
an unaffiliated bank is secured by the outstanding stock of City National Bank
of Fort Smith. These borrowings contain financial covenants relating to the
issuance of additional debt and maintenance of minimum tangible net worth.
The notes payable require principal repayments as follows: 1994 -
$6,173,000, 1995 - $1,177,000, 1996 - $73,000, 1997 - $77,000, 1998 - $53,000
and thereafter - $170,000.
18
<PAGE> 19
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
12. BENEFIT PLANS
The Company has a defined benefit pension plan (the "Plan") which covers
substantially all of the employees of 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. Operating expenses of
the Plan are paid by the Company and no contributions are required of
participants. The annual contribution to the Plan by the Company ($848,000 in
1993, $458,000 in 1992 and $450,000 in 1991) is determined by various actuarial
factors. The Plan contains provisions for early retirements, disability and
death benefits. The following tables set forth the Plan's funded status and
amounts recognized in the Company's balance sheet at December 31, 1993 and 1992
(in thousands):
<TABLE>
<CAPTION>
Actuarial Present Value of Benefit
Obligation: 1993 1992
-------- --------
<S> <C> <C>
Accumulated Benefit Obligation $(10,287) $(10,037)
Effect of Projected Future
Compensation Levels (440) (1,375)
-------- --------
Projected Benefit Obligation for
Service Rendered to Date (10,727) (11,412)
Plan Assets at Fair Value, Primarily
Stock and U.S. Securities 11,434 10,657
-------- --------
Plan Assets Greater (Less) than Projected
Benefit Obligation 707 (755)
Unrecognized Net Loss From Past
Experience Different From That Assumed
Unrecognized Net Obligations 1,308 1,225
Prepaid Pension Cost (891) 411
-------- --------
$ 1,124 $ 881
======== ========
</TABLE>
19
<PAGE> 20
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The Plan's net pension cost for 1993, 1992 and 1991 included the following
components (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Service Cost $ 524 $ 480 $ 470
Interest Cost on Projected
Benefit Obligation 860 826 736
Actual Return on Assets (702) (1,112) (1,118)
Net Amortization and
Deferral (77) 352 345
------- ------- -------
$ 605 $ 546 $ 433
======= ======= =======
Significant Assumptions:
Weighted Average
Discount Rate
Estimated Future Pay 7.5% 7.5% 8.0%
Increases
Expected Return on Assets 4.0% 4.0% 4.0%
7.5% 7.5% 7.5%
</TABLE>
First Stuttgart Bank and Trust also has a defined benefit pension plan
("the Stuttgart Plan") which covers substantially all its employees. The
following tables set forth the Stuttgart Plan's funded status and amounts
recognized in the Company's balance sheet at December 31, 1993 and 1992 (in
thousands):
<TABLE>
<CAPTION>
1993 1992
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated Benefit Obligation . . . . . . . . . . . . $ 879 $ 781
====== ======
Projected Benefit Obligation for Service
Rendered to Date . . . . . . . . . . . . . . . . . . . $1,071 $ 957
Plan Assets at Fair Value . . . . . . . . . . . . . . 1,117 1,008
------ ------
Plan Assets Greater Than Projected Benefit
Obligation . . . . . . . . . . . . . . . . . . . . . 46 51
Unrecognized Prior Service Cost . . . . . . . . . . . (27) (28)
Unrecognized Net Obligation . . . . . . . . . . . . . (42) (45)
Unrecognized Net Loss . . . . . . . . . . . . . . . . 116 110
------ ------
Prepaid Pension Cost . . . . . . . . . . . . . . . . . $ 93 $ 88
====== ======
</TABLE>
20
<PAGE> 21
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Net pension cost for 1993, 1992 and 1991 included the following components
(in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Service Costs . . . . . . . . . . . . . . . . . . . . . $ 55 $ 55 $ 59
Interest Cost on Projected Benefit Obligation . . . . . 67 59 53
Expected Return on Plan Assets . . . . . . . . . . . . (71) (63) (60)
Net Amortization and Deferral . . . . . . . . . . . . . (3) (2) 1
----- ----- -----
$ 48 $ 49 $ 53
===== ===== =====
</TABLE>
The weighted-average discount rate and the rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.0% and 4.5% respectively. The expected
long-term rate of return on assets was 7.0%.
In connection with the Merger, the Stuttgart Plan will terminate during
1994. A loss of $215,000 on the termination of this plan is included in the
accompanying 1993 statement of income.
The Bank of North Arkansas has a defined contribution employee benefit
plan, qualified under IRC Section 401(k) that covers all employees, with the
exception of employees who are highly compensated. Contributions to the plan
are based on the total amount of salary reduction the employee elects to defer,
a discretionary matching contribution equal to a percentage of the amount the
employee elects to defer, which percentage will be determined each year by the
employer, and a discretionary amount determined each year by the employer. To
share in the matching and discretionary contribution, the employee must
complete a year of service and be actively employed on the last day of the plan
year. The amount of pension expense was $13,000 and $16,000 for 1993 and 1992,
respectively.
13. COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in certain lawsuits which are
currently pending. In the opinion of Management, after consulting with legal
counsel, any liability incurred in connection with the ultimate outcome of
these suits will not have a material adverse effect on the Company.
The Company has a facilities management contract with a data processing
firm to provide computer equipment and the needed personnel for systems
support. Payments related to this contract, which expires in 1998, are expensed
when paid. Future annual minimum payments related to this contract are
$1,134,000 in each of the years 1994 through 1997 and $945,000 in 1998.
Certain branch facilities and warehouse space are leased under various
operating lease agreements. These leases require approximate minimum rentals
as follows: 1994-$124,000; 1995-$108,000; 1996-$107,000; 1997-$96,000;
1998-$106,000; and thereafter- $151,000.
14. RESTRICTIONS
Each of the Company's subsidiary banks is subject to either national or
state banking regulations which restrict the level of dividends that may be
paid in a given year. Such restrictions are based on a percentage of the
subsidiary bank's net income. During 1994, the Company's subsidiary banks will
have available for payment of dividends, without regulatory approval,
approximately $15,995,000 of undistributed earnings plus a percentage of the
net income earned in 1994.
At December 31, 1993, the Company was required to maintain reserve
balances in cash and due from accounts of approximately $9,199,000.
21
<PAGE> 22
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Banking regulations also require that banks pay insurance premiums to the
Federal Deposit Insurance Corporation (the "FDIC") in exchange for the FDIC
insuring the deposits of the Company's customers. Insurance premiums paid to
the FDIC for the years ended December 31, 1993, 1992 and 1991, were
approximately $2,111,000, $2,054,000 and $1,475,000, respectively, and those
premiums were included in other operating expenses on the Company`s
Consolidated Statements of Income.
15. SUPPLEMENTARY DATA FOR CASH FLOWS
Income taxes paid by the Company during the years ended December 31, 1993,
1992 and 1991, amounted to $7,126,000, $4,248,000 and $3,144,000, respectively.
Interest paid on notes payable during the years ended December 31, 1993, 1992
and 1991, was $525,000, $883,000 and $1,038,000, respectively.
In connection with the November 1993 acquisition of Alma, the Company
acquired assets and assumed liabilities as follows (in thousands):
<TABLE>
<S> <C>
Fair Value of Assets Acquired $ 44,436
Goodwill 1,622
Liabilities Assumed (40,591)
--------
Cash Paid 5,467
Cash Acquired (946)
--------
Net Payment for Purchase $ 4,521
========
</TABLE>
22
<PAGE> 23
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
16. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The financial position of First United Bancshares, Inc. (parent company
only), its results of operations and cash flows are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
------- -------
<S> <C> <C>
CONDENSED FINANCIAL POSITION:
Assets:
Cash $ 5,302 $ 5,103
Investment in Subsidiary Banks 110,694 99,761
Other Assets 1,242 700
-------- --------
Total Assets $117,238 $105,564
======== ========
Liabilities and Capital Accounts:
Notes Payable $ 7,214 $ 8,821
Other Liabilities 1,902 1,305
-------- --------
Total Liabilities 9,116 10,126
-------- --------
Total Capital 108,122 95,438
-------- --------
Total Liabilities and Capital $117,238 $105,564
======== ========
</TABLE>
23
<PAGE> 24
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
(Dollars in Thousands) 1993 1992 1991
----- ----- ------
<S> <C> <C> <C>
CONDENSED OPERATING RESULTS:
Dividend Income From Subsidiary Banks $ 11,584 $ 5,400 $ 6,210
Management Fees 1,745 1,574 1,467
-------- -------- --------
13,329 6,974 7,677
-------- -------- --------
Interest Expense 525 883 1,038
Other Expense 2,381 2,410 2,011
-------- -------- --------
2,906 3,293 3,049
-------- -------- --------
Income Before Tax Benefit and
Equity in Undistributed Income of
Subsidiary Banks 10,423 3,681 4,628
Income Tax Benefit 325 493 391
-------- -------- --------
Income Before Equity in Undistributed
Income of Subsidiary Banks and
Cumulative Effect of a Change in
Accounting Principle 10,748 4,174 5,019
Cumulative Effect of a Change in
Accounting Principle 279 -0- -0-
-------- -------- --------
Income Before Equity in Undistributed
Income of Subsidiary Banks 10,469 4,174 5,019
Equity in Undistributed Income of
Subsidiary Banks 5,269 8,505 3,438
-------- -------- --------
Net Income $ 15,738 $ 12,679 $ 8,457
======== ======== ========
CONDENSED STATEMENTS OF CASH FLOWS:
Cash Flows From Operating Activities:
Net Income $ 15,738 $ 12,679 8,457
Depreciation 11 8 5
Undistributed Income (5,269) (8,505) (3,438)
Utilization of Tax Credit -0- 440 -0-
Carry forwards (576) 27 62
(Increase) Decrease in Other Assets 442 263 900
-------- -------- --------
Increase in Other Liabilities 10,346 4,912 5,986
-------- -------- --------
Cash Flows From Investing Activities: (5,505) -0- (14)
-------- -------- --------
Purchase of Subsidiary Bank
Cash Flows From Financing Activities: (1,607) (1,478) (1,107)
Principal Repayments on Notes Payable 33 (38) -0-
Sale (Purchase) of Treasury Stock (3,068) (2,768) (2,331)
-------- -------- --------
Payment of Dividends (4,642) (4,284) (3,438)
-------- -------- --------
199 628 2,534
Net Increase in Cash 5,103 4,475 1,941
-------- -------- --------
Cash at Beginning of Year $ 5,302 $ 5,103 $ 4,475
======== ======== ========
Cash at End of Year
Supplementary Data for Cash Flows:
$ 7,126 $ 4,248 $ 3,144
Taxes Paid 525 883 1,038
Interest Paid on Notes Payable
</TABLE>
24
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of First United Bancshares, Inc.:
We have audited the accompanying supplemental consolidated statements of
condition of First United Bancshares, Inc. (an Arkansas corporation) and
subsidiaries as of December 31, 1993 and 1992, and the related supplemental
consolidated statements of income, changes in capital accounts and cash flows
for each of the years in the three-year period ended December 31, 1993. The
supplemental consolidated financial statements give retroactive effect to the
merger with InvestArk Bankshares, Inc. ("InvestArk") on June 14, 1994 which has
been accounted for as a pooling of interests as described in Note 1. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We did not audit the financial statements of InvestArk included in the
supplemental consolidated financial statements of the Company, which statements
reflect total assets constituting 16 percent and 18 percent, respectively, as
of December 31, 1993 and 1992 and net interest income constituting 17 percent,
18 percent and 18 percent, respectively, for the years ended December 31,
1993, 1992 and 1991 of the related supplemental consolidated totals. These
statements were audited by other auditors whose report thereon has been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for InvestArk, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First United Bancshares,
Inc. and subsidiaries as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As explained in Note 2 to the supplemental consolidated financial
statements, effective January 1, 1993, First United Bancshares, Inc. changed
its method of accounting for income taxes.
Arthur Andersen & Co.
New Orleans, Louisiana,
September 27, 1994.
25
<PAGE> 26
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
The management of First United Bancshares, Inc. (First United) is
responsible for the integrity and objectivity of the financial statements and
other financial information contained in this Current Report on Form 8-K. The
financial statements have been prepared in conformity with generally accepted
accounting principles. Financial information throughout this Current Report on
Form 8-K is consistent with that in the financial statements.
First United maintains a system of internal accounting controls which is
believed to provide, in all material respects, reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition; transactions
are properly authorized and recorded; and the financial records are reliable
for preparing financial statements and maintaining accountability for assets.
All systems of internal accounting controls are based on management's judgment
that the cost of controls should not exceed the benefits to be achieved.
Management believes First United's system provides the appropriate balance
between costs of controls and the related benefits.
In order to monitor compliance with this system of controls, First United
maintains an internal audit program. Internal audit reports are issued to
appropriate officers, and significant audit exceptions, if any, are reviewed
with management and the Audit Committee of the Board of Directors.
The financial statements in this Current Report on Form 8-K have been
audited by First United's independent public accountants, Arthur Andersen LLP,
for the purpose of determining that the financial statements are presented
fairly. Their audit included a study of the evaluation of First United's
system of internal controls for the purpose of setting the scope of their
auditing procedures.
26
<PAGE> 27
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Investark Bankshares, Inc.
Stuttgart, Arkansas
We have audited the consolidated balance sheets of Investark Bankshares,
Inc. and subsidiaries at December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three year period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Investark
Bankshares, Inc. and subsidiaries, at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
years in the three year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
Martin & Company
Certified Public Accountants
January 28, 1994
27
<PAGE> 28
Item 7. Financial Statements and Exhibits
Exhibits
- - --------
27 Financial Data Schedule
28
<PAGE> 29
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.
(REGISTRANT)
By /S/ John E. Burns
John E. Burns, Vice President and
Chief Financial Officer
Date: October 18, 1994
29
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JAN-01-1993
<PERIOD-END> DEC-31-1993
<CASH> 52,227
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,765
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 83,468
<INVESTMENTS-CARRYING> 429,931
<INVESTMENTS-MARKET> 439,429
<LOANS> 499,912
<ALLOWANCE> 9,972
<TOTAL-ASSETS> 1,123,598
<DEPOSITS> 969,749
<SHORT-TERM> 30,512
<LIABILITIES-OTHER> 7,493
<LONG-TERM> 7,723
<COMMON> 5,170
0
0
<OTHER-SE> 102,952
<TOTAL-LIABILITIES-AND-EQUITY> 1,123,598
<INTEREST-LOAN> 37,910
<INTEREST-INVEST> 33,101
<INTEREST-OTHER> 957
<INTEREST-TOTAL> 71,968
<INTEREST-DEPOSIT> 27,489
<INTEREST-EXPENSE> 28,905
<INTEREST-INCOME-NET> 43,063
<LOAN-LOSSES> 1,815
<SECURITIES-GAINS> 144
<EXPENSE-OTHER> 29,077
<INCOME-PRETAX> 18,834
<INCOME-PRE-EXTRAORDINARY> 13,215
<EXTRAORDINARY> 2,522
<CHANGES> 0
<NET-INCOME> 15,737
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.56
<YIELD-ACTUAL> 7.28
<LOANS-NON> 2,633
<LOANS-PAST> 342
<LOANS-TROUBLED> 223
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,972
<CHARGE-OFFS> 1,634
<RECOVERIES> 1,299
<ALLOWANCE-CLOSE> 9,972
<ALLOWANCE-DOMESTIC> 9,972
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,414
</TABLE>
