<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:
September 30, 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 November 2, 1994 was 5,158,772.
===============================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
SEPTEMBER 30, 1994
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition,
September 30, 1994 and December 31, 1993. 3
Consolidated Statements of Income for the
Three and Nine Month Periods Ended
September 30, 1994 and 1993. 4
Consolidated Statements of Cash Flow for
the Nine Months Ended September 30, 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>
2
<PAGE> 3
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
Part I.
Item 1
<TABLE>
<CAPTION>
(In thousands) September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . $ 43,473 $ 52,227
---------- ----------
Short-Term Investments:
Federal Funds Sold & Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . . . . . . . 21,710 27,765
Other Short-Term Investments . . . . . . . . . . . . . . . . . 17,067 6,086
---------- ----------
Total Short-Term Investments . . . . . . . . . . . . . . . 38,777 33,851
---------- ----------
Securities Available For Sale . . . . . . . . . . . . . . . . . 337,929 83,468
Investment Securities . . . . . . . . . . . . . . . . . . . . . 166,023 429,931
---------- ----------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 509,359 499,912
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . (485) (607)
Allowance for Possible Loan Losses . . . . . . . . . . . . . . (9,723) (9,972)
---------- ----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . 499,151 489,333
---------- ----------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . 14,470 13,904
---------- ----------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,990 4,308
---------- ----------
Other Real Estate Owned . . . . . . . . . . . . . . . . . . . . 524 1,039
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 18,923 15,537
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $1,123,259 $1,123,598
========== ==========
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 174,399 $ 150,842
Savings and Interest-Bearing Demand . . . . . . . . . . . . . 330,482 350,325
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,242 468,582
---------- ----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . 964,305 969,749
Fed Funds Purchased & Securities Sold Under Agreements
to Repurchase . . . . . . . . . . . . . . . . . . . . . . . 30,689 30,512
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . 10,707 7,493
Long-Term Debt:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . 1,107 2,733
Affiliated Company . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . 1,011,808 1,015,477
---------- ----------
CAPITAL ACCOUNTS
Preferred Stock (Par Value of $1.00; 500 shares authorized
in 1994 and 1993; none outstanding) . . . . . . . . . . . . . 0 0
Common Stock (Par Value of $1.00; 24,000 shares authorized;
5,159 shares outstanding in 1994 and 5,170 shares
outstanding in 1993) . . . . . . . . . . . . . . . . . . . . 5,159 5,170
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,552 13,524
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . 97,202 89,579
Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . 0 (130)
Unrealized Loss on Securities Available For Sale . . . . . . . . (4,462) (21)
---------- ----------
Total Capital Accounts . . . . . . . . . . . . . . . . . . 111,451 108,122
---------- ----------
Total Liabilities and Capital Accounts . . . . . . . . . . $1,123,259 $1,123,598
========== ==========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
(In thousands) 1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . $10,405 $ 9,412 $29,936 $28,123
Interest on Securities:
Taxable Securities . . . . . . . . . . . 6,804 7,135 2,837 2,735
Nontaxable Securities . . . . . . . . . . 857 921
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell . . . . . . . . . . 234 183 670 541
Interest on Deposits in Banks . . . . . . . 78 286 421 413
------- ------- ------- -------
TOTAL INTEREST INCOME . . . . . . . . . $18,378 17,915 53,973 54,043
------- ------- ------- -------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . 7,202 6,738 20,816 20,709
Interest on Federal Funds Purchased
and Securities Sold Under Agreements
to Repurchase . . . . . . . . . . . . . . 302 222 793 647
Interest on Long-Term Debt . . . . . . . . . 202 154 472 424
------- ------- ------- -------
TOTAL INTEREST EXPENSE . . . . . . . . 7,706 7,114 22,082 21,780
------- ------- ------- -------
NET INTEREST INCOME . . . . . . . . . . 10,872 10,801 31,891 32,263
Provision for Possible Loan Losses . . . . (45) (245) (289) (1,115)
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . 10,627 10,556 31,602 31,148
------- ------- ------- -------
OTHER INCOME
Service Charges on Deposit Accounts . . . . 800 861 2,392 2,547
Trust Department Income . . . . . . . . . . 343 425 1,009 1,092
Security Gains(Losses) . . . . . . . . . . . (1) (125) (1) 44
Other Operating Income . . . . . . . . . . . 668 572 1,703 1,281
------- ------- ------- -------
TOTAL OTHER INCOME . . . . . . . . . . 1,810 1,773 5,103 4,964
------- ------- ------- -------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . 2,797 2,601 8,301 7,634
Pension and Other Employee Benefits . . . . 864 1,013 2,479 2,316
Net Occupancy Expense . . . . . . . . . . . 784 569 1,872 1,571
Equipment Expense . . . . . . . . . . . . . 310 418 998 1,061
Data Processing Expense . . . . . . . . . . 359 537 1,084 1,308
Other Operating Expenses . . . . . . . . . . 2,164 2,020 6,659 6,822
------- ------- ------- -------
TOTAL OPERATING EXPENSES . . . . . . . 7,278 7,158 21,393 20,712
------- ------- ------- -------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . 5,159 5,131 15,311 15,400
INCOME TAX EXPENSE . . . . . . . . . . . . . 1,583 1,719 4,635 4,749
------- ------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE . . . . . 3,576 3,412 10,677 10,651
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . 0 0 0 2,522
------- ------- ------- -------
NET INCOME . . . . . . . . . . . . . . . . . $ 3,576 $ 3,412 $10,677 $13,173
======= ======= ======= =======
INCOME PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE . . . . . $ 0.69 $ 0.66 $ 2.07 $ 2.06
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE . . . . . . . . . . 0 0 0 .49
------- ------- ------- -------
NET INCOME . . . . . . . . . . . . . . . . $ 0.69 $ 0.66 $ 2.07 $ 2.55
======= ======= ======= =======
CASH DIVIDENDS PER SHARE . . . . . . . . . . $ 0.19 $ 0.17 $ 0.55 $ 0.49
======= ======= ======= =======
Average Number of Shares Outstanding
During the Year . . . . . . . . . . . . 5,159 5,170 5,159 5,170
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1994 1993
--------- ---------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,677 $ 10,651
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,540 1,092
Amortization of Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 259
Provision for Possible Loan Losses . . . . . . . . . . . . . . . . . . . . . . . 289 1,115
Change in Accounting Principle . . . . . . . . . . . . . . . . . . . . . . . . . 0 2,522
Provision for Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 293 (399)
Gain on Sales of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 (13)
Accretion of Bond Discount, Net . . . . . . . . . . . . . . . . . . . . . . . . . (2,484) (1,546)
(Increase) Decrease in Other Assets . . . . . . . . . . . . . . . . . . . . . . . (3,386) (1,572)
Increase (Decrease) in Other
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,921 (1,160)
--------- --------
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,168 10,949
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds From Sales of Securities . . . . . . . . . . . . . . . . . . . . . . . . 0 15,081
Proceeds From Maturities of
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,461 92,366
Purchase of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,992) (106,400)
(Increase) Decrease in Interest-
bearing Deposits in Other Banks, Net . . . . . . . . . . . . . . . . . . . . . . 0 (1,493)
Decrease in Federal Funds, Net . . . . . . . . . . . . . . . . . . . . . . . . . 6,232 11,294
(Increase) Decrease in Other Short-
term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,981) 4,773
(Increase) Decrease in Loans . . . . . . . . . . . . . . . . . . . . . . . . . . (9,592) (15,457)
Capital Additions, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,106) (1,325)
--------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . . . . . . . . (8,978) (1,160)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Demand,
Savings and Interest-bearing Demand
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,714 (3,910)
Increase (Decrease) in Time Deposits . . . . . . . . . . . . . . . . . . . . . . (9,158) (5,802)
Payment on Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,616) (1,107)
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,884) (2,233)
--------- --------
Net Cash Provided by Financing
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,944) (13,052)
--------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,754) (3,263)
Cash and Cash Equivalents, Beginning . . . . . . . . . . . . . . . . . . . . . . . . 52,227 56,672
--------- --------
Cash and Cash Equivalents, Ending . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,473 $ 53,409
========= ========
</TABLE>
5
<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,
Commercial Bank at Alma, The Bank of North Arkansas and First Stuttgart Bank
and Trust. All material intercompany transactions have been eliminated.
The consolidated statements of condition as of September 30, 1994 and
the related consolidated statements of income for the three and nine month
periods ended September 30, 1994 and 1993 and the consolidated statements of
cash flows for the nine month period ended September 30, 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 September 30, 1994 the amortized costs and
fair values of securities classified as available for sale were $344.79 million
and $337.93 million, respectively, which resulted in an unrecognized loss, net
of tax, of approximately $4.46 million 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 nine month period ended September 30, 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 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 reclassifications 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.
6
<PAGE> 7
5. ACQUISITIONS
On June 14, 1994, First United completed the acquisition of InvestArk,
Bankshares, Inc. (InvestArk). First United acquired all of the issued and
outstanding stock of InvestArk through the issuance of 885,523 First United
shares of common stock. This transaction was accounted for as a pooling of
interests. For the nine months ended September 30, 1994, InvestArk had total
assets and net income of approximately $197.05 million and $1.71 million,
respectively.
On July 28, 1994, First United entered into a definitive agreement to
acquire FirstBank located in Texarkana, Texas. Under the terms of the
agreement, First United will acquire all of the outstanding shares of FirstBank
for approximately $25 million in cash. As of September 30, 1994, FirstBank had
total assets of approximately $153 million. For the nine months ended September
30, 1994, FirstBank had net interest income and net income of approximately
$4.92 million and $.94 million, respectively. The transaction will be
accounted for as a purchase.
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") 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"), Commercial Bank at Alma ("Alma"), The Bank of North Arkansas
("Melbourne") and First Stuttgart Bank and Trust Company ("Stuttgart"), 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 for the three months ended September 30, 1994 was $3.58
million, or $.69 per share compared with $3.41 million or $.66 per share during
the same period in 1993. Net income for the nine month period ended September
30, 1994 was $10.68 million or $2.07 per share compared with $10.65 million or
$2.06 per share as of September 30, 1993. The annualized return on average
assets from continuing operations for the nine months ended September 30, 1994
and 1993 was 1.27% and 1.26% respectively, while the annualized return on
average equity was 12.69% and 12.65% respectively for the same periods. The
increase in net income was due primarily to lower provisions for possible loan
losses.
During the first quarter of 1993, First United adopted the provisions
of FAS 109, "Accounting For Income Taxes." As a direct result of this
standard, First United 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
7
<PAGE> 8
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 nine
months of 1994 was $33.42 million compared with $33.74 million in the first
nine months of 1993. Net interest income also decreased when compared with
1992. The small decrease in net interest income was the result of First
United's liability sensitive balance sheet position during a time of rising
interest rates. However, during the first nine months of 1994, First United
experienced a decline in its net interest margin. The net interest margin
through September 30, 1994, was 4.21% compared with 4.37% and 4.42% for the
same periods in 1993 and 1992, respectively. First United anticipates that
margins for the remainder of 1994 will be lower than that of 1993. During 1993,
First United shortened the overall maturities of its investment portfolio in
order to minimize the effect of any potential rise in interest rates.
First United has debt of approximately $6.11 million at September 30,
1994 and interest expense associated with this debt totaled $472 thousand
during the first nine months of 1994. First United will make a final principal
payment of $1.11 million on its installment note payable to an unaffiliated bank
in August of next year. 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 1997.
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>
September 30, December 31,
1994 1993 1992
------------- ----- -----
<S> <C> <C> <C>
Yield on Earning asset 6.99% 7.27% 7.99%
Break - even yield 2.78% 2.90% 3.59%
Net interest margin 4.21% 4.37% 4.40%
Net interest spread 3.48% 3.83% 3.75%
----- ----- -----
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $509.36 million at
September 30, 1994 compared with $499.86 million at December 31, 1993.
Although the Company experienced a modest increase in loans, overall loan
demand continues to be weak. In light of the local economic outlook for the
remainder of 1994, the Company does not anticipate a significant increase in
loan demand. The
8
<PAGE> 9
Company has no foreign loans or leases and it is the policy of the Company 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.
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>
September 30, December 31,
1994 1993 1992
--------------- ------- -------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $ 1,372 $ 2,045 $ 1,740
Real Estate 708 520 708
Consumer 107 68 59
------- ------- -------
$ 2,187 $ 2,633 $ 2,507
------- ------- -------
Past due 90 days or more:
Commercial $ 133 $ 95 $ 113
Real Estate 43 28 535
Consumer 206 219 156
------- ------ -------
$ 382 $ 342 $ 804
-------
Renegotiated Commercial
Loans: $ 506 $ 223 $ 1,414
------- ------- -------
Total non-performing
Loans: $ 3,075 $ 3,198 $ 4,725
Other Real Estate, Net 527 1,039 3,854
------- ------- -------
Total non-performing
Assets: $ 3,602 $ 4,237 $ 8,579
======= ======= =======
</TABLE>
9
<PAGE> 10
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
September 30, 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 control loan risks.
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.
During the first nine months of 1994 First United made provisions for
possible loan losses of $289 thousand compared with $1.15 million for the same
period in 1993. Total non-performing loans decreased $120 thousand from $3.20
million at December 31, 1993 to $3.08 million at September 30, 1994. Net
charge-offs through September 30, 1994 totaled $538 thousand.
<TABLE>
<CAPTION>
Year Ended December 31,
September 30, 1994 1993 1992
------------------ ----------------------------
<S> <C> <C> <C>
Allowance as a percentage
of total loans and leases 1.90% 2.00% 1.77%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 312% at September 30, 1994 compared with 308% 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,
September 30, ----------------------------
(In thousands) 1994 1993 1992
----------- ------ ------
<S> <C> <C> <C>
Commercial & Financial $6,124 $5,313 $2,922
Real Estate 737 1,044 2,063
Consumer 1,695 1,113 576
Unallocated 1,267 2,502 2,411
------ ------ ------
Total $9,723 $9,972 $7,972
====== ====== ======
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize that growth of non-interest income
in providing new 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.
10
<PAGE> 11
The table represented below is a comparison of the dollar and
percentage change for each component of non-interest income:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
--------------------- ----------------------
(Dollars in Thousands) 1994 1993 $ %
------ ------ ------ ----
<S> <C> <C> <C> <C>
Service Charges on
Deposit Accounts $2,392 $2,547 $ (155) (6%)
Trust Income 1,009 1,092 (83) (8%)
Security Gains (1) 44 (45) (102%)
Other Income 1,703 1,281 422 33%
------ ------ ------ ----
Total Other Income $5,103 $4,964 $ 139 (3%)
====== ====== ====== ====
</TABLE>
Excluding security gains, non-interest income increased approximately $184
thousand when comparing 1994 with 1993 results. This increase was primarily
related to other fee income.
INVESTMENT SECURITIES
During the first nine months of 1994, First United had no security
gains.
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993 1992
------------- --------- --------
<S> <C> <C> <C>
Market Value $162,189 $404,512 $422,356
Book Value 166,023 395,014 413,300
-------- -------- --------
Difference $ (3,834) $ 9,498 $ 9,056
======== ======== ========
</TABLE>
At September 30, 1994, First United's securities portfolio classified
as Investment Securities was composed primarily of municipal and short-term
fixed rate CMO securities.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
September 30, December 31,
(In thousands) 1994 1993
------------- ------------
<S> <C> <C>
Market Value $337,929 $84,450
Book Value 344,794 83,468
-------- -------
Difference $ 6,865 $ 982
======== =======
</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.
11
<PAGE> 12
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of First United's
major objectives. Non-interest expenses include salaries, employee benefits,
occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
--------------------- ----------------
(Dollars in Thousands) 1994 1993 $ %
------- ------- ----- -----
<S> <C> <C> <C> <C>
Salaries $ 8,301 $ 7,634 $ 667 9%
Pension and Employee Benefits 2,479 2,316 163 7%
Net Occupancy Expense 1,872 1,571 301 19%
Equipment Expense 998 1,061 (63) (6%)
Data Processing Expense 1,084 1,308 (224) (17%)
Other Operating Expense 6,659 6,822 (163) (2%)
------- ------- ----- -----
Total Non-Interest Expense $21,393 $20,712 $ 681 3%
======= ======= ===== =====
</TABLE>
Pension and employee benefits increased approximately 7% during the
first nine months of 1994 when compared with the same period in 1993 primarily
as a result of the cumulative effect of a $420 thousand adjustment in the net
periodic pension costs related to First United's defined pension benefit plan.
Excluding the benefit of the non-recurring adjustment, employee benefit costs
decreased by approximately $257 thousand. The 21.39 million in total
non-interest expense included approximately $1.09 million of non-interest
expense at Alma which was accounted for as a purchase.
INCOME TAXES
The effective tax rate of First United for the nine month period ended
September 30, 1994 was 30.3% compared to 30.8% for the same period in 1993.
The decrease in the 1994 effective tax rate from 1993 was due to an increase 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.
First United's equity capital totaled $111.45 million at September 30,
1994, compared to the December 31, 1993 level of $108.12 million. The growth
and retention of earnings continues to be First United's primary source of
additional capital. Currently, First United does not have any plans for
issuing subordinated notes and First United has not issued any new common or
preferred stock except for the acquisition of InvestArk as discussed in Note 5
on page 6 of this report.
12
<PAGE> 13
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
December 31,
September 30, 1994 1993 1992
------------------ --------------------------
<S> <C> <C> <C>
Equity Capital to Total Assets 10.32% 9.62% 9.37%
Primary Capital to Total Assets 11.09% 10.42% 10.14%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
September 30, Regulatory
1994 Requirements
--------------- ------------
<S> <C> <C>
Total Capital/Total Assets 11.09% 6.00%
Primary Capital/Total Assets 11.09% 5.50%
Total Risk Based Capital 19.54% 8.00%
Tier 1 Capital 18.29% 4.00%
Leverage Ratio 9.96% 3.00%
</TABLE>
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. First United 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
First United 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. First United 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.
On May 24, 1994 the Board of Directors of First United increased the
annual cash dividend approximately 11.8%. The current annual dividend rate is
$.76 per share compared with $.68 per share prior to the increase.
The following table sets forth the dividend payout ratio for the last
two years and for the nine months ended September 30, 1994:
13
<PAGE> 14
<TABLE>
<CAPTION>
Year Ended
September 30, 1994 1993 1992
------------------ --------------------------
<S> <C> <C> <C>
Dividend payout ratio 26.57% 23.62% 24.54%
</TABLE>
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
Exhibit 27 Financial Date Schedule
Reports on Form 8-K
On August 12, 1994, First United filed a Current Report on Form 8-K/A
under Item 7 regarding First United's acquisition of all of the issued and
outstanding shares of common stock in InvestArk Bankshares, Inc., Stuttgart,
Arkansas, in exchange for the issuance of 885,523 shares of First United common
stock, par value $1.00. The Form 8-K/A amended the prior Form 8-K filing on
June 16, 1994.
14
<PAGE> 15
On September 9, 1994, First United filed a Current Report on Form 8-K
under Item 5 regarding the publication of certain financial data with respect
to the 30 day post-merger combined operations of First United and InvestArk
Bankshares, Inc.
15
<PAGE> 16
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: November 14, 1994
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 43,473
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 21,710
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 337,929
<INVESTMENTS-CARRYING> 166,023
<INVESTMENTS-MARKET> 162,189
<LOANS> 509,359
<ALLOWANCE> 9,723
<TOTAL-ASSETS> 1,123,259
<DEPOSITS> 964,305
<SHORT-TERM> 30,689
<LIABILITIES-OTHER> 10,707
<LONG-TERM> 6,107
<COMMON> 5,159
0
0
<OTHER-SE> 106,292
<TOTAL-LIABILITIES-AND-EQUITY> 1,123,259
<INTEREST-LOAN> 29,936
<INTEREST-INVEST> 22,946
<INTEREST-OTHER> 1,091
<INTEREST-TOTAL> 53,973
<INTEREST-DEPOSIT> 20,816
<INTEREST-EXPENSE> 22,082
<INTEREST-INCOME-NET> 31,891
<LOAN-LOSSES> 289
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 21,393
<INCOME-PRETAX> 15,311
<INCOME-PRE-EXTRAORDINARY> 10,677
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,677
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.07
<YIELD-ACTUAL> 6.99
<LOANS-NON> 2,187
<LOANS-PAST> 382
<LOANS-TROUBLED> 536
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,972
<CHARGE-OFFS> 1,631
<RECOVERIES> 1,093
<ALLOWANCE-CLOSE> 9,723
<ALLOWANCE-DOMESTIC> 9,723
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,267
</TABLE>
