<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, 1995
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 1, 1995 was 5,158,772.
================================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
SEPTEMBER 30, 1995
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition, September 30,
1995 and December 31, 1994. 3
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1995 and 1994. 4
Consolidated Statements of Cash Flow for the Nine
Months Ended September 30, 1995 and 1994. 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
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . $ 45,795 $ 49,419
----------- ----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell . . . . . . . . . . . . . . . . . . 28,122 17,490
Other Short-Term Investments . . . . . . . . . . . . . . . . . . 19,447 7,264
----------- ----------
Total Short-Term Investments . . . . . . . . . . . . . . . . . 47,569 24,754
----------- ----------
Securities Available-for-Sale . . . . . . . . . . . . . . . . . . . 343,157 324,679
----------- ----------
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . 197,662 164,357
----------- ----------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634,143 512,950
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . . . (2,001) (457)
Allowance for Possible Loan Losses . . . . . . . . . . . . . . . (11,079) (9,667)
----------- ----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,063 502,826
----------- ----------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . 25,270 15,541
----------- ----------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,801 3,831
----------- ----------
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 639 520
----------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,319 20,683
----------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,314,275 $1,106,610
=========== ==========
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 194,038 $ 155,413
Savings and Interest-Bearing Demand . . . . . . . . . . . . . . . 347,770 330,506
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 578,865 467,985
----------- ----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,120,673 953,904
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase . . . . . . . . . . . . . . . . . 39,009 22,480
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 16,778 7,892
Notes Payable:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . . . 6,107 7,825
Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
----------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,187,567 997,101
----------- ----------
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 1995
and 1994; none outstanding) . . . . . . . . . . . . . . . . . . . -0- -0-
Common Stock (Par value of $1.00; 24,000 shares authorized; 5,159
shares outstanding in 1995 and 1994) . . . . . . . . . . . . . . . 5,159 5,159
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,552 13,551
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . . . 107,733 99,612
Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . -0- -0-
Net Unrealized Gains (Losses) on Securities Available-for- Sale . . 264 (8,813)
----------- ----------
Total Capital Accounts . . . . . . . . . . . . . . . . . . . . . 126,708 109,509
----------- ----------
Total Liabilities and Capital Accounts . . . . . . . . . . . . . $ 1,314,275 $1,106,610
=========== ==========
</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, except share data) 1995 1994 1995 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . $ 14,693 $ 10,405 $ 41,259 $ 29,936
Interest on Securities:
Taxable Securities . . . . . . . . . . . . . . . 7,418 6,804 21,791 20,109
Nontaxable Securities . . . . . . . . . . . . . . 991 857 2,982 2,837
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . 372 234 1,059 670
Interest on Deposits in Banks . . . . . . . . . . . 126 77 509 420
-------- -------- -------- ---------
TOTAL INTEREST INCOME . . . . . . . . . . . . . 23,600 18,377 67,600 53,972
-------- -------- -------- ---------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . . . . 10,482 7,202 29,460 20,816
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase . . . . . . . . . . . . 514 302 1,244 793
Interest on Notes Payable . . . . . . . . . . . . . 292 202 873 472
-------- -------- -------- ---------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . 11,288 7,706 31,577 22,081
-------- -------- -------- ---------
NET INTEREST INCOME . . . . . . . . . . . . . . 12,312 10,671 36,023 31,891
Provision for Possible Loan Losses . . . . . . . . 300 45 407 289
-------- -------- -------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 12,012 10,626 35,616 31,602
-------- -------- -------- ---------
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . 1,098 800 3,104 2,392
Trust Department Income . . . . . . . . . . . . . . 441 343 1,314 1,009
Security Gains (Losses) . . . . . . . . . . . . . . 6 (1) (141) (1)
Other Operating Income . . . . . . . . . . . . . . 628 668 1,958 1,703
-------- -------- -------- ---------
TOTAL OTHER INCOME . . . . . . . . . . . . . . 2,173 1,810 6,235 5,103
-------- -------- -------- ---------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . 3,372 2,797 9,824 8,301
Pension and Other Employee Benefits . . . . . . . . 1,010 864 2,930 2,479
Net Occupancy Expense . . . . . . . . . . . . . . . 840 784 2,262 1,872
Equipment Expense . . . . . . . . . . . . . . . . . 421 310 1,291 998
Data Processing Expense . . . . . . . . . . . . . . 411 359 1,223 1,084
Other Operating Expenses . . . . . . . . . . . . . 2,380 2,165 7,788 6,659
-------- -------- -------- ---------
TOTAL OTHER EXPENSE . . . . . . . . . . . . . . 8,434 7,279 25,318 21,393
-------- -------- -------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 5,751 5,157 16,533 15,312
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . 1,804 1,583 5,103 4,635
-------- -------- -------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . $ 3,947 $ 3,574 $ 11,430 $ 10,677
======== ======== ======== =========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ 0.77 $ 0.69 $ 2.22 $ 2.07
======== ======== ======== =========
CASH DIVIDENDS PER SHARE . . . . . . . . . . . . . $ 0.22 $ 0.19 $ 0.63 $ 0.54
======== ======== ======== =========
AVERAGE SHARES ISSUED AND
OUTSTANDING . . . . . . . . . . . . . . . . . . . . 5,159 5,159 5,159 5,159
======== ======== ======== =========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
1995 1994
-------- --------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,430 $ 10,677
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,539 1,540
Amortization of Goodwill . . . . . . . . . . . . . . . . . . . . . 713 318
Provision for Possible Loan Losses . . . . . . . . . . . . . . . . 407 289
Provision for Deferred Taxes . . . . . . . . . . . . . . . . . . . -0- 293
(Gain) Loss on Sales of Securities . . . . . . . . . . . . . . . . 141 -0-
Accretion of Bond Discount, Net . . . . . . . . . . . . . . . . . (1,289) (2,484)
(Increase) Decrease in Other Assets . . . . . . . . . . . . . . . 2,389 (3,386)
Increase (Decrease) in Other Liabilities . . . . . . . . . . . . . 12,149 2,921
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . 27,479 10,168
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities . . . . . . . . . 20,962 111,461
Proceeds from Maturities of Securities Available-for-Sale . . . . . 54,328 -0-
Proceeds from Sales of Securities Available-for-Sale . . . . . . . . 41,734 -0-
Purchase of Investment Securities . . . . . . . . . . . . . . . . . (31,922) (103,992)
Purchase of Available-for-Sale Securities . . . . . . . . . . . . . (89,077) -0-
(Increase) Decrease in Federal Funds, Net . . . . . . . . . . . . . 12,962 6,232
(Increase) Decrease in Other Short-Term Investments . . . . . . . . (12,183) (10,981)
(Increase) Decrease in Loans . . . . . . . . . . . . . . . . . . . . (27,806) (9,592)
Capital (Additions) Retirements, Net . . . . . . . . . . . . . . . . (6,536) (2,106)
Purchase of Subsidiary Bank . . . . . . . . . . . . . . . . . . . . (19,079) -0-
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . (56,617) (8,978)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits . . (11,533) 3,714
Increase (Decrease) in Time Deposits . . . . . . . . . . . . . . . . 42,015 (9,158)
Issuance of Notes Payable . . . . . . . . . . . . . . . . . . . . . (1,718) (1,616)
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,250) (2,884)
-------- --------
Net Cash Provided by (Used in) Financing Activities . . . . . . . . . 25,514 (9,944)
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . (3,624) (8,754)
Cash and Cash Equivalents, Beginning . . . . . . . . . . . . . . . . 49,419 52,227
-------- --------
Cash and Cash Equivalents, Ending . . . . . . . . . . . . . . . . . . $ 45,795 $ 43,473
======== ========
</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.
("First United") 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,
FirstBank and First Stuttgart Bank and Trust Company. All material
intercompany transactions have been eliminated.
The consolidated statements of condition as of September 30, 1995 and
the related consolidated statements of income for the three and nine month
periods ended September 30, 1995 and 1994 and the consolidated statements of
cash flows for the nine month period ended September 30, 1995 and 1994 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, 1995, First United adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures". The
statement addresses how creditors should establish allowances for loan losses
on loans determined to be impaired. The effect of this statement on the
consolidated financial statements was not material. There have been no other
changes in the accounting policies of First United since the close of business
on December 31, 1994, the date of the most recent annual report to
shareholders.
In March of 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement establishes standards concerning accounting for "impaired"
property, plant and equipment, identifiable intangibles and related goodwill.
The FASB has also issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights and Excess Servicing Receivables and for Securitization of Mortgage
Loans." The new statement amends Statement No. 65, "Accounting for Certain
Mortgage Banking Activities" and primarily eliminates the distinction between
purchased mortgage servicing rights and mortgage servicing rights on loans
originated by the financial institution. First United is currently evaluating
the impact that adoption of these statements will have on its financial
condition and results of operations.
3. RESULTS OF OPERATIONS
The results for the nine month period ended September 30, 1995 are not
necessarily indicative of the results for the entire year of 1995. This report
should be read in conjunction with First United's 1994 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 1994 to conform to the 1995 presentation. Such reclassifications
are of a normal recurring nature in accordance with Rule 10-02(b)(8) of
Regulation S-X.
5. ACQUISITIONS
On January 31, 1995, First United completed the acquisition of
FirstBank located in Texarkana, Texas. Under the terms of the previously
announced agreement, First United acquired all of the outstanding shares of
FirstBank for approximately $25 million in cash. As of January 31, 1995,
FirstBank had total assets of approximately $155 million. For the period
February 1, 1995 through September 30, 1995, FirstBank had net interest income
and net income of $5.59 million and $1.81 million, respectively. The
transaction was accounted for as a purchase.
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Income taxes paid during the nine months ended September 30, 1995 and
1994 totaled $4.19 million and $3.51 million, respectively. Interest paid on
notes payable during the nine months ended September 30, 1995 and 1994 amounted
to $502 thousand and $316 thousand, respectively.
In connection with the January, 1995 acquisition of FirstBank, First
United acquired assets and assumed liabilities as follows:
6
<PAGE> 7
<TABLE>
<S> <C>
(In thousands:)
Fair Value of Assets Acquired $ 154,815
Goodwill 7,683
Liabilities Assumed (137,498)
---------
Cost Paid 25,000
Cash Acquired (5,921)
---------
Net Payment for Purchase $ 19,079
=========
</TABLE>
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"), FirstBank ("Texarkana") 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, 1995 was $3.95
million, or $.77 per share compared with $3.57 million or $.69 per share during
the same period in 1994. Net income for the nine months ended September 30,
1995 was $11.43 million or $2.22 per share compared with $10.67 million or
$2.07 per share for the same period in 1994. The annualized return on average
assets from continuing operations for the nine months ended September 30, 1995
and 1994 was 1.24% and 1.27% respectively, while the annualized return on
average equity was 12.79% and 12.69% respectively for the same periods. The
increase in net income was due primarily to higher net interest income
resulting from the acquisition of Texarkana.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the
difference between the income generated by earning assets and the total
interest cost of the funds obtained to carry them. Net interest income, as
referred to in this discussion, is on a fully tax-equivalent basis, which
adjusts for the tax exempt status of income earned on certain loans and
investments. The reported interest income for the tax-free assets is increased
by the amount of tax savings less the nondeductible portion of interest expense
incurred to acquire the tax-free assets. Net interest income is affected by
variations in both interest rates and the volume of interest-earning assets and
interest-bearing liabilities.
On a tax equivalent basis, net interest income for the first nine
months of 1995 was $37.63 million compared with $33.42 million in the first
nine months of 1994. Net interest income also increased when compared with
1994. This increase in net interest income was the result of First United's
acquisition of Texarkana. During the first nine months of 1995, Texarkana had
net interest income of approximately $5.59 million. Also, during the first nine
months of 1995, First United experienced an increase in its net interest
margin. The net interest margin through September 30, 1995 was 4.34% compared
with 4.29% for the year ended December 31, 1994. Due primarily to competitive
pressures, First United anticipates that margins for the remainder of 1995 will
be lower than that of 1994. 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 $11.1 million at September 30,
1995 and interest expense associated with this debt totaled $873 thousand
during the first nine months of 1995. First United made a principal payment of
$872 thousand on its instalment note payable to an unaffiliated bank in
November of this 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. Interest is payable quarterly on both notes.
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
7
<PAGE> 8
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,
1995 1994 1993
------------------ -------------------------
<S> <C> <C> <C>
Yield on Earning asset 7.87% 7.18% 7.30%
Break-even yield 3.53% 2.89% 2.85%
Net interest margin 4.34% 4.29% 4.45%
Net interest spread 3.46% 3.51% 3.85%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $634.14 million at
September 30, 1995 compared with $512.95 million at December 31, 1994.
Although the Company experienced a modest increase in loans, overall loan
volume ratios continue to be below peer averages. In light of the local
economic outlook for the remainder of 1995, the Company does not anticipate a
significant further increase in loan volume. The 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.
8
<PAGE> 9
The following table lists 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,
1995 1994 1993
--------------- ------------------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $2,098 $ 620 $1,840
Real Estate 1,021 1,427 713
Consumer 182 70 80
------ ------ ------
$3,301 $2,117 $2,633
------ ------ ------
Past due 90 days or more:
Commercial $ 181 $ 197 $ 64
Real Estate 114 151 51
Consumer 292 207 227
------ ------ ------
$ 587 $ 555 $ 342
------ ------ ------
Renegotiated Commercial
Loans: $ 883 $ 326 $ 223
------ ------ ------
Total non-performing Loans: $4,771 $2,998 $3,198
Other Real Estate, Net 705 520 1,039
------ ------ ------
Total non-performing
Assets: $5,476 $3,518 $4,237
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .75% .58% .64%
Non-Performing Assets as a
% of Equity Capital 4.32% 3.21% 3.92%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of
September 30, 1995.
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.
9
<PAGE> 10
During the first nine months of 1995 First United made provisions for
possible loan losses of $407 thousand compared with $289 thousand for the same
period in 1994. Total non-performing loans increased $1.78 million from $3.0
million at December 31, 1994 to $4.78 million at September 30, 1995. Net
charge-offs through September 30, 1995 totaled $522 thousand.
<TABLE>
<CAPTION>
September 30, Year Ended December 31,
1995 1994 1993
----------------- ----------------------------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.75% 1.88% 1.99%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 232% at September 30, 1995 compared with 322% at
December 31, 1994.
The allocation of the allowance for possible loan losses by major
categories of loans is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994 1993
------------------ ----------------------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 4,930 $4,756 $5,313
Real Estate 1,291 923 1,044
Consumer 2,338 1,484 1,113
Unallocated 2,520 2,504 2,502
------- ------ ------
Total $11,079 $9,667 $9,972
======= ====== ======
</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.
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
---------------------- ---------------------
1995 1994 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $3,104 $2,392 $ 712 30%
Trust Income 1,314 1,009 305 30%
Security Gains (Losses) (141) (1) (140) N/A
Other Income 1,958 1,703 255 15%
------ ------ ------ ---
Total Other Income $6,235 $5,103 $1,132 22%
====== ====== ====== ===
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $1,272 thousand when comparing 1995 with 1994 results. This
increase was primarily related to the acquisition of Texarkana. Excluding the
operating results of Texarkana and security gains, non-interest income
increased only $219 thousand during the first nine months when compared with
the same nine months the previous year.
10
<PAGE> 11
INVESTMENT SECURITIES
During the first nine months of 1995, First United had no security
gains.
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994 1993
--------------- -----------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $ 198,795 $156,850 $439,429
Amortized Cost 197,662 164,357 429,931
----------- -------- --------
Difference $ 1,133 $ (7,507) $ 9,498
=========== ======== ========
</TABLE>
At September 30, 1995, 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,
1995 1994 1993
----------------- ---------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $ 343,157 $324,679 $84,450
Amortized Cost 342,751 337,970 83,468
---------- -------- -------
Difference $ 406 $(13,291) $ 982
========== ======== =======
</TABLE>
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
--------------------- ---------------------
1995 1994 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $ 9,824 $ 8,301 $1,523 18%
Pension and Employee Benefits 2,930 2,479 451 18%
Net Occupancy Expense 2,262 1,872 390 21%
Equipment Expense 1,291 998 293 29%
Data Processing Expense 1,223 1,084 139 13%
Other Operating Expense 7,788 6,659 1,129 17%
------- ------- ------ ---
Total Non-Interest Expense $25,318 $21,393 3,925 18%
======= ======= ====== ===
</TABLE>
Pension and employee benefits increased approximately 18% during the
first nine months of 1995 when compared with the same period in 1994, primarily
as a result of the addition of a 401(k) Benefit Plan established in April of
1994 as well as the addition of Texarkana which accounted for $300 thousand of
the increase. The $25.32 million in total non-interest expense included
approximately $3.51 million of non-interest expense at Texarkana.
11
<PAGE> 12
INCOME TAXES
The effective tax rate of First United for the nine month period ended
September 30, 1995 was 31% compared to 30% for the same period in 1994. The
increase in the 1995 effective tax rate from 1994 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 $126.71 million at September 30,
1995, compared to the December 31, 1994 level of $109.51 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 during the past twelve months.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994 1993
--------------- ---------------------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.62% 10.69% 9.72%
Primary Capital to Total Assets 10.40% 11.46% 10.53%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
September 30, Regulatory
1995 Requirements
---- ------------
<S> <C> <C>
Total Capital/Total Assets 10.40% 6.00%
Primary Capital/Total Assets 10.40% 5.50%
Total Risk Based Capital 16.86% 8.00%
Tier 1 Capital 15.61% 4.00%
Leverage Ratio 8.87% 3.00%
</TABLE>
Note: Unrealized losses on securities available-for-sale have been excluded
when computing capital ratios.
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.
12
<PAGE> 13
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 16%. The current annual dividend rate is
$.88 per share compared with $.76 per share prior to the increase.
The following table sets forth the dividend payout ratio for the last
two years and for the six months ended June 30, 1995:
<TABLE>
<CAPTION>
September 30, Year Ended,
1995 1994 1993
--------------- ---------------------------
<S> <C> <C> <C>
Dividend payout ratio 28.43% 27.53% 23.62%
</TABLE>
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER MATTERS
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated
by reference to previously filed material.
Exhibit No. Description of Exhibit
----------- ----------------------
2 Agreement and Plan of Reorganization dated July
28, 1994 between First United Bancshares, Inc. and
FirstBank, Texarkana, Texas (previously filed as
Exhibit 2 to First United's Annual Report on
Form 10-K for the fiscal year December 31,
1994) incorporated by reference herein.
27 Financial Data Schedule
Reports on Form 8-K
-------------------
First United did not file any Report on Form 8-K during the last
quarter of the period covered by this report.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST UNITED BANCSHARES, INC.
BY /s/ James V. Kelley
-------------------------------------
James V. Kelley
Chairman, President and Chief
Executive Officer
BY /s/ John E. Burns
-------------------------------------
John E. Burns
Chief Financial Officer and Principal
Accounting Officer
Date: November 13, 1995
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2 Agreement and Plan of Reorganization dated July
28, 1994 between First United Bancshares, Inc. and
FirstBank, Texarkana, Texas (previously filed as
Exhibit 2 to First United's Annual Report on
Form 10-K for the fiscal year December 31,
1994) incorporated by reference herein.
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 45,795
<INT-BEARING-DEPOSITS> 19,447
<FED-FUNDS-SOLD> 28,122
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 343,157
<INVESTMENTS-CARRYING> 197,662
<INVESTMENTS-MARKET> 198,795
<LOANS> 632,142
<ALLOWANCE> 11,079
<TOTAL-ASSETS> 1,314,275
<DEPOSITS> 1,120,673
<SHORT-TERM> 39,009
<LIABILITIES-OTHER> 16,778
<LONG-TERM> 11,107
<COMMON> 5,159
0
0
<OTHER-SE> 121,549
<TOTAL-LIABILITIES-AND-EQUITY> 1,314,275
<INTEREST-LOAN> 41,259
<INTEREST-INVEST> 24,773
<INTEREST-OTHER> 1,568
<INTEREST-TOTAL> 67,600
<INTEREST-DEPOSIT> 29,460
<INTEREST-EXPENSE> 31,577
<INTEREST-INCOME-NET> 36,023
<LOAN-LOSSES> 407
<SECURITIES-GAINS> (141)
<EXPENSE-OTHER> 25,318
<INCOME-PRETAX> 16,533
<INCOME-PRE-EXTRAORDINARY> 16,533
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,430
<EPS-PRIMARY> 2.22
<EPS-DILUTED> 2.22
<YIELD-ACTUAL> 7.87
<LOANS-NON> 3,301
<LOANS-PAST> 587
<LOANS-TROUBLED> 883
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,667
<CHARGE-OFFS> 1,783
<RECOVERIES> 1,261
<ALLOWANCE-CLOSE> 11,079
<ALLOWANCE-DOMESTIC> 11,079
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,520
</TABLE>
