<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 13, 1995
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 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 8, 1995, First United Bancshares, Inc., El Dorado,
Arkansas ("First United") made a current report under cover of Form 8-K
regarding its January 31,1995 acquisition of all of the issued and outstanding
shares of common stock of FirstBank, Texarkana, Texas ("FirstBank"). In
connection with the acquisition of FirstBank, First United borrowed $5,000,000
of the aggregate $25,000,000 purchase price First United paid to stockholders
of FirstBank from First Tennessee Bank, N.A.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
At the time of the filing of the current report on Form 8-K, it was
impracticable to provide the required financial statements of FirstBank,
Texarkana, Texas, as of December 31, 1994 and 1993 and for the years ended, and
the pro-forma financial information of First United and FirstBank, Texarkana,
Texas as of and for the year ended December 31, 1994. This amendment on Form
8-K is being filed pursuant to Item 7(a)(4) and (b)(2) thereof and provides
such financial information and has been filed prior to sixty (60) days
subsequent to the date of the Form 8-K must have been filed.
<PAGE> 3
PRO FORMA COMBINING FINANCIAL STATEMENTS
The following unaudited Pro Forma Combining Balance Sheet as of
December 31, 1994, and the Unaudited Pro Forma Combining Income Statement for
the year ended December 31, 1994 illustrate the effect of First United's
acquisition of FirstBank as if the acquisition had occurred at January 1, 1994.
These Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of First United which are
incorporated by reference herein and FirstBank which are included herein.
The Pro Forma Combining Financial Statements are presented for
comparative purposes only and are not intended to be indicative of actual
results had the transaction occurred as of the date indicated above nor do
they purport to indicate results which may be attained in the future.
<PAGE> 4
PRO FORMA COMBINING BALANCE SHEET (1)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------------
PRO FORMA PRO FORMA
FIRST UNITED FIRSTBANK ADJUSTMENTS COMBINED
------------ ---------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 49,419 $ 8,905 $ (20,000) (2) $ 38,324
Short-term investments 24,754 6,084 30,838
Securities held for sale 324,679 -- 324,679
Investment securities 164,357 43,215 207,572
Net loans 502,826 91,232 594,058
Premises and equipment 15,541 4,758 20,299
Goodwill 3,831 -- 7,917 (3) 11,748
Other real estate owned 520 221 741
Other assets 20,683 1,906 22,589
----------- --------- --------- -----------
Total Assets $ 1,106,610 $ 156,321 $ (12,083) $ 1,250,848
=========== ========= ========= ===========
LIABILITIES AND CAPITAL ACCOUNTS
Deposits $ 953,904 $ 137,794 $ $ 1,091,698
Federal funds purchased and securities --
sold under agreements to repurchase 22,480 -- 22,480
Other liabilities 7,892 1,444 9,336
Long-term debt 12,825 5,000 (2) 17,825
----------- --------- --------- -----------
Total Liabilities 997,101 139,238 5,000 1,141,339
----------- --------- --------- -----------
Preferred stock -- -- --
Common stock 5,159 3,000 (3,000) (4) 5,159
Surplus 13,551 3,000 (3,000) (4) 13,551
Undivided profits 99,612 11,083 (11,083) (4) 99,612
Net unrealized loss on marketable
equity securities (8,813) -- (8,813)
----------- --------- --------- -----------
Total Capital Accounts 109,509 17,083 (17,083) 109,509
----------- --------- --------- -----------
Total Liabilities and $ 1,106,610 $ 156,321 $ (12,083) $ 1,250,848
Capital Accounts =========== ========= ========= ===========
</TABLE>
<PAGE> 5
PRO FORMA COMBINING INCOME STATEMENT (1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------
PRO FORMA PRO FORMA
FIRST UNITED FIRSTBANK ADJUSTMENTS COMBINED
------------ --------- ----------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $ 73,214 $10,486 $ (1,000) (5) $ 82,700
Interest expense 30,253 3,847 350 (6) 34,450
-------- ------- -------- ---------
Net interest income 42,961 6,639 (1,350) 48,250
Provision for loan losses (334) (610) (944)
-------- ------- -------- ---------
Net interest income after provision for
loan losses 42,627 6,029 (1,350) 47,306
Other income
Service charges on deposit accounts 3,229 482 3,711
Trust department income 1,379 415 1,794
Security gains 9 79 88
Other service charges and fees -- 368 368
Other operating income 1,530 220 1,750
-------- ------- -------- ---------
Total Other Income 6,147 1,564 7,711
Other expense
Salaries 11,071 1,955 13,026
Pension and other employee benefits 3,644 -- 3,644
Net occupancy expense 2,435 567 3,002
Equipment expense 1,318 451 1,769
Data processing expense 1,511 -- 1,511
Other operating expense 8,818 2,174 528 (7) 11,520
-------- ------- -------- ---------
Total Other Expense 28,797 5,147 528 34,472
-------- ------- -------- ---------
Income before income taxes 19,977 2,446 (1,878) 20,545
Income tax expense 5,969 778 (473) (8) 6,274
-------- ------- -------- ---------
Income from continuing operations $ 14,008 $ 1,668 $ (1,405) $ 14,271
======== ======= ======== =========
Earnings per share (9) $ 2.72 $ 2.77
Weighted average shares oustanding 5,159 5,159
</TABLE>
<PAGE> 6
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
1. The adjustments to the unaudited Pro Forma Combining Financial
Statements do not give effect to direct transaction costs associated
with the consummation of the Merger. The pro forma data are not
necessarily indicative of the operating results or financial position
that would have occurred had the Merger been consummated at the date
indicated, nor necessarily indicative of future operating results or
financial position.
2. This adjustment represents the payment of $25,000,000 by First United
to acquire FirstBank. The purchase price was funded through
$20,000,000 in cash on hand and $5,000,000 in additional debt
incurred.
3. This adjustment reflects the excess of cost over net tangible assets
acquired in the Merger. For purposes of allocating the acquisition
costs among the various assets acquired, First United has tentatively
considered the carrying value of the acquired assets to approximate
their fair value, with all of the excess of such acquisition costs
being attributable to goodwill. It is First United's intention,
subsequent to the Merger, to more fully evaluate the acquired assets
and, as a result, the allocation of the acquisition costs among the
tangible and intangible assets acquired may change.
4. These adjustments represent the elimination of FirstBank's capital
accounts.
5. This adjustment represents the interest income which would not have
been earned on the $20,000,000 used to fund the Merger at an assumed
rate of 5.00%.
6. This adjustment represents the recognition of interest expense on
additional borrowings of First United to fund the Merger. The
interest expense was calculated based on First United's incremental
borrowing rate of 7.00% at December 31, 1994.
7. This adjustment reflects amortization over 15 years of the excess of
cost over net tangible assets acquired in the Merger (see Note 3).
8. This adjustment represents the tax effect of adjustments due to the
inclusion of the acquired operations. The tax provisions were
calculated at the statutory federal income tax rate of 35% applied to
items impacting taxable income.
9. Pro forma per share data are calculated using the pro forma net income
divided by the pro forma weighted average common shares outstanding.
Because no shares were issued in the Merger, the pro forma weighted
average shares outstanding is the First United weighted average shares
outstanding.
<PAGE> 7
FIRSTBANK
FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS:
Balance Sheets 2-3
Statements of Income 4
Statements of Changes in Stockholders' Equity 5
Statements of Cash Flows 6
Notes to Financial Statements 7-19
</TABLE>
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
[THOMAS & THOMAS LETTERHEAD]
Board of Directors
FirstBank
Texarkana, Texas
We have audited the accompanying balance sheets of FIRSTBANK as of December 31,
1994 and 1993, and the related statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 FIRSTBANK as of December 31,
1994 and 1993, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ THOMAS AND THOMAS
CERTIFIED PUBLIC ACCOUNTANTS
January 27, 1995
Texarkana, Arkansas
1
<PAGE> 10
FIRSTBANK
FINANCIAL STATEMENTS
<PAGE> 11
FINANCIAL STATEMENTS
<PAGE> 12
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE> 13
FIRSTBANK
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 8,905,439 $ 5,132,694
Federal Funds Sold 6,083,635 227,035
------------ ------------
Cash and Cash Equivalents 14,989,074 5,359,729
Investment Securities (Note 2) 43,215,279 57,419,279
------------ ------------
Loans (Note 3) 92,839,252 91,790,246
Allowance for Loan Losses (Note 4) (1,607,363) (1,403,961)
------------ ------------
Net Loans 91,231,889 90,386,285
------------ ------------
Premises and Equipment (Note 5) 4,758,127 4,820,046
Other Real Estate 220,712 661,490
Interest Receivable 1,430,936 1,396,077
Other Assets 475,294 481,651
------------ ------------
TOTAL ASSETS $156,321,311 $160,524,557
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 14
FIRSTBANK
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest Bearing Deposits $ 19,583,294 $ 18,316,576
Interest Bearing Deposits (Note 6) 118,211,119 123,204,200
------------ ------------
TOTAL DEPOSITS 137,794,413 141,520,776
Federal Funds Purchased --- 800,000
Accrued Interest and Other Liabilities 1,443,963 1,571,905
------------ ------------
TOTAL LIABILITIES 139,238,376 143,892,681
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY
Capital Stock
Common, Par Value, $27.843 per Share,
Authorized 107,747 Shares, Issued and
Outstanding, 107,747 Shares 3,000,000 3,000,000
Additional Paid-in Capital 3,000,000 3,000,000
Retained Earnings (Note 8) 11,082,935 10,631,876
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 17,082,935 16,631,876
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $156,321,311 $160,524,557
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 15
FIRSTBANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
--------------- ---------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 7,543,131 $ 7,347,774
Interest on Federal Funds Sold 205,228 98,295
Interest on Investment Securities 2,738,129 3,109,575
------------ ------------
TOTAL INTEREST INCOME 10,486,488 10,555,644
------------ ------------
INTEREST EXPENSE
Interest on Deposits 3,842,176 4,014,336
Interest on Federal Funds Purchased 5,124 6,277
------------ ------------
TOTAL INTEREST EXPENSE 3,847,300 4,020,613
------------ ------------
NET INTEREST INCOME 6,639,188 6,535,031
PROVISION FOR LOAN LOSSES (Note 4) (609,835) (37,534)
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 6,029,353 6,497,497
------------ ------------
OTHER OPERATING INCOME
Service Charges on Deposit Accounts 481,989 541,312
Other Service Charges and Fees 368,375 334,400
Investment Securities Gains 79,480 463,907
Trust Department Income 414,918 533,673
Other Income 219,587 127,871
------------ ------------
TOTAL OTHER OPERATING INCOME 1,564,349 2,001,163
------------ ------------
OTHER OPERATING EXPENSES
Salaries and Employee Benefits 1,955,190 1,855,356
Net Occupancy Expense 567,193 528,799
Equipment Expense 451,045 474,139
Other Operating Expenses 2,174,209 1,847,465
------------ ------------
TOTAL OTHER OPERATING EXPENSES 5,147,637 4,705,759
------------ ------------
INCOME BEFORE INCOME TAXES 2,446,065 3,792,901
Income Tax Expense (Note 7) 778,039 1,508,882
------------ ------------
NET INCOME $ 1,668,026 $ 2,284,019
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 16
FIRSTBANK
STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1993
<TABLE>
<CAPTION>
Additional Unrealized Gain(Loss) Total
Paid-In Retained on Securities Held Stockholders'
Capital Stock Capital Earnings for Sale Equity
------------- ---------------- -------------- ------------------------ -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1992 $ 3,000,000 $ 3,000,000 $ 8,502,084 $ --- $14,502,084
Net Income 2,284,019 2,284,019
Dividends Paid (176,874) (176,874)
Effect of Holding Company
Liquidation (Note 15) 22,647 22,647
----------- ----------- ----------- ------------------ -----------
Balances at December 31,
1993 3,000,000 3,000,000 10,631,876 16,631,876
Net Income 1,668,026 1,668,026
Dividends Paid (1,185,217) (1,185,217)
Net Unrealized Gain(Loss)
on Securities Held for
Sale (31,750) (31,750)
----------- ----------- ----------- ------------------ -----------
Balances at December 31,
1994 $ 3,000,000 $ 3,000,000 $11,114,685 $ (31,750) $17,082,935
=========== =========== =========== ================== ===========
</TABLE>
5
<PAGE> 17
FIRSTBANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,668,026 $ 2,284,019
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 563,434 534,121
Provision for Loan Losses 609,835 37,534
(Gain) Loss on Sale of Other Real Estate (34,182) 165,924
(Gain) Loss on Sale of Investment Securities (79,480) (463,907)
(Gain) Loss on Sale of Premises and Equipment (4,141) 30,692
(Increase) Decrease in Interest Receivable (34,859) 41,343
(Increase) Decrease in Other Assets 6,357 (221,996)
Unrealized Loss on Investment Securities (31,750) ---
Increase (Decrease) in Accrued Interest Payable
and Other Liabilities (927,942) (195,378)
----------- -----------
Net Cash Provided by Operating Activities 1,735,298 2,212,352
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Loans (1,617,221) (6,065,420)
Purchase of Bank Premises and Equipment (496,449) (665,722)
Proceeds from Sale of Premises and Equipment 37,141 8,850
Proceeds from Sale of Other Real Estate 598,676 438,430
Proceeds from Sale of Investment Securities 28,656,094 19,946,206
Purchase of Investment Securities (14,372,614) (20,958,454)
----------- -----------
Net Cash Provided (Used) by Investing Activities 12,805,627 (7,296,110)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Decrease in Deposit Accounts (3,726,363) (1,372,115)
Dividends Paid (1,185,217) (176,874)
----------- -----------
Net Cash Used by Financing Activities (4,911,580) (1,548,989)
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 9,629,345 (6,632,747)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,359,729 11,992,476
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $14,989,074 $ 5,359,729
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 18
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FirstBank (the Bank) provides a full range of banking and mortgage
services to individual and corporate customers. The Bank is subject
to competition from other financial institutions and is subject to
the regulation of certain state and federal agencies. The Bank
undergoes periodic examinations by those regulatory agencies. The
following are descriptions of the more significant accounting and
reporting policies.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan losses
and the valuation of other real estate owned, management obtains
independent appraisals for significant properties.
Management believes that the allowance for loan losses and the
valuation of other real estate owned are adequate. While management
uses available information to recognize losses on loans and the
valuation of other real estate owned, future losses may be accruable
based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for losses on loans
and valuation of other real estate. Such agencies may require the
Bank to recognize additional losses based on their assessment of
information available to them at the time of their examination.
CASH EQUIVALENTS
The Bank considers all due from banks and federal funds sold as cash
equivalents.
INVESTMENT SECURITIES
Investments in securities intended to be held until maturity are
valued at cost and adjusted for amortization of premium and accretion
of discount. Premiums and discounts on investment securities are
amortized (deducted) and accreted (added) to interest income on the
constant yield method over the period to maturity of the related
security.
7
<PAGE> 19
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (CONTINUED)
Interest and dividends on investment securities are reported in
operating income. Realized gains and losses on the sale of
investment securities are reported separately as securities gains
(losses).
Gains and losses on security transactions are recognized, using the
specific identification method. In considering whether securities
can be held until maturity, management considers whether there are
conditions, such as liquidity or regulatory requirements, which would
impair its ability to hold such securities until maturity. At
present, management is not aware of any such conditions. Management
has reviewed the securities individually to determine whether there
are permanent declines in net realizable values and whether
appropriate write downs have been recorded.
Management has reviewed the securities held for sale and determined
that there are $31,750 in unrealized losses at December 31, 1994.
This amount has been appropriated from retained earnings.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by
unearned discount. Unearned discount on installment loans is
recognized as income over the term of the loans by 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 increased by
provisions charged to expense and reduced by loans charged off, net
of recoveries. The allowance is maintained at a level considered
adequate to provide for potential loan losses, based on management's
evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan
category. General reserves have been established based upon the
aforementioned factors and allocated to the individual loan
categories. 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 interest is doubtful.
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense, using the straight-line method
over the estimated useful lives of the assets.
8
<PAGE> 20
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE
Real estate acquired in foreclosure or in settlement of debt is
carried at the lower of cost or fair market value. Fair market value
at the time of foreclosure or settlement of debt is based on a
current appraisal of the property. Any reduction to fair market
value from carrying value is accounted for as a loan loss at the time
the property is acquired. Management evaluates the fair market value
of individual properties in other real estate periodically and any
subsequent write-downs of the carrying value of the properties are
charged to losses on other real estate and credited directly to the
carrying value of individual properties.
FEE INCOME
Loan fees, net of direct origination costs, are recognized as revenue
on a yield basis over the term of the loans.
INCOME TAXES
Deferred income taxes are provided on certain transactions which are
recognized for financial statement purposes in years different than
for income tax purposes. The principal items causing these timing
differences are depreciation, provision for loan losses and employee
benefits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" (Statement 107), requires
that the Bank disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions are set
forth in the following notes to the financial statements. The
carrying amounts for short-term investments such as interest-bearing
deposits in banks and federal funds sold approximate fair value
because they mature in 90 days or less and do not present
unanticipated credit concerns.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Bank's
entire holdings of a particular financial instrument. Because no
market exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could
significantly affect the estimates.
9
<PAGE> 21
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value estimates have been made for existing on and off-balance
sheet financial instruments without attempting to estimate the value
of anticipated future business or the value of assets and liabilities
that are not considered financial instruments. The trust department
is not considered a financial instrument, and its value has not been
incorporated into the fair value estimates. Other significant assets
and liabilities that are not considered financial assets or
liabilities include deferred tax benefits and bank premises and
equipment. In addition, the tax ramifications related to the
realization of any unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in the
fair value.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and approximate market values of investments in
securities at December 31, were as follows:
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Treasury $ 36,055,104 $ 9,593 $ (1,086,851) $ 34,977,846
State and Political
Subdivisions 7,066,655 502 (148,803) 6,918,354
Other Securities 93,520 93,520
-------------- ------------- -------------- --------------
$ 43,215,279 $ 10,095 $ (1,235,654) $ 41,989,720
============== ============= ============== ==============
December 31, 1993
U.S. Treasury $ 49,487,201 $ 766,344 $ (8,857) $ 50,244,688
State and Political
Subdivisions 7,838,558 57,709 (2,859) 7,893,408
Other Securities 93,520 93,520
-------------- ------------- ------------- --------------
$ 57,419,279 $ 824,053 $ (11,716) $ 58,231,616
============== ============= ============= ==============
</TABLE>
10
<PAGE> 22
FIRSTBANK
Notes to Financial Statements
December 31, 1994 and 1993
NOTE 2 - INVESTMENT SECURITIES (CONTINUED)
Maturities of investment securities at December 31, were as follows:
<TABLE>
<CAPTION>
Approximate
Amortized Market
Cost Value
---------------- ----------------
<S> <C> <C>
December 31, 1994
One Year or Less $ 9,708,257 $ 9,662,965
After One Through Five Years 33,413,502 32,233,235
After Ten Years 93,520 93,520
-------------- --------------
$ 43,215,279 $ 41,989,720
============== ==============
December 31, 1993
One Year or Less $ 27,179,195 $ 27,539,613
After One Through Five Years 30,146,564 30,598,483
After Ten Years 93,520 93,520
-------------- --------------
$ 57,419,279 $ 58,231,616
============== ==============
</TABLE>
The book value of securities pledged as collateral, to secure public
deposits and for other purposes, amounted to $34,776,064 and
$31,054,875 at December 31, 1994 and 1993, respectively. The
approximate market value of this pledged collateral was $33,760,644
and $31,663,448 as of December 31, 1994 and 1993.
Proceeds from sales of investment securities for 1994 and 1993 were
$28,656,094 and $19,946,206, respectively, resulting in gross gains
of $79,480 and $463,907 in 1994 and 1993.
NOTE 3 - LOANS
The various loan categories at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
------------- --------------
<S> <C> <C>
Commercial Loans $35,578,402 $36,239,715
Real Estate Loans 44,540,214 41,603,375
Consumer Loans 12,720,636 13,947,156
----------- -----------
$92,839,252 $91,790,246
=========== ===========
</TABLE>
Unearned discounts on loans were $1,551,997 and $1,738,796 in 1994
and 1993.
11
<PAGE> 23
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 3 - LOANS (CONTINUED)
Loans on which the accrual of interest has been discontinued
aggregated $424,599 and $205,641at December 31, 1994 and 1993. The
interest income not recognized on these loans was approximately
$2,208 and $5,305 during 1994 and 1993.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- -------------
<S> <C> <C>
Balance, Beginning of Year $1,403,961 $1,498,305
Additions:
Provision Charged to Expense 561,835 37,534
Deductions:
Losses Charged to Allowance, Net of
Recoveries of $87,062 in 1994
and $153,540 in 1993 358,433 131,878
---------- ----------
Balance, End of Year $1,607,363 $1,403,961
========== ==========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at cost, at
December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- -------------
<S> <C> <C>
Land $ 677,227 $ 710,227
Building and Improvements 5,317,099 5,071,893
Equipment 3,038,662 3,211,870
------------ -----------
9,032,988 8,993,990
Accumulated Depreciation 4,274,861 4,173,944
------------ -----------
$ 4,758,127 $ 4,820,046
============ ===========
</TABLE>
NOTE 6 - INTEREST BEARING DEPOSITS
Interest bearing deposits in denominations of $100,000 or more were
$4,238,338 and $4,477,724 on December 31, 1994 and 1993.
12
<PAGE> 24
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 7 - INCOME TAXES
During 1993 the Bank adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109) which requires the recognition of
deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases.
The adoption of SFAS 109 did not materially affect the deferred
income tax liability accounted for under APB 11 (deferred method).
The provision for income taxes at December 31, was comprised of the
following components:
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Income Taxes Currently Payable $ 780,637 $ 1,312,516
Deferred Income Taxes Payable (2,598) 196,366
------------ ------------
Provision for Income Taxes $ 778,039 $ 1,508,882
============ ============
</TABLE>
Other liabilities include future income taxes payable of $193,768 and
$196,366 at December 31, 1994 and 1993. The estimated tax effects of
major temporary differences comprising the liabilities are as
follows:
<TABLE>
<CAPTION>
1994 1993
Deferred Deferred
Expense Expense
(Benefit) (Benefit)
-------------- --------------
<S> <C> <C>
Provision for Loan Losses $(170,033) $(108,267)
Deferred Compensation Benefits (23,001) (5,401)
Valuation Adjustments of Other Real Estate (18,859) (49,980)
Deferred Costs of Loan Production 155,546 189,856
Premises and Equipment 250,115 170,158
--------- ---------
Total Deferred Tax Expense $ 193,768 $ 196,366
========= =========
</TABLE>
13
<PAGE> 25
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 7 - INCOME TAXES (CONTINUED)
The following schedule reconciles the income tax expense applicable
to operating income to the "expected" income tax expense computed by
multiplying income before income taxes by the statutory federal
income tax rate of 34%.
<TABLE>
<CAPTION>
1994 1993
------------ -------------
<S> <C> <C>
Computed "Expected" Tax Expense $ 831,662 $1,289,586
Increase (Decrease) in Taxes Resulting From
Deferred Income Tax 18,388 196,366
Tax Exempt Income (98,765) (78,227)
Other Differences, Net 26,754 101,157
---------- ----------
$ 778,039 $1,508,882
========== ==========
</TABLE>
NOTE 8 - RETAINED EARNINGS
At December 31, 1994 and 1993, the FDIC and other federal regulatory
agencies required member banks to maintain a minimum amount of
capital (total capital to total assets ratio of not less than 6%).
Regulatory capital equals total stockholders' equity plus the
allowance for loan losses. At December 31, 1994 and 1993, the Bank
exceeded its minimum capital requirements.
During 1989, regulatory agencies issued new risk-based capital
guidelines for U.S. banking organizations. These standards require a
minimum level of total capital equal to 8.0% of risk-adjusted assets
at each year end. The Bank exceeded its minimum standards at
December 31, 1994 and 1993.
The bank is subject to a legal limitation on dividends that can be
paid to the shareholders without prior approval of the applicable
regulatory agencies. Under current regulations, the regulatory
capital requirements for the payment of dividends at December 31,
1994 and 1993 were $5,122,511 and $4,705,831.
NOTE 9 - TRANSACTIONS WITH RELATED PARTIES
At December 31, 1994 and 1993, the bank had loans outstanding to
officers, directors and employees in the total amount of $2,521,673
and $3,121,217, respectively.
In management's opinion, such loans and other extensions of credit
and deposits were made in the ordinary course of business and were
made on substantially the same terms (including interest rates and
collateral) as those prevailing at the time for comparable
transactions with other persons. None of these loans were carried in
nonaccrual status or were past due 90 days or more.
14
<PAGE> 26
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Bank has established the FirstBank Retirement Plan for the
benefit of all its employees. The Plan is a combination of an
employee stock ownership plan and a deferred income 401(K) plan. The
Bank's contributions for the years ended December 31, 1994 and 1993
were $69,000 and $62,000, respectively. The contributions are
discretionary by the Board of Directors.
The Bank also has a deferred compensation agreement with an officer.
The agreement provides for monthly payments to the officer or
beneficiary for life. The amount of deferred compensation has not
been included in operating expenses and does not have a material
effect on the financial statements at December 31, 1994 and 1993.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Bank is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material
adverse effect on the Bank's financial position.
NOTE 12 - ADDITIONAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1993
--------------- --------------
<S> <C> <C>
Interest Paid $ 3,812,780 $ 4,040,811
Income Taxes Paid $ 1,010,887 $ 2,692,092
Financed Sales of Other Real Estate $ 370,501 $ 293,885
</TABLE>
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CREDIT RISK
CONCENTRATIONS
The Bank 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 commitments to
extend credit and standby letters of credit. Those instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the
contractual notional amount of those instruments. The Bank uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
15
<PAGE> 27
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 13 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CREDIT RISK
CONCENTRATIONS (CONTINUED)
A summary of financial instruments with off-balance-sheet risk at
December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
-------------- --------------
<S> <C> <C>
Commitments to extend credit $4,886,085 $4,866,526
Standby letters of credit 60,104 82,000
</TABLE>
The fair value of commitments to extend credit and standby letters of
credit would be estimated using the fees currently charged for
similar agreements. Due to the insignificance of the fees that would
currently be charged for such agreements and the short-term nature of
the current agreements, usually 1 year or less, no fair value
estimates have been made for financial instruments with
off-balance-sheet risk.
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. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates
each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank, upon
extension of credit is based on management's credit evaluation of the
customer. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and
income-producing commercial properties. Most of the Bank's lending
activities are with customers located in the immediate trade area.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
All of the Bank's standby letters of credit written at December 31,
1994, expire in 1995 and all of the Bank's standby letters of credit
written at December 31, 1993, expired in 1994. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.
NOTE 14 - FAIR VALUE OF LOANS AND DEPOSITS
FAIR VALUE OF LOANS
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as
commercial and installment and are further separated into those loans
which have fixed or adjustable rate interest terms and by performing
and nonperforming (nonaccrual) categories.
16
<PAGE> 28
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 14 - FAIR VALUE OF LOANS AND DEPOSITS (CONTINUED)
The fair value of performing loans is calculated by discounting
scheduled cash flows through the stated maturity date using estimated
market discount rates that reflect the current origination rates as
well as the credit and interest rate risk inherent in the portfolio.
The estimated market discount rates have also been adjusted to
reflect estimated prepayment risk in the portfolio based upon the
Bank's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect
of current economic and lending conditions.
The fair value for nonperforming loans is based on estimated cash
flows discounted using a rate commensurate with the risk associated
with the estimated cash flows. Assumptions regarding credit risk,
cash flows, timing of cash flows, and discount rates are judgmentally
determined using available market information and specific borrower
information.
The estimated fair values for the Banks loans were as follows:
<TABLE>
<CAPTION>
Estimated
Carrying Amounts (1) Fair Value
---------------- ---------------
<S> <C> <C>
December 31, 1994
Personal Loans $12,720,636 $10,992,530
Business Loans 35,578,402 35,283,266
Real Estate Loans 44,540,214 43,737,785
Allowance for Loan Losses (2) (1,607,363) ---
------------- -----------
$ 91,231,889 $90,013,581
============= ===========
December 31, 1993
Personal Loans $ 13,947,156 $15,097,066
Business Loans 36,239,715 36,156,692
Real Estate Loans 41,603,375 41,927,320
Allowance for Loan Losses (2) (1,403,961) ---
------------- -----------
$ 90,386,285 $93,181,078
============= ===========
</TABLE>
(1) Management has made estimates of fair value discount rates that
it believes to be reasonable. Since there is no market for many of
these financial instruments, management has no basis to determine
whether the fair value presented above would be indicative of the
value negotiated in an actual sale.
17
<PAGE> 29
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 14 - FAIR VALUE OF LOANS AND DEPOSITS (CONTINUED)
(2) The allowance for loan losses has not been allocated to the
various carrying value classifications since the fair value
calculations for each classification considers credit risk.
FAIR VALUE OF DEPOSITS
Under Statement 107, issued by the Financial Accounting Standards
Board, the fair value of deposits with no stated maturity, such as
demand deposits and savings, is equal to the amount payable on
demand. The fair value of certificates of deposit and IRAs is based
on the discounted value of contractual cash flows. The discount rate
is estimated using the rates currently offered for deposits of
similar remaining maturities.
The estimated fair values for the banks deposits were as follows:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
---------------- -----------------
<S> <C> <C>
December 31, 1994
Non-interest Bearing Demand $ 19,583,294 $ 19,583,294
Interest Bearing Demand 35,978,050 35,978,050
Savings 13,584,302 13,584,302
Certificates of Deposits and IRAs:
Maturing in One Year or Less 42,678,857 42,678,857
Maturing Between One and Three Years 10,334,982 10,288,800
Maturing Beyond Three Years 13,002,069 12,743,044
Variable Rate IRAs with no Stated Maturity 2,632,859 2,632,859
------------- -------------
$ 137,794,413 $ 137,489,206
============= =============
December 31, 1993
Non-interest Bearing Demand $ 18,316,576 $ 18,316,576
Interest Bearing Demand 36,918,417 36,918,417
Savings 13,550,606 13,550,606
Certificates of Deposits and IRAs:
Maturing in One Year or Less 57,269,340 57,269,340
Maturing Between One and Three Years 6,254,946 6,288,978
Maturing Beyond Three Years 6,674,831 6,714,697
Variable Rate IRAs with no Stated Maturity 2,536,060 2,548,178
------------- -------------
$ 141,520,776 $ 141,606,792
============= =============
</TABLE>
The fair value estimates above do not include the benefit that
results from the low-cost funding provided by the deposit liabilities
compared to the cost of borrowing funds in the market.
18
<PAGE> 30
FIRSTBANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 15 - ELIMINATION OF HOLDING COMPANY
Oaklawn Financial Corporation, the holding company of the Bank was
merged into FirstBank during 1993 in a tax free reverse triangular
merger. The merger resulted in an addition to the Bank's retained
earnings of $22,647.
NOTE 16 - MERGER
In late 1994, the stockholders of the Bank agreed to sell their stock
in FirstBank. This action will result in the merger of FirstBank
into the purchasing holding company in early 1995.
19
<PAGE> 31
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: April 13, 1995
