<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:
June 30, 1996
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 August 1, 1996 was 7,738,109.
================================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION:
<S> <C> <C>
Item 1. Consolidated Statements of Condition, June 30, 1996
and December 31, 1995. 3
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1996 and 1995. 4
Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1996 and 1995. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management`s Discussion and Analysis of Financial
Condition and Results of Operations. 7 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . $ 48,328 $ 50,485
---------- ----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell . . . . . . . . . . . . . . . . . . . 23,400 31,658
Other Short-Term Investments . . . . . . . . . . . . . . . . . . 21,459 24,252
---------- ----------
Total Short-Term Investments . . . . . . . . . . . . . . . . . . 44,859 55,910
---------- ----------
Securities Available-for-Sale . . . . . . . . . . . . . . . . . . . 367,950 339,028
---------- ----------
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . 200,600 201,093
---------- ----------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658,720 644,097
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . . . (2,105) (1,979)
Allowance for Possible Loan Losses . . . . . . . . . . . . . . . (10,592) (10,581)
---------- ----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 646,023 631,537
---------- ----------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . 27,038 26,319
---------- ----------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,058 11,761
---------- ----------
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 411 712
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,112 19,175
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $1,367,379 $1,336,020
========== ==========
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,827 $ 193,533
Savings and Interest-Bearing Demand . . . . . . . . . . . . . . . 358,847 346,119
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607,081 588,262
---------- ----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,157,755 1,127,914
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase . . . . . . . . . . . . . . . . . 48,687 46,895
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 18,682 13,974
Notes Payable:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . . . 5,235 11,832
Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,235,359 1,205,615
---------- ----------
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 1996
and 1995; none outstanding) . . . . . . . . . . . . . . . . . . . -0- -0-
Common Stock (Par value of $1.00; 24,000 shares authorized; 7,738
shares outstanding in 1996 and 1995) . . . . . . . . . . . . . . . 7,738 7,738
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,971 10,971
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . . . 116,285 110,432
Net Unrealized Gains (Losses) on Securities Available-for- Sale . . (2,974) 1,264
---------- ----------
Total Capital Accounts . . . . . . . . . . . . . . . . . . . . . 132,020 130,405
---------- ----------
Total Liabilities and Capital Accounts . . . . . . . . . . . . . $1,367,379 $1,336,020
========== ==========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
(In thousands, except share data) 1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . $ 15,190 $ 14,000 $ 30,111 $ 26,566
Interest on Securities:
Taxable Securities . . . . . . . . . . . . . . . 7,744 7,376 15,116 14,373
Nontaxable Securities . . . . . . . . . . . . . . 984 1,005 1,970 1,991
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . 484 395 1,144 687
Interest on Deposits in Banks . . . . . . . . . . . 272 172 528 383
-------- -------- --------- ---------
TOTAL INTEREST INCOME . . . . . . . . . . . . . 24,674 22,948 48,869 44,000
-------- -------- --------- ---------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . . . . 10,789 10,075 21,510 18,978
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase . . . . . . . . . . . . 641 425 1,213 730
Interest on Notes Payable . . . . . . . . . . . . . 282 292 562 581
-------- -------- --------- ---------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . 11,712 10,792 23,285 20,289
-------- -------- --------- ---------
NET INTEREST INCOME . . . . . . . . . . . . . . 12,962 12,156 25,584 23,711
Provision for Possible Loan Losses . . . . . . . . 557 61 633 107
-------- -------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 12,405 12,095 24,951 23,604
-------- -------- --------- ---------
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . 1,128 1,058 2,217 2,006
Trust Fee Income . . . . . . . . . . . . . . . . . 452 456 890 873
Security Gains (Losses) . . . . . . . . . . . . . . (14) (2) 45 (147)
Other Operating Income . . . . . . . . . . . . . . 631 645 1,465 1,330
-------- -------- --------- ---------
TOTAL OTHER INCOME . . . . . . . . . . . . . . 2,197 2,157 4,617 4,062
-------- -------- --------- ---------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . 3,567 3,348 7,101 6,452
Pension and Other Employee Benefits . . . . . . . . 1,147 1,028 2,327 1,920
Net Occupancy Expense . . . . . . . . . . . . . . . 800 744 1,584 1,422
Equipment Expense . . . . . . . . . . . . . . . . . 555 459 1,115 870
Data Processing Expense . . . . . . . . . . . . . . 479 415 910 812
Other Operating Expenses . . . . . . . . . . . . . 2,798 2,702 5,062 5,408
-------- -------- --------- ---------
TOTAL OTHER EXPENSE . . . . . . . . . . . . . . 9,346 8,696 18,099 16,884
-------- -------- --------- ---------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 5,256 5,556 11,469 10,782
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . 1,242 1,742 3,106 3,299
-------- -------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . $ 4,014 $ 3,814 $ 8,363 $ 7,483
======== ======== ========= =========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ 0.52 $ 0.49 $ 1.08 $ 0.97
======== ======== ========= =========
CASH DIVIDENDS PER SHARE $ 0.17 $ 0.15 $ 0.32 $ 0.27
======== ======== ========= =========
AVERAGE SHARES ISSUED AND
OUTSTANDING . . . . . . . . . . . . . . . . . .. . 7,738 7,738 7,738 7,738
======== ======== ========= =========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1996 1995
------- -------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,363 $ 7,483
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,251 820
Amortization of Goodwill . . . . . . . . . . . . . . . . . . . . . 520 409
Provision for Possible Loan Losses . . . . . . . . . . . . . . . . 633 107
(Gain) Loss on Sales of Securities . . . . . . . . . . . . . . . . (45) 147
Accretion of Bond Discount, Net . . . . . . . . . . . . . . . . . (500) (876)
(Increase) Decrease in Other Assets . . . . . . . . . . . . . . . (1,453) 2,475
Increase (Decrease) in Other Liabilities . . . . . . . . . . . . . (1,826) 4,888
------- -------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . 6,943 15,453
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities . . . . . . . . . 16,037 15,020
Proceeds from Maturities of Securities Available-for-Sale . . . . . 48,169 34,222
Proceeds from Sales of Securities Available-for-Sale . . . . . . . . 9,286 36,833
Purchase of Investment Securities . . . . . . . . . . . . . . . . . (15,370) (26,665)
Purchase of Available-for-Sale Securities . . . . . . . . . . . . . (90,304) (71,685)
(Increase) Decrease in Federal Funds, Net . . . . . . . . . . . . . 10,050 12,832
(Increase) Decrease in Other Short-Term Investments . . . . . . . . 2,793 (7,335)
(Increase) Decrease in Loans . . . . . . . . . . . . . . . . . . . . (15,119) (13,107)
Capital (Additions) Retirements, Net . . . . . . . . . . . . . . . . (1,970) (5,087)
Purchase of Subsidiary Bank . . . . . . . . . . . . . . . . . . . . -0- (19,079)
------- -------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . (36,428) (44,051)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits . . 11,022 1,289
Increase (Decrease) in Time Deposits . . . . . . . . . . . . . . . . 18,819 21,164
Issuance of Notes Payable . . . . . . . . . . . . . . . . . . . . . -0- 5,000
Repayment of Notes Payable . . . . . . . . . . . . . . . . . . . . . (63) -0-
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,450) (2,115)
------- -------
Net Cash Provided by (Used in) Financing Activities . . . . . . . . . 27,328 25,338
------- -------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . (2,157) (3,260)
Cash and Cash Equivalents, Beginning . . . . . . . . . . . . . . . . 50,485 49,419
------- -------
Cash and Cash Equivalents, Ending . . . . . . . . . . . . . . . . . . $48,328 $46,159
======= =======
</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, First United Trust Company, N.A., 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 June 30, 1996 and the
related consolidated statements of income for the three and six month periods
ended June 30, 1996 and 1995 and the consolidated statements of cash flows for
the six month period ended June 30, 1996 and 1995 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
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 adopted these statements
on January 1, 1996. The adoption of these statements did not have a material
effect on First United's financial condition and results of operations.
3. RESULTS OF OPERATIONS
The results for the three and six month period ended June 30, 1996 are
not necessarily indicative of the results for the entire year of 1996. This
report should be read in conjunction with First United's 1995 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 1995 to conform to the 1996 presentation. Such reclassifications
are of a normal recurring nature in accordance with Rule 10-02(b)(8) of
Regulation S- X.
5. BUSINESS COMBINATIONS
On April 1, 1996, First United signed a definitive agreement to
acquire Carlisle Bancshares, Inc. (Carlisle), pending approval by First
United's and Carlisle's shareholders and of regulatory authorities. Carlisle, a
$105 million bank holding company, is the parent company of Citizens Bank and
Trust (Carlisle, AR), Hazen First State Bank (Hazen, AR), and FirstBank of
Arkansas (Brinkley, AR). Under the agreement, Carlisle's shareholders will
receive approximately $13 million in First United common stock in exchange for
all of the outstanding shares of Carlisle's common stock, subject to some
adjustments. The merger is to be a tax-free exchange to Carlisle's shareholders
and will be accounted for as a pooling of interests. The transaction is
expected to be completed in the third quarter of 1996.
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the six months ended June 30,
1996 and 1995 amounted to $562 thousand and $581 thousand, respectively.
6
<PAGE> 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of First United Bancshares, Inc.
("First United") and its subsidiaries, The First National Bank of El Dorado
("El Dorado"), 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"), First United Trust Company,
N.A.("FUTC") 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 June 30, 1996 was $4.01 million,
or $.52 per share compared with $3.81 million or $.49 per share during the same
period in 1995. Net income for the six months ended June 30, 1996 was $8.36
million or $1.08 per share compared with $7.48 million or $.97 per share for
the same period in 1995. The annualized return on average assets from
continuing operations for the six months ended June 30, 1996 and 1995 was 1.23%
and 1.25% respectively, while the annualized return on average equity was
12.75% and 12.95% respectively for the same periods. The increase in net
income was due primarily to higher net interest income resulting from the
increase in loan volume.
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 six
months of 1996 was $26.64 million compared with $24.78 million in the first six
months of 1995. Net interest income also increased when compared with 1994.
This increase in net interest income was primarily the result of higher loan
volumes and a larger securities portfolio. The net interest margin through June
30, 1996 was 4.29% compared with 4.39% and 4.29% for the years ended December
31, 1995 and 1994, respectively. First United expects no material change in the
net interest margin through the remainder of 1996.
First United has debt of approximately $10.24 million at June 30, 1996
and interest expense associated with this debt totaled $562 thousand during the
first six months of 1996 compared with $581 thousand during the same period in
1995. First United will make 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 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.
7
<PAGE> 8
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1994
-------- ----------------------
<S> <C> <C> <C>
Yield on Earning asset 7.93% 8.07% 7.18%
Break-even yield 3.64% 3.68% 2.89%
Net interest margin 4.29% 4.39% 4.29%
Net interest spread 3.41% 3.41% 3.51%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $658.72 million at June
30, 1996 compared with $644.09 million at December 31, 1995. Although the
Company experienced a modest increase in loans of 2.27%, overall loan volume
ratios continue to be below peer averages. In light of the local economic
outlook for the remainder of 1996, the Company does not anticipate a material
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>
June 30, December 31,
1996 1995 1994
-------- --------------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $1,617 $1,843 $ 620
Real Estate 573 724 1,427
Consumer 109 76 70
------ ------ ------
$2,299 $2,643 $2,117
------ ------ ------
Past due 90 days or more:
Commercial $ 229 $83 $ 197
Real Estate 416 117 151
Consumer 208 272 207
------ ------ ------
$ 853 $ 472 $ 555
------ ------ ------
Renegotiated Commercial
Loans: $ 787 $ 851 $ 326
------ ------ ------
Total non-performing Loans: $3,939 $3,966 $2,998
Other Real Estate, Net 411 712 520
------ ------ ------
Total non-performing
Assets: $4,350 $4,678 $3,518
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .60% .62% .58%
Non-Performing Assets as a
% of Equity Capital 3.29% 3.59% 3.21%
</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 June
30, 1996.
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 six months of 1996 First United made provisions for
possible loan losses of $633 thousand compared with $107 thousand for the same
period in 1995. Total non-performing loans decreased $.03 million from $3.97
million at December 31, 1995 to $3.94 million at June 30, 1996. Net
charge-offs through June 30, 1996 totaled $622 thousand.
<TABLE>
<CAPTION>
June 30, Year Ended December 31,
1996 1995 1994
-------- -----------------------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.61% 1.65% 1.88%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 269% at June 30, 1996 compared with 267% at December
31, 1995.
The allocation of the allowance for possible loan losses by major
categories of loans is as follows:
<TABLE>
<CAPTION>
June30, December 31,
1996 1995 1994
-------- -------------------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 4,251 $ 3,969 $4,756
Real Estate 1,137 1,307 923
Consumer 2,554 2,132 1,484
Unallocated 2,650 3,173 2,504
------- ------- ------
Total $10,592 $10,581 $9,667
======= ======= ======
</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>
Six Months Ended
June30, Change
---------------- ------------
1996 1995 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $2,217 $2,006 $211 11%
Trust Income 890 873 17 2%
Security Gains (Losses) 45 (147) 192 N/A
Other Income 1,465 1,330 135 10%
------ ------ ---- ---
Total Other Income $4,617 $4,062 $555 14%
====== ====== ==== ===
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $363 thousand when comparing 1996 with 1995 results. This
increase was primarily related to higher fee income within all of First
United's banks. First United is focusing on non-interest income revenues and
opportunities to increase fee income.
10
<PAGE> 11
INVESTMENT SECURITIES
During the first six months of 1996, First United had no security gains.
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1994
-------- --------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $199,635 $ 202,949 $156,850
Amortized Cost 200,600 201,093 164,357
-------- --------- --------
Difference $ (965) $ 1,856 $ (7,507)
======== ========= ========
</TABLE>
At June 30, 1996, 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>
June 30, December 31,
1996 1995 1994
--------- -------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $ 358,800 $339,028 $ 324,679
Amortized Cost 363,375 336,920 337,970
--------- -------- ---------
Difference $ (4,575) $ 2,108 $ (13,291)
========= ======== =========
</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>
Six Months Ended
June 30, Change
---------------- ------------
1996 1995 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $ 7,101 $ 6,452 $ 649 10%
Pension and Employee Benefits 2,327 1,920 407 21%
Net Occupancy Expense 1,584 1,422 162 11%
Equipment Expense 1,115 870 245 28%
Data Processing Expense 910 812 98 12%
Other Operating Expense 5,062 5,408 (346) (6%)
------- ------- ------ ---
Total Non-Interest Expense $18,099 $16,884 $1,215 7%
======= ======= ====== ===
</TABLE>
Pension and employee benefits increased approximately 21% during the
first six months of 1996 when compared with the same period in 1995 primarily
as a result of the addition of Texarkana to First United's benefit plans which
accounted for $136 thousand of the increase. The $18.10 million in total
non-interest expense included approximately $2.69 million of non-interest
expense at Texarkana.
11
<PAGE> 12
INCOME TAXES
The effective tax rate of First United for the six month period ended
June 30, 1996 was 27% compared to 30% for the same period in 1995. The decrease
in the 1996 effective tax rate from 1995 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 $132.02 million at June 30,
1996, compared to the December 31, 1995 level of $130.40 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>
June 30, December 31,
1996 1995 1994
-------- -------------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.85% 9.67% 10.69%
Primary Capital to Total Assets 10.54% 10.39% 11.46%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
June 30, Regulatory
1996 Requirements
-------- ------------
<S> <C> <C>
Total Capital/Total Assets 10.54% 6.00%
Primary Capital/Total Assets 10.54% 5.50%
Total Risk Based Capital 17.25% 8.00%
Tier 1 Capital 16.00% 4.00%
Leverage Ratio 9.12% 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.
The Board of Directors of First United increased the annual cash
dividend approximately 16%. The current annual dividend rate is $.68 per share
compared with $.59 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, 1996:
<TABLE>
<CAPTION>
June 30, Year Ended,
1996 1995 1994
-------- -----------------------
<S> <C> <C> <C>
Dividend payout ratio 29.30% 28.81% 27.53%
</TABLE>
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
On May 20, 1996, the board of Directors of First United Bancshares,
Inc. (the "Company") declared a 3-for-2 stock split which was effected in the
form of a fifty percent (50%) stock dividend. The dividend was distributed on
June 28, 1996 and increased the issued and outstanding common stock of the
Company from 5,158,772 to 7,738,109 shares. The above-referenced stock split
did not materially modify, limit or qualify the rights of the holders of the
Company's common stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1996, First United held its annual stockholders meeting to
elect the Board of Directors who will serve until the next annual meeting of
the stockholders and to ratify the appointment of Arthur Andersen LLP as
independent auditors of First United until the next annual meeting of
stockholders. Of the total shares voted at the meeting: 4,551,792 were voted in
favor of the nominated directors, 54 votes were cast against, and 2,451
abstained from voting; 4,552,029 were voted in favor of ratification of Arthur
Andersen LLP, 2,000 against, and 1,068 abstained from voting.
Item 5. OTHER MATTERS
On April 1, 1996, the Company entered into a Restated Agreement and
Plan of Merger with Carlisle Bancshares, Inc. ("Carlisle") whereby the Company
agreed to acquire one hundred percent (100%) of the issued and outstanding
common stock of Carlisle. Consummation of the Restated Agreement and Plan of
Reorganization is subject to the approval of the shareholders of Carlisle and
the Company and to approval by the appropriate bank regulatory authorities.
The number of shares of common stock of the Company to be exchanged will be
determined by dividing $13,025,000, plus after-tax earnings of Carlisle between
January 1, 1996 and the closing date, by the average sales price of the
Company's common stock for all trades occurring during the ten (10) days on
which one or more trades actually takes place and which ends immediately prior
to the second trading day preceding the closing date. The closing date is
expected to be August 30, 1996, but may be extended by the mutual consent of
the parties.
Carlisle is a multi-bank holding company incorporated and organized
under the laws of the State of Arkansas with three bank subsidiaries, Citizens
Bank and Trust located in Carlisle, Arkansas, Hazen First State Bank located in
Hazen, Arkansas, and FirstBank of Arkansas located in Brinkley, Arkansas.
Carlisle has in excess of 100 million in assets and with the Carlisle
acquisition, the company will have assets of approximately $1.47 billion.
14
<PAGE> 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated
by references to previously filed materials.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2 Restated Agreement and Plan of Reorganization Between First
United Bancshares, Inc. and Carlisle Bancshares, Inc. and
Plan of Merger Attached as Exhibit A thereto is incorporated
hereby by reference as previously filed by the Company in its
Form S-4 Registration Statement, as amended, under the
Securities Act of 1933, Registration Statement No. 333-06185
as filed with the Securities and Exchange Commission on
July 10, 1996 which became effective on July 12, 1996.
27 Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the quarter
for which this report is filed.
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: August 9, 1996
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
2 Restated Agreement and Plan of Reorganization Between First
United Bancshares, Inc. and Carlisle Bancshares, Inc. and
Plan of Merger Attached as Exhibit A thereto is incorporated
hereby by reference as previously filed by the Company in its
Form S-4 Registration Statement, as amended, under the
Securities Act of 1933, Registration Statement No. 333-06185
as filed with the Securities and Exchange Commission on
July 10, 1996 which became effective on July 12, 1996.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 48,328
<INT-BEARING-DEPOSITS> 21,459
<FED-FUNDS-SOLD> 23,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 367,950
<INVESTMENTS-CARRYING> 200,600
<INVESTMENTS-MARKET> 199,635
<LOANS> 656,615
<ALLOWANCE> 10,592
<TOTAL-ASSETS> 1,367,379
<DEPOSITS> 1,157,755
<SHORT-TERM> 48,687
<LIABILITIES-OTHER> 18,682
<LONG-TERM> 10,235
<COMMON> 7,738
0
0
<OTHER-SE> 129,046
<TOTAL-LIABILITIES-AND-EQUITY> 1,367,379
<INTEREST-LOAN> 30,111
<INTEREST-INVEST> 17,614
<INTEREST-OTHER> 1,144
<INTEREST-TOTAL> 48,869
<INTEREST-DEPOSIT> 21,510
<INTEREST-EXPENSE> 23,285
<INTEREST-INCOME-NET> 25,594
<LOAN-LOSSES> 633
<SECURITIES-GAINS> 45
<EXPENSE-OTHER> 18,099
<INCOME-PRETAX> 11,469
<INCOME-PRE-EXTRAORDINARY> 11,469
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,363
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
<YIELD-ACTUAL> 7.93
<LOANS-NON> 2,299
<LOANS-PAST> 953
<LOANS-TROUBLED> 787
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,581
<CHARGE-OFFS> 1,685
<RECOVERIES> 1,063
<ALLOWANCE-CLOSE> 10,592
<ALLOWANCE-DOMESTIC> 10,592
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
