<PAGE> 1
================================================================================
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:
March 31, 1996
Commission file number: 0-11916
FIRST UNITED BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(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 April 1, 1996 was 5,158,772.
================================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
MARCH 31, 1996
INDEX
PART I. FINANCIAL INFORMATION:
<TABLE>
<S> <C> <C>
Item 1. Consolidated Statements of Condition,
March 31, 1996 and December 31, 1995. 3
Consolidated Statements of Income for
the Three Months Ended March 31, 1996
and 1995. 4
Consolidated Statements of Cash Flow
for the Three Months Ended March 31,
1996 and 1995. 5
Notes to Consolidated Financial
Statements. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operation. 7 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . $ 42,898 $ 50,485
---------- ----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell . . . . . . . . . . . . . . . . . . 48,196 31,658
Other Short-Term Investments . . . . . . . . . . . . . . . . . . 25,778 24,252
---------- ----------
Total Short-Term Investments . . . . . . . . . . . . . . . . . 73,974 55,910
---------- ----------
Securities Available-for-Sale . . . . . . . . . . . . . . . . . . . 361,751 339,028
---------- ----------
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . 198,642 201,093
---------- ----------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 648,255 644,097
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . . . (1,932) (1,979)
Allowance for Possible Loan Losses . . . . . . . . . . . . . . . (10,669) (10,581)
---------- ----------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 635,654 631,537
---------- ----------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . 26,847 26,319
---------- ----------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,367 11,761
---------- ----------
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 564 712
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,125 19,175
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $1,370,822 $1,336,020
========== ==========
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 185,882 $ 193,533
Savings and Interest-Bearing Demand . . . . . . . . . . . . . . . 357,928 346,119
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608,989 588,262
---------- ----------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,152,799 1,127,914
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase . . . . . . . . . . . . . . . . . 53,420 46,895
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 15,728 13,974
Notes Payable:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . . . 11,832 11,832
Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,238,779 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; 5,159
shares outstanding in 1996 and 1995) . . . . . . . . . . . . . . 5,159 5,159
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,552 13,551
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . . . 113,584 110,431
Net Unrealized Gains (Losses) on Securities Available-for-Sale. . . (252) 1,264
---------- ----------
Total Capital Accounts . . . . . . . . . . . . . . . . . . . . . 132,043 130,405
---------- ----------
Total Liabilities and Capital Accounts . . . . . . . . . . . . . $1,370,822 $1,336,020
========== ==========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
(In thousands, except share data) 1996 1995
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . $ 14,921 $ 12,566
Interest on Securities:
Taxable Securities . . . . . . . . . . . . . . . 7,372 6,997
Nontaxable Securities . . . . . . . . . . . . . . 986 986
Interest on Federal Funds Sold and
Securities Purchased Under Agreements to Resell . 660 292
Interest on Deposits in Banks . . . . . . . . . . . 256 211
-------- --------
TOTAL INTEREST INCOME . . . . . . . . . . . . . 24,195 21,052
-------- --------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . . . . 10,721 8,903
Interest on Federal Funds Purchased
and Securities Sold Under Agreements to
Repurchase . . . . . . . . . . .. . . . . . . . . 572 305
Interest on Notes Payable . . . . . . . . . . . . . 280 289
-------- --------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . 11,573 9,497
-------- --------
NET INTEREST INCOME . . . . . . . . . . . . . . 12,622 11,555
Provision for Possible Loan Losses . . . . . . . . 76 46
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 12,546 11,509
-------- --------
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . 1,089 948
Trust Income . . . . . . . . . . . . . . . . . . . 438 417
Security Gains (Losses) . . . . . . . . . . . . . . 59 (145)
Other Operating Income . . . . . . . . . . . . . . 834 685
-------- --------
TOTAL OTHER INCOME . . . . . . . . . . . . . . 2,420 1,905
-------- --------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . 3,534 3,104
Pension and Other Employee Benefits . . . . . . . . 1,180 892
Net Occupancy Expense . . . . . . . . . . . . . . . 784 678
Equipment Expense . . . . . . . . . . . . . . . . . 560 411
Data Processing Expense . . . . . . . . . . . . . . 431 397
Other Operating Expenses . . . . . . . . . . . . . 2,264 2,706
-------- --------
TOTAL OTHER EXPENSE . . . . . . . . . . . . . . 8,753 8,188
-------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 6,213 5,226
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . 1,864 1,557
-------- --------
NET INCOME . . . . . . . . . . . . . . . . . . $ 4,349 $ 3,669
======== ========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ 0.84 $ 0.71
======== ========
CASH DIVIDENDS PER SHARE . . . . . . . . . . . . . $ 0.22 $ 0.19
======== ========
AVERAGE SHARES ISSUED AND OUTSTANDING . . . . . . 5,159 $ 5,159
======== ========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1996 1995
---- ----
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,349 $ 3,669
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 603 402
Amortization of Goodwill . . . . . . . . . . . . . . . . . . . . . 260 168
Provision for Possible Loan Losses . . . . . . . . . . . . . . . . 76 46
(Gain) Loss on Sales of Securities . . . . . . . . . . . . . . . . (59) 145
Accretion of Bond Discount, Net . . . . . . . . . . . . . . . . . (1,436) (440)
Decrease in Other Assets . . . . . . . . . . . . . . . . . . . . . 1,181 7,687
Increase in Other Liabilities . . . . . . . . . . . . . . . . . . 1,785 2,107
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . 6,759 13,784
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities . . . . . . . . . 11,717 6,921
Proceeds from Maturities of Securities Available-for-Sale . . . . . 28,300 28,235
Proceeds from Sales of Securities Available-for-Sale . . . . . . . . 3,540 33,107
Purchase of Investment Securities . . . . . . . . . . . . . . . . . (9,089) (24,794)
Purchase of Available-for-Sale Securities . . . . . . . . . . . . . (55,671) (37,094)
(Increase) Decrease in Federal Funds, Net . . . . . . . . . . . . . (10,013) 3,547
Increase in Other Short-Term Investments . . . . . . . . . . . . . . (1,526) (11,275)
Increase in Loans . . . . . . . . . . . . . . . . . . . . . . . . . (4,193) (2,345)
Capital Additions . . . . . . . . . . . . . . . . . . . . . . . . . (1,131) (3,843)
Purchase of Subsidiary Bank . . . . . . . . . . . . . . . . . . . . -0- (25,000)
-------- --------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . (38,066) (32,541)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits . . 4,158 189
Increase in Time Deposits . . . . . . . . . . . . . . . . . . . . . 20,727 10,791
Issuance of Notes Payable . . . . . . . . . . . . . . . . . . . . . -0- 5,000
Repayment of Notes Payable . . . . . . . . . . . . . . . . . . . . . (31) -0-
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,134) (980)
-------- --------
Net Cash Provided by Financing Activities . . . . . . . . . . . . . . 23,720 15,000
-------- --------
Net Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . (7,587) (3,757)
Cash and Cash Equivalents, Beginning . . . . . . . . . . . . . . . . 50,485 49,419
-------- --------
Cash and Cash Equivalents, Ending . . . . . . . . . . . . . . . . . . $ 42,898 $ 45,662
======== ========
</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, 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 March 31, 1996 and the
related consolidated statements of income for the three month period ended
March 31, 1996 and 1995 and the consolidated statements of cash flows for the
three month period ended March 31, 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 month period ended March 31, 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 Company (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 fourth quarter of 1996.
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the three months ended March 31,
1996 and 1995 amounted to $68 thousand and $96 thousand, respectively. No
income taxes were paid during the three months ended March 31, 1996 or 1995.
6
<PAGE> 7
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, First United Trust Company ("Trust
Company"), 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 March 31, 1996 was $4.35
million, or $.84 per share compared with $3.67 million or $.71 per share during
the same period in 1995. The annualized return on average assets from
continuing operations for the three months ended March 31, 1996 and 1995 was
1.30% and 1.30% respectively, while the annualized return on average equity was
13.40% and 13.16% respectively for the same periods. The increase in net
income was due primarily to higher net interest income resulting from higher
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 three
months of 1996 was $13.15 million compared with $12.09 million in the first
three months of 1995. Net interest income also increased when compared with
1994. This increase in net interest income was primarily the result of an
increase in total loans, which carry a higher interest rate, as well as the
acquisition of Texarkana. The net interest margin through March 31, 1996 was
4.28% compared with 4.39% for the year ended December 31, 1995. Due primarily
to competitive pressures, First United anticipates that margins for the
remainder of 1996 will be substantially the same as that of 1995. During 1993
and 1994, 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 $16.83 million at March 31,
1996 and interest expense associated with this debt totaled $280 thousand
during the first three months of 1996. 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 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>
March 31, December 31,
1996 1995 1994
---------- ---------------------------
<S> <C> <C> <C>
Yield on Earning Assets 7.95% 8.07% 7.18%
Break-even yield 3.67% 3.68% 2.89%
Net interest margin 4.28% 4.39% 4.29%
Net interest spread 3.39% 3.41% 3.51%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $648.26 million at March
31, 1996 compared with $644.10 million at December 31, 1995. 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 1996, 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>
March 31, December 31,
1996 1995 1994
----------- -------------------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $1,294 $1,843 $ 620
Real Estate 566 724 1,427
Consumer 122 76 70
------ ------ ------
$1,982 $2,643 $2,117
------ ------ ------
Past due 90 days or more:
Commercial $ 310 $ 83 $ 197
Real Estate 121 117 151
Consumer 210 272 207
------ ------ ------
$ 641 $ 472 $ 555
------ ------ ------
Renegotiated Commercial
Loans: $ 838 $ 851 $ 326
------ ------ ------
Total non-performing Loans: $3,461 $3,966 $2,998
Other Real Estate, Net 564 712 520
------ ------ ------
Total non-performing
Assets: $4,025 $4,678 $3,518
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .54% .62% .58%
Non-Performing Assets as a
% of Equity Capital 3.05% 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
March 31, 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 three months of 1996 First United made provisions for
possible loan losses of $76 thousand compared with $46 thousand for the same
period in 1995. Total non-performing loans decreased $.51 million from $3.97
million at December 31, 1995 to $3.46 million at March 31, 1996. Net
recoveries through March 31, 1996 totaled $12 thousand.
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
------------ ----------------------------
1996 1995 1994
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.65% 1.65% 1.88%
</TABLE>
The allowance for possible loan losses as a percentage of
non-performing loans was approximately 308% at March 31, 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>
March 31, December 31,
1996 1995 1994
--------- --------------------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 4,763 $ 3,969 $4,756
Real Estate 1,004 1,307 923
Consumer 2,106 2,132 1,484
Unallocated 2,796 3,173 2,504
-------- -------- ------
Total $ 10,669 $ 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>
Three Months Ended
------------------
March 31, Change
1996 1995 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $1,089 $ 948 $ 141 15%
Trust Income 438 417 21 5%
Security Gains (Losses) 59 (145) 204 140%
Other Income 834 685 149 22%
------ ------ ------- -----
Total Other Income $2,420 $1,905 $ 515 27%
====== ====== ======= =====
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $311 thousand when comparing 1996 with 1995 results. This
increase was primarily related to higher service charge income within all of
First United's subsidiary banks.
10
<PAGE> 11
INVESTMENT SECURITIES
During the first three months of 1996, First United had no security
gains.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995 1994
------------ --------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $199,358 $202,949 $156,850
Amortized Cost 198,642 201,093 164,357
----------- ---------- ---------
Difference $ 716 $ 1,856 $ (7,507)
=========== ========== =========
</TABLE>
At March 31, 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>
March 31, December 31,
1996 1995 1994
------------ ---------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $361,751 $339,028 $324,679
Amortized Cost 362,041 336,920 337,970
-------- -------- --------
Difference $ (290) $ 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>
Three Months Ended
March 31, Change
-------------------- ----------------
1996 1995 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $3,534 $3,104 $430 14%
Pension and Employee Benefits 1,180 892 288 32%
Net Occupancy Expense 784 678 106 16%
Equipment Expense 560 411 149 36%
Data Processing Expense 431 397 34 8%
Other Operating Expense 2,264 2,706 (442) (16%)
------ ------ ---- ----
Total Non-Interest Expense $8,753 $8,188 $565 7%
====== ====== ==== ====
</TABLE>
Pension and employee benefits increased approximately 32% during the
first three months of 1996 when compared with the same period in 1995,
primarily as a result of the addition of Texarkana's employees to First
United's 401(k), ESOP and pension plans. Additionally, higher salary expense
also contributed to the increase in employee benefit costs. Non-interest
expense for the three months ended March 31, 1995 included only two months of
operating costs for Texarkana.
11
<PAGE> 12
INCOME TAXES
The effective tax rate of First United for the three month period
ended March 31, 1996 was 30.0% compared to 29.8% for the same period in 1995.
The increase 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 $132.04 million at March 31,
1996, compared to the December 31, 1995 level of $130.41 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>
March 31, December 31,
1996 1995 1994
--------- -------------------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.65% 9.67% 10.69%
Primary Capital to Total Assets 10.35% 10.39% 11.46%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
March 31, Regulatory
1996 Requirements
---- ------------
<S> <C> <C>
Total Capital/Total Assets 10.35% 6.00%
Primary Capital/Total Assets 10.35% 5.50%
Total Risk Based Capital 16.92% 8.00%
Tier 1 Capital 15.67% 4.00%
Leverage Ratio 8.90% 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 following table sets forth the dividend payout ratio for the last
two years and for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
March 31, Year Ended,
1996 1995 1994
---------- ----------------------
<S> <C> <C> <C>
Dividend payout ratio 26.10% 28.81% 27.53%
</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
----------- ----------------------
27 Financial Data Schedule
Reports on Form 8-K
First United did not file any reports on Form 8-K during the quarter
for which this report is filed.
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: May 13, 1996
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 42,898
<INT-BEARING-DEPOSITS> 25,778
<FED-FUNDS-SOLD> 48,196
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 361,751
<INVESTMENTS-CARRYING> 198,642
<INVESTMENTS-MARKET> 199,358
<LOANS> 646,323
<ALLOWANCE> 10,669
<TOTAL-ASSETS> 1,370,822
<DEPOSITS> 1,152,799
<SHORT-TERM> 53,420
<LIABILITIES-OTHER> 15,728
<LONG-TERM> 16,832
<COMMON> 5,159
0
0
<OTHER-SE> 126,884
<TOTAL-LIABILITIES-AND-EQUITY> 1,370,822
<INTEREST-LOAN> 14,921
<INTEREST-INVEST> 8,358
<INTEREST-OTHER> 916
<INTEREST-TOTAL> 24,195
<INTEREST-DEPOSIT> 10,721
<INTEREST-EXPENSE> 11,573
<INTEREST-INCOME-NET> 12,622
<LOAN-LOSSES> 76
<SECURITIES-GAINS> 59
<EXPENSE-OTHER> 8,753
<INCOME-PRETAX> 6,213
<INCOME-PRE-EXTRAORDINARY> 6,213
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,349
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<YIELD-ACTUAL> 7.95
<LOANS-NON> 1,982
<LOANS-PAST> 641
<LOANS-TROUBLED> 838
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,581
<CHARGE-OFFS> 102
<RECOVERIES> 190
<ALLOWANCE-CLOSE> 10,669
<ALLOWANCE-DOMESTIC> 10,669
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,796
</TABLE>
