<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
________________________________________
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
September 30, 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 November 1, 1996 was 8,246,208.
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<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
SEPTEMBER 30, 1996
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition,
September 30, 1996 and December 31, 3
1995.
Consolidated Statements of Income for
the Three and Nine Months Ended
September 30, 1996 and 1995. 4
Consolidated Statements of Cash Flow
for the Nine Months Ended September 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>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks . . . . . . . . . . . . . . . . . . . . . . $ 80,475 $ 50,485
------------ ------------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell . . . . . . . . . . . . . . . . . . . 34,786 31,658
Other Short-Term Investments . . . . . . . . . . . . . . . . . . 28,925 24,252
------------ ------------
Total Short-Term Investments . . . . . . . . . . . . . . . . . . 63,711 55,910
------------ ------------
Securities Available-for-Sale . . . . . . . . . . . . . . . . . . . 388,518 339,028
------------ ------------
Investment Securities . . . . . . . . . . . . . . . . . . . . . . . 219,758 201,093
------------ ------------
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719,209 644,097
Unearned Discount . . . . . . . . . . . . . . . . . . . . . . . . (2,132) (1,979)
Allowance for Possible Loan Losses . . . . . . . . . . . . . . . (11,638) (10,581)
------------ ------------
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 705,439 631,537
------------ ------------
Premises and Equipment . . . . . . . . . . . . . . . . . . . . . . 29,091 26,319
------------ ------------
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,670 11,761
------------ ------------
Other Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . 473 712
------------ ------------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,286 19,175
------------ ------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,520,421 $ 1,336,020
============ ============
LIABILITIES
Deposits:
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 240,952 $ 193,533
Savings and Interest-Bearing Demand . . . . . . . . . . . . . . . 387,950 346,119
Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,302 588,262
------------ ------------
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,295,204 1,127,914
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase . . . . . . . . . . . . . . . . . 40,904 46,895
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 26,374 13,974
Notes Payable:
Unaffiliated Bank . . . . . . . . . . . . . . . . . . . . . . . . 8,629 11,832
Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . 5,000 5,000
------------ ------------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,376,111 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; 8,246
shares outstanding in 1996 and 7,738 outstanding in 1995) . 8,246 7,738
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,297 10,971
Undivided Profits . . . . . . . . . . . . . . . . . . . . . . . . . 124,556 110,432
Net Unrealized Gains (Losses) on Securities Available-for- Sale . . (1,789) 1,264
------------ ------------
Total Capital Accounts . . . . . . . . . . . . . . . . . . . . . 144,310 130,405
------------ ------------
Total Liabilities and Capital Accounts . . . . . . . . . . . . . $ 1,520,421 $ 1,336,020
============ ============
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------
(In thousands, except share data) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans . . . . . . . . . . . . $ 16,988 $ 14,693 $ 49,835 $ 41,259
Interest on Securities:
Taxable Securities . . . . . . . . . . . . . . . 8,389 7,418 24,452 21,791
Nontaxable Securities . . . . . . . . . . . . . . 1,001 991 3,019 2,982
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell . . . . . . . . . . . . . . 492 372 1,705 1,059
Interest on Deposits in Banks . . . . . . . . . . . 252 126 806 509
-------- -------- -------- --------
TOTAL INTEREST INCOME . . . . . . . . . . . . . 27,122 23,600 79,817 67,600
-------- -------- -------- --------
INTEREST EXPENSE
Interest on Deposits . . . . . . . . . . . . . . . 11,718 10,482 34,853 29,460
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase . . . . . . . . . . . . 458 514 1,808 1,244
Interest on Notes Payable . . . . . . . . . . . . . 471 292 1,033 873
-------- -------- -------- --------
TOTAL INTEREST EXPENSE . . . . . . . . . . . . 12,647 11,288 37,694 31,577
-------- -------- -------- --------
NET INTEREST INCOME . . . . . . . . . . . . . . 14,475 12,312 42,123 36,023
Provision for Possible Loan Losses . . . . . . . . 420 300 1,055 407
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES . . . . . . . . . . . 14,055 12,012 41,068 35,616
-------- -------- -------- --------
OTHER INCOME
Service Charges on Deposit Accounts . . . . . . . . 1,326 1,098 3,791 3,104
Trust Fee Income . . . . . . . . . . . . . . . . . 486 441 1,384 1,314
Security Gains (Losses) . . . . . . . . . . . . . . (33) 6 12 (141)
Other Operating Income . . . . . . . . . . . . . . 841 628 2,419 1,958
-------- -------- -------- --------
TOTAL OTHER INCOME . . . . . . . . . . . . . . 2,620 2,173 7,606 6,235
-------- -------- -------- --------
OTHER EXPENSE
Salaries . . . . . . . . . . . . . . . . . . . . . 3,910 3,372 11,586 9,824
Pension and Other Employee Benefits . . . . . . . . 1,299 1,010 3,768 2,930
Net Occupancy Expense . . . . . . . . . . . . . . . 923 840 2,609 2,262
Equipment Expense . . . . . . . . . . . . . . . . . 558 421 1,777 1,291
Data Processing Expense . . . . . . . . . . . . . . 478 411 1,431 1,223
Other Operating Expenses . . . . . . . . . . . . . 2,864 2,380 8,261 7,788
-------- -------- -------- --------
TOTAL OTHER EXPENSE . . . . . . . . . . . . . . 10,032 8,434 29,432 25,318
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . 6,643 5,751 19,242 16,533
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . 1,952 1,804 5,368 5,103
-------- -------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . $ 4,691 $ 3,947 $ 13,874 $ 11,430
======== ======== ======== ========
EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ 0.57 $ 0.51 $ 1.68 $ 1.48
======== ======== ======== ========
CASH DIVIDENDS PER SHARE . . . . . . . . . . . . . $ 0.17 $ 0.15 $ 0.49 $ 0.42
======== ======== ======== ========
AVERAGE SHARES ISSUED AND OUTSTANDING . . . . . . . 8,246 7,738 8,246 7,738
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- --------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,874 $ 11,430
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,971 1,539
Amortization of Goodwill . . . . . . . . . . . . . . . . . . . . . 786 713
Provision for Possible Loan Losses . . . . . . . . . . . . . . . . 1,055 407
(Gain) Loss on Sales of Securities . . . . . . . . . . . . . . . . (12) 141
Accretion of Bond Discount, Net . . . . . . . . . . . . . . . . . (894) (1,289)
(Increase) Decrease in Other Assets . . . . . . . . . . . . . . . 626 2,389
Increase (Decrease) in Other Liabilities . . . . . . . . . . . . . 1,286 12,149
-------- --------
Net Cash Provided by Operating Activities . . . . . . . . . . . . . . 18,692 27,479
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities . . . . . . . . . 19,453 20,962
Proceeds from Maturities of Securities Available-for-Sale . . . . . 84,836 54,328
Proceeds from Sales of Securities Available-for-Sale . . . . . . . . 11,621 41,734
Purchase of Investment Securities . . . . . . . . . . . . . . . . . (23,773) (31,922)
Purchase of Available-for-Sale Securities . . . . . . . . . . . . . (128,649) (89,077)
(Increase) Decrease in Federal Funds, Net . . . . . . . . . . . . . (8,419) 12,962
(Increase) Decrease in Other Short-Term Investments . . . . . . . . (4,673) (12,183)
(Increase) Decrease in Loans . . . . . . . . . . . . . . . . . . . . (18,004) (27,806)
Capital (Additions) Retirements, Net . . . . . . . . . . . . . . . . (3,267) (6,536)
Purchase of Subsidiary Bank . . . . . . . . . . . . . . . . . . . . -0- (19,079)
-------- ---------
Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . (70,875) (56,617)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits . . 78,663 (11,533)
Increase (Decrease) in Time Deposits . . . . . . . . . . . . . . . . 3,835 42,015
Issuance of Notes Payable . . . . . . . . . . . . . . . . . . . . . -0- (1,718)
Repayment of Notes Payable . . . . . . . . . . . . . . . . . . . . . (479) -0-
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,061) (3,250)
-------- --------
Net Cash Provided by (Used in) Financing Activities . . . . . . . . . 77,958 25,514
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . 25,775 (3,624)
Cash and Cash Equivalents, Beginning . . . . . . . . . . . . . . . . 54,700 49,419
-------- --------
Cash and Cash Equivalents, Ending . . . . . . . . . . . . . . . . . . $ 80,475 $ 45,795
======== ========
</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 (Texarkana, Texas), Citizens Bank
and Trust, Hazen First State Bank, FirstBank of Arkansas and First Stuttgart
Bank and Trust Company. All material intercompany transactions have been
eliminated.
The consolidated statements of condition as of September 30, 1996 and
the related consolidated statements of income for the three and nine month
periods ended September 30, 1996 and 1995 and the consolidated statements of
cash flows for the nine month period ended September 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 has not had a material
effect on First United's financial condition and results of operations.
3. RESULTS OF OPERATIONS
The results for the three and nine month period ended September 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 August 1, 1996, First United completed the acquisition of Carlisle
Bancshares, Inc. (Carlisle). 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 received approximately 508,000 shares of
First United common stock in exchange for all of the outstanding shares of
Carlisle's common stock, subject to some adjustments. The merger was a tax-free
exchange to Carlisle's shareholders and was accounted for as a pooling of
interests. Operating results for 1996 have been restated to reflect the
addition of Carlisle, accordingly, net income of approximately $1.2 million
related to Carlisle for periods prior to its August 31, 1996 acquisition has
been included in First United's results for the nine months ended September 30,
1996. First United's results for the three months ended September 30, 1996
include Carlisle's results for the entire three-month period. Prior year results
have not been restated.
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the nine months ended September
30, 1996 and 1995 amounted to $624,000 and $700,000, 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"), Citizens Bank and Trust ("Carlisle"), Hazen First State Bank
("Hazen"), FirstBank of Arkansas ("Brinkley") and First Stuttgart Bank and
Trust Company ("Stuttgart"), focuses on the results from operations which are
not otherwise apparent from the consolidated financial statements. Reference
should be made to these financial statements and the notes to the financial
statements for an understanding of this review and discussion.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1996 was $4.69
million, or $.57 per share compared with $3.95 million or $.51 per share during
the same period in 1995. Net income for the nine months ended September 30,
1996 was $13.87 million or $1.68 per share compared with $11.43 million or
$1.48 per share for the same period in 1995. The annualized return on average
assets from continuing operations for the nine months ended September 30, 1996
and 1995 was 1.26% and 1.24% respectively, while the annualized return on
average equity was 12.94% and 12.79% 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 nine
months of 1996 was $43.75 million compared with $37.63 million in the first
nine 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
September 30, 1996 was 4.32% 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 $13.63 million at September 30,
1996 and interest expense associated with this debt totaled $1.03 million
during the first nine months of 1996 compared with $873 thousand during the
same period in 1995. First United has 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>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
Yield on Earning asset 7.94% 8.07% 7.18%
Break-even yield 3.62% 3.68% 2.89%
Net interest margin 4.32% 4.39% 4.29%
Net interest spread 3.43% 3.41% 3.51%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $719.21 million at
September 30, 1996 compared with $644.10 million at December 31, 1995.
Although the Company experienced a comparatively large increase in loans of
11.66% primarily as a result of the acquisition of Carlisle, 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>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $1,538 $1,843 $ 620
Real Estate 1,728 724 1,427
Consumer 127 76 70
------ ------ ------
$3,393 $2,643 $2,117
------ ------ ------
Past due 90 days or more:
Commercial $ 506 $ 83 $ 197
Real Estate 530 117 151
Consumer 242 272 207
------ ------ ------
$1,278 $ 472 $ 555
------ ------ ------
Renegotiated Commercial
Loans: $ 777 $ 851 $ 326
------ ------ ------
Total non-performing Loans: $5,448 $3,966 $2,998
Other Real Estate, Net 566 712 520
------ ------ ------
Total non-performing
Assets: $6,014 $4,678 $3,518
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .76% .62% .58%
Non-Performing Assets as a
% of Equity Capital 4.17% 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
September 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 nine months of 1996 First United made provisions for
possible loan losses of $1.06 million compared with $407 thousand for the same
period in 1995. Total non-performing loans increased $1.48 million from $3.97
million at December 31, 1995 to $5.45 million at September 30, 1996. Net
charge-offs through September 30, 1996 totaled $1.1 million.
<TABLE>
<CAPTION>
September 30, Year Ended December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.62% 1.65% 1.88%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 214% at September 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>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 4,383 $ 3,969 $4,756
Real Estate 1,449 1,307 923
Consumer 2,323 2,132 1,484
Unallocated 3,483 3,173 2,504
-------- -------- ------
Total $ 11,638 $ 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>
Nine Months Ended
September 30, Change
------------------ --------------------
1996 1995 $ %
------ ------ ------ ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $3,791 $3,104 $ 687 22%
Trust Income 1,384 1,314 70 5%
Security Gains (Losses) 12 (141) 153 N/A
Other Income 2,419 1,958 461 24%
------ ------ ------ ---
Total Other Income $7,606 $6,235 $1,371 22%
====== ====== ====== ===
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $1.22 million when comparing 1996 with 1995 results. This
increase was primarily related to the acquisition of Carlisle which accounted
for $585 thousand or 48.03% of the increase. First United is focusing on
non-interest income revenues and opportunities to increase fee income.
10
<PAGE> 11
INVESTMENT SECURITIES
During the first nine months of 1996, First United had no security gains.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $218,912 $202,949 $156,850
Amortized Cost 219,758 201,093 164,357
-------- -------- --------
Difference $ (846) $ 1,856 $ (7,507)
======== ======== ========
</TABLE>
At September 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>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
(In thousands)
Market Value $388,518 $339,028 $324,679
Amortized Cost 391,174 336,920 337,970
-------- -------- --------
Difference $ (2,656) $ 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>
Nine Months Ended
September 30, Change
------------------- --------------------
1996 1995 $ %
------- ------- ------ -----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $11,586 $ 9,824 $1,762 18%
Pension and Employee Benefits 3,768 2,930 838 29%
Net Occupancy Expense 2,609 2,262 347 15%
Equipment Expense 1,777 1,291 486 38%
Data Processing Expense 1,431 1,223 208 17%
Other Operating Expense 8,261 7,788 473 6%
------- ------- ------ -----
Total Non-Interest Expense $29,432 $25,318 $4,114 16%
======= ======= ====== =====
</TABLE>
Pension and employee benefits increased approximately 29% during the
first nine 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 $204 thousand of the increase, as well as the acquisition of
Carlisle which accounted for $216 thousand of the increase. The $29.43 million
in total non-interest expense included approximately $1.91 million of
non-interest expense at Carlisle.
11
<PAGE> 12
INCOME TAXES
The effective tax rate of First United for the nine month period ended
September 30, 1996 was 27.9% compared to 30.9% for the same period in 1995. The
decrease in the 1996 effective tax rate from 1995 was due primarily to lower
taxes at Magnolia, primarily from the donation of real property, as well as
amended short period tax returns at Alma and Stuttgart.
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 $144.31 million at September 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>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.60% 9.67% 10.69%
Primary Capital to Total Assets 10.30% 10.39% 11.46%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
September 30, Regulatory
1996 Requirements
------------- ------------
<S> <C> <C>
Total Capital/Total Assets 10.30% 6.00%
Primary Capital/Total Assets 10.30% 5.50%
Total Risk Based Capital 17.27% 8.00%
Tier 1 Capital 16.02% 4.00%
Leverage Ratio 8.91% 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 15%. 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 nine months ended September 30, 1996:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995 1994
------------- ------------------------
<S> <C> <C> <C>
Dividend payout ratio 29.49% 28.81% 27.53%
</TABLE>
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
On August 30, 1996, First United Bancshares, Inc. (the "Company")
acquired all of the issued and outstanding shares of common stock of Carlisle
Bancshares, Inc., Little Rock, Arkansas ("Carlisle"), in exchange for the
issuance of 506,717 shares of common stock, $1.00 par value, of the Company and
satisfied unexercised stock options of Carlisle common stock by issuing an
additional 1,383 shares of Company common stock. As of the date of this
filing, the Company has issued and outstanding 8,246,208 shares of common
stock, $1.00 par value. Said shares have been publicly registered with the
Securities and Exchange Commission and are traded on the National Association
of Securities Dealers Automated Quotation System under the symbol "UNTD". The
above referenced issuance of common stock 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 August 29, 1996, the Company held a special shareholders meeting
where the Board of Directors of the Company submitted to the shareholders a
proposal to vote upon the Restated Agreement and Plan of Reorganization, dated
April 1, 1996 (the "Agreement"), by and between the Company and Carlisle
Bancshares, Inc., where the Company would acquire all of the issued and
outstanding shares of common stock of Carlisle Bancshares, Inc. in exchange for
the issuance of the Company's common stock based upon an exchange formula as
described in the Agreement. The exchange formula is more fully described in
the Company's Form S-4 Registration Statement under the Securities Act of 1933,
as amended, Registration No. 333-06185 as filed with the Securities and
Exchange Commission on July 10, 1996, and which became effective on July 12,
1996, and in the Company's current report on Form 8-K filed with the Securities
and Exchange Commission on September 9, 1996. Of the total shares voted at the
special meeting 6,699,694 were voted in favor of the Agreement, 56,658 voted
against the Agreement and 71,189 abstained from voting.
The Board of Directors of the Company also submitted to the
shareholders at the August 29, 1996 special shareholders meeting a proposed
amendment to Article Seventh and a separate amendment to Article Tenth of the
Company's Articles of Incorporation. The proposed amendment to Article Seventh
would allow the Board of Directors to approve mergers or share exchanges
without a stockholders vote if (i) the number of shares to be issued in the
transaction does not exceed twenty percent (20%) of the number of shares issued
and outstanding immediately prior to consummation of the transaction and (ii)
the total number of shares issued during any consecutive twelve month period in
connection with such transactions does not exceed twenty percent (20%) of the
number of shares of common stock outstanding immediately prior to consummation
of the transaction. The proposed Amendment to Article Tenth would allow the
Board of Directors to increase or decrease the number of directors by no more
than thirty percent (30%) of the number last determined by stockholders and to
fill new positions created. Of the total shares voted at the special meeting
6,386,494 were voted in favor of the amendment to Article Seventh, 363,162
voted against and 77,885 abstained from voting. A total of 6,451,504 shares
were voted in favor of the amendment to Article Tenth, 311,952 voted against
and 64,085 abstained from voting.
Item 5. OTHER MATTERS
Not Applicable.
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.
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.
REPORTS ON FORM 8-K
On September 9, 1996, First United filed a Current Report on
Form 8-K under Items 2 and 7 regarding the Company's August 30, 1996 acquisition
of all of the issued and outstanding shares of common stock in Carlisle
Bancshares, Inc., Little Rock, Arkansas ("Carlisle") pursuant to a Restated
Agreement and Plan of Reorganization, dated April 1, 1996, whereby the Company
acquired all of the issued and outstanding shares of common stock of Carlisle in
exchange for the issuance of 506,717 shares of Company common stock and
satisfied unexercised stock options of Carlisle common stock by issuing an
additional 1,383 shares of Company common stock.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST UNITED BANCSHARES, INC.
BY /s/ James V. Kelley
-----------------------------------
James V. Kelley
Chairman, President and Chief
Executive Officer
BY /s/ John E. Burns
-----------------------------------
John E. Burns
Chief Financial Officer and Principal
Accounting Officer
Date: November 14, 1996
16
<PAGE> 17
EXHIBIT INDEX
Exhibit
Index 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 80,475
<INT-BEARING-DEPOSITS> 28,925
<FED-FUNDS-SOLD> 34,786
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 388,518
<INVESTMENTS-CARRYING> 219,758
<INVESTMENTS-MARKET> 218,912
<LOANS> 717,077
<ALLOWANCE> 11,638
<TOTAL-ASSETS> 1,520,421
<DEPOSITS> 1,295,204
<SHORT-TERM> 40,904
<LIABILITIES-OTHER> 26,374
<LONG-TERM> 13,629
0
0
<COMMON> 8,246
<OTHER-SE> 136,064
<TOTAL-LIABILITIES-AND-EQUITY> 1,520,421
<INTEREST-LOAN> 49,835
<INTEREST-INVEST> 27,471
<INTEREST-OTHER> 2,511
<INTEREST-TOTAL> 79,817
<INTEREST-DEPOSIT> 34,853
<INTEREST-EXPENSE> 37,694
<INTEREST-INCOME-NET> 42,123
<LOAN-LOSSES> 1,055
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 29,432
<INCOME-PRETAX> 19,242
<INCOME-PRE-EXTRAORDINARY> 19,242
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,874
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
<YIELD-ACTUAL> 7.94
<LOANS-NON> 3,393
<LOANS-PAST> 1,278
<LOANS-TROUBLED> 777
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,581
<CHARGE-OFFS> 2,654
<RECOVERIES> 1,441
<ALLOWANCE-CLOSE> 11,638
<ALLOWANCE-DOMESTIC> 11,638
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,483
</TABLE>
