FIRST UNITED BANCSHARES INC /AR/, S-4/A, 1997-07-17

FIRST UNITED BANCSHARES INC /AR/
S-4/A, 1997-07-17
STATE COMMERCIAL BANKS

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<PAGE> 1

As filed with the Securities and Exchange Commission on July 17, 1997
Registration Number 333-30007

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO. 1
TO

FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

----------------------------

FIRST UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

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ARKANSAS 6022 71-0538646
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NO.)
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MAIN AND WASHINGTON STREETS
EL DORADO, ARKANSAS 71730
(870) 863-3181
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------------------------

JOHN E. BURNS
MAIN AND WASHINGTON STREETS
EL DORADO, ARKANSAS 71730
(870) 863-3181
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)

-----------------------------------

COPIES TO:

STAN D. SMITH
MITCHELL, WILLIAMS, SELIG, GATES & WOODYARD, P.L.L.C.
320 WEST CAPITOL AVENUE, SUITE 1000
LITTLE ROCK, ARKANSAS 72201
(501) 688-8800

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [ ]

CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED PROPOSED AGGREGATE
OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED (1) PRICE PER UNIT (2) PRICE (3) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK ............ 1,610,000 $40.50 $65,205,000 $21,735.00
===============================================================================================
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(1) Estimated based on the maximum number of shares to be registered.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The aggregate offering price is based the maximum number of shares to
be registered multiplied by the estimated market value of a share of First
United Common Stock.

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.

===============================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.

Cross Reference Sheet Showing Location in Prospectus of Information
Required by Item 501(b) of Regulation S-K

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A. INFORMATION ABOUT THE TRANSACTION

REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS AND PROXY STATEMENT
- --------------------------------------- ------------------------------------------
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1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus .............. Facing Page of Registration Statement;
Cross Reference Sheet; Cover Page of
Proxy Statement

2. Inside Front and Outside Back Cover Pages of
Prospectus .......................................... Available Information; Incorporation of
Certain Documents by Reference; Table
of Contents

3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information ....................... Summary; Financial Information

4. Terms of the Transaction ............................ The Merger

5. Pro Forma Financial Information ..................... Summary - Selected Financial Data;
Financial Information

6. Material Contacts with the Company Being
Acquired ............................................ The Merger - Background of the Merger;
Fredonia Bancshares, Inc. - Resulting
Ownership in First United

7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters ..................................... Not Applicable

8. Interests of Named Experts and Counsel .............. Legal Matters and Experts

9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities ......................................... Not Applicable

B. INFORMATION ABOUT THE REGISTRANT

10. Information with Respect to S-3 Registrants ......... First United Bancshares, Inc.

11. Incorporation of Certain Information by
Reference ........................................... Incorporation of Certain Documents by
Reference

12. Information with Respect to S-2 or S-3
Registrants ......................................... Not Applicable

13. Incorporation of Certain Information by
Reference ........................................... Not Applicable

14. Information with Respect to Registrants Other
than S-3 or S-2 Registrants ......................... Not Applicable
</TABLE>

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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED

16. Information with Respect to S-2 or S-3
Companies ........................................... Not Applicable

17. Information with Respect to Companies Other
than S-3 or S-2 Companies

(1) Description of Business ........................ Fredonia Bancshares, Inc. - Description
of Business

(2) Market Price of and Dividends on the
Registrant's Common Equity ..................... Summary - Comparative Per Share Data;
Fredonia Bancshares, Inc. - Principal
Shareholders of Fredonia

(3) Selected Financial Data ........................ Summary - Selected Financial Data

(4) Supplementary Financial Information ............ Not Applicable

(5) Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..................................... Fredonia Bancshares, Inc. - Management
Discussion and Analysis

(6) Changes In and Disagreements with
Accountants on Accounting and Financial
Disclosure ..................................... Not Applicable

(7) Financial Statements ........................... Financial Information

(8) Quarterly Financial Information ................ Financial Information

(9) Financial Statement Schedules .................. Not Applicable

D. VOTING AND MANAGEMENT INFORMATION

18. Information if Proxies, Consents or
Authorizations Are to be Solicited

(1) Date, Time and Place Information ............... Cover Page of Proxy

(2) Revocability of Proxy .......................... The Fredonia Special Meeting - Voting;
Solicitation of Proxies

(3) Dissenters' Rights of Appraisal ................ The Merger - Right of Dissent Under the
TBCA

(4) Persons Making the Solicitation ................ The Fredonia Special Meeting - Voting;
Solicitation of Proxies
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REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS AND PROXY STATEMENT
- --------------------------------------- ------------------------------------------
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(5) Interest of Affiliates of the Registrant
in the Proposed Transaction; Voting
Securities and Principal Holders ............... Fredonia Bancshares, Inc. - Principal
Shareholders of Fredonia; The Merger -
Background of the Merger

(6) Vote Required for Approval ..................... The Fredonia Special Meeting - Vote
Required.

(7) (i) Directors and Executive Officers ......... Incorporation of Certain Documents by
Reference

(ii) Executive Compensation ................... Incorporation of Certain Documents by
Reference

(iii) Certain Relationships and Related
Transactions ............................. Incorporation of Certain Documents by
Reference

19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited or in
an Exchange Offer ................................... Not Applicable
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FREDONIA BANCSHARES, INC.

To the Shareholders of
Fredonia Bancshares, Inc.

You are cordially invited to attend a Special Meeting of Shareholders of
Fredonia Bancshares, Inc. ("Fredonia") which will be held at 2400 North Street,
Nacogdoches, Texas on August 19, 1997 at 3:00 P.M.

At the Special Meeting, Shareholders of Fredonia will consider and vote
upon the merger of Fredonia with and into First United of Texas, Inc. ("FTI"), a
wholly-owned subsidiary of First United Bancshares, Inc. ("First United"). The
Agreement and Plan of Reorganization (the "Agreement") among First United, FTI
and Fredonia provides that the Shareholders of Fredonia will receive total
consideration consisting of one million six hundred thousand (1,600,000) shares
of fully paid and nonassessable shares of Common Stock, $1.00 par value, of
First United ("Purchase Price"). All of the issued and outstanding shares of
Fredonia Common Stock, other than shares owned by dissenting Shareholders of
Fredonia, shall be converted into the right to receive a pro rata portion of the
Purchase Price based upon each Fredonia Shareholder's pro rata ownership of the
total number of issued and outstanding shares of Fredonia Common Stock at the
effective time of the merger. Fractional shares of First United Common Stock
shall not be issued. Any Fredonia Shareholder entitled to receive a fractional
share shall receive a cash payment in lieu thereof equal to the value of the
fractional share based on the average sales price per share of First United
Common Stock. The average sales price of First United Common Stock is defined as
the average sales price per share for all trades occurring during the period of
ten (10) trading days on which one or more trades actually takes place and which
ends immediately prior to the second trading day preceding the closing date
("Pricing Average").

If the Pricing Average of First United Common Stock is less than $32.00,
Fredonia may terminate the Agreement without liability.

If the merger is approved, Fredonia State Bank will become a wholly-owned
subsidiary of First United. First United is a bank holding company which is
engaged in the business of banking through its eight (8) wholly-owned bank
subsidiaries and its trust company subsidiary, with bank offices in Union,
Sebastian, Columbia, Ouachita, Izard, Arkansas, Prairie, Monroe, Lonoke and
Crawford Counties in Arkansas and in Bowie County, Texas, each of which provides
a full range of banking services to its customers. After the merger, Fredonia
State Bank will continue to operate as a full-service, community oriented bank.

The Board of Directors of Fredonia believes that the proposed merger upon
the terms and conditions set forth in the accompanying Proxy Statement is in the
best interests of the Fredonia Shareholders and therefore recommends that you
vote in favor of the merger. Hoefer & Arnett, Incorporated, Fredonia's financial
advisor in connection with the merger, has rendered an opinion to Fredonia's
Board of Directors to the effect that as of the date hereof, the consideration
to be received by Fredonia's Shareholders in the merger is fair from a financial
point of view. Additional information regarding the proposed merger, First
United and the rights of dissenting Shareholders is set forth in the enclosed
Proxy Statement and I urge you to read all of this material carefully.

You are invited to attend the Special Meeting in person. Whether or not you
plan to attend the Special Meeting, please sign, date and return as soon as
possible the enclosed proxy in the enclosed self-addressed and stamped envelope.
If you attend the Special Meeting, you may vote in person if you wish, even
though you previously returned your proxy.

Very truly yours,

/s/ Gordon Lewis
Gordon Lewis
Chairman of the Board and President
<PAGE> 6

FREDONIA BANCSHARES, INC.

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

August 19, 1997

NOTICE is hereby given that a Special Meeting of Shareholders of Fredonia
Bancshares, Inc. has been called by the Board of Directors and will be held at
2400 North Street, Nacogdoches, Texas on August 19, 1997 at 3:00 p.m. for the
following purposes:

1. To consider and vote upon an Agreement and Plan of Reorganization
dated as of April 25, 1997 (the "Agreement"), which provides for the merger
of Fredonia Bancshares, Inc. into First United of Texas, Inc., a
wholly-owned subsidiary of First United Bancshares, Inc. of El Dorado,
Arkansas.

2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on July 15, 1997 as
the record date for determining Shareholders who are entitled to receive notice
of and to vote at the Special Meeting. Proposal 1 above requires the affirmative
vote of a majority of the total number of issued and outstanding shares of
Fredonia Common Stock for approval.

IT IS IMPORTANT THAT YOUR SHARES OF FREDONIA COMMON STOCK BE REPRESENTED AT
THE SPECIAL MEETING REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. PLEASE
COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE
PROMPTLY. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED BY GIVING A
WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF FREDONIA OR BY EXECUTION OF A
PROXY OF A LATER DATE FILED WITH THE SECRETARY OF FREDONIA BEFORE THE MEETING.
IN ADDITION, IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY BY VOTING IN
PERSON.

By Order of the Board of Directors

/s/ Gordon Lewis
------------------------------------
Gordon Lewis
Chairman of the Board and President

Dated: July 24, 1997
<PAGE> 7

FREDONIA BANCSHARES, INC.

PROXY STATEMENT FOR A SPECIAL MEETING

OF SHAREHOLDERS TO BE HELD ON AUGUST 19, 1997

---------------------

FIRST UNITED BANCSHARES, INC.
PROSPECTUS
1,610,000 SHARES OF COMMON STOCK
PAR VALUE $1.00

This Proxy Statement and Prospectus ("Proxy Statement") is being furnished
to the Shareholders of Fredonia Bancshares, Inc. ("Fredonia") in connection with
the solicitation of proxies by the Board of Directors of Fredonia for use at a
Special Meeting of Shareholders of Fredonia to be held on August 19, 1997,
including any adjournments or postponements of the Special Meeting. At the
Special Meeting or any adjournments or postponements thereof, the Shareholders
of Fredonia will be asked to consider and vote on a proposal to authorize and
approve the transactions contemplated by the Agreement and Plan of
Reorganization among First United Bancshares, Inc., First United of Texas, Inc.,
and Fredonia, dated April 25, 1997 (the "Agreement"). Pursuant to the Agreement
and the related Plan of Merger ("Plan of Merger") which is Exhibit A to the
Agreement, First United Bancshares, Inc. ("First United" or the "Company") would
acquire all of the issued and outstanding stock of Fredonia and satisfy any
unexercised Fredonia stock options through a merger transaction (the "Merger")
in which Fredonia would merge with and into First United of Texas, Inc., a
wholly-owned subsidiary of First United, in exchange for the issuance to the
Shareholders of Fredonia and Optionholders of up to 1,610,000 shares of First
United common stock, par value $1.00 ("First United Common Stock").

First United has agreed to register under the Securities Act of 1933, as
amended (the "Securities Act"), the shares of First United Common Stock that may
be issued to Shareholders of Fredonia in exchange for their stock in Fredonia.
Consequently, this Proxy Statement also serves as a Prospectus of First United
under the Securities Act for the issuance of shares of First United Common Stock
to Shareholders of Fredonia.

This Proxy Statement and the accompanying form of proxy are first being
mailed to Shareholders of Fredonia on or about July 24, 1997. On June 30, 1997,
the closing price on the National Association of Securities Dealers Automatic
Quotation National Market System of a share of First United Common Stock was
$42.75.

THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT. SHAREHOLDERS
ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT IN ITS
ENTIRETY.

---------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

---------------------

THE DATE OF THIS PROXY STATEMENT IS JULY 24, 1997.
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NO PERSON IS AUTHORIZED BY FIRST UNITED OR FREDONIA TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY
STATEMENT, IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY THIS
PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES
NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN ANY JURISDICTION IN
WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE MADE.

NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF FIRST UNITED OR FREDONIA SINCE
THE DATE HEREOF.

AVAILABLE INFORMATION

First United is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith,
files proxy statements, reports and other information with the Securities and
Exchange Commission ("Commission"). This filed material can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices in Chicago (500 West Madison, Citicorp Center, 14th Floor,
Chicago, Illinois 60661-2511) and in New York (7 World Trade Center, Suite 1300,
New York, New York 10048) and copies of such material can be obtained by mail
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers who file electronically with the Commission.
The address of that site is http://www.sec.gov. First United's Common Stock is
traded on the National Association of Securities Dealers Automated Quotation
National Market System and the Company's Exchange Act reports and other
information can be inspected and copied at the National Association of
Securities Dealers, 1735 "K" Street, N.W., Washington, D.C. 20006.

First United has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act with respect to a maximum 1,610,000 shares of First United
Common Stock to be issued upon consummation of the transactions contemplated by
the Agreement. This Proxy Statement does not contain all the information set
forth in the Registration Statement and the exhibits thereto, certain portions
of which have been omitted as permitted by rules and regulations of the
Commission. Copies of the Registration Statement are available from the
Commission, upon payment of prescribed rates. For further information, reference
is made to the Registration Statement and the exhibits filed therewith.
Statements contained in this Proxy Statement or any document incorporated by
reference in this Proxy Statement relating to the contents of any contract or
other document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM MR. JOHN E. BURNS, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
FIRST UNITED BANCSHARES, INC., MAIN AND WASHINGTON STREETS, EL DORADO, ARKANSAS
71730, (870) 863-3181. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST, ALTHOUGH NOT REQUIRED, SHOULD BE MADE, BY CERTIFIED MAIL, ON OR BEFORE
AUGUST 8, 1997.

2
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The following documents of First United, which have been filed with the
Commission under the Exchange Act, are incorporated by reference into this Proxy
Statement:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, filed with the Commission on March 28, 1997.

2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, filed with the Commission on May 14, 1997.

Each document filed subsequent to the date of this Proxy Statement pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the holding of
the Special Meeting of the Shareholders of Fredonia, shall be deemed to be
incorporated by reference in this Proxy Statement and shall be part hereof from
the date of filing of such document. Any statement contained in a document
incorporated or deemed to be incorporated in this Proxy Statement shall be
deemed to be modified or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference modifies or
supersedes such document.

All information contained in this Proxy Statement relating to First United
has been supplied by First United and all information relating to Fredonia has
been supplied by Fredonia.

3
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TABLE OF CONTENTS

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PAGE
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SUMMARY
The Company...............................................
Fredonia..................................................
The Merger................................................
Combined Company..........................................
The Fredonia Special Meeting..............................
Background and Reasons for the Merger.....................
Opinion of Fredonia's Financial Advisor...................
Conditions to the Merger; Termination of the Agreement....
Effective Time and Closing of the Merger..................
No Solicitation...........................................
Interest of Certain Persons in the Merger.................
Management and Operations After the Merger................
Certain Federal Income Tax Consequences...................
Dissenters' Rights........................................
Regulatory Approvals......................................
Accounting Treatment......................................
Comparison of Rights of Holders of Fredonia Common Stock
and First United Common Stock..........................
Market Prices.............................................
Comparative Per Share Data................................
Selected Financial Data...................................
THE FREDONIA SPECIAL MEETING
Date, Time and Place......................................
Purpose of Meeting........................................
Shares Outstanding and Entitled to Vote; Record Date......
Vote Required.............................................
Voting; Solicitation of Proxies...........................
THE MERGER
Background of the Merger..................................
Reasons for the Merger....................................
Opinion of Fredonia's Financial Advisor...................
The Agreement.............................................
Surrender of Certificates.................................
Interests of Certain Persons in the Merger................
Regulatory Approvals......................................
Antitrust Matters.........................................
Federal Income Tax Consequences...........................
Accounting Treatment......................................
Right of Dissent Under the TBCA...........................
Exchange Ratio for the Merger.............................
Expenses of the Merger....................................
FINANCIAL INFORMATION
Pro Forma Combining Balance Sheets........................
Pro Forma Combining Income Statements.....................
Notes to Pro Forma Combining Financial Statements.........
FIRST UNITED BANCSHARES, INC.
General...................................................
Pending Acquisitions......................................
Regulation................................................
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4
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PAGE
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Offices...................................................
Employees.................................................
Description of First United Common Stock..................
Resale of First United Common Stock.......................
FREDONIA BANCSHARES, INC.
Description of Business...................................
Management Discussion and Analysis........................
Directors and Executive Officers..........................
Certain Employee Plans....................................
Transactions with Management..............................
Principal Shareholders of Fredonia........................
Resulting Ownership in First United.......................
Competition...............................................
Litigation................................................
Offices...................................................
Employees.................................................
Regulation and Supervision................................
Description of Fredonia Stock.............................
Comparison of Rights of Holders of Fredonia Common Stock
and First United Common Stock..........................
LEGAL MATTERS AND EXPERTS
Legal Opinions............................................
Experts...................................................
General...................................................
INDEX TO FREDONIA FINANCIAL STATEMENTS......................
ANNEXES
I -- Agreement and Plan of Reorganization.................
II -- Texas Business Corporation Act Articles 5.11-5.13...
III -- Fairness Opinion of Hoefer & Arnett,
Incorporated...........................................
</TABLE>

5
<PAGE> 12

SUMMARY

The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this Proxy
Statement, in the attached Annexes and in the documents incorporated by
reference. Shareholders are urged to read carefully this Proxy Statement and the
attached Annexes in their entirety.

THE COMPANY

The Company is a multi-bank holding company located in El Dorado, Arkansas
with eight wholly-owned subsidiary banks and a trust company operating in
twenty-eight communities in the States of Arkansas and Texas. The Company's
subsidiaries consist of First National Bank of El Dorado, El Dorado, Arkansas;
First National Bank of Magnolia, Magnolia, Arkansas; City National Bank of Fort
Smith, Fort Smith, Arkansas; Merchants and Planters Bank, N.A., Camden,
Arkansas; Commercial Bank at Alma, Alma, Arkansas; The Bank of North Arkansas,
Melbourne, Arkansas; First United Bank, Stuttgart, Arkansas; FirstBank,
Texarkana, Texas; and First United Trust Company, N.A., El Dorado, Arkansas
(collectively called the "Subsidiary Banks"). The Company had consolidated
assets of $1,560,044,000 and shareholders' equity of $151,052,000 as of March
31, 1997. First United has also entered into an agreement to acquire a bank in
Louisiana and has entered into a letter of intent to acquire a bank holding
company in Arkansas. See "Pending Acquisitions."

On May 20, 1996, the Board of Directors of First United declared a 3-for-2
stock split effected in the form of a 50% stock dividend. The dividend was
distributed on June 28, 1996 to holders of record as of June 7, 1996. Unless
otherwise indicated, all per share data, numbers of common shares and capital
accounts contained herein have been restated to reflect this stock split.

The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation National Market System Over-the-Counter
Market ("NASDAQ-NMS") under the symbol "UNTD." The Company's principal executive
offices are located at Main and Washington Streets, El Dorado, Arkansas, 71730
and its telephone number is (870) 863-3181.

FREDONIA

Fredonia is a Texas corporation and a bank holding company which indirectly
owns 100% of Fredonia State Bank, Nacogdoches, Texas ("FSB") through its
middle-tier subsidiary, Fredonia Bancshares of Delaware, Inc. Fredonia had
consolidated assets of $249,416,000 and shareholders' equity of $23,572,000 as
of March 31, 1997. FSB was chartered in 1964 and has two banking offices in
Nacogdoches and one banking office in each of Alto, Texas and Garrison, Texas.
After the Merger, FSB will be a wholly-owned subsidiary of First United but will
continue to operate as a full-service, community oriented bank. See "Fredonia
Bancshares, Inc. -- Description of Business."

On January 9, 1996, the Board of Directors of Fredonia declared a 20% stock
dividend. The dividend was distributed on January 31, 1996 to holders of record
as of January 15, 1996. Unless otherwise indicated, all per share data, numbers
of common shares and capital accounts contained herein have been restated to
reflect this stock dividend.

There is no public market for shares of Fredonia's outstanding capital
stock. Fredonia's principal executive offices are located at 2400 North Street,
Nacogdoches, Texas, and its telephone number is (409) 564-6191.

THE MERGER

On April 25, 1997, the Company, First United of Texas, Inc. ("FTI") and
Fredonia entered into the Agreement pursuant to which the Company proposes to
acquire all of the issued and outstanding stock of Fredonia by merger of
Fredonia with and into FTI, a wholly-owned subsidiary of the Company. The
acquisition of Fredonia will be consummated through the issuance to Fredonia's
Shareholders and Optionholders of approximately 1,610,000 shares of First United
Common Stock. First United's reason for entering into the Merger is to expand
the markets of the Company and thereby increase the earning potential

6
<PAGE> 13

of the Company. The Agreement requires that the Merger be accounted for as a
pooling of interests. See "The Merger -- The Agreement."

On April 24, 1997, the trading date immediately prior to the execution of
the Agreement, the closing sales price of shares of First United Common Stock on
the NASDAQ-NMS was $38.75. There is no established market value for the stock of
Fredonia.

COMBINED COMPANY

The pro forma combined financial statements, and its constituent parts of
First United and Fredonia as of and for the periods indicated reflect assets,
shareholders' equity, net interest income and income from continuing operations
as follows (dollars in thousands):

<TABLE>
<CAPTION>
% %
FIRST PRO FORMA PRO FORMA PRO FORMA
UNITED COMBINED FREDONIA COMBINED COMBINED
---------- --------- -------- --------- ----------
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Assets
March 31, 1997.................. $1,560,044 86.22 $249,416 13.78 $1,809,460
Shareholders' equity
March 31, 1997.................. 151,052 86.50 23,572 13.50 174,624
Net interest income
Year ended December 31, 1996.... 57,257 87.31 8,325 12.69 65,582
Three months ended March 31,
1997......................... 14,579 85.70 2,433 14.30 17,012
Income from continuing operations
Year ended December 31, 1996.... 18,259 81.62 4,113 18.38 22,372
Three months ended March 31,
1997......................... 4,824 83.49 954 16.51 5,778
</TABLE>

If a maximum of 1,610,000 shares of common stock of First United are issued
to Fredonia Shareholders, First United will have a total of approximately
9,856,000 shares of common stock issued and outstanding. Present First United
stockholders will control 83.67% of such shares and Fredonia Shareholders will
control 16.33% of such shares. See "Financial Information -- Pro Forma Balance
Sheet and Pro Forma Income Statements."

THE FREDONIA SPECIAL MEETING

Approval of the Merger by the Shareholders of Fredonia will be considered
at a Special Meeting to be held at 2400 North Street, Nacogdoches, Texas on
August 19, 1997, at 3:00 p.m. Central Daylight Time. Only the holders of record
of Fredonia Common Stock as of the close of business on July 15, 1997 (the
"Record Date") will be entitled to notice of and to vote at the Special Meeting.
At such date, there were 472,342 shares of Fredonia's Common Stock issued and
outstanding. Each share of Fredonia Common Stock is entitled to one vote. See
"The Fredonia Special Meeting."

The affirmative vote of the holders of a majority of the outstanding shares
of Fredonia Common Stock is required for the approval of the Merger. Directors,
executive officers and their affiliates hold a total of 10.42% of the
outstanding Fredonia Common Stock. Shareholders of Fredonia are entitled to
dissenters' rights. See "The Merger -- Right of Dissent Under the TBCA."

BACKGROUND AND REASONS FOR THE MERGER

At a meeting of the Fredonia Board held on April 24, 1997, after
considering the terms and conditions of the Agreement and obtaining the advice
of its financial advisor, the Fredonia Board approved the Agreement. The
Fredonia Board believes that the Merger is advisable and in the best interests
of Fredonia and its Shareholders and recommends that Fredonia Shareholders vote
in favor of the adoption of the Agreement. For

7
<PAGE> 14

a discussion of the circumstances surrounding the Merger and the factors
considered by the Fredonia Board in making its recommendation, see "The
Merger -- Background of the Merger" and "Reasons for the Merger."

OPINION OF FREDONIA'S FINANCIAL ADVISOR

The Fredonia Board retained Hoefer & Arnett, Incorporated ("Hoefer &
Arnett") to act as financial advisor in connection with the Merger. Hoefer &
Arnett has delivered its written opinion to the Fredonia Board that, as of the
date of this Proxy Statement, the consideration to be paid to Fredonia's
Shareholders is fair from a financial point of view. The opinion of Hoefer &
Arnett is attached by Annex to this Proxy Statement. Shareholders are urged to
read this opinion in its entirety for a description of the procedures followed,
matters considered and limitation on the reviews undertaken in connection
therewith. See "The Merger -- Opinion of Fredonia's Financial Advisor."

CONDITIONS TO THE MERGER; TERMINATION OF THE AGREEMENT

The obligations of First United and Fredonia to effect the Merger are
subject to the satisfaction or waiver of a number of conditions, in addition to
the approval of the Agreement by Fredonia's Shareholders. The Agreement allows
one or more parties to the Merger to terminate the Agreement if one or more of
these conditions are not satisfied or waived. The Agreement may also be
terminated at any time before the Merger becomes effective by the mutual consent
of First United and Fredonia and by either First United or Fredonia if the
Merger has not been effected on or before December 31, 1997. See "The
Merger -- The Agreement."

EFFECTIVE TIME AND CLOSING OF THE MERGER

If the Agreement is approved at the Special Meeting and all other
conditions to the Merger have been satisfied or waived, the parties expect the
Merger to become effective at the date and time specified in the articles of
merger relating to the Merger (the "Articles of Merger") to be filed with the
Arkansas Secretary of State and the Texas Secretary of State (the "Effective
Time") and the issuance by each of the Arkansas Secretary of State and the Texas
Secretary of State of a certificate of merger acknowledging that the Articles of
Merger are in the form required by and have been executed in accordance with the
relevant provisions of applicable law. The parties expect to file the Articles
of Merger in both Arkansas and Texas as soon as practicable following approval
of the Agreement at the Special Meeting. The closing of the Merger will be held
contemporaneously with the filing of the Articles of Merger with the Arkansas
Secretary of State and the Texas Secretary of State. See "The Merger -- The
Agreement."

NO SOLICITATION

Subject to certain exceptions, Fredonia and its directors and officers have
agreed pursuant to the Agreement not to directly or indirectly initiate,
solicit, encourage or enter into any discussions with any third party concerning
a competing acquisition of Fredonia. The Fredonia Board may enter into such
discussions only if, after taking into account the written advice of counsel,
the Fredonia Board concludes in good faith that the failure to do so would
violate its fiduciary duties under applicable law. See "The Merger -- The
Agreement."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

As of the Record Date, Fredonia's directors and executive officers and
their affiliates owned a total of 49,213 shares of Fredonia Common Stock,
representing 10.42% of all outstanding shares on such date. In the Merger,
Fredonia's directors and officers will receive the same consideration for their
shares as other Shareholders of Fredonia receive for theirs. Certain members of
the Fredonia Board and management of Fredonia have interests in the Merger that
are in addition to and separate from the interests of Shareholders of Fredonia
generally. These interests include, among others, provisions in the Agreement
relating to the continuation of director and officer indemnification rights, the
acceleration of vesting of employee stock options and the continuation of
certain employee benefits generally. See "The Merger -- Interests of Certain
Persons in the Merger."

8
<PAGE> 15

MANAGEMENT AND OPERATIONS AFTER THE MERGER

Following the Merger, First United intends to operate FSB as a full
service, community oriented bank at each of FSB's existing locations. It is
anticipated that First United's Chairman, Mr. James V. Kelley, will be elected
to FSB's Board of Directors. See "Fredonia Bancshares, Inc. -- Directors and
Executive Officers."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

It is a condition to Fredonia's obligation to consummate the Merger that
for federal income tax purposes the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and, accordingly, for federal income tax purposes, no gain
or loss will be recognized by either First United or Fredonia as a result of the
Merger and Fredonia's Shareholders will not recognize gain or loss upon the
receipt of First United Common Stock in exchange for Fredonia Common Stock.
Fredonia expects to receive an opinion of counsel, dated as of the Effective
Date of the Merger, opining that no gain or loss will be recognized by the
Fredonia Shareholders upon the receipt of First United Common Stock in exchange
for Fredonia Common Stock in connection with the Merger. The parties to this
transaction will not request a ruling from the Internal Revenue Service
concerning the taxability of this transaction. See "The Merger -- Certain
Federal Income Tax Consequences."

DISSENTERS' RIGHTS

Holders of Fredonia Common Stock are entitled to dissenter's rights with
respect to the Merger. Holders of Fredonia Common Stock may exercise their right
of dissent under the Texas Business Corporation Act (the "TBCA"). See "The
Merger -- Right of Dissent Under the TBCA."

REGULATORY APPROVALS

First United has received the approval of the Board of Governors of the
Federal Reserve to merge Fredonia into FTI. First United has also received the
approval of the Texas Banking Commissioner to consummate the Merger. See "The
Merger -- Regulatory Approvals."

ACCOUNTING TREATMENT

First United intends to treat the Merger as a pooling of interests for
accounting purposes. Consummation of the Merger is conditioned upon the receipt
of the opinion of Arthur Andersen LLP that the Merger will qualify for the
pooling of interests accounting treatment. See "The Merger -- Accounting
Treatment."

COMPARISON OF RIGHTS OF HOLDERS OF FREDONIA COMMON STOCK AND FIRST UNITED COMMON
STOCK

As of the date of this Proxy Statement, the rights of Fredonia's
Shareholders are governed by the TBCA and by Fredonia's Articles of
Incorporation and Bylaws. After the Merger, Fredonia's Shareholders will become
shareholders of First United and as such, their rights will be governed by the
laws of Arkansas and First United's Articles and Bylaws. See "Comparison of
Rights of Holders of Fredonia Common Stock and First United Common Stock."

MARKET PRICES

First United Common Stock is traded over-the-counter in the NASDAQ-NMS.
Fredonia Common Stock is not traded publicly and there is no quoted market for
the stock. The table below shows the high and low closing sales prices for First
United Common Stock adjusted for stock splits.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994....................................................... $22.00 $17.67
1995....................................................... 28.67 19.00
1996....................................................... 33.00 26.50
1997 (through June 30, 1997)............................... 42.75 31.50
</TABLE>

9
<PAGE> 16

On April 24, 1997, the trading date immediately prior to the execution of
the Agreement between First United and Fredonia as to the proposed merger
transaction, the closing sales price for First United Common Stock was $38.75.
On June 30, 1997, the closing sales price for First United Common Stock was
$42.75.

COMPARATIVE PER SHARE DATA

The following table sets forth for the periods indicated selected
historical per share data of First United and Fredonia and the corresponding pro
forma and pro forma equivalent per share amounts giving effect to the proposed
Merger. The data presented are based upon the consolidated financial statements
and related notes of First United which are incorporated by reference in this
Proxy Statement, and the consolidated financial statements and related notes of
Fredonia and the pro forma combining balance sheet and income statements,
including the notes thereto, appearing elsewhere herein. This information should
be read in conjunction with such historical and pro forma financial statements
and related notes thereto. The assumptions used in the preparation of this table
appear elsewhere in this Proxy Statement. See "Financial Information." These
data are not necessarily indicative of the results of the future operations of
the combined organization or the actual results that would have occurred if the
Merger had been consummated prior to the periods indicated.

<TABLE>
<CAPTION>
FIRST
UNITED FREDONIA PRO FORMA FREDONIA PRO FORMA
HISTORICAL(1) HISTORICAL(2) COMBINED(3) EQUIVALENT(4)
------------- ------------- ----------- ------------------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1996.................... $18.14 $49.09 $17.55 $59.48
March 31, 1997....................... 18.51 49.90 17.89 60.66
Cash dividends per common share:
Year ended December 31, 1994......... 0.49 .84 0.45 1.51
Year ended December 31, 1995......... 0.57 .90 0.52 1.76
Year ended December 31, 1996......... 0.64 1.05 0.59 1.99
Three Months ended March 31, 1997.... 0.17 1.25 0.20 0.69
</TABLE>

- ---------------

(1) On May 20, 1996, the Board of Directors of First United declared a 3-for-2
stock split effected in the form of a 50% stock dividend. The dividend was
distributed on June 28, 1996 to holders of record as of June 7, 1996. All
per share data have been restated to reflect this stock split.

(2) On January 9, 1996, the Board of Directors of Fredonia declared a 20% stock
dividend. The dividend was distributed on January 31, 1996 to holders of
record as of January 15, 1996. All per share data have been restated to
reflect this stock dividend.

(3) The First United/Fredonia Pro Forma Combined amounts do not consider the
number of shares of First United Common Stock that may be issued in such
amounts as is equal to the intrinsic value of any unexercised Fredonia stock
options at the time of the Merger. First United estimates the intrinsic
value of such Fredonia stock options to approximate $218,000.

(4) The Fredonia pro forma equivalents represent the respective First
United/Fredonia pro forma combined earnings, dividends and book value per
common share multiplied by the applicable exchange ratio of 3.39 shares of
First United Common Stock for each share of Fredonia Common Stock so that
the First United/Fredonia pro forma equivalent amounts are equated to the
respective values for one share of Fredonia Common Stock. The exchange ratio
is determined by dividing the number of shares of First United Common Stock
to be received by the Fredonia Shareholders by the 472,342 shares of
Fredonia Common Stock currently outstanding.

10
<PAGE> 17

SELECTED FINANCIAL DATA

The following table presents selected historical financial data of First
United and Fredonia and selected unaudited pro forma financial data after giving
effect to the Merger as a pooling of interests for accounting purposes, assuming
the Merger had occurred at the beginning of the earliest period presented, but
without giving effect to costs associated with the consummation of the Merger,
which currently are estimated to total $200,000. The First United historical
data for each of the years in the five-year period ended December 31, 1996 is
based on the historical financial statements of First United as audited by
Arthur Andersen LLP, independent public accountants. The Fredonia historical
data for each of the years in the three-year period ended December 31, 1996 is
derived from the historical financial statements of Fredonia as audited by Axley
& Rode LLP, independent auditors. The selected financial data for First United
for the three month periods ended March 31, 1996 and 1997, and for Fredonia for
the three month periods ended March 31, 1996 and 1997 have been obtained from
unaudited financial statements and, in the opinion of the respective managements
of First United and Fredonia, include all adjustments necessary to present
fairly the data for such periods. The pro forma data is not necessarily
indicative of the results of operations or the financial condition that would
have been reported had the Merger been in effect during those periods, or as of
those dates, or that may be reported in the future. Pro forma combined per share
data of First United and Fredonia give effect to the exchange of each share of
Fredonia Common Stock for 3.39 shares of First United Common Stock.

These data should be read in conjunction with the consolidated financial
statements of each of First United and Fredonia, and the related notes thereto,
incorporated by reference herein and in conjunction with the unaudited pro forma
financial information, including the notes thereto, appearing elsewhere in this
Proxy Statement. See "Incorporation of Certain Documents by Reference" and
"Financial Information."

All other financial data is presented in descending order of time periods.

SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
FIRST UNITED -- HISTORICAL 1992 1993 1994 1995 1996 1996 1997
-------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Total interest income.............. $ 77,570 $ 71,968 $ 73,214 $ 92,735 $ 108,027 $ 26,109 $ 27,418
Net interest income................ 42,511 43,063 42,961 49,485 57,257 13,649 14,579
Provision for possible loan
losses........................... 2,486 1,815 334 574 1,475 93 359
Income from continuing
operations....................... 12,676 13,215 14,008 15,204 18,259 4,747 4,824
Per Share Data
Income from continuing
operations....................... $ 1.64 $ 1.71 $ 1.81 $ 1.96 $ 2.21 $ 0.58 $ 0.59
Cash dividend paid................. 0.40 0.44 0.49 0.57 0.64 0.15 0.17
Selected Balance Sheet Items
Total assets....................... $1,086,467 $1,123,598 $1,106,610 $1,336,020 $1,531,039 $1,471,820 $1,560,044
Total securities................... 509,552 513,399 489,036 540,121 639,240 597,065 648,791
Net loans.......................... 442,661 489,333 502,826 631,537 709,920 690,578 717,063
Total deposits..................... 943,097 969,749 953,904 1,127,914 1,297,273 1,238,576 1,315,402
Long-term debt..................... 8,821 7,723 12,825 16,832 22,426 23,791 22,414
Capital accounts................... 95,438 108,122 109,509 130,405 149,601 139,432 151,052
FREDONIA -- HISTORICAL
Operating Data
Total interest income.............. $ 12,292 $ 11,962 $ 13,400 $ 15,344 $ 15,920 $ 4,222 $ 4,342
Net interest income................ 6,616 6,954 7,517 8,025 8,325 2,318 2,433
Provision for possible loan
losses........................... 525 -- -- -- (750) (750) 30
Income from continuing
operations....................... 2,627 2,972 2,703 3,350 4,113 1,422 954
Per Share Data
Income from continuing
operations....................... $ 5.28 $ 5.99 $ 5.43 $ 6.47 $ 8.71 $ 3.18 $ 2.02
Cash dividend paid................. -- .84 .84 .90 1.05 1.05 1.25
Selected Balance Sheet Items
Total assets....................... $ 173,420 $ 210,785 $ 232,830 $ 236,662 $ 241,953 $ 235,977 $ 249,416
Total securities................... 78,876 101,883 109,093 107,381 92,562 100,052 91,692
Net loans.......................... 77,237 91,352 95,345 109,543 121,680 113,047 127,580
Total deposits..................... 159,415 193,954 214,911 212,578 216,765 212,701 223,080
Long-term debt..................... -- -- 1,067 -- -- -- --
Capital accounts................... 13,205 15,754 15,957 19,758 23,193 20,623 23,572
</TABLE>

11
<PAGE> 18
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
FIRST UNITED -- HISTORICAL 1992 1993 1994 1995 1996 1996 1997
-------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA -- COMBINED
Operating Data
Total interest income.............. $ 89,862 $ 83,930 $ 86,614 $ 108,079 $ 123,947 $ 30,331 $ 31,760
Net interest income................ 49,127 50,017 50,478 57,510 65,582 15,967 17,012
Provision for possible loan
losses........................... 3,011 1,815 334 574 725 (657) 389
Income from continuing
operations....................... 15,303 16,187 16,711 18,554 22,372 6,169 5,778
Per Share Data
Income from continuing
operations....................... $ 1.64 $ 1.74 $ 1.79 $ 1.99 $ 2.27 $ 0.63 $ 0.59
Cash dividend paid................. 0.33 0.41 0.45 0.52 0.59 0.18 0.20
Selected Balance Sheet Items
Total assets....................... $1,259,887 $1,334,383 $1,339,440 $1,572,682 $1,772,992 $1,707,797 $1,809,460
Total securities................... 588,428 615,282 598,129 647,502 731,802 697,117 740,483
Net loans.......................... 519,898 580,685 598,171 741,080 831,600 803,625 844,643
Total deposits..................... 1,102,512 1,163,703 1,168,815 1,340,492 1,514,038 1,451,277 1,538,482
Long-term debt..................... 8,821 7,723 13,892 16,832 22,426 23,791 22,414
Capital accounts................... 108,643 123,876 125,466 150,163 172,794 160,055 174,624
</TABLE>

12
<PAGE> 19

THE FREDONIA SPECIAL MEETING

DATE, TIME AND PLACE

The Fredonia Special Meeting will be held on August 19, 1997, commencing at
3:00 p.m. Central Daylight Time, at the offices of Fredonia located at 2400
North Street, Nacogdoches, Texas.

PURPOSE OF MEETING

The purpose of the Fredonia Special Meeting is to consider and vote upon
the adoption of the Agreement among Fredonia, First United and FTI.

SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE

The close of business on July 15, 1997 has been fixed by the Board of
Directors of Fredonia as the record date ("Record Date") for the determination
of holders of Fredonia Common Stock entitled to notice of and to vote at the
Fredonia Special Meeting. At the close of business on the Record Date, there
were 472,342 shares of Fredonia Common Stock outstanding held by 392
shareholders of record. Holders of record of Fredonia Common Stock on the Record
Date are entitled to one vote per share and are entitled to dissenters' rights.
See "The Merger -- Right of Dissent under the TBCA."

VOTE REQUIRED

The affirmative vote of a majority of all the shares of Fredonia Common
Stock outstanding on the Record Date is required to adopt the Agreement.

As of June 30, 1997, directors and executive officers of Fredonia and their
affiliates own 10.42% of the outstanding stock of Fredonia.

VOTING; SOLICITATION OF PROXIES

Proxies for use at the Fredonia Special Meeting accompany copies of this
Proxy Statement delivered to record holders of Fredonia Common Stock and such
proxies are solicited on behalf of the Board of Directors of Fredonia. A holder
of Fredonia Common Stock may use his proxy if he is unable to attend the
Fredonia Special Meeting in person or wishes to have his shares voted by proxy
even if he does attend the Special Meeting. The proxy may be revoked in writing
by the person giving it at any time before it is exercised by notice of such
revocation to the secretary of Fredonia, or by submitting a proxy having a later
date, or by such person appearing at the Fredonia Special Meeting and electing
to vote in person. All proxies validly submitted and not revoked will be voted
in the manner specified therein. If no specification is made, the proxies will
be voted in favor of the Merger.

Fredonia will bear the cost of solicitation of proxies from its
Shareholders. In addition to using the mails, proxies may be solicited by
personal interview. Officers and other employees of Fredonia acting on
Fredonia's behalf may solicit proxies personally.

13
<PAGE> 20

THE MERGER

BACKGROUND OF THE MERGER

From time to time the Board of Directors and management of Fredonia have
considered various strategies for Fredonia, including remaining independent and
concentrating on existing markets, expanding geographically through acquisitions
of existing banks or branches, establishing branches in new markets, and merging
with a larger company. Each alternative has always been considered in light of
its expected impact on Shareholders and the potential maximization of
Shareholder value.

In February of 1997, Mr. Gordon Lewis, Chairman of the Board and President
of Fredonia, was approached by First United with an offer to merge Fredonia into
First United. First United and Fredonia exchanged certain financial and other
information and a period of discussions and negotiations ensued. An agreement in
principle outlining the basic terms of Merger was approved March 18, 1997.
Fredonia employed Hoefer & Arnett to evaluate the fairness of First United's
offer to Shareholders of Fredonia from a financial point of view, and First
United conducted an onsite due diligence review of Fredonia's business and
operations. Further discussions and negotiations, all of which were conducted on
an arms-length basis with both parties represented by legal counsel, resulted in
the Agreement which was approved by Fredonia's Board of Directors on April 24,
1997 and executed as of April 25, 1997.

REASONS FOR THE MERGER

In reaching its determination to enter into the Agreement, Fredonia's Board
of Directors consulted with Hoefer & Arnett and Fredonia's legal and tax
advisors, and considered a number of factors, including but not limited to the
following: (i) the written opinion of Hoefer & Arnett that the consideration to
be received by Shareholders of Fredonia pursuant to the Agreement was fair to
such Shareholders from a financial point of view; (ii) the price to be received
by the Fredonia Shareholders in relation to prices received by other similarly
situated banking organizations, and the relation of such price to the Board's
view of the value to Shareholders of choosing possible alternatives to the
Merger and the risks associated with seeking to obtain the values provided by
those alternatives; (iii) the prospects for remaining independent, including the
current and prospective economic environment and competitive restraints facing
Fredonia; (iv) the increased liquidity provided by the receipt of First United
Common Stock in a tax-free reorganization; (v) the protection afforded to
Fredonia by the Agreement in the event of a decline in the price of First United
Common Stock; (vi) the potential for increased dividends; and (vii) the
non-economic terms of the Merger.

In its deliberations, the Fredonia Board did not assign any specific
weights to these or any other factors.

The acquisition of Fredonia will expand First United's current markets.
Fredonia's banking subsidiary currently has full-service banking locations in
Nacogdoches, Alto and Garrison, Texas. Currently, there are no banking offices
in the First United system located in these areas. Thus, the acquisition of
Fredonia expands First United's market into a new area. Management of First
United believes that by expanding its markets, it will increase the range and
competitiveness of its banking services to persons residing in Fredonia's market
area while increasing the earning power of First United.

OPINION OF FREDONIA'S FINANCIAL ADVISOR

Fredonia's Board of Directors retained Hoefer & Arnett to render to the
Board of Directors a written opinion (the "Fairness Opinion") as investment
bankers as to the fairness, from a financial point of view, of the terms of the
proposed Merger of Fredonia with and into First United, as defined in the
Agreement. No limitations were imposed by Fredonia's Board of Directors upon
Hoefer & Arnett with respect to the investigations made or procedures followed
in rendering the Fairness Opinion.

A copy of the Fairness Opinion of Hoefer & Arnett, dated as of July 14,
1997 (which letter will be updated as of July 24, 1997 and August 19, 1997),
which sets forth certain assumptions made, matters considered and limits on the
review undertaken by Hoefer & Arnett, is attached as Annex III to this Proxy
Statement. Fredonia's Shareholders are urged to read the Fairness Opinion in its
entirety. The following

14
<PAGE> 21

summary of the procedures and analysis performed, and assumptions used by Hoefer
& Arnett is qualified in its entirety by reference to the text of such Fairness
Opinion. The Fairness Opinion is directed to Fredonia's Board of Directors only
and is directed only to the financial terms of the transaction and does not
constitute a recommendation to any Fredonia Shareholder as to how such
Shareholder should vote at the Special Meeting.

In arriving at its opinion, Hoefer & Arnett reviewed and analyzed, among
other things, the following: (i) the Agreement; (ii) Annual Reports to
Shareholders of Fredonia for the years ended December 31, 1995 and December 31,
1996; (iii) quarterly FDIC Call reports for the quarters ended March 31, 1996,
June 30, 1996, September 30, 1996 and December 31, 1996 filed by FSB; (iv)
certain other publicly available financial and other information concerning
Fredonia; (v) publicly available information concerning other banks and holding
companies, the trading markets for their securities and the nature and terms of
certain other merger transactions Hoefer & Arnett believes relevant to its
inquiry; and (vi) evaluations and analyses prepared and presented to the Board
of Directors of Fredonia or a committee thereof in connection with this business
combination with First United. Hoefer & Arnett held discussions with senior
management of Fredonia and First United concerning each institution's past and
current operations, financial condition and prospects, as well as the results of
regulatory examinations.

Hoefer & Arnett reviewed with senior management of Fredonia earnings
projections for 1997 through 2001 prepared by Fredonia for Fredonia as a
stand-alone entity, assuming the Merger does not occur. Certain pro forma
financial projections for the years 1997 through 2001 for the combined entity
were derived by Hoefer & Arnett based partially upon the information discussed
above, as well as Hoefer & Arnett's assessment of general economic, market and
financial conditions.

In conducting its review and in arriving at its opinion, Hoefer & Arnett
relied upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available, and did not attempt to
independently verify the same. Hoefer & Arnett relied upon the managements of
Fredonia and First United as to the reasonableness of the financial and
operating forecasts, projections (and the assumptions and bases therefor)
provided to it, and Hoefer & Arnett assumed that such forecasts and projections
reflect the best currently available estimates and judgments of the management
of Fredonia and First United. Hoefer & Arnett also assumed, without independent
verification, that the aggregate allowances for loan losses for Fredonia are
adequate to cover such losses. Hoefer & Arnett did not make or obtain any
evaluations or appraisals of the properties of Fredonia, nor did it examine any
individual loan credit files. For purposes of its opinion, Hoefer & Arnett
assumed that the Merger will have the tax, accounting and legal effects
described in the Agreement and relied, as to legal matters, exclusively on
counsel to Fredonia as to the accuracy of the disclosures set forth in the
Agreement. Hoefer & Arnett's opinion is limited to the fairness, from a
financial point of view, to the holders of the Common Stock of Fredonia of the
terms of the proposed Merger with First United and does not address Fredonia's
underlying business decision to proceed with the Merger.

As more fully discussed below, Hoefer & Arnett considered such financial
and other factors as Hoefer & Arnett deemed appropriate under the circumstances,
including among others the following: (i) the historical and current financial
position and results of operations of Fredonia, including interest income,
interest expense, net interest income, net interest margin, provision for loan
losses, non-interest income, non-interest expense, earnings, dividends, internal
capital generation, book value, intangible assets, return on assets, return on
shareholders' equity, capitalization, the amount and type of non-performing
assets, loan losses and the reserve for loan losses, all as set forth in the
financial statements for Fredonia; (ii) the assets and liabilities of Fredonia,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and liquidity;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. Hoefer & Arnett also took into account its
assessment of general economic, market and financial conditions and its
experience in other transactions, as well as its experience in securities
valuation and its knowledge of the banking industry generally. Hoefer & Arnett's
opinion is necessarily based upon conditions as they existed and can be
evaluated on the date of its opinion and the information made available to it
through that date.

In connection with rendering its Fairness Opinion to Fredonia's Board of
Directors, Hoefer & Arnett performed certain financial analyses, which are
summarized below. Hoefer & Arnett believes that its analysis

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<PAGE> 22

must be considered as a whole and that selecting portions of such analysis and
the factors considered therein, without considering all factors and analysis,
could create an incomplete view of the analysis and the processes underlying
Hoefer & Arnett's Fairness Opinion. The preparation of a fairness opinion is a
complex process involving subjective judgments and it is not necessarily
susceptible to partial analysis or summary description. In its analyses Hoefer &
Arnett made numerous assumptions with respect to industry performance, business
and economic conditions, and other matters, many of which are beyond the control
of Fredonia. Any estimates contained in Hoefer & Arnett's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which
companies or their securities may actually be sold. None of the financial
analyses performed by Hoefer & Arnett was assigned a greater significance by
Hoefer & Arnett than any other.

The financial forecasts and projections of Fredonia and First United
prepared by Hoefer & Arnett were based on projections provided by the respective
companies as well as Hoefer & Arnett's own assessment of general economic,
market and financial conditions. All such information was reviewed with the
respective managements of Fredonia and First United. Fredonia and First United
do not publicly disclose internal management financial forecasts and projections
of the type provided to Hoefer & Arnett in connection with its review of the
proposed Merger. Such forecasts and projections were not prepared with a view
towards public disclosure. The forecasts and projections prepared by Hoefer &
Arnett were based on numerous variables and assumptions which are inherently
uncertain, including without limitation, factors related to general economic and
market conditions. Accordingly, actual results could vary significantly from
those set forth in such forecasts and projections.

In order to determine the fairness of the proposed offer by First United,
Hoefer & Arnett utilized net asset value, market value and investment value
approaches, as explained below.

Net asset value is the value of the net equity of a bank, including every
kind of property and value. This approach normally assumes liquidation on the
date of appraisal with recognition of securities gains or losses, real estate
appreciation or depreciation and any adjustments to the loan loss reserve,
discounts to the loan portfolio or changes in the net value of other assets. As
such, it is not the best approach to use when valuing a going concern, because
it is based on historical costs and varying accounting methods. Even if the
assets and liabilities are adjusted to reflect prevailing prices and yields
(which is often of limited accuracy because readily available data is often
lacking), it still results in a liquidation value for the concern. Furthermore,
since this method does not take into account the values attributable to the
going concern such as the interrelationship among the company's assets,
liabilities, customer relations, market presence, image and reputation, and
staff expertise and depth, little weight is given to the net asset value method
of valuation.

Market value is defined as the price, established on an "arm's-length"
basis, at which knowledgeable, unrelated buyers and sellers would agree. The
market value is frequently used to determine the price of a minority block of
stock when both the quantity and the quality of the "comparable" data are deemed
sufficient. However, the relative thinness of the specific market for the stock
of the banking company being appraised may result in the need to review
alternative markets of comparative pricing purposes. The "hypothetical" market
value for a small bank with a thin market for its stock is normally determined
by comparison to the average price to earnings, price to equity and dividend
yield of local or regional publicly-traded bank issues, adjusted for lack of
marketability or liquidity.

The market value in connection with the evaluation of control of a bank is
determined by the previous sales of banks in the state or region. In valuing a
business enterprise, when sufficient comparable trade data is available, the
market value deserves greater weighting than the net asset value and equal or
possibly greater weighting than the investment value. In analyzing the fair
market value of Fredonia, Hoefer & Arnett has considered the market approach and
has evaluated price to equity and price to earnings multiples of banking
organizations that were sold in Texas during 1996 and 1997. This data was
obtained from SNL Securities, L.P.

Hoefer & Arnett calculated an "Adjusted Book Value" based on December 31,
1996 equity and the price to book value multiples paid for Texas banks in 1996
and 1997 at $92.79. Hoefer & Arnett calculated an

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<PAGE> 23

"Adjusted Earnings Value" based on Fredonia's 1996 earnings and the price to
earnings multiples paid for Texas banks in 1996 and 1997 at $107.70. The
financial performance characteristics of the banking organizations sold in 1996
and 1997 vary, sometimes substantially from those of Fredonia. When the variance
is significant for relevant performance factors, adjustment of the values
computed using price multiples is appropriate when comparing them to the fair
market value conclusion. These "Adjusted Book Value" and "Adjusted Earnings
Value" approaches are utilized in supporting the fairness of the price to be
offered for shares of Fredonia's Common Stock as provided for in the Agreement.

Hoefer & Arnett analyzed the value of the aggregate consideration to be
received in the transactions that were announced in 1996 and 1997 in
relationship to the stated book value and earnings as compared to the value of
the aggregate consideration to be received by holders of Fredonia's Common
Stock.

Investment value is sometimes referred to as the income value or the
earnings value. The investment value is frequently defined as an estimate of the
present value of future benefits. Another popular investment value method is to
determine the level of the current annual benefits and then capitalize one or
more of the benefit types using an appropriate capitalization rate such as an
earnings or dividend yield. Using a net present value discount rate of 12%, an
acceptable discount rate considering the risk-return relationship most investors
would demand for an investment of this type as of the valuation date, the net
present value of future earnings equaled $57.70.

In order to analyze the reasonableness of the fair market value, the return
on investment is calculated to determine the return that would accrue to a
potential buyer at the fair market value. The return on investment assuming sale
at the current Texas average multiple of book value in 2001 equaled 2.77%.
Additionally, the fair market value to assets was calculated and compared to the
average purchase price to assets for banking organizations sold in 1996 and
1997. Based on the proposed offer of $131.24 per share (based on the current
market value of First United's stock of $38.75), the price to assets equaled
25.58%. Lastly, Hoefer & Arnett calculated the net present value to fair market
value, as it has been recognized that there is a relationship between the net
present value of a community banking organization and the fair market value of a
majority block of the banking organization's stock. The net present value to
fair market value ratio equaled 43.97%.

Based upon input from senior management of First United and Fredonia, as
well as Hoefer & Arnett's own assessment of general economic, market and
financial conditions, and all financial and other factors it deemed appropriate
under the circumstances, Hoefer & Arnett prepared financial projections for
First United and Fredonia on a stand alone basis. The projections were based on
numerous variables and assumptions which are inherently uncertain, and
accordingly, actual results could vary from those set forth in such projections.

First United is projected to generate a return on average assets of 1.30%
in the years 1997 through 2001. First United's assets are projected to increase
by 5% in 1997 through 2001. Fredonia is projected to generate a return on
average assets of 1.40% in 1997, 1.30% in 1998 and 1.25% in 1999 through 2001.
Fredonia's assets are projected to increase by 1% in 1997 and 2% in 1998 through
2001.

Pro forma financial projections for the combined entity were derived by
Hoefer & Arnett based upon the projections discussed above. Hoefer & Arnett
analyzed the book value and earnings per share impact of the proposed
transaction on Fredonia's Shareholders over the next five years. At an exchange
ratio of 3.3868 shares of First United's Common Stock for each share of
Fredonia's Common Stock, Fredonia Shareholders are projected to experience
equity per share appreciation ranging from 17.63% to 19.84% in the years 1997
through 2001. On an earnings per share basis, Fredonia Shareholders are
projected to incur appreciation ranging from 13.48% to 39.13% in the years 1997
through 2001.

For services rendered in connection with the Merger, Fredonia has paid
Hoefer & Arnett a fee of $17,000 and agreed to reimburse Hoefer & Arnett for all
reasonable expenses incurred in connection with its services. Fredonia has also
agreed to indemnify Hoefer & Arnett against certain liabilities relating to or
arising out of its engagement, including liabilities under securities laws.

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<PAGE> 24

THE AGREEMENT

The following description of certain features of the Agreement is qualified
in its entirety by the full text of the Agreement, which is incorporated herein
by reference and attached hereto as Annex I.

Under the terms of the Agreement, Fredonia will be merged with and into
First United of Texas, Inc. and the Company will issue approximately 1,610,000
newly issued shares of First United Common Stock in exchange for all of the
outstanding Common Stock of Fredonia and satisfaction of options to purchase
Common Stock of Fredonia in the future.

The Agreement provides that the Shareholders of Fredonia will receive total
consideration consisting of one million six hundred thousand (1,600,000) shares
of fully paid and nonassessable shares of First United Common Stock ("Purchase
Price"). All of the issued and outstanding shares of Fredonia Common Stock,
other than shares owned by dissenting Shareholders, shall be converted into the
right to receive a pro rata portion of the Purchase Price based upon each
Shareholder of Fredonia's pro rata ownership of the total number of issued and
outstanding shares of Fredonia Common Stock at the Effective Time of the Merger.
Fractional shares of First United Common Stock shall not be issued. Any Fredonia
Shareholder or holder of options to purchase Fredonia Common Stock ("Options")
entitled to receive a fractional share shall receive a cash payment in lieu
thereof equal to the value of the fractional share based on the average sales
price per share of First United Common Stock. The average sales price of First
United Common Stock is defined as the average sales price per share for all
trades occurring during the period of ten (10) trading days on which one or more
trades actually takes place and which ends immediately prior to the second
trading day preceding the closing date ("Pricing Average"). Each outstanding
Option to purchase Fredonia Common Stock shall be converted into the right to
receive First United Common Stock equal to the appreciated value of the said
Option as of the Effective Time of the Merger as follows: The number of issued
and outstanding shares of Fredonia Common Stock as of the Effective Time shall
be divided into 1,600,000 to determine an option ratio. Said option ratio shall
be multiplied by the number of shares subject to option to determine the interim
shares. The interim shares shall be multiplied by the Pricing Average, the total
option purchase price shall be subtracted from said amount and the result shall
be divided by the Pricing Average to determine the number of shares of First
United Common Stock to be issued to the optionholder. The intrinsic value of the
Options is estimated to be $218,000.

The Agreement can be terminated by Fredonia if the First United Common
Stock Pricing Average is less than $32.00. In addition, either party may
terminate the Agreement if the Merger is not closed on or before December 31,
1997 provided that the failure to close is not caused by a breach of the
Agreement by the party seeking to terminate it.

Fredonia has agreed, for the period prior to the consummation of the
Merger, to operate its businesses only in the usual, regular and ordinary
course. In addition, Fredonia will use reasonable efforts to maintain and keep
its properties in as good repair and condition as at present, except for
ordinary wear and tear and to perform all obligations required under all
material contracts, leases, and documents relating to or affecting their
respective assets prior to the consummation of the Merger. Fredonia has further
agreed that, prior to consummation of the Merger, it will not incur any material
liabilities or obligations, except in the ordinary course of business, or take
any action which would or is reasonably likely to adversely affect the ability
of either First United or Fredonia to obtain any necessary approvals, adversely
affect the ability of First United or Fredonia to perform their covenants and
agreements under the Agreement, or result in any of the conditions to the Merger
not being satisfied. Fredonia has further agreed that, unless after taking into
account the written advice of counsel, the Fredonia Board concludes in good
faith that the failure to do so would violate its fiduciary duties under
applicable law, it shall not initiate, solicit or encourage any inquiry or
proposal which constitutes a competing transaction.

The Agreement requires that certain conditions occur or be waived prior to
the closing date, including (a) approval by Fredonia Shareholders owning at
least a majority of all outstanding shares of Fredonia Common Stock; (b)
approval by the appropriate federal and state bank regulatory authorities; (c)
receipt by Fredonia's Board of Directors of letters from Hoefer & Arnett dated
the date of the mailing of the Proxy Statement to the Fredonia Shareholders and
dated the date of the Special Meeting of Fredonia Shareholders

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<PAGE> 25

confirming such financial advisor's prior opinion to the Board of Directors of
Fredonia that the consideration to be paid in the Merger is fair to the Fredonia
Shareholders from a financial point of view; (d) receipt by First United of an
opinion from Arthur Andersen LLP that the Merger will qualify for pooling of
interests treatment under the applicable accounting principles; (e) receipt by
Fredonia of an opinion that for federal income tax purposes no gain or loss will
be recognized by holders of Fredonia Common Stock upon their exchange for shares
of First United Common Stock; (f) authorization for listing on NASDAQ-NMS of the
shares of First United Common Stock to be received by Fredonia's Shareholders;
and (g) satisfaction of other normal conditions to closing a merger transaction.
It is also a condition to the Merger that First United have an effective
registration statement on file with the Securities and Exchange Commission
covering the issuance of shares to be exchanged pursuant to the Merger. Prior to
the effective date of the Merger, any condition of the Agreement, except those
required by law, may be waived by the party benefited by the condition.

The Effective Time of the Merger will be the date specified in the Articles
of Merger are filed with the Arkansas Secretary of State and the Texas Secretary
of State. The Agreement provides that a closing date will be set by mutual
agreement to occur within a reasonable time following the date on which the last
of all regulatory and other approvals necessary to consummate the Merger have
been received and all necessary time periods imposed by regulatory authorities
have elapsed.

SURRENDER OF CERTIFICATES

Promptly following the Effective Time, the Trust Department of First
National Bank of El Dorado, El Dorado, Arkansas, acting in the capacity of
exchange agent for First United, will mail to each holder of shares of Fredonia
Common Stock a form of letter of transmittal, together with instructions for the
exchange of each Fredonia Shareholder's stock certificates for certificates
representing shares of First United acquired pursuant to the Merger.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Indemnification and Insurance. First United has agreed for a period of six
years after the Effective Time to indemnify and hold harmless the present and
former directors, officers, employees and agents of Fredonia and FSB against all
liabilities arising out of actions or omissions occurring at or prior to the
Effective Time to the full extent permitted by Texas law and the respective
Articles of Incorporation or Association and Bylaws of Fredonia and FSB. In the
event that First United merges with another entity and is not the surviving
entity, First United will provide that the successor to First United will assume
the above described obligations.

Employee Benefits and Contracts. Following the Effective Time, First United
will provide to officers of Fredonia or FSB who become employees of First United
or its affiliates those benefits available to existing employees of First United
and its affiliates under existing employee pension and welfare benefit plans.
First United shall also cause Fredonia and FSB to honor on terms reasonably
agreed upon by First United and Fredonia all employment, severance and
consulting agreements in existence at the Effective Time and all provisions for
vested benefits or other vested amounts earned through the Effective Time under
Fredonia's benefit plans.

Acceleration of Vesting of Opinions. First United has agreed to a decision
by Fredonia's Board to accelerate the vesting of options to purchase 1,531
shares of Fredonia Common Stock to Mr. Gordon Lewis in order to allow Mr. Lewis
to exchange the shares of Fredonia Common Stock which he would have received
upon exercise of those options for shares of First United Common Stock pursuant
to the terms of the Agreement.

Employment Agreement. Mr. Lewis currently has an employment agreement with
FSB which provides for a three year term and provides that Mr. Lewis will be
paid certain amounts based on his base salary in the event of certain events
which result in termination of his employment. At the request of First United,
Mr. Lewis has agreed to modify his employment agreement to provide for a two
year term rather than a three year term.

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REGULATORY APPROVALS; ANTITRUST MATTERS

The Merger is subject to prior approval by the appropriate regulatory
authorities. By letter dated July 3, 1997, the Board of Governors of the Federal
Reserve System ("Board") approved First United's application to acquire
Fredonia, subject to the passage of a fifteen (15) calendar day waiting period
during which the Department of Justice ("DOJ") can challenge the proposed Merger
on antitrust grounds. This waiting period expired without challenge from the DOJ
on July 18, 1997. The Board's approval letter provides that First United's
acquisition of Fredonia must be consummated by October 3, 1997, unless such
period is extended for good cause by the Board upon request from First United.
The Texas Banking Commissioner ("TBC") approved First United's application to
acquire Fredonia and FSB by letter dated July 8, 1997.

Federal Income Tax Consequences

THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. FREDONIA SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR
OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM RESULTING
FROM THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
FOREIGN INCOME OR OTHER TAX LAWS.

Set forth below is a summary of the opinion provided by Bracewell &
Patterson, L.L.P. concerning certain federal income tax consequences to holders
of Fredonia Common Stock who dispose of their Fredonia Common Stock in the
Merger. This discussion is primarily based on the Internal Revenue Code of 1986,
as amended (the "Code") and the Treasury Regulations promulgated thereunder.

The following discussion is limited to the material federal income tax
aspects of the Merger to a holder of Fredonia Common Stock who is a citizen or
resident of the United States and who, on the date of disposition of his shares
of Fredonia Common Stock, holds such shares as a capital asset. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular investors in light of their personal investment circumstances, or to
certain types of investors, including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, "S" corporations, limited
liability corporations, foreign corporations, and taxpayers subject to
alternative minimum tax. Further, this discussion does not consider the state,
local, or foreign tax consequences of the Merger to a holder of Fredonia Common
Stock.

Fredonia has been advised by its special counsel, Bracewell & Patterson,
L.L.P., that based on the Code, judicial decisions, and certain factual
assumptions, the Merger will qualify as a "reorganization" within the meaning of
Section 368(a)(1)(A) of the Code. The following is a summary of the federal
income tax consequences set forth in the form of proposed legal opinion to be
delivered by Bracewell & Patterson, L.L.P., a copy of which is included as an
exhibit to the Registration Statement filed by First United. In rendering this
opinion, Bracewell & Patterson, L.L.P. has assumed, among other matters, that
the Shareholders of Fredonia have no plan or intention at the Effective Time of
the Merger to sell or otherwise dispose of an amount of First United Common
Stock to be received in the Merger that would reduce their aggregate ownership
of First United Common Stock to a number of shares having in the aggregate a
value at the Effective Time of the Merger of less than 50% of the total fair
market value of the Fredonia Common Stock outstanding immediately prior to the
Effective Time of the Merger.

The Merger should qualify for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a)(1)(A) of the Code, and, as
such, will result in the following federal income tax consequences to holders of
Fredonia Common Stock:

1. No gain or loss will be realized by holders of Fredonia Common
Stock to the extent their shares of Fredonia Common Stock are converted
into shares of First United Common Stock pursuant to the terms of the
Merger.

2. The basis of First United Common Stock received by each Fredonia
Shareholder in the Merger will be the same as the basis of the Fredonia
Common Stock surrendered and exchanged therefor, decreased by the amount of
cash received and increased by the amount of gain realized by the
Shareholder under the exchange.

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3. The holding period of First United Common Stock received by each
Fredonia Shareholder will include the period during which Fredonia Common
Stock surrendered therefor was held, provided the Fredonia Common Stock is
a capital asset in the hands of the Fredonia Shareholder on the date of the
exchange. The payment of cash in lieu of fractional shares of First United
Common Stock will be treated as a sale or exchange of such fractional
shares eligible for capital gains treatment.

4. Dissenting Shareholders whose shares of Fredonia Common Stock are
disposed of pursuant to the exercise of appraisal rights will realize gain
or loss equal to the difference between the amount of cash received from
the exercise of such dissenters rights and such Dissenting Shareholder's
aggregate adjusted tax basis in the stock exchanged.

5. Unless an exemption applies, under the backup withholding rules of
Section 3406 of the Code, an exchange agent shall be required to withhold,
and will withhold, 31% of all cash payments to which a Fredonia Shareholder
is entitled pursuant to the Merger (unless such Shareholder provides his
taxpayer identification number -- social security number in the case of an
individual, or Employer Identification Number in other cases) and certifies
that such number is correct. Each Fredonia Shareholder should complete and
sign Treasury Form W-9 included as part of the letter of transmittal (to be
provided after the Merger becomes effective) so as to provide the
information and certification necessary to avoid backup withholding, unless
an applicable exemption exists and is provided in a manner satisfactory to
the exchange agent in connection with the Merger.

Neither the foregoing discussion nor the opinion of Bracewell & Patterson,
L.L.P. to Fredonia is binding on the Internal Revenue Service ("IRS") or the
courts. AS SUCH, THE FOREGOING PRESENTS ONLY A GENERAL DESCRIPTION OF CERTAIN OF
THE FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF FREDONIA COMMON STOCK OF THE
TRANSACTIONS CONTEMPLATED BY THE MERGER. ACCORDINGLY, EACH SHAREHOLDER IS URGED
TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO ALL TAX CONSEQUENCES STEMMING
FROM THE MERGER THAT MAY AFFECT THE SHAREHOLDERS.

ACCOUNTING TREATMENT

First United intends to treat the Merger as a pooling of interests for
accounting purposes. Consequently, in accordance with generally accepted
accounting principles, First United anticipates that it will restate its 1997
consolidated financial statements to include the assets, liabilities,
stockholders' equity and results of operations of Fredonia as reflected in its
consolidated financial statements, subject to appropriate adjustments, if any,
to conform accounting principles of the two companies.

RIGHT OF DISSENT UNDER THE TBCA

Holders of shares of Fredonia Common Stock have a statutory right to
dissent from the Merger by following the specific procedures set forth below. If
the Merger is approved and consummated, holders of shares of Fredonia Common
Stock who properly perfect their dissenters' rights will be entitled to receive
an amount of cash equal to the fair value of their shares of Fredonia Common
Stock rather than being required to accept the consideration therefor provided
in the Agreement. The following summary is not a complete statement of the
statutory dissenters' rights of appraisal, and such summary is qualified in its
entirety by reference to the applicable provisions of the Texas Business
Corporation Act ("TBCA"), which are reproduced in full at Annex II hereto. A
SHAREHOLDER MUST FOLLOW THE EXACT PROCEDURE REQUIRED BY THE TBCA IN ORDER TO
PROPERLY EXERCISE HIS DISSENTER'S RIGHTS OF APPRAISAL AND AVOID WAIVER OF THOSE
RIGHTS.

Holders of shares of Fredonia Common Stock who desire to dissent from the
Merger must file a written objection to the Merger with the Secretary of
Fredonia, Mr. J. R. Honea, 2400 North Street, Nacogdoches, Texas 75963, prior to
the Special Meeting at which a vote on the Merger shall be taken. The written
notice must state that the Shareholder will exercise his right to dissent if the
Merger is consummated and give the Shareholder's address to which notice of
effectiveness of the Merger shall be sent. A vote against the Merger is not
sufficient to perfect a Shareholder's statutory right to dissent from the
Merger. If the Merger is

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<PAGE> 28

consummated, each Shareholder who sent notice to Fredonia as described above and
who did not vote in favor of the Merger will be deemed to have dissented from
the Merger ("Dissenting Shareholder"). Failure to vote against the Merger will
not constitute a waiver of the dissenters' rights of appraisal; on the other
hand, a vote in favor of the Merger will constitute such a waiver.

First United will be liable for any payments to Dissenting Shareholders and
shall, within ten (10) days of the Effective Time, notify the Dissenting
Shareholders in writing that the Merger has been effected. Each Dissenting
Shareholder so notified must, within ten (10) days of the delivery or mailing of
such notice, make a written demand on First United at Main and Washington
Streets, El Dorado, Arkansas 71730, Attention: John E. Burns, Vice President and
Chief Financial Officer, for payment of the fair value of the Dissenting
Shareholder's shares of Fredonia Common Stock as estimated by the Dissenting
Shareholder. Failure to follow this procedure will constitute a waiver of his
dissenter's rights of appraisal by such Dissenting Shareholder. The demand shall
state the number of shares of Fredonia Common Stock owned by the Dissenting
Shareholder and the fair value of the shares as estimated by the Dissenting
Shareholder. The fair value of the shares shall be the value thereof as of the
date immediately preceding the Special Meeting, excluding any appreciation or
depreciation in anticipation of the Merger. Dissenting Shareholders who fail to
make a written demand within the ten (10) day period will be bound by the Merger
and lose their rights to dissent. Within twenty (20) days after making a demand,
the Dissenting Shareholder must submit certificates representing his shares of
Fredonia Common Stock to First United for notation thereon that such demand has
been made. Dissenting Shareholders who have made a demand for payment of their
shares shall not thereafter be entitled to vote or exercise any other rights of
a shareholder except the right to receive payment for their shares pursuant to
the provisions of the TBCA and the right to maintain an appropriate action to
obtain relief on the basis of fraud.

Within twenty (20) days after receipt of a Dissenting Shareholder's demand
letter as described above, First United shall deliver or mail to the Dissenting
Shareholder written notice (i) stating that First United accepts the amount
claimed in the demand letter and agrees to pay that amount, within ninety (90)
days after the Effective Time, upon surrender of the relevant certificates of
Fredonia Common Stock duly endorsed by the Dissenting Shareholder, or (ii)
containing the First United's written estimate of the fair value of the shares
of Fredonia Common Stock together with an offer to pay such amount within ninety
(90) days after the Effective Time if First United receives notice, within sixty
(60) days after the Effective Time, stating that the Dissenting Shareholder
agrees to accept that amount and upon surrender of the relevant certificates of
Fredonia Common Stock duly endorsed by the Dissenting Shareholder. In either
case, the Dissenting Shareholder shall cease to have any ownership interest in
First United or Fredonia following payment of the agreed value.

If the Dissenting Shareholder and First United cannot agree on the fair
value of the shares within sixty (60) days after the Effective Time, the
Dissenting Shareholder or First United may, within sixty (60) days of the
expiration of the initial sixty (60) day period, file a petition ("Petition") in
any court of competent jurisdiction in Nacogdoches County, Texas, requesting a
finding and determination of the fair value of the Dissenting Shareholder's
shares. Each Dissenting Shareholder is not required to file a separate Petition.
If one Dissenting Shareholder files a Petition, First United must file, with the
clerk of the court in which the Petition was filed, a list containing the names
and addresses of the Dissenting Shareholders with whom agreements as to the
value of their shares have not been reached. The court will give notice of the
time and place of the hearing on the Petition to the Dissenting Shareholders
named on the list. Dissenting Shareholders so notified by the court will be
bound by the final judgment of the court regarding fair value of the shares. If
no petition is filed within the appropriate time period, then all Dissenting
Shareholders who have not reached an agreement with First United on the value of
their shares shall be bound by the Merger and lose their right to dissent.

After a hearing concerning the petition, the court shall determine which
Dissenting Shareholders have complied with the provisions of the TBCA and have
become entitled to the valuation of, and payment for, their shares, and shall
appoint one or more qualified appraisers to determine the value of the shares of
Fredonia Common Stock in question. The appraisers shall determine such value and
file a report with the court. The court shall then in its judgment determine the
fair value of the shares of Fredonia Common Stock, which judgment shall be
binding on First United and on all Dissenting Shareholders receiving notice of
the

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<PAGE> 29

hearing. The court shall direct First United to pay such amount, together with
interest thereon, beginning 91 days after the Effective Time of the Merger to
the date of judgment, to the Dissenting Shareholders entitled thereto. The
judgment shall be payable upon the surrender to First United of certificates
representing shares of Fredonia Common Stock duly endorsed by the Dissenting
Shareholder. Upon payment of the judgment, the Dissenting Shareholders shall
cease to have any interest in First United.

Any Dissenting Shareholder who has made a written demand on First United
for payment of the value of his Fredonia Common Stock may withdraw such demand
at any time before payment for his shares has been made or before a petition has
been filed with an appropriate court for determination of the fair value of such
shares. If a Dissenting Shareholder withdraws his demand, or if he is otherwise
unsuccessful in asserting his dissenters' rights of appraisal, such Dissenting
Shareholder shall be bound by the Merger and his status as a former shareholder
of Fredonia shall be restored without prejudice to any corporate proceedings,
dividends, or distributions which may have occurred during the interim.

In the absence of fraud in the transaction, a Dissenting Shareholder's
statutory right of appraisal is the exclusive remedy for the recovery of the
value of his shares or money damages to the shareholder with respect to the
Merger.

EXCHANGE RATIO FOR THE MERGER

The Agreement among First United, FTI and Fredonia provides that the
Shareholders of Fredonia will receive total consideration consisting of one
million six hundred thousand (1,600,000) shares of fully paid and nonassessable
shares of First United Common Stock, $1.00 par value ("Purchase Price"). All of
the issued and outstanding shares of Fredonia Common Stock, other than shares
owned by dissenting Shareholders, shall be converted into the right to receive a
pro rata portion of the Purchase Price based upon each Shareholder of Fredonia's
pro rata ownership of the total number of issued and outstanding shares of
Fredonia Common Stock at the Effective Time of the Merger. Fractional shares of
First United Common Stock shall not be issued. Any Fredonia Shareholder or
holder of options to purchase Fredonia Common Stock ("Options") entitled to
receive a fractional share shall receive a cash payment in lieu thereof equal to
the value of the fractional share based on the average sales price per share of
First United Common Stock. The average sales price of First United Common Stock
is defined as the average sales price per share for all trades occurring during
the period of ten (10) trading days on which one or more trades actually takes
place and which ends immediately prior to the second trading day preceding the
closing date ("Pricing Average"). Each outstanding Option to purchase Fredonia
Common Stock shall be converted into the right to receive First United Common
Stock equal to the appreciated value of the said Option as of the effective time
of the Merger as follows: The number of issued and outstanding shares of
Fredonia Common Stock as of the effective time shall be divided into 1,600,000
to determine an option ratio. Said option ratio shall be multiplied by the
number of shares subject to option to determine the interim shares. The interim
shares shall be multiplied by the Pricing Average, the total option purchase
price shall be subtracted from said amount and the result shall be divided by
the Pricing Average to determine the number of shares of First United Common
Stock to be issued to the optionholder. Based on the 1,600,000 shares of First
United Common Stock to be exchanged (an exchange ratio of 3.387 to 1), the
following table illustrates a range of aggregate and per share values received
in exchange for Fredonia Common Stock based on a range of average sales prices
for First United Common Stock. THIS TABLE IS FOR ILLUSTRATION PURPOSES ONLY AND
SHOULD NOT BE RELIED UPON AS THE ACTUAL AMOUNT OF SHARES TO BE ISSUED, THE
ACTUAL AVERAGE SALES PRICE, THE ACTUAL EXCHANGE RATIO, OR THE ACTUAL AMOUNT OF
CONSIDERATION TO BE EXCHANGED.

CALCULATION OF VALUES OF FREDONIA COMMON STOCK

<TABLE>
<S> <C> <C> <C>
First United Average Sales Price.................... $ 32.00 $ 37.00 $ 42.00
First United Common Stock Issued(1)................. 1,600,000 1,600,000 1,600,000
Total Purchase Price(1)............................. 51,200,000 59,600,000 67,200,000
Value Received per Share of Fredonia(1)............. 108.40 125.33 142.27
</TABLE>

23
<PAGE> 30

- ---------------

(1) The First United Common Stock issued excludes the number of shares of First
United Common Stock that may be issued in such amount as is equal to the
intrinsic value of any unexercised Fredonia stock options at the time of the
Merger. First United estimates the intrinsic value of such Fredonia stock
options to approximate $218,000.

EXPENSES OF THE MERGER

First United and Fredonia will each bear their own expenses incident to
preparing for entering into and carrying out the Agreement and the consummation
of the Merger, except that First United will pay all expenses incident to the
preparation of this Proxy Statement and its printing and distribution and for
the filing of necessary applications for approval of the Merger with the Board
and TBC.

FINANCIAL INFORMATION

The following unaudited Pro Forma Combining Balance Sheet as of March 31,
1997, and unaudited Pro Forma Combining Income Statements for the three months
ended March 31, 1997 and 1996 and for the years ended December 31, 1996, 1995,
and 1994 illustrate the effect of the proposed Merger as if the Merger had
occurred at the beginning of the earliest period presented.

These Pro Forma Combining Financial Statements should be read in
conjunction with the historical financial statements of First United which are
incorporated by reference herein and of Fredonia which are included herein.

The Pro Forma Combining Financial Statements are presented for comparative
purposes only and are not intended to be indicative of actual results had the
transactions occurred as of the dates indicated above nor do they purport to
indicate actual results which may be attained in the future.

24
<PAGE> 31

PRO FORMA COMBINING BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
--------------------------------------------------------
PRO FORMA PRO FORMA
FIRST UNITED FREDONIA ADJUSTMENTS(1) COMBINED
------------ -------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and due from banks.................. $ 73,053 $ 11,968 $ -- $ 85,021
Short-term investments................... 58,085 10,509 -- 68,594
Securities available-for-sale............ 429,401 39,036 -- 468,437
Investment securities.................... 219,390 52,656 -- 272,046
Net loans................................ 717,063 127,580 -- 844,643
Premises and equipment................... 29,530 3,133 -- 32,663
Goodwill................................. 10,969 486 -- 11,455
Other real estate owned.................. 412 539 -- 951
Other assets............................. 22,141 3,509 -- 25,650
---------- -------- --------- ----------
Total Assets................... $1,560,044 $249,416 $ -- $1,809,460
========== ======== ========= ==========

LIABILITIES

Total deposits........................... $1,315,402 $223,080 $ -- $1,538,482
Federal funds purchased and securities
sold under agreements to repurchase.... 57,007 -- -- 57,007
Other liabilities........................ 14,169 2,764 -- 16,933
Notes payable............................ 22,414 -- -- 22,414
---------- -------- --------- ----------
Total Liabilities.............. 1,408,992 225,844 -- 1,634,836
---------- -------- --------- ----------
Capital Accounts
Preferred stock........................ -- -- -- --
Common stock........................... 8,246 4,992 (4,992)(2) 9,846
1,600(2)
Surplus................................ 13,297 6,222 (6,222)(2) 21,971
8,674(2)
Undivided profits...................... 131,104 13,589 -- 144,693
Less: Treasury stock................... -- (940) 940(2) --
Unrealized gains (losses) of securities
available-for-sale.................. (1,595) (291) -- (1,886)
---------- -------- --------- ----------
Total Capital Accounts......... 151,052 23,572 -- 174,624
---------- -------- --------- ----------
Total Liabilities and Capital
Accounts..................... $1,560,044 $249,416 $ -- $1,809,460
========== ======== ========= ==========
</TABLE>

25
<PAGE> 32

PRO FORMA COMBINING INCOME STATEMENT

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1997
-----------------------------------------
FIRST UNITED FREDONIA TOTAL
-------------- ---------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Interest income............................................. $27,418 $4,342 $31,760
Interest expense............................................ 12,839 1,909 14,748
------- ------ -------
Net interest income......................................... 14,579 2,433 17,012
Provision for loan losses................................... 359 30 389
------- ------ -------
Net interest income after provision for loan losses......... 14,220 2,403 16,623
------- ------ -------
Other income
Service charges on deposit accounts....................... 1,198 410 1,608
Trust department income................................... 689 -- 689
Security gains............................................ 12 -- 12
Other operating income.................................... 885 136 1,021
------- ------ -------
Total other income................................ 2,784 546 3,330
------- ------ -------
Other expense
Salaries.................................................. 4,207 767 4,974
Pension and other employee benefits....................... 1,419 163 1,582
Net occupancy expense..................................... 886 109 995
Equipment expense......................................... 624 42 666
Data processing expense................................... 709 21 730
Other operating expenses.................................. 2,558 467 3,025
------- ------ -------
Total other expense............................... 10,403 1,569 11,972
------- ------ -------
Income before income taxes.................................. 6,601 1,380 7,981
Income tax expense.......................................... 1,777 426 2,203
------- ------ -------
Income from continuing operations........................... $ 4,824 $ 954 $ 5,778
======= ====== =======
Earnings per share.......................................... $ 0.59 $ 2.02 $ 0.59
======= ====== =======
Weighted average shares outstanding......................... 8,246 472 9,846
======= ====== =======
</TABLE>

26
<PAGE> 33

PRO FORMA COMBINING INCOME STATEMENT

<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1996
-----------------------------------------
FIRST
UNITED FREDONIA TOTAL
---------- ----------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Interest income............................................. $26,109 $4,222 $30,331
Interest expense............................................ 12,460 1,904 14,364
------- ------ -------
Net interest income......................................... 13,649 2,318 15,967
Provision for Loan Losses................................... 93 (750) (657)
------- ------ -------
Net interest income after provision for loan losses......... 13,556 3,068 16,624
------- ------ -------
Other income
Service charges on deposit accounts....................... 1,212 397 1,609
Trust department income................................... 443 -- 443
Security gains (losses)................................... 59 -- 59
Other operating income.................................... 888 132 1,020
------- ------ -------
Total other income................................ 2,602 529 3,131
------- ------ -------
Other expense
Salaries.................................................. 3,818 681 4,499
Pension and other employee benefits....................... 1,252 162 1,414
Net occupancy expense..................................... 835 128 963
Equipment expense......................................... 607 51 658
Data processing expense................................... 450 2 452
Other operating expenses.................................. 2,419 510 2,929
------- ------ -------
Total other expense............................... 9,381 1,534 10,915
------- ------ -------
Income before income taxes.................................. 6,777 2,063 8,840
Income tax expense.......................................... 2,030 641 2,671
------- ------ -------
Income from continuing operations........................... $ 4,747 $1,422 $ 6,169
======= ====== =======
Earnings per share.......................................... $ 0.58 $ 3.18 $ 0.63
======= ====== =======
Weighted average shares outstanding......................... 8,246 472 9,846
======= ====== =======
</TABLE>

27
<PAGE> 34

PRO FORMA COMBINING INCOME STATEMENT

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1996
------------------------------------------
FIRST UNITED FREDONIA TOTAL
-------------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Interest income............................................ $108,027 $15,920 $123,947
Interest expense........................................... 50,770 7,595 58,365
-------- ------- --------
Net interest income........................................ 57,257 8,325 65,582
Provision for loan losses.................................. 1,475 (750) 725
-------- ------- --------
Net interest income after provision for loan losses........ 55,782 9,075 64,857
-------- ------- --------
Other income
Service charges on deposit accounts...................... 4,953 1,656 6,609
Trust department income.................................. 2,180 -- 2,180
Security gains (losses).................................. 122 -- 122
Other operating income................................... 3,037 328 3,365
-------- ------- --------
Total other income............................... 10,292 1,984 12,276
-------- ------- --------
Other expense
Salaries................................................. 15,595 1,910 17,505
Pension and other employee benefits...................... 5,022 657 5,679
Net occupancy expense.................................... 3,670 492 4,162
Equipment expense........................................ 2,480 204 2,684
Data processing expense.................................. 1,934 44 1,978
Other operating expenses................................. 11,781 1,882 13,663
-------- ------- --------
Total other expense.............................. 40,482 5,189 45,671
-------- ------- --------
Income before income taxes................................. 25,592 5,870 31,462
Income tax expense......................................... 7,333 1,757 9,090
-------- ------- --------
Income from continuing operations.......................... $ 18,259 $ 4,113 $ 22,372
======== ======= ========
Earnings per share......................................... $ 2.21 $ 8.71 $ 2.27
======== ======= ========
Weighted average shares outstanding........................ 8,246 472 9,846
======== ======= ========
</TABLE>

28
<PAGE> 35

PRO FORMA COMBINING INCOME STATEMENT

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1995
-----------------------------------------
FIRST UNITED FREDONIA TOTAL
------------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Interest income.......................................... $92,735 $15,344 $108,079
Interest expense......................................... 43,250 7,319 50,569
------- ------- --------
Net interest income...................................... 49,485 8,025 57,510
Provision for loan losses................................ 574 -- 574
------- ------- --------
Net interest income after provision for loan losses...... 48,911 8,025 56,936
------- ------- --------
Other income
Service charges on deposit accounts.................... 4,227 1,649 5,876
Trust department income................................ 1,799 -- 1,799
Security gains (losses)................................ (108) (247) (355)
Other operating income................................. 1,887 424 2,311
------- ------- --------
Total other income............................. 7,805 1,826 9,631
------- ------- --------
Other expense
Salaries............................................... 13,288 1,762 15,050
Pension and other employee benefits.................... 4,209 710 4,919
Net occupancy expense.................................. 2,924 426 3,350
Equipment expense...................................... 1,766 187 1,953
Data processing expense................................ 1,705 10 1,715
Other operating expenses............................... 10,752 2,041 12,793
------- ------- --------
Total other expense............................ 34,644 5,136 39,780
------- ------- --------
Income before income taxes............................... 22,072 4,715 26,787
Income tax expense....................................... 6,868 1,365 8,233
------- ------- --------
Income from continuing operations........................ $15,204 $ 3,350 $ 18,554
======= ======= ========
Earnings per share....................................... $ 1.96 $ 6.47 $ 1.99
======= ======= ========
Weighted average shares outstanding...................... 7,738 491 9,338
======= ======= ========
</TABLE>

29
<PAGE> 36

PRO FORMA COMBINING INCOME STATEMENT

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1994
------------------------------------------
FIRST UNITED FREDONIA TOTAL
-------------- ---------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Interest income............................................ $73,214 $13,400 $86,614
Interest expense........................................... 30,253 5,883 36,136
------- ------- -------
Net interest income........................................ 42,961 7,517 50,478
Provision for loan losses.................................. 334 -- 334
------- ------- -------
Net interest income after provision for loan losses........ 42,627 7,517 50,144
------- ------- -------
Other income
Service charges on deposit accounts...................... 3,229 1,432 4,661
Trust department income.................................. 1,379 -- 1,379
Security gains (losses).................................. 9 (4) 5
Other operating income................................... 1,530 285 1,815
------- ------- -------
Total other income............................... 6,147 1,713 7,860
------- ------- -------
Other expense
Salaries................................................. 11,071 2,197 13,268
Pension and other employee benefits...................... 3,644 627 4,271
Net occupancy expense.................................... 2,435 388 2,823
Equipment expense........................................ 1,318 186 1,504
Data processing expense.................................. 1,511 15 1,526
Other operating expenses................................. 8,818 2,064 10,882
------- ------- -------
Total other expense.............................. 28,797 5,477 34,274
------- ------- -------
Income before income taxes................................. 19,977 3,753 23,730
Income tax expense......................................... 5,969 1,050 7,019
------- ------- -------
Income from continuing operations.......................... $14,008 $ 2,703 $16,711
======= ======= =======
Earnings per share......................................... $ 1.81 $ 5.43 $ 1.79
======= ======= =======
Weighted average shares outstanding........................ 7,738 497 9,338
======= ======= =======
</TABLE>

30
<PAGE> 37

NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS

(1) The adjustments to the Pro Forma Combining Financial Statements do
not include direct expenses related to the Merger, which will be recorded
at the time of the Merger. The pro forma data are not necessarily
indicative of the operating results or financial position that would have
occurred had the Merger been consummated at the dates indicated, nor
necessarily indicative of future operating results of financial position.

(2) The First United Common Stock issued excludes the number of shares
of First United Common Stock that may be issued in such amount as is equal
to the intrinsic value of any unexercised Fredonia stock options at the
time of the Merger. First United estimates the intrinsic value of such
Fredonia stock options to approximate $218,000.

(3) Pro forma per share data are based on the number of shares of
First United Common Stock that would have been outstanding had the Merger
occurred at the beginning of the earliest period presented.

31
<PAGE> 38

FIRST UNITED BANCSHARES, INC.

GENERAL

First United is a multi-bank holding company incorporated in 1980 for the
purpose of holding all of the outstanding stock of The First National Bank of El
Dorado, El Dorado, Arkansas. Between 1981 and 1996, First United acquired nine
other banks in different cities within Arkansas and Texas. The banks acquired
were the First National Bank of Magnolia, Magnolia, Arkansas; Merchants and
Planters Bank, N.A. of Camden, Camden, Arkansas; City National Bank of Fort
Smith, Fort Smith, Arkansas; Commercial Bank at Alma, Alma, Arkansas; The Bank
of North Arkansas, Melbourne, Arkansas; First United Bank, Stuttgart, Arkansas;
FirstBank, Texarkana, Texas; Citizens Bank & Trust, Carlisle, Arkansas; Hazen
First State Bank, Hazen, Arkansas; and First Bank of Arkansas, Brinkley,
Arkansas. On May 16, 1997, the Carlisle, Hazen and Brinkley banks were merged
with and into First United Bank. Each of the banks are wholly-owned by First
United, and, furthermore, are banks organized under the laws of the United
States, Arkansas or Texas and are regulated by the Office of the Comptroller of
the Currency, the Federal Reserve Board, the Arkansas Bank Department or the
Texas Department of Banking. As of March 31, 1997, First United, on a
consolidated basis, had a total of $730,726,000 of loans outstanding, an
allowance for loan losses of $11,481,000, total deposits of $1,315,402,000 and
total stockholders' equity of $151,052,000. In 1996 First United Trust Company
was chartered as a wholly-owned subsidiary of First United to handle and expand
trust business formerly done by First United's subsidiary banks.

The banks offer customary services of banks of similar size and similar
markets, including interest-bearing and non-interest-bearing deposit accounts,
commercial, real estate and personal loans, trust services, correspondent
banking services and safe deposit box activities.

The banking business is highly competitive. The Subsidiary Banks of First
United compete actively with national and state banks, savings and loan
associations, securities dealers, mortgage bankers, finance companies and
insurance companies.

PENDING ACQUISITIONS

City Bank & Trust of Shreveport. On June 18, 1997 First United entered into
an Agreement and Plan of Reorganization to acquire for shares of First United's
Common Stock all of the issued and outstanding shares of City Bank & Trust of
Shreveport, a commercial bank headquartered in Shreveport, Louisiana ("City
Bank"). At March 31, 1997 City Bank had total assets of approximately $61
million and shareholders' equity of approximately $6.6 million. Upon
consummation of the transaction, City Bank would become a wholly-owned
subsidiary of First United. The total number of shares of First United Common
Stock to be issued in the transaction would be 425,000 shares, which represents
less than five percent of the total number of shares of First United outstanding
as of the date hereof. The City Bank acquisition, which is subject to
shareholder and regulatory approvals, is expected to be completed in the fourth
quarter of 1997 or the first quarter of 1998. There can be no assurance that the
transaction will be consummated. Consummation of the Merger is not conditioned
upon consummation of the City Bank acquisition.

The Citizens National Bancshares, Inc. On June 12, 1997 First United
announced that it had signed a letter of intent with The Citizen's National
Bancshares, Inc., a bank holding company headquartered in Hope, Arkansas
("Citizens") that calls for First United to acquire for shares of First United's
Common Stock all of the issued and outstanding shares of Citizens and its two
wholly-owned bank subsidiaries, Citizens National Bank of Hope, Hope, Arkansas
("CNB"), and Peoples Bank & Loan Company, Lewisville, Arkansas ("Peoples"). At
March 31, 1997 Citizens had consolidated assets of approximately $263 million
and shareholders' equity of approximately $26.3 million. Upon consummation of
the transaction CNB and Peoples would become wholly-owned subsidiaries of First
United. The total number of shares of First United Common Stock to be issued in
the transaction would be 1,570,000 shares, which represents less than 19.04
percent of the total number of shares of First United outstanding as of the date
hereof. The Citizens acquisition, which is subject to the parties entering into
a definitive agreement and to shareholder and regulatory approvals, is expected
to be completed in the fourth quarter of 1997 or the first quarter of 1998.
There can be no assurance

32
<PAGE> 39

that the transaction will be consummated. Consummation of the Merger is not
conditioned upon consummation of the Citizens acquisition.

REGULATION

First United is a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"), and as such, is subject to
regulation and examination by the Federal Reserve Board and is required to file
with the Federal Reserve Board annual reports and other information regarding
the business operations of itself and its subsidiaries. The Act provides that a
bank holding company may be required to obtain Federal Reserve Board approval
for the acquisition of more than 5% of the voting securities of substantially
all of the assets of any bank or bank holding company, unless it already owns a
majority of the voting securities of such bank or bank holding company. The Act
prohibits First United from engaging in any business other than banking or
bank-related activities specifically allowed by the Federal Reserve Board. The
Act also prohibits First United and its subsidiaries from engaging in certain
tie-in arrangements in connection with the extension of credit, the lease or
sale of property or the provision of any services.

As a registered bank holding company, First United is subject to the
Federal Reserve Board's position that a bank holding company should serve as a
"source of strength" for its bank subsidiaries. In an early application of the
doctrine the Federal Reserve Board announced that failure to assist a troubled
bank subsidiary when its holding company was in a position to do so was an
unsafe and unsound practice and the Federal Reserve Board claimed the authority
to order a bank holding company to capitalize its subsidiary banks.

In 1991, Congress modified the source of strength doctrine by creating a
system of prompt corrective actions under which the federal banking agencies are
required to take certain actions to resolve the problems of depository
institutions based on their level of capitalization. In a bank holding company
organization, an undercapitalized insured depository institution must submit a
capital restoration plan to the appropriate agency which may not accept the plan
unless the company controlling the institution has guaranteed that the
institution will comply with the plan until the institution has been adequately
capitalized on average during each of four consecutive calendar quarters. The
aggregate liability to the guaranteeing companies is the lesser of an amount
equal to 5 percent of the institution's total assets at the time the institution
became undercapitalized, or the amount which is necessary to bring the
institution into compliance with applicable capital standards.

For a significantly undercapitalized institution, the appropriate agency
must prohibit a bank holding company from making any capital distribution
without prior Federal Reserve Board approval. The agency also may require a bank
holding company to divest or liquidate the institution.

First United and its subsidiaries are subject to various federal banking
laws including the Financial Institutions, Reform, Recovery and Enforcement Act
of 1989 ("FIRREA") which, among other things, made substantive changes to the
deposit insurance system. As a part of the reorganization of the deposit
insurance funds, the deposit premiums for insurance of Bank Insurance Fund
members were significantly increased. FIRREA also authorized bank holding
companies to acquire savings and thrift institutions without tandem operation
restrictions. Furthermore, FIRREA expanded the authority of regulatory agencies
to assess severe penalties ranging from $5,000 per day to $1,000,000 per day, on
persons or institutions that the agency finds in violation of a broad range of
activities.

First United and its subsidiaries are also subject to the provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991, which provided
for industry-wide standards in such areas as real estate lending, further
restrictions on brokered deposits and insider lending, establishment of a
risk-based deposit insurance system, enhanced examinations and audits of banking
institutions, the adoption of a Truth-in-Savings Act, various
merger-and-acquisitions related provisions, and the implementation of
legislation on foreign bank operations in the United States.

The provisions of the Community Reinvestment Act of 1977, as amended, are
applicable to the subsidiary of First United. Federal Regulators are required to
consider performance under the Community

33
<PAGE> 40

Reinvestment Act before approving an application to establish a branch or
acquire another financial institution. The Federal Reserve Board has promulgated
regulations governing compliance with the Community Reinvestment Act in
Regulation BB. Recent regulatory and statutory developments show that compliance
with the Community Reinvestment Act is subject to strict scrutiny and is often
grounds for denial of an application to federal regulators. First United's
subsidiary banks are all rated "satisfactory" for CRA purposes.

On January 19, 1989, the Federal Reserve Board issued final guidelines to
implement risk-based capital requirements for bank holding companies. The
guidelines establish a systematic analytical framework that makes regulatory
capital requirements more sensitive to differences in risk profiles among
banking organizations, takes off-balance sheet exposures into account in
assessing capital adequacy, and minimizes disincentives to holding liquid,
low-risk assets. The guidelines provided for phasing in risk-basked capital
standards through the end of 1992, at which time the standards became fully
effective. The Company's year end 1996 Tier 1 ratio of 16.36% and Total capital
ratio of 9.75% exceeds the current minimum regulatory requirements of 4.00% and
6.00% respectively.

The table below illustrates all of the capital requirements applicable to
First United and its subsidiaries.

REGULATORY COMPARISON OF CAPITAL RATIOS(1)

<TABLE>
<CAPTION>
REGULATORY
MARCH 31, 1997 FIRST UNITED REQUIREMENTS
-------------- ------------ ------------
<S> <C> <C>
Total Capital/Total Assets.................................. 10.43% 6.00%
Primary Capital/Total Assets................................ 10.43% 5.50%
Total Risk-Based Capital.................................... 18.06% 8.00%
Tier 1 Capital.............................................. 16.81% 4.00%
Leverage Ratio.............................................. 9.15% 3.00%
</TABLE>

- ---------------

(1) Excludes unrealized gains and losses on securities available-for-sale.

First United's Subsidiary Banks are subject to a variety of regulations
concerning the maintenance of reserves against deposits, limitations on the
rates that can be charged on loans or paid on deposits, branching, restrictions
on the nature and amounts of loans and investments that can be made and limits
on daylight overdrafts.

The Subsidiary Banks are limited in the amount of dividends they may
declare. Prior approval must be obtained from the appropriate regulatory
authorities before dividends can be paid by the Subsidiary Banks to First United
if the amount of adjusted capital, surplus and retained earnings is below
defined regulatory limits. As of December 31, 1996 First United's Subsidiary
Banks had available for payment of dividends without regulatory approval,
approximately $6,520,000 of undistributed earnings plus the net income earned in
1997. The Subsidiary Banks are also restricted from extending credit or making
loans to or investments in First United and certain other affiliates as defined
in the Act. Furthermore, loans and extensions of credit are subject to certain
other collateral requirements.

OFFICES

First United's executive offices are located in the offices of First
National Bank of El Dorado at Main and Washington Streets, El Dorado, Arkansas
71730.

EMPLOYEES

As of December 31, 1996, First United and its Subsidiary Banks had
approximately 639 full-time equivalent employees.

34
<PAGE> 41

DESCRIPTION OF FIRST UNITED COMMON STOCK

The following summary of the terms of First United Common Stock does not
purport to be complete and is qualified in its entirety by reference to the 1987
Act and First United's Amended and Restated Articles of Incorporation. First
United's Amended and Restated Articles of Incorporation authorizes the issuance
of 24,000,000 shares of Common Stock, $1.00 par value. As of June 30, 1997 there
were 8,246,209 fully paid and non-assessable shares of First United Common Stock
issued and outstanding.

Each share of First United Common Stock is entitled to one vote on all
matters to be voted on by stockholders, including the right to cumulate votes
for the election of the Board of Directors, and to dividends when and if
declared from time to time by the Board of Directors. There is no right of
preemption associated with the First United Common Stock. Upon liquidation, each
share would be entitled to share pro rata in all of the assets of First United
available for distribution to the holders of Common Stock. The transfer agent
for First United Common Stock is First National Bank of El Dorado, El Dorado,
Arkansas. First United Common Stock is traded on NASDAQ-NMS over-the-counter
under the symbol of "UNTD."

RESALE OF FIRST UNITED COMMON STOCK

The First United Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act of 1933 (the "Securities Act"), except for
shares issued to any Fredonia Shareholder who may be deemed to be an "affiliate"
of Fredonia for purposes of Rule 145 under the Securities Act. It is a condition
to the Merger that each such Shareholder enter into an agreement with First
United providing that such affiliate will not transfer any First United Common
Stock received in the Merger except in compliance with the Securities Act and
will not sell or otherwise transfer such Common Stock (or any interest therein)
until financial results of First United and its subsidiaries (including
Fredonia) for at least 30 days of combined operations are published. This
restriction is expected to expire by October 24, 1997. See also "Fredonia
Bancshares, Inc. -- Resulting Ownership in First United."

FREDONIA BANCSHARES, INC.

DESCRIPTION OF BUSINESS

Fredonia is a Texas corporation and a bank holding company which indirectly
owns 100% of Fredonia State Bank, Nacogdoches, Texas ("FSB") through its
middle-tier subsidiary, Fredonia Bancshares of Delaware, Inc. Fredonia may
engage, directly or through subsidiaries, in those activities closely related to
banking which are specifically permitted under the Bank Holding Company Act of
1956, as amended. FSB grants commercial, installment and real estate loans to
customers principally in Nacogdoches and Cherokee Counties, Texas. As of March
31, 1997, on a consolidated basis Fredonia had a total of $127,580,000 of loans
outstanding, net of an allowance for loan losses of $1,418,000, total deposits
of $223,080,000 and total stockholders' equity of $23,572,000.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion and analysis highlights the significant factors
affecting Fredonia's consolidated financial statements. For a more complete
understanding of the following discussion, reference should be made to
Fredonia's consolidated financial statements and related notes thereto presented
elsewhere in this Proxy Statement.

35
<PAGE> 42

BALANCE SHEET ANALYSIS

Financial Condition. The total assets of Fredonia increased by $5,291,000
or 2.2% from December 31, 1995 to December 31, 1996 and by $7,463,000 or 3.1%
from December 31, 1996 to the March 31, 1997 level of $249,416,000. The increase
in assets during both comparison periods was due primarily to growth in the loan
portfolio. At March 31, 1997 assets were $249,416,000 compared to the December
31, 1996 level of $241,953,000. Fredonia receives a major portion of its income
from earning assets which consist of federal funds sold, investment securities
and loans. See Tables 1 and 2 for an analysis of the average balances of
interest-earning assets and interest-bearing liabilities for the years ended
December 31, 1996 and 1995.

Inherent in Fredonia's loan portfolio is credit risk. Fredonia maintains an
allowance for loan losses which is evaluated periodically for adequacy by
management. Management's methodology to determine the adequacy of the allowance
considers reviews of individual loans, recent loan loss experience, current
economic conditions and the risk characteristics of the various categories of
loans. See Tables 5 through 9 for detailed information concerning the loan
portfolio and the allowance for loan losses.

Investment securities are the second largest component of the earning asset
base. The average volume of investment securities has remained relatively stable
during the three months ended March 31, 1997. The decrease in investment
securities from December 31, 1995 to December 31, 1996 funded the increase in
loans during the same time period. See Tables 3 and 4 for details concerning the
composition and maturity ranges of the investment portfolio.

Deposits, the primary source of funding earning assets, increased by
$4,187,000 or 2.0% between December 31, 1995 and December 31, 1996 and by
$6,315,000 or 2.9% between December 31, 1996 and March 31, 1997. The majority of
the increase in deposits for the indicated periods has occurred in the NOW and
money market accounts. See Table 10 for a maturity analysis of certificates of
deposits in excess of $100,000 as of December 31, 1996.

Liquidity and Interest Rate Sensitivity Management. Liquidity is the
ability of an institution to fund the needs of its borrowers, depositors and
creditors. Based on the maturity structure and anticipated loan and deposit
funding requirements, Fredonia anticipates that its liquidity requirements will
continue to be met in the foreseeable future. Fredonia's management believes
that the traditional funding sources of maturing loans and investment
securities, federal funds, the base of core deposits and federal funds lines of
credit with two correspondent banks ($6 million at December 31, 1996) will be
adequate to provide liquidity needs. See Tables 4, 6 and 10 for additional
information on certain investment, loan and time deposit maturities.

Capital. The Federal Reserve Board requires banks to maintain capital based
on "risk-adjusted" assets so that categories of assets with potentially higher
risk will require more capital backing than assets with lower risk. In addition,
banks are required to maintain capital to support, on a risk-adjusted basis,
certain off-balance sheet activities such as loan commitments.

At March 31, 1997, Fredonia's Tier 1 capital and total capital as a
percentage of total risk-adjusted assets exceeded the required minimum levels.
See Table 12 for additional information concerning Fredonia's capital ratios.

36
<PAGE> 43

EARNINGS ANALYSIS

Net income for the first three months of 1997 was approximately $954,000, a
decrease of $468,000 or 32.9% over the same period in 1996. The decrease was due
primarily to a $495,000 (net of federal income tax) credit to loan loss expense
to reverse an overaccrual to the provision for loan losses. For the years ended
December 31, 1996, 1995, and 1994, net income was approximately $4,113,000,
$3,350,000, and $2,703,000, respectively. The annualized return on average
assets and return on average equity for the first three months of 1997 was 1.6%
and 16.3%, respectively, compared to 2.4% and 28.5% for the first three months
of 1996. For the years ended December 31, 1996, 1995 and 1994 the return on
average assets was 1.7%,1.4%, and 1.2%, respectively, while the return on
average equity was 19.2%, 17.8%, and 17.0% respectively.

The primary components of total income and expense which affect net income
are net interest income, the provision for loan losses, non-interest income,
non-interest expense and the provision for income taxes. Significant factors
affecting these categories are presented below.

Net Interest Income. Net interest income for the first three months of 1997
was $2,433,000, a 5.0% increase over the same period in 1996. The primary reason
for the increase was an increase of approximately 10.3% in the volume on average
loans during the period. Interest on loans for the three months ended March 31,
1997 increased by $172,000 or 6.4% compared to the corresponding period of 1996.
As a percentage of total assets at March 31, 1997, loans totaled 51.2% while
investment securities were 36.8%.

For the years ended December 31, 1996, 1995, and 1994, net interest income
was $8,325.000, $8,025,000 and $7,517,000, respectively. The increase during
1996 compared to 1995 was due primarily to the increase in the net yield on
interest earning assets. See Tables 1 and 2 for more detailed information
regarding rate and volume factors which affected net interest income during the
three-year period ended December 31, 1996.

Provision for Loan Losses. For the first three months of 1997 Fredonia
provided $30,000 for loan losses compared to $(750,000) for the comparable
period in 1996. The provision for loan losses was $1,414,000, $2,301,000 and
$2,583,000, respectively, for the years ended December 31, 1996, 1995 and 1994.

Net charge-offs on loans were $137,000 in 1996, $282,000 in 1995 and
$235,000 in 1994. For the three months ended March 31, 1997, net charge-offs
totaled $26,000. The allowance for loan losses was $1,418,000 or 1.1% of loans
at March 31, 1997, compared to $1,414,000 or 1.2% at December 31, 1996, and
$2,301,000 or 2.1% at December 31, 1995. See Tables 7, 8 and 9 for more
information regarding loan quality and the allowance for loan losses.

Non-Interest Income. Total non-interest income for the three months ended
March 31, 1997 and 1996, was $546,000 and $529,000, respectively. Total
non-interest income for the year ended December 31, 1996 was $1,984,000, as
compared to $1,826,000 for 1995 and $1,713,000 in 1994.

Gains on the sale of other real estate included in non-interest income for
the three months ended March 31, 1997 and 1996, was $12,000 and $12,000,
respectively. For the three months ended March 31, 1997 and 1996, there were no
gains or losses on the sale of securities included in non-interest income.

Gains on the sale of other real estate included in non-interest income for
the years ended December 31, 1996, 1995 and 1994 was $12,000, $143,000 and
$47,000, respectively. Losses on the sale of securities included in non-interest
income for the years ended December 31, 1996, 1995 and 1994 was $0, $247,000 and
$4,000, respectively.

Non-Interest Expense. Total non-interest expense for the three months ended
March 31, 1997 and 1996 was $1,569,000 and $1,534,000, respectively.

Total non-interest expense for the year ended December 31, 1996 was
$5,189,000 as compared to $5,136,000 for 1995 and $5,477,000 in 1994.

Expense for Federal Deposit Insurance coverage included in non-interest
expense for the three months ended March 31, 1997 and 1996, was $1,000 and
$10,000, respectively. Federal Deposit Insurance expense for the years ended
December 31, 1996 was $15,000, as compared to $245,000 for 1995 and $447,000 in
1994.

37
<PAGE> 44

Salary and employee benefits expense included in non-interest expense for
the three months ended March 31, 1997 and 1996, was $930,000 and $843,000,
respectively. Salary and employee benefits expense for the year ended December
31, 1996 was $2,567,000, as compared to $2,472,000 for 1995 and $2,824,000 in
1994.

Provision for Income Taxes. Income tax expense for the three months ended
March 31, 1997 and 1996 was $426,000 and $641,000, respectively, or effective
tax rates of 30.9% and 31.1%, respectively. Income tax expense for the years
ended December 31, 1996, 1995 and 1994 was $1,757,000, $1,365,000 and
$1,050,000, respectively. Effective tax rates were 29.9%, 29.0%, and 28.0% for
1996, 1995, 1994, respectively. Note 12 of Notes to the Consolidated Financial
Statements provides further details of the applicable income tax expense for
1996, 1995 and 1994.

ACCOUNTING STANDARDS

In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities
based on consistent application of a "financial-components approach" that
focuses on control. The impact of SFAS No. 125, when adopted on January 1, 1997,
will not be material to Fredonia's financial condition or results of operations.

38
<PAGE> 45

STATISTICAL DISCLOSURES

FREDONIA BANCSHARES, INC.
STATISTICAL DISCLOSURES

TABLE 1 -- COMPARATIVE AVERAGE BALANCES -- YIELDS AND RATES ($ IN THOUSANDS)

The table below shows the average balances of the assets and liabilities of
Fredonia, the interest income or expense associated with those assets and
liabilities, and the computed yield or rate based upon the interest income or
expense for each of the last two years.

ASSETS

<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans............................... $117,733 $ 9,881 8.39% $103,330 $ 8,650 8.37%
Investment securities:
Taxable.......................... 80,329 4,824 6.01% 91,797 5,420 5.90%
Tax-Exempt....................... 16,359 780 4.77% 16,479 797 4.84%
Federal funds sold.................. 8,159 435 5.33% 8,210 477 5.81%
Other............................... 0
-------- ------- -------- -------
Total interest-earning assets......... 222,580 15,920 7.15% 219,816 15,344 6.98%
Non-interest-earning assets:
Cash and due from banks............. 9,631 9,066
Other assets........................ 7,637 7,399
Allowance for loan losses........... (1,664) (2,387)
-------- --------
Total....................... $238,184 $233,894
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-bearing liabilities:
Demand deposits..................... $ 38,081 $ 1,031 2.71% $ 39,329 $ 1,058 2.69%
Savings deposits.................... 36,234 1,044 2.88% 37,855 1,093 2.89%
Time deposits....................... 106,126 5,518 5.20% 102,482 5,106 4.98%
Federal funds purchased(1).......... 28 2 7.14% 159 7 4.40%
Note payable........................ 0 0 0.00% 768 55 0.00%
FHLB advances....................... 0 0 0.00% 0 0 0.00%
Other............................... 0 0 0.00% 0 0 0.00%
-------- ------- -------- -------
Total interest-bearing liabilities.... 180,469 7,595 4.21% 180,593 7,319 4.05%
Non-interest-bearing liabilities:
Demand deposits..................... 34,221 34,304
Other............................... 2,384 1,933
-------- --------
36,605 36,237
Shareholders' equity.................. 21,110 17,832
-------- --------
Total....................... $238,184 $234,662
======== ========
Net interest earnings................. $ 8,325 $ 8,025
======= =======
Net yield on interest-earning
assets.............................. 3.74% 3.65%
</TABLE>

- ---------------

(1) The amount of federal funds purchased at December 31, 1996 was $-0-. The
maximum amount of such borrowings outstanding at any month-end during 1996
was $470,000.

Non-accruing loans have been included in the average loan balances and
interest collected prior to these loans having been placed on non-accrual has
been included in interest income.

39
<PAGE> 46

TABLE 2 -- VOLUME AND YIELD/RATE VARIANCE ANALYSIS

The following table shows the change from year to year for each component
of the net interest margin separated into the amount generated by volume changes
and the amount generated by changes in the yield or rate ($ in thousands):

<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
CHANGE DUE TO: CHANGE DUE TO:
------------------------ ------------------------
YIELD/ YIELD/
VOLUME RATE NET VOLUME RATE NET
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans........................... $1,206 $ 25 $1,231 $591 $ 359 $ 950
Investment securities:
Taxable...................... (677) 81 (596) 51 777 828
Tax-exempt................... (6) (11) (17) 22 14 36
Federal funds sold........... (3) (39) (42) 22 108 130
Other........................ 0 0 0 0 0 0
------ ---- ------ ---- ------ ------
Total interest-earning assets..... $ 520 $ 56 $ 576 $686 $1,258 $1,944
====== ==== ====== ==== ====== ======
Interest paid on:
Interest-bearing demand
deposits..................... $ (34) $ 7 $ (27) $(27) $ 89 $ 62
Savings deposits................ (47) (2) (49) (26) 74 48
Time deposits................... 182 230 412 (54) 1,359 1,305
Federal funds purchased......... (6) 1 (5) 7 0 7
Note payable.................... (55) 0 (55) 14 0 14
Other........................... 0 0 0 0 0 0
------ ---- ------ ---- ------ ------
Total interest-bearing
liabilities..................... $ 40 $236 $ 276 $(86) $1,522 $1,436
====== ==== ====== ==== ====== ======
</TABLE>

The change in interest due to both volume and yield/rate has been allocated
to change due to volume and change due to yield/rate in proportion to the
absolute value of the change of each. The balances of nonaccrual loans and
related income recognized have been included for purposes of these computations.

TABLE 3 -- INVESTMENT PORTFOLIO

The table below indicates carrying values of investment securities by type
at year-end for each of the last two years ($ in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Held-to-Maturity
U.S. Treasury and U.S. Government agencies.................. $33,658 $43,694
Obligations of states and political subdivisions............ 14,755 19,720
Mortgage-backed securities and collateralized mortgage
obligations............................................... 8,769 6,396
Other securities............................................ 845 832
------- -------
Total Held-to-Maturity Investment Securities...... $58,027 $70,642
======= =======
Available-for-Sale
U.S. Treasury and U.S. Government agencies.................. $ 7,989 $ 0
Obligations of states and political subdivisions............ 0 7,620
Mortgage-backed securities and collateralized mortgage
obligations............................................... 26,453 28,971
Other securities............................................ 93 148
------- -------
Total Available-for-Sale Investment Securities.... $34,535 $36,739
======= =======
</TABLE>

40
<PAGE> 47

TABLE 4 -- MATURITY DISTRIBUTION AND YIELDS OF INVESTMENT PORTFOLIO

The following table details the maturities of investment securities at
December 31, 1996 and the weighted average yield for each range of maturities ($
in thousands):

<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------------------------
AFTER ONE AFTER FIVE AFTER
WITHIN BUT WITHIN BUT WITHIN TEN
ONE YEAR YIELD FIVE YEARS YIELD TEN YEARS YIELD YEARS YIELD TOTAL
-------- ----- ---------- ----- ---------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
U.S. Treasury and U.S. Government
agencies.......................... $ 9,571 5.00% $24,087 6.56% $ 0 0.00% $ 0 0.00% $33,658
Obligations of states and political
securities........................ 5,444 4.95% 5,981 4.79% 3,129 4.81% 201 3.97% 14,755
Mortgage-backed securities and
collateralized mortgage
obligations....................... 34 7.00% 480 7.21% 0 0.00% 8,255 6.28% 8,769
Other securities.................... 0 0.00% 0 0.00% 0 0.00% 845 5.64% 845
------- ------- ------ ------- -------
Total Held-to-Maturity
Investment Securities....... $15,049 $30,548 $3,129 $ 9,301 $58,027
======= ======= ====== ======= =======

Available-for-Sale
U.S. Treasury and U.S. Government
agencies.......................... $ 0 0.00% $ 7,989 5.60% $ 0 0.00% $ 0 0.00% $ 7,989
Obligations of states and political
subdivisions...................... 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0
Mortgage-backed securities and
collateralized mortgage
obligations....................... 0 0.00% 0 0.00% 0 0.00% 26,453 6.23% 26,453
Other securities.................... 0 0.00% 0 0.00% 0 0.00% 93 6.70% 93
------- ------- ------ ------- -------
Total Available-for-Sale
Investment Securities....... $ 0 $ 7,989 $ 0 $26,546 $34,535
======= ======= ====== ======= =======
</TABLE>

TABLE 5 -- COMPOSITION OF THE LOAN PORTFOLIO ($ IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Commercial and Real Estate.................................. $107,477 $101,067
Installment................................................. 10,877 9,045
Credit Card................................................. 1,262 1,281
Overdrafts.................................................. 243 206
Student Loans............................................... 4,443 1,228
-------- --------
Total Loans............................................... $124,302 $112,827
======== ========
</TABLE>

TABLE 6 -- LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES ($ IN
THOUSANDS):

<TABLE>
<CAPTION>
MATURING
----------------------------------------
ONE YEAR
WITHIN ONE THROUGH AFTER
YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Commercial and Real Estate............. $64,764 $38,849 $3,864 $107,477
Consumer Loans......................... 5,322 9,992 1,511 16,825
------- ------- ------ --------
Total Loans.................. $70,086 $48,841 $5,375 $124,302
======= ======= ====== ========
</TABLE>

<TABLE>
<CAPTION>
MATURING
------------------------
ONE YEAR
THROUGH AFTER FIVE
FIVE YEARS YEARS
---------- ----------
<S> <C> <C>
Above loans due after one year which have:
Predetermined interest rates.............................. $33,958 $5,375
Floating interest rates................................... 14,883 0
------- ------
$48,841 $5,375
======= ======
</TABLE>

41
<PAGE> 48

TABLE 7 -- NON-PERFORMING LOANS AND PAST DUE LOANS

The table below shows Fredonia's non-performing loans and past due loans at
the end of each of the last two years ($ in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------
1996 1995
---- ----
<S> <C> <C>
Loans accounted for on a nonaccrual basis................... $722 $680
Restructured loans.......................................... 0 0
---- ----
Non-performing loans...................................... $722 $680
==== ====
Accruing loans past due 90 days or more..................... $137 $221
==== ====
</TABLE>

TABLE 8 -- ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES

The table below summarizes Fredonia's loan loss experience for each of the
last two years ($ in thousands):

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1995
------- ------
<S> <C> <C>
Amount of loan loss reserve at beginning of period.......... $ 2,301 $2,583
Loans charged off:
Commercial and Real Estate................................ 106 307
Consumer.................................................. 158 121
------- ------
Total charge-offs........................................... 264 428
Recoveries on loans previously charged off:
Commercial and Real Estate................................ 108 117
Consumer.................................................. 19 29
------- ------
Total recoveries............................................ 127 146
Net charge-offs............................................. 137 282
Additions to allowance charged to operating expense(1)...... (750) 0
------- ------
Amount of loan loss reserve at end of period................ $ 1,414 $2,301
======= ======
Percentage of net charge-offs during period to average loans
outstanding during the period............................. 0.12% 0.27%
======= ======
</TABLE>

- ---------------

(1) The amount charged to operations and the related balance in the allowance
for loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior
loan loss experience, and management's reviews of individual loans.

42
<PAGE> 49

TABLE 9 -- ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

The following table is a summary by allocation category of Fredonia's
allowance for loan losses ($ in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
% LOANS % LOANS
IN EACH IN EACH
1996 CATEGORY 1995 CATEGORY
------ -------- ------ --------
<S> <C> <C> <C> <C>
Commercial and Real Estate..................... $ 549 86.46% $ 579 89.58%
Consumer....................................... 55 13.54% 34 10.42%
Unallocated.................................... 810 1,688
------ ------
$1,414 $2,301
====== ======
</TABLE>

TABLE 10 -- TIME DEPOSITS OF $100,000 OR MORE

The table below shows maturities on outstanding time deposits of $100,000
or more at December 31, 1996 ($ in thousands):

<TABLE>
<CAPTION>
CERTIFICATES
OF DEPOSIT
------------
<S> <C>
3 months or less............................................ $12,813
Over 3 months through 6 months.............................. 6,695
Over 6 months through 12 months............................. 6,455
Over 12 months.............................................. 4,389
-------
$30,352
=======
</TABLE>

TABLE 11 -- RETURN ON EQUITY AND ASSETS

The following table shows consolidated operating and equity ratios of
Fredonia for each of the last two years:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Return on assets............................................ 1.70% 1.34%
Return on equity............................................ 17.73% 16.05%
Dividend payout ratio....................................... 12.18% 13.87%
Equity to assets ratio...................................... 9.59% 8.35%
</TABLE>

TABLE 12 -- COMPARISON OF CAPITAL RATIOS WITH REGULATORY REQUIREMENTS

REGULATORY COMPARISON OF CAPITAL RATIOS (1)

<TABLE>
<CAPTION>
REGULATORY
MARCH 31, 1997 FREDONIA REQUIREMENTS
- -------------- -------- ------------
<S> <C> <C>
Total Capital/Total Assets.................................. 9.96% 6.00%
Primary Capital/Total Assets................................ 9.96% 5.50%
Total Risk-Based Capital.................................... 19.32% 8.00%
Tier 1 Capital.............................................. 18.21% 4.00%
Leverage Ratio.............................................. 9.27% 3.00%
</TABLE>

43
<PAGE> 50

- ---------------

(1) Excludes unrealized gains and losses on securities available-for-sale.

DIRECTORS AND EXECUTIVE OFFICERS

The Board of Directors of Fredonia will be dissolved and positions held by
executive officers of Fredonia will no longer exist upon the consummation of the
Merger. The present directors and executive officers of FSB are expected to
remain in their respective positions. Upon consummation of the Merger, James V.
Kelley, First United's Chairman, will be added to the Board of Directors of FSB
and George Middlebrook, III, a current director of Fredonia will be added to
First United's Board. The current directors and executive officers of Fredonia
and FSB are set forth below:

DIRECTORS AND EXECUTIVE OFFICERS OF FREDONIA AND FSB

<TABLE>
<CAPTION>
SHARES OF
FREDONIA
COMMON STOCK
OWNED
BENEFICIALLY AS
OF JUNE 30,
1997 AND
PRINCIPAL OCCUPATION, PERCENT OF
DIRECTOR(1) EXECUTIVE OFFICER POSITION CLASS IF MORE
NAME AGE SINCE AND DIRECTORSHIP THAN 1%
---- --- ----------- ------------------------------------ ---------------
<S> <C> <C> <C> <C> <C>
Roy Blake......................... 69 1986 Investments; Director of Fredonia & 5,043 1.07%
FSB
W. H. Crouse...................... 55 1994 CEO, Burns Morris & Stewart Inc.; 723
Director of Fredonia & FSB
J. R. Honea....................... 59 1986 Vice President of Fredonia; 1,544
Executive Vice President of FSB;
Director of Fredonia & FSB
Gordon Lewis...................... 47 1989 Chairman of the Board and President 5,245 1.10%
of Fredonia; CEO & President of FSB;
Director of Fredonia & FSB
G. F. Middlebrook III............. 46 1986 Investments; Director of Fredonia & 20,227 4.28%
FSB
Arthur L. Speck, MD............... 60 1986 Physician; Director of Fredonia & 618
FSB
Dan Stansel....................... 52 1986 President, Harrell & Stansel 484
Properties; Director of Fredonia &
FSB
Craig Stripling................... 50 1994 Attorney; Director of Fredonia & FSB 9,215 1.95%
Roger Van Horn.................... 52 1986 Dentist; Director of Fredonia & FSB 5,928 1.26%
EXECUTIVE OFFICERS
Stan Sisco........................ 44 Senior Vice President of FSB 186
Howard Stoneking.................. 50 Treasurer of Fredonia; Controller of 0
FSB
</TABLE>

During 1996, the Board of Directors of Fredonia held two (2) meetings. Two
of the incumbent directors then in office did not attend one of these meetings.
The Board of Directors has an executive and audit committee.
- ---------------

(1) This column represents the year in which the directorship commenced. If a
person serves as director for both Fredonia and FSB, the year disclosed
reflects the date the directorship in Fredonia commenced.

CERTAIN EMPLOYEE PLANS

Fredonia's subsidiary, FSB, has a salary deferred retirement savings plan
qualified under Section 401(k) of the Code for the benefit of all qualifying
employees who have completed one year of service. Participants in the Plan may
make deferral contributions to the plan which are 100% vested at all times.
FSB's Directors determine annually the amount of contributions to be made to the
plan. During 1995 and 1996, FSB matched

44
<PAGE> 51

a minimum of 50% of the employee's contributions up to 5% of salary. These
contributions are fully vested after seven years of service. FSB made matching
and other contributions to the 401(k) plan of $223,000 in 1995 and $300,000 in
1996.

FSB has salary continuation agreements with certain key employees which
provide for payments for a maximum of 15 years beginning when the employee
reaches age 65 or at his or her death. FSB has purchased life insurance policies
on those certain key employees for which FSB is the beneficiary. For the years
1995 and 1996 FSB's compensation expenses under its salary continuation
agreements were $95,464 and $104,136 respectively.

TRANSACTIONS WITH MANAGEMENT

Directors and executive officers of Fredonia and its subsidiaries, their
associates and members of their immediate families were customers of and had
transactions including loans and commitments to lend with subsidiaries of
Fredonia in the ordinary course of business during 1996. All such loans and
commitments were made by the subsidiaries on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present other unfavorable features. Similar
transactions may be expected to take place in the ordinary course of business in
the future. On March 31, 1997, the aggregate of these related party loans was
approximately $1,088,000 or approximately 0.85% of total loans outstanding of
the subsidiaries.

PRINCIPAL SHAREHOLDERS OF FREDONIA

All persons known by Fredonia who as of June 30, 1997, owned of record or
beneficially more than five (5%) of the Fredonia Common Stock and the number of
shares owned beneficially by each of them are reflected in the foregoing table:

<TABLE>
<CAPTION>
SHARES PERCENT
NAME DIRECTLY OWNED OF CLASS
- ---- -------------- --------
<S> <C> <C>
Fredonia Bancshares, Inc. 401(k) Plan....................... 34,121 7.22%
The Estate of Homer L. Bryce (1)............................ 25,704 5.44%
Citizens National Bank, Executor
Mrs. Velma G. Bryce (1)..................................... 25,703 5.44%
Citizens National Bank, Agent for Mrs. Bryce
</TABLE>

- ---------------

(1) Reflects ownership that will occur upon final probate.

All directors and executive officers of Fredonia and its subsidiaries as a
group (11 persons) and members of their immediate families and associates as of
June 30, 1997 owned 49,213 or 10.42% of the outstanding shares of Fredonia
Common Stock. No director or executive officer of Fredonia owns any shares of
First United Common Stock. Neither First United nor any of its subsidiaries nor
any director or executive officer of First United owns any shares of Fredonia
Common Stock.

RESULTING OWNERSHIP IN FIRST UNITED

No Shareholder of Fredonia will own five percent (5%) or more of First
United's outstanding Common Stock subsequent to the Merger.

COMPETITION

Fredonia and FSB encounter strong competition both in making loans and
attracting deposits. The deregulation of the banking industry and the widespread
enactment of state laws which permit multi-bank holding companies as well as a
degree of interstate banking has created a highly competitive environment for
commercial banking in FSB's primary market areas. Moreover, FSB competes with
other commercial and savings banks, savings and loan associations, credit
unions, finance companies, asset-based lenders, mutual

45
<PAGE> 52

funds, insurance companies, brokerage and investment banking companies, and
certain other nonfinancial entities, including retail stores and automobile
dealers which maintain their own credit programs and certain governmental
organizations. Certain of these competitors have substantially greater resources
and lending limits and other certain services which FSB does not currently
provide. Many of FSB's non-bank competitors are not subject to the same
extensive federal and state regulations that govern bank holding companies and
state chartered and insured banks.

LITIGATION

There is no material pending litigation in which Fredonia or FSB is a
party.

OFFICES

Fredonia's executive offices are located at 2400 North Street, Nacogdoches,
Texas 75961 and its branches are located at 2600 South Street in Nacogdoches,
West Side Town Square and Highway 59 in Garrison; and 102 North Marcus in Alto.

EMPLOYEES

As of December 31, 1996, Fredonia and its subsidiaries had 123 employees,
103 of whom are located in Nacogdoches, Texas.

REGULATION AND SUPERVISION

As a bank holding company, Fredonia is subject to regulation by and files
annual and quarterly reports with the Federal Reserve Board, which is authorized
to conduct examinations of Fredonia and its subsidiaries. The Federal Reserve
Board may also exercise cease and desist powers over bank holding companies if
their actions are deemed to represent unsafe or unsound practices or violations
of law.

FSB and its operations are affected by various restrictions and
requirements under the laws of the United States and the State of Texas. Under
these generally applicable federal and state restrictions and requirements, FSB
must maintain reserves against deposits and is restricted with respect to the
nature and amount of the loans which it may make, the interest that it may
charge on those loans and the conditions under which it may pay dividend on its
capital stock.

DESCRIPTION OF FREDONIA STOCK

Fredonia has one class of common stock issued and outstanding. As of June
30, 1997, Fredonia had 2,000,000 shares of authorized common stock, $10.00 par
value, and 472,342 shares outstanding and 26,838 shares held in treasury.
Currently, approximately 392 Shareholders own shares of the Common Stock of
Fredonia.

<TABLE>
<CAPTION>
DIVIDENDS PAID PER SHARE
------------------------------
1994 1995 1996 1997
---- ---- ----- -----
<S> <C> <C> <C> <C>
Common Stock.......................................... $.84 $.90 $1.05 $1.25
</TABLE>

COMPARISON OF RIGHTS OF HOLDERS OF FREDONIA COMMON STOCK AND FIRST UNITED COMMON
STOCK

Fredonia is a corporation organized and existing under the laws of the
State of Texas, including the TBCA. First United is a corporation organized and
existing under the laws of the State of Arkansas, including the Arkansas
Business Corporation Act of 1987 ("1987 Act"). Holders of Fredonia common stock
have the rights, privileges and duties provided by the TBCA, while the holders
of First United Common Stock have the rights, privileges and duties provided by
the 1987 Act.

A majority of the outstanding shares of Fredonia common stock may authorize
the Merger pursuant to the TBCA. Approval by the First United Shareholders is
not required because the Articles of Incorporation of First United, paragraph
Seventh, allows the corporation to effect a merger or share exchange with
another

46
<PAGE> 53

entity pursuant to which the corporation would issue shares of Common Stock in
amount less than or equal to twenty percent (20%) of the number of shares of
Common Stock issued and outstanding immediately prior to the consummation. The
maximum number of 1,610,000 shares of First United Common Stock which would be
issued upon consummation of this transaction represent approximately 19.5% of
First United's issued and outstanding shares of common stock.

The holders of Fredonia Common Stock are not entitled to cumulative voting,
whereas, holders of First United Common Stock are entitled to cumulative voting
for directors. Pursuant to First United's By-Laws, the number of directors of
the corporation may not be less than three nor more than twenty-five. The
Fredonia By-Laws require that the number of directors be at least one, with the
actual number set each year by resolution. Furthermore, holders of Fredonia
Common Stock and First United Common Stock do not have preemptive rights with
respect to issuance of additional securities.

Both Fredonia and First United have corporate power to indemnify their
officers and directors with respect to certain liabilities. Such power is
limited, however, by applicable federal laws and regulations including federal
banking laws and regulations and the applicable state law.

First United's Articles of Incorporation contain a paragraph that may have
the effect of operating as an anti-takeover provision. Paragraph Seventh
contains a super-majority voting requirement of two-thirds ( 2/3) of all shares
issued and outstanding that are entitled to vote for approval of (1) a merger or
share exchange with another corporation unless such merger or share exchange can
be effected under the authority of state law and First United's Articles of
Incorporation without shareholder approval, (2) a transaction to sell, exchange,
lease or otherwise dispose of all, or substantially all, of the corporation's
assets and property except where accomplished in the usual and regular course of
business, (3) a transaction effecting a dissolution or liquidation of the
corporation, or (4) any amendment of the Articles of Incorporation. The Fredonia
Articles of Incorporation do not contain a like provision.

LEGAL MATTERS AND EXPERTS

LEGAL OPINIONS

The legality of the First United Common Stock to be issued after the Merger
has been consummated by and between First United and Fredonia will be passed
upon for First United by Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.,
320 West Capitol Avenue, Suite 1000, Little Rock, Arkansas 72201. Certain legal
and tax matters relating to the Merger will be passed upon for Fredonia by
Bracewell & Patterson, L.L.P., 711 Louisiana Street, Suite 2900, Houston, Texas
77002-2781.

EXPERTS

The consolidated financial statements of First United as of December 31,
1996 and 1995 and for each of the years in the three-year period ended December
31, 1996 incorporated by reference in this Proxy Statement have been audited by
Arthur Andersen LLP, independent public accountants, as set forth in their
report with respect thereto and have been incorporated by reference herein in
reliance upon the authority of said firms as experts in accounting and auditing.

The consolidated financial statements of Fredonia as of December 31, 1996
and 1995 and for each of the years in the three-year period ended December 31,
1996, have been audited by Axley & Rode LLP, independent auditors.

GENERAL

As of the date of this Proxy Statement, the board of directors of Fredonia
does not intend to present, and has not been informed that another person
intends to present, any matter for action at the special meeting of stockholders
other than as discussed in this Proxy Statement. If any other matters properly
come before the meeting, it is intended that the holders of the proxies will act
in accordance with their best judgment.

47
<PAGE> 54

INDEX TO FREDONIA FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Financial Statements
Report of Independent Auditors............................
Consolidated Balance Sheets -- December 31, 1996 and
1995...................................................
Consolidated Statements of Income -- Years ended December
31, 1996, 1995 and 1994................................
Consolidated Statements of Shareholders' Equity -- Years
ended December 31, 1996, 1995 and 1994.................
Consolidated Statements of Cash Flows -- Years ended
December 31, 1996, 1995 and 1994.......................
Notes to Financial Statements -- December 31, 1996........
Financial Statements
Consolidated Balance Sheets -- March 31, 1997 (Unaudited)
and December 31, 1996..................................
Consolidated Statements of Income (Unaudited) -- Three
Months ended March 31, 1997 and 1996...................
Consolidated Statements of Shareholders' Equity
(Unaudited) -- Three Months ended March 31, 1997.......
Consolidated Statements of Cash Flows (Unaudited) -- Three
Months ended March 31, 1997 and 1996...................
Notes to Financial Statements (Unaudited) -- March 31,
1997...................................................
</TABLE>

F-1
<PAGE> 55

AXLEY & RODE LLP
CERTIFIED PUBLIC ACCOUNTANTS
LUFKIN - NACOGDOCHES - CROCKETT - LIVINGSTON
TEXAS

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Fredonia Bancshares, Inc.
Nacogdoches, Texas

We have audited the consolidated balance sheets of Fredonia Bancshares,
Inc. and Subsidiary at December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Fredonia
Bancshares, Inc. and Subsidiary at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.

As discussed more fully in Note 10, Fredonia Bancshares, Inc. has adopted
the accrual method of accounting for certain salary continuation agreements.
Previously the Bank accounted for these agreements using the cash basis method
of accounting.

AXLEY & RODE LLP

/S/ AXLEY & RODE LLP
------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS

Lufkin, Texas
February 20, 1997

F-2
<PAGE> 56

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash and due from banks..................................... $ 10,881 $ 11,331
Federal funds sold.......................................... 9,392 239
Investment Securities:
Available-for-sale........................................ 34,535 36,739
Held-to-maturity (approximate fair value of $58,437 and
$71,286, respectively) (Note 2)........................ 58,027 70,642
Loans, less allowance for loan losses of $1,414 and $2,301,
respectively
(Note 3).................................................. 121,680 109,543
Bank premises and equipment, net (Note 4)................... 3,164 3,281
Accrued interest receivable................................. 1,952 2,255
Other real estate........................................... 574 595
Other assets (Note 6)....................................... 1,748 2,037
-------- --------
Total Assets...................................... $241,953 $236,662
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $ 32,953 $ 33,537
NOW and money market deposit accounts..................... 66,514 63,223
Savings................................................... 10,989 10,882
Time, $100,000 and over (Note 5).......................... 30,352 27,233
Other time (Note 5)....................................... 75,957 77,703
-------- --------
Total Deposits.................................... 216,765 212,578
Federal funds purchased..................................... -- 2,350
Accrued interest and other liabilities...................... 1,995 1,976
-------- --------
Total Liabilities................................. 218,760 216,904
-------- --------
Stockholders' Equity (Notes 6, 7, 8, 10, 11, 12 and 13):
Common stock $10.00 par value, 2,000,000 shares
authorized, 499,180 and 420,554 shares issued,
respectively........................................... 4,992 4,206
Surplus..................................................... 6,222 6,222
Retained earnings........................................... 13,226 10,400
Treasury stock, at cost, 26,738 shares...................... (936) (936)
Unrealized holding losses on securities available-for-sale
net of tax benefit of $159 in 1996 and $69 in 1995........ (311) (134)
-------- --------
Total Stockholders' Equity........................ 23,193 19,758
-------- --------
Total Liabilities and Stockholders' Equity........ $241,953 $236,662
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 57

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Interest Income:
Interest and Fees on loans (Note 3)....................... $ 9,881 $ 8,650 $ 7,700
Interest on Investment Securities:
U. S. Treasury securities.............................. 1,098 1,541 2,010
Obligations of other U. S. government agencies......... 1,542 1,499 668
Mortgage-backed securities and collateralized mortgage
obligations.......................................... 2,135 2,323 1,852
Obligations of states and political subdivisions....... 780 797 761
Other investments...................................... 49 57 62
Interest on federal funds sold............................ 435 477 346
Interest on deposits in banks............................. -- -- 1
------- ------- -------
15,920 15,344 13,400
------- ------- -------
Interest Expense:
Interest on savings, NOW and money market deposit
accounts............................................... 2,075 2,151 2,041
Interest on note payable.................................. -- 55 41
Interest on time deposits................................. 5,518 5,106 3,801
Interest on federal funds purchased....................... 2 7 --
------- ------- -------
7,595 7,319 5,883
------- ------- -------
Net interest income............................... 8,325 8,025 7,517
Provision for loan losses (Note 3).......................... (750) -- --
------- ------- -------
Net interest income after provision for loan
losses.......................................... 9,075 8,025 7,517
------- ------- -------
Other Income:
Service fees.............................................. 1,656 1,649 1,432
Securities gains (losses), net............................ -- (247) (4)
Gains (losses), net -- Other real estate, other assets,
fixed assets........................................... 12 143 47
Other income.............................................. 316 281 238
------- ------- -------
1,984 1,826 1,713
------- ------- -------
Other Expenses:
Salaries and employee benefits (Notes 3, 7 and 10)........ 2,567 2,472 2,824
Occupancy expenses, net................................... 492 426 388
Other operating expenses.................................. 2,115 1,993 1,818
FDIC insurance............................................ 15 245 447
------- ------- -------
5,189 5,136 5,477
------- ------- -------
Income before federal income taxes and change in accounting
principle................................................. 5,870 4,715 3,753
Federal income taxes (Note 6)............................... 1,757 1,365 1,050
------- ------- -------
Income before change in accounting principle................ 4,113 3,350 2,703
Cumulative effect of change in accounting principle (Note
10)....................................................... -- (178) --
------- ------- -------
Net Income........................................ $ 4,113 $ 3,172 $ 2,703
======= ======= =======
Earnings Per Share:
Income before cumulative effect of change in accounting
principle.............................................. $ 8.71 $ 6.83 $ 5.43
Cumulative effect of change in accounting principle....... -- (0.36) --
------- ------- -------
Net Income........................................ $ 8.71 $ 6.47 $ 5.43
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 58

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NET UNREALIZED
COMMON STOCK LOSSES ON
------------------ RETAINED AVAILABLE FOR TREASURY
SHARES PAR VALUE SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL
------- --------- ------- -------- --------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993... 420,554 $4,206 $6,210 $ 5,384 $ -- $ (45) $15,755
Net income................. -- -- -- 2,703 -- -- 2,703
Cash dividend.............. -- -- -- (419) -- -- (419)
Unrealized loss on
investment securities
available-for-sale, net
of tax benefit
of $1,072............... -- -- -- -- (2,082) -- (2,082)
------- ------ ------ ------- ------- ----- -------
Balance, December 31, 1994... 420,554 4,206 6,210 7,668 (2,082) (45) 15,957
Net income................. -- -- -- 3,172 -- -- 3,172
Cash dividend.............. -- -- -- (440) -- -- (440)
Sale of treasury stock..... -- -- 12 -- -- 45 57
Purchase of treasury
stock................... -- -- -- -- -- (936) (936)
Change in unrealized
loss on securities
available-for-sale...... -- -- -- -- 1,948 -- 1,948
------- ------ ------ ------- ------- ----- -------
Balance, December 31, 1995... 420,554 4,206 6,222 10,400 (134) (936) 19,758
Net income................. -- -- -- 4,113 -- -- 4,113
Cash dividend.............. -- -- -- (501) -- -- (501)
Stock dividend............. 78,626 786 -- (786) -- -- 0
Change in unrealized
loss on securities
available-for-sale...... -- -- -- -- (177) -- (177)
------- ------ ------ ------- ------- ----- -------
Balance, December 31, 1996... 499,180 $4,992 $6,222 $13,226 $ (311) $(936) $23,193
======= ====== ====== ======= ======= ===== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 59

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income.................................................. $ 4,113 $ 3,172 $ 2,703
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation............................................ 314 407 332
Provision charged (credited) to operating expense....... (750) -- --
Amortization of goodwill................................ 39 39 13
Deferred Federal income tax (benefit)................... 379 (221) 71
Net amortization on investment securities............... 390 349 695
Loss on sale of available-for-sale investments.......... -- 247 4
(Gain) on sale of ORE................................... (10) (152) (66)
Deferred loan costs, net................................ (119) (164) (90)
Federal Home Loan Bank stock dividends.................. (44) (46) (28)
Change in Assets and Liabilities:
(Increase) decrease in interest receivable............ 303 (341) (174)
(Increase) decrease in prepaid expenses and other
assets............................................... (39) (742) 88
Increase in accrued interest payable.................. 47 187 60
Increase (decrease) in accrued expenses and other
liabilities.......................................... 72 754 (49)
Increase (decrease) in Federal income tax payable..... (100) 140 (193)
-------- -------- --------
Net Cash Provided By Operating Activities........... 4,595 3,629 3,366
-------- -------- --------
Cash Flows From Investing Activities
(Increase) decrease in federal funds sold................. (9,153) 10,544 (5,810)
Purchases of securities available-for-sale................ (973) (6,136) (19,409)
Proceeds from sales of securities available-for-sale...... -- 8,505 8,635
Proceeds from maturities of securities
available-for-sale...................................... 500 6,000 2,100
Purchases of securities to be held-to-maturity............ (7,529) (22,116) (19,617)
Proceeds from maturities of securities held-to-maturity... 18,143 15,228 9,790
Principal payments received on securities................. 4,034 2,565 7,466
Redemption of Federal Home Loan Bank stock................ 31 67 --
Net (increase) in loans................................... (11,373) (14,022) (4,228)
Net (increase) in bank premises and equipment............. (197) (861) (333)
Payments received on previously charged-off loans......... 127 146 390
Proceeds from the sale of ORE............................. 9 180 92
Goodwill resulting from acquisition....................... -- -- (587)
-------- -------- --------
Net Cash Provided By (Used In) Investing
Activities.......................................... (6,381) 100 (21,511)
-------- -------- --------
Cash Flows From Financing Activities
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts.................................... 2,814 (6,388) 18,105
Net increase in time deposits............................. 1,373 4,055 2,852
Increase (decrease) in federal funds purchased............ (2,350) 2,350 --
Increase in notes payable................................. -- 936 1,186
Payments on notes payable................................. -- (2,003) (119)
Dividends paid............................................ (501) (440) (419)
Proceeds from sale of treasury stock...................... -- 57 --
Purchase of treasury stock................................ -- (936) --
-------- -------- --------
Net Cash Provided By (Used In) Financing
Activities.......................................... 1,336 (2,369) 21,605
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (450) 1,360 3,460
Cash and cash equivalents at beginning of year.............. 11,331 9,971 6,511
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 10,881 $ 11,331 $ 9,971
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year For:
Interest................................................ $ 7,548 $ 7,132 $ 5,823
Income taxes............................................ 1,471 1,211 1,236
Noncash Investing and Financing Activities:
Noncash transfers from loans to other real estate....... 78 86 --
Proceeds from sales of other real estate -- financed... 110 224 --
</TABLE>

The accompanying notes are an integral part of these financial statements

F-6
<PAGE> 60

FREDONIA BANCSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fredonia Bancshares, Inc. ("Fredonia"), a bank holding company, owns all of
the capital stock of Fredonia Bancshares of Delaware, Inc. (a middle-tier
holding company) which owns all of the capital stock of Fredonia State Bank (the
"Bank"). The accounting and reporting policies of Fredonia conform to generally
accepted accounting principles and practices within the banking industry. The
following is a description of the more significant of those policies.

Principles of Consolidation:

The consolidated financial statements include the accounts of Fredonia and
its subsidiary. All significant intercompany accounts and transactions have been
eliminated.

Nature of Operations:

The Bank operates under a state bank charter and provides full banking
services, including trust services. As a state bank, the Bank is subject to
regulation of the Texas Department of Banking, and the Federal Deposit Insurance
Corporation. The area served by the Bank is eastern Texas and services are
provided through the Bank's home office and four branch offices.

Use of Estimates:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents:

For the purpose of presentation in the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance sheet
caption "Cash and due from banks."

Investment Securities:

Investment securities are categorized as either trading,
available-for-sale, or held-to-maturity. Management determines the appropriate
classification at the time of purchase. Securities for which the Bank has the
positive intent and ability to hold until maturity are classified as
held-to-maturity and carried at cost adjusted for premiums and discounts.
Securities to be held for indefinite periods of time and not intended to be held
until maturity are classified as available-for-sale and carried at fair value.
Securities held as trading assets are carried at fair value. At December 31,
1996, the Bank had no investment securities that qualified as trading.

Unrealized holding gains and losses, net of federal income tax effect, on
securities available-for-sale are reported as a net amount in a separate
component of stockholders' equity until realized.

Realized gains and losses on the sale of securities available-for-sale are
determined using the specific identification method.

Premiums and discounts are recognized in interest income using the interest
method and the straight-line method over the period to maturity.

The Bank invests in stock of the Federal Reserve Bank and the Federal Home
Loan Bank. These stocks do not have a readily determinable fair value because
their ownership is restricted and they lack a market.

F-7
<PAGE> 61

They are stated at cost on the balance sheet, and included in investment
securities under the caption "other investments" (see Note 2).

Loans:

Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal balance adjusted for any charge-offs, allowance for loan losses,
unearned discount and any deferred fees or costs on originated loans.

Unearned discount on installment loans is recognized as income over the
terms of the loans by the interest method. Interest on other loans is calculated
by using the simple interest method on daily balances of the principal amount
outstanding. The recognition of income on a loan is discontinued, and previously
accrued interest is reversed, when interest or principal payments become 90 days
past due unless, in the opinion of management, the outstanding interest remains
collectible. Interest is subsequently recognized only as received until the loan
is returned to accrual status.

Assets acquired through repossession are recorded at the lower of the
estimated realizable value or the balance of the loan and are carried in other
assets.

Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards (SFAS) No. 114 Accounting by Creditors for Impairment of a
Loan as amended by SFAS No. 118. SFAS No. 114 requires that impaired loans
within the scope of this statement be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Interest income on
impaired loans is recognized in accordance with the accounting principles
employed in the recognition of interest income on nonimpaired loans.

Student loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Any net
unrealized losses would be recognized through a valuation allowance by charges
to income. At December 31, 1996 and 1995 there were no net unrealized losses on
these loans.

Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield on the related loan.

Allowance for Loan Losses:

The allowance is maintained at a level which, in management's judgment, is
adequate to absorb potential losses in the loan portfolio. The amount of the
allowance is based on management's evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations, trends
in historical loss experience, economic conditions and other relevant factors.
The allowance is increased by a provision for loan losses, which is charged to
expense and reduced by charge-offs, net of recoveries. Losses are charged and
recoveries are credited to the allowance for loan losses at the time the loss or
recovery is incurred.

Other Real Estate:

Real estate properties acquired through, or in lieu of, loan foreclosure
are to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the lower
of carrying amount of fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in loss on
foreclosed real estate.

Advertising:

The Bank expenses the production costs of advertising as these costs are
incurred.

F-8
<PAGE> 62

Income Taxes:

The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Bank Premises and Equipment:

Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed on the straight-line method over
the estimated useful lives of the assets. Maintenance and repairs which do not
extend the life of bank premises and equipment are charged to expense.

Fair Value of Financial Instruments:

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash, Due from Banks and Federal Funds Sold -- For these financial
instruments, the carrying amount is a reasonable estimate of fair value.

Investment Securities -- For securities held as investments, fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.

Loan Receivables -- The fair value of loans is estimated using discounted
cash flow analysis, based on interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Loan fair value
estimates included judgments regarding future expected loss experience and risk
characteristics.

Deposit Liabilities -- The fair value of demand deposits, savings accounts,
and money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.

Accrued Interest -- The carrying amounts of accrued interest approximates
their fair values.

Net Income Per Share of Common Stock:

Net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period.

Stock Dividend:

All share and per share amounts for 1996, 1995 and 1994, set forth in the
consolidated financial statements and notes thereto have been retroactively
adjusted for a twenty percent stock dividend paid January 31, 1996.

Intangible Assets:

The excess cost of a purchased bank over the book value of net tangible
assets at date of acquisition is recorded as goodwill and is being amortized
using the straight-line method over a period of fifteen years.

NOTE 2 -- INVESTMENT SECURITIES

The investment securities as shown in the balance sheet are comprised of
securities classified as available-for-sale and held-to-maturity. Investment
securities classified as available-for-sale are carried at market value.
Investment securities classified as held-to-maturity are carried at cost,
adjusted for amortization of premiums and accretion of discounts.

F-9
<PAGE> 63

The amortized cost and approximate fair values of securities
available-for-sale at December 31 were as follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1996:
U. S. Treasury securities................. $ 977 $ 10 $ -- $ 987
Obligations of other U. S. government
agencies............................... 7,120 36 (154) 7,002
Obligations of states and political
subdivisions........................... -- -- -- --
Mortgage-backed securities and
collateralized mortgage obligations.... 26,815 261 (623) 26,453
Other investments......................... 93 -- -- 93
------- ---- ----- -------
Totals............................ $35,005 $307 $(777) $34,535
======= ==== ===== =======
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995:
U. S. Treasury securities................. $ -- $ -- $ -- $ --
Obligations of other U. S. government
agencies............................... 7,648 89 (117) 7,620
Obligations of states and political
subdivisions........................... -- -- -- --
Mortgage-backed securities and
collateralized mortgage obligations.... 29,147 265 (441) 28,971
Other investments......................... 147 1 -- 148
------- ---- ----- -------
Totals............................ $36,942 $355 $(558) $36,739
======= ==== ===== =======
</TABLE>

The amortized cost and approximate fair values of investment securities
held-to-maturity at December 31 were as follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1996:
U. S. Treasury securities................. $17,545 $ 72 $ (35) $17,582
Obligations of other U. S. government
agencies............................... 16,113 205 (29) 16,289
Obligations of states and political
subdivisions........................... 14,755 244 -- 14,999
Mortgage-backed securities and
collateralized mortgage obligations.... 8,769 29 (124) 8,674
Other investments......................... 845 48 -- 893
------- ---- ----- -------
Totals............................ $58,027 $598 $(188) $58,437
======= ==== ===== =======
</TABLE>

F-10
<PAGE> 64

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury securities................... $24,958 $167 $(131) $24,994
Obligations of other U.S. government
agencies................................. 18,736 457 (2) 19,191
Obligations of states and political
subdivisions............................. 19,720 189 (30) 19,879
Mortgage-backed securities and
collateralized mortgage obligations...... 6,396 38 (90) 6,344
Other investments.......................... 832 46 -- 878
------- ---- ----- -------
Totals........................... $70,642 $897 $(253) $71,286
======= ==== ===== =======
</TABLE>

Investment securities with a carrying amount of approximately $27,831,000
and $27,996,000 at December 31, 1996 and 1995, respectively, and an approximate
market value of $28,009,000 and $28,170,000 at December 31, 1996 and 1995,
respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.

The amortized cost and approximate fair values of investment securities
available-for-sale and held-to-maturity at December 31, 1996, by expected
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

<TABLE>
<CAPTION>
SECURITIES HELD TO SECURITIES AVAILABLE
MATURITY FOR SALE
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less..................... $14,827 $14,842 $ -- $ --
Due after one year but less than five
years..................................... 30,094 30,430 8,097 7,989
Due after five years but less than ten
years..................................... 3,291 3,397 -- --
Due after ten years......................... 201 201 -- --
------- ------- ------- -------
48,413 48,870 8,097 7,989
Mortgage-backed securities and
collateralized mortgage obligations....... 8,769 8,674 26,815 26,453
Other securities............................ 845 893 93 93
------- ------- ------- -------
$58,027 $58,437 $35,005 $34,535
======= ======= ======= =======
</TABLE>

Proceeds from sales of investment securities available-for-sale during
1996, 1995 and 1994 were approximately $-0-, $8,505,000, and $8,635,000
respectively. Gross losses of approximately $247,000 and $4,000 respectively
were realized on 1995 and 1994 sales.

F-11
<PAGE> 65

NOTE 3 -- LOANS

Major classifications of loans are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial and real estate.................................. $107,477 $101,067
Installment................................................. 10,877 9,045
Credit card................................................. 1,262 1,281
Overdrafts.................................................. 243 206
Student loans............................................... 4,443 1,228
-------- --------
124,302 112,827
Unearned discount........................................... (1,208) (983)
-------- --------
123,094 111,844
Allowance for loan losses................................... (1,414) (2,301)
-------- --------
$121,680 $109,543
======== ========
</TABLE>

At December 31, 1996 and 1995, the amount of loans owed to the Bank by
their directors, executive officers, principal holders of Fredonia Bancshares,
Inc. equity securities and their related entities totaled approximately
$1,850,000 and $1,886,000, respectively. All of the transactions entered into
between the Bank and these parties were made on substantially the same terms and
conditions as those prevailing at the time for comparable transactions with
other parties.

At December 31, 1996 and 1995, the Bank had loans of approximately $757,000
and $712,000 on which the accrual of interest income has been suspended.

Effective January 1, 1995, the Bank was required to adopt the provisions of
SFAS No. 114 Accounting by Creditors for Impairment of a Loan as amended by SFAS
No. 118. The accounting change was adopted prospectively. The total recorded
investment in impaired loans was approximately $417,000 and $447,000 at December
31, 1996 and 1995, respectively. The total amount of impaired loans is subject
to an allowance for loan losses of approximately $104,000 and $116,000 at
December 31, 1996 and 1995, respectively. The average recorded investment in
impaired loans was approximately $435,000 and $525,000 during 1996 and 1995,
respectively. There was no interest income recognized on the impaired loans
during 1996 or 1995.

In accordance with the provisions established in Statement of Financial
Accounting Standards No. 91, certain nonrefundable loan fees and related direct
costs associated with the lending function are deferred. The deferral of these
fees and costs is accounted for as an adjustment to salaries and employee
benefits and the amounts deferred were approximately $1,260,000 and $1,213,000
in 1996 and 1995, respectively. The amortization of these deferred costs is
amortized to income over the term of the respective loan and loan commitment
periods as a yield adjustment to interest income on loans. The amount of these
costs amortized were approximately $1,065,000 and $1,022,000 in 1996 and 1995,
respectively.

The Bank had approximately $4,443,000 and $1,228,000 of student loans held
for sale at December 31, 1996 and 1995, respectively. The market value of these
loans approximated the carrying value.

F-12
<PAGE> 66

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year............................... $2,301 $2,583 $2,732
Provision (recapture) charged to operations.............. (750) -- --
Loans charged off........................................ (264) (428) (625)
Recoveries............................................... 127 146 390
Merger and acquisition................................... -- -- 86
------ ------ ------
Balance, end of year..................................... $1,414 $2,301 $2,583
====== ====== ======
</TABLE>

NOTE 4 -- BANK PREMISES AND EQUIPMENT

Major classifications of these assets are summarized as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
USEFUL LIVES -----------------------
YEARS 1996 1995
------------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Land................................................ $ 1,267 $ 1,267
Building............................................ 10-40 2,351 2,291
Equipment and automobiles........................... 5-20 2,528 2,421
------- -------
6,146 5,979
Accumulated depreciation............................ (2,982) (2,698)
------- -------
$ 3,164 $ 3,281
======= =======
</TABLE>

Depreciation expense amounted to $313,966, $407,476 and $331,886 in 1996,
1995 and 1994, respectively.

NOTE 5 -- DEPOSITS

The aggregate amount of short-term jumbo CDs, each with a minimum
denomination of $100,000, was approximately $25,963,000 and $22,015,000 at
December 31, 1996 and 1995, respectively.

At December 31, 1996, the scheduled maturities of CDs are as follows:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1997..................................................... $ 85,972
1998..................................................... 10,611
1999..................................................... 3,788
2000..................................................... 4,331
2001 and thereafter...................................... 1,607
--------
$106,309
========
</TABLE>

Deposits due executive officers, directors and principal shareholders of
Fredonia Bancshares, Inc. equity securities totaled approximately $356,000 and
$323,000 at December 31, 1996 and 1995, respectively.

F-13
<PAGE> 67

NOTE 6 -- FEDERAL INCOME TAXES

The provision for federal income taxes from continuing operations consists
of the following:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense...................................... $1,378 $1,586 $ 979
Deferred tax expense (benefit)........................... 379 (221) 71
------ ------ ------
$1,757 $1,365 $1,050
====== ====== ======
</TABLE>

The following reconciliation provides an analysis of the reasons for the
variation between income tax expense allocated to continuing operations and the
expected provision on pretax income:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Expected tax provision on pretax income at 34%........... $1,996 $1,603 $1,276
Effect of Permanent Differences:
Tax-exempt interest income............................. (266) (270) (263)
Disallowed expenses.................................... 27 32 37
------ ------ ------
$1,757 $1,365 $1,050
====== ====== ======
</TABLE>

At December 31, 1996 and 1995, the Bank had a net deferred tax asset of
approximately $74,000 and $363,000, respectively, included in other assets in
the accompanying consolidated balance sheet. The tax effects of the application
of a 34% statutory rate on the following temporary differences which gave rise
to the deferred asset are as follows:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------
1996 1995
----- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Financial basis of securities in excess of tax basis........ $(156) $ (98)
Financial basis of fixed assets in excess of tax basis...... (76) (78)
Tax basis of loans in excess of financial basis............. 210 489
Tax basis of other real estate in excess of financial
basis..................................................... 36 45
Tax basis of deferred loan costs in excess of financial
basis..................................................... (379) (339)
Unrealized net holding loss on securities
available-for-sale........................................ 159 69
Financial basis of accrued deferred compensation liability
in excess of tax basis.................................... 246 242
Other, net.................................................. 34 33
----- -----
$ 74 $ 363
===== =====
</TABLE>

NOTE 7 -- PENSION PLAN

The Bank had a defined benefit pension plan covering substantially all of
its employees. The plan called for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Bank and compensation
rates near retirement. The Bank's funding policy was to contribute annually the
minimum amount that could be deducted for federal income tax purposes.
Contributions were intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.

F-14
<PAGE> 68

The Board of Directors of the Bank adopted a resolution December 21, 1994
to terminate the defined benefit pension plan effective March 13, 1995. As a
result of the termination, all plan assets were distributed according to
guidelines established at the inception of the plan.

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1996 1995 1994
---- ---- ----
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Pension expense Includes the Following Components:
Service cost of the current period........................ $ -- $ 25 $ 71
Interest cost on the projected benefit obligation......... -- 53 61
Less: Actual return on assets held in the plan............ -- (63) (21)
Asset (gain) loss deferred for later recognition.......... -- 22 (27)
Net amortization of transition liability and net gain
(loss)................................................. -- 6 6
---- ---- ----
Pension expense........................................... $ -- $ 43 $ 90
==== ==== ====
</TABLE>

The Bank has a salary deferral retirement savings plan qualified under
Section 401(k) of the Internal Revenue Code of 1986 for the benefit of all
qualifying employees who have completed one year of service. Participants in the
Plan may make deferral contributions to the Plan which are 100% vested at all
times. The Bank's directors determine annually the amount of contributions to be
made to the Plan. During 1996 and 1995, the Bank matched a minimum of 50% of the
employee's contributions up to 5% of salary. Bank matching contributions are
fully vested after seven years of service. In 1996, 1995 and 1994, the Bank made
contributions of $300,000, $223,000, and $162,000, respectively, to the 401(k)
Plan.

NOTE 8 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the consolidated financial instruments at
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Financial assets:
Cash, due from banks, and federal funds sold.............. $ 20,273 $ 20,273
Investment securities..................................... 92,562 92,972
Loans..................................................... 123,094 122,899
Less allowance for loan losses............................ (1,414) (1,414)
-------- --------
$234,515 $234,730
======== ========
Financial liabilities -- Deposits........................... $216,765 $217,120
======== ========
</TABLE>

The estimated fair values of the consolidated financial instruments at
December 31, 1995 are as follows:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Financial assets:
Cash, due from banks, and federal funds sold.............. $ 11,570 $ 11,570
Investment securities..................................... 107,381 108,025
Loans..................................................... 111,844 110,788
Less: allowance for loan losses........................... (2,301) (2,301)
-------- --------
$228,494 $228,082
======== ========
Financial liabilities -- Deposits........................... $212,578 $212,939
======== ========
</TABLE>

F-15
<PAGE> 69

NOTE 9 -- COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
position. The contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit and credit card arrangements is represented by the
contractual amount of those instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for
on-balance-sheet instruments.

At December 31, 1996, the Bank had the following financial instruments
whose contract amounts represent credit risk:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Commitments to extend credit................................ $15,105
Standby letters of credit................................... 184
Credit card arrangements.................................... 3,614
-------
$18,903
=======
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies but largely
consists of real estate, inventory, equipment and accounts receivable. Credit
card loan commitments are unsecured.

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. Collateral held for the
standby letters of credit primarily consists of deposits, inventory and
equipment; however, some letters are unsecured.

The Bank is also subject to claims and lawsuits which arise primarily in
the ordinary course of business. Based on information presently available and
advice received from legal counsel representing the Bank in connection with such
claims and lawsuits, it is the opinion of management that the disposition or
ultimate determination of such claims and lawsuits will not have a material
adverse effect on the financial position of the Bank.

The Bank has two lines of credit totaling $6,000,000 at December 31, 1996
for the purchase of Federal funds. At December 31, 1996, the amount outstanding
under these lines of credit was $-0-.

NOTE 10 -- SALARY CONTINUATION AGREEMENTS

The Bank has salary continuation agreements with certain key employees
which provide for annual payments for a maximum of 15 years beginning when the
employee reaches age 65 or at his/her death. The Bank has purchased life
insurance policies on those certain key employees for which the Bank is the
beneficiary.

In 1995, the Bank changed its method of accounting for the salary
continuation agreements, whereby the discounted present value of the estimated
future payments are accrued. Previously, the amount of payments

F-16
<PAGE> 70

made had been expensed as paid. The cumulative effect of this change has been
shown as a charge to income of approximately $178,000 on the prior year's
statement of income.

For the years 1996, 1995 and 1994, compensation expense under the Bank's
salary continuation agreement was $104,136, $95,464 and $69,976, respectively.

NOTE 11 -- CONCENTRATION OF CREDIT RISK

The Bank grants agribusiness, commercial, consumer and residential loans to
customers located primarily in Nacogdoches County. Although the Bank has a
diversified loan portfolio, its debtors' ability to honor their contracts is
primarily dependent upon the economy of Nacogdoches County.

NOTE 12 -- RESTRICTIONS ON RETAINED EARNINGS

The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1996,
approximately $9,988,000 of retained earnings were available for dividend
declaration without prior regulatory approval.

NOTE 13 -- REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions,
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.

As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.

<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- --------------------------- -----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ ------ ------------------ ------- -------------------
(DOLLARS IN (DOLLARS IN THOUSANDS)
THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to risk weighted $23,866 19.47% $9,804 greater than 8.0% $12,255 greater than 10.0%
assets)............................. or equal to or equal to
Tier I Capital (to risk weighted $22,452 18.32% $4,902 greater than 4.0% $7,353 greater than 6.0%
assets)............................. or equal to or equal to
Tier I Capital (to average assets).... $22,452 9.27% $9,686 greater than 4.0% $12,108 greater than 5.0%
or equal to or equal to
</TABLE>

F-17
<PAGE> 71

<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- --------------------------- -----------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ ------ ------------------ ------- -------------------
(DOLLARS IN (DOLLARS IN THOUSANDS)
THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital (to risk weighted $19,725 17.44% $9,047 greater than 8.0% $11,309 greater than 10.0%
assets)............................. or equal to or equal to
Tier I Capital (to risk weighted $18,300 16.18% $4,523 greater than 4.0% $6,785 greater than 6.0%
assets)............................. or equal to or equal to
Tier I Capital (to average assets).... $18,300 7.82% $9,363 greater than 4.0% $11,704 greater than 5.0%
or equal to or equal to
</TABLE>

F-18
<PAGE> 72

NOTE 14 -- PARENT COMPANY FINANCIAL INFORMATION

Presented below are the condensed balance sheets and statements of income
and cash flows for the Parent Company, Fredonia Bancshares, Inc.:

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Cash and cash equivalents................................... $ 548 $ 1,049
Investment in subsidiary.................................... 22,645 18,702
Other assets................................................ -- 7
------- -------
Total Assets....................................... $23,193 $19,758
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Common stockholders' equity................................. $23,193 $19,758
------- -------
Total Liabilities And Stockholders' Equity......... $23,193 $19,758
======= =======
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1995
------ ------
<S> <C> <C>
Statements of Income (Dollars in Thousands)
Income:
Dividends from subsidiary................................. $ -- $1,700
Interest income........................................... -- 35
------ ------
Total Income....................................... -- 1,735
------ ------
Expenses:
Interest expense.......................................... -- 65
Federal income taxes...................................... 7 --
------ ------
Total Expenses..................................... 7 65
------ ------
Income (loss) before equity in undistributed net income of
subsidiary................................................ (7) 1,670
Equity in undistributed net income of subsidiary............ 4,120 1,502
------ ------
Net Income......................................... $4,113 $3,172
====== ======
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1996 1995
------ -------
<S> <C> <C>
Statements of Cash Flows (Dollars in Thousands)
Cash Flows From Operating Activities:
Net income................................................ $4,113 $ 3,172
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Equity in undistributed net income of subsidiary bank... (4,120) (1,502)
Net accretion on investment securities.................. -- (19)
(Increase) decrease in accrued interest receivable...... -- 15
Decrease in other assets................................ 7 --
------ -------
Net Cash Provided By Operating Activities.......... -- 1,666
------ -------
Cash Flows from Investing Activities:
Purchase of investment securities......................... -- (1,495)
Maturities of held-to-maturity securities................. -- 3,000
------ -------
Net Cash Provided By Investing Activities.......... -- 1,505
------ -------
Cash Flows From Financing Activities:
Increase in notes payable................................. -- 936
Payments made on notes payable............................ -- (2,003)
Dividends paid............................................ (501) (440)
Proceeds from sale of treasury stock...................... -- 57
Purchase of treasury stock................................ -- (936)
------ -------
Net Cash (Used In) Financing Activities............ (501) (2,386)
------ -------
Net increase (decrease) in cash and cash equivalents........ (501) 785
Cash and cash equivalents at beginning of year.............. 1,049 264
------ -------
Cash and cash equivalents at end of year.................... $ 548 $ 1,049
====== =======
</TABLE>

F-19
<PAGE> 73

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and due from banks..................................... $ 11,968 $ 10,881
Federal funds sold.......................................... 10,509 9,392
Investment Securities:
Available-for-sale........................................ 39,036 34,535
Held-to-maturity (approximate fair value of $52,678 and
$58,437, respectively)................................. 52,656 58,027
Loans, less allowance for loan losses of $1,418 and $1,414,
respectively.............................................. 127,580 121,680
Bank premises and equipment, net............................ 3,133 3,164
Accrued interest receivable................................. 1,932 1,952
Other real estate........................................... 539 574
Other assets................................................ 2,063 1,748
-------- --------
Total assets...................................... $249,416 $241,953
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................... $ 34,309 $ 32,953
NOW and money market deposit accounts..................... 70,625 66,514
Savings................................................... 10,982 10,989
Time, $100,000 and over................................... 30,643 30,352
Other time................................................ 76,521 75,957
-------- --------
Total deposits.................................... 223,080 216,765
Accrued interest and other liabilities...................... 2,764 1,995
-------- --------
Total liabilities................................. 225,844 218,760
-------- --------
Stockholders' Equity:
Common stock $10.00 par value, 2,000,000 shares
authorized, 499,180 shares issued...................... 4,992 4,992
Surplus..................................................... 6,222 6,222
Retained earnings........................................... 13,589 13,226
Treasury stock, at cost, 26,838 shares in 1997 and 26,738
shares in 1996............................................ (940) (936)
Unrealized holding losses on securities available-for-sale
net of tax benefit of $150 in 1997 and $159 in 1996....... (291) (311)
-------- --------
Total Stockholders' Equity........................ 23,572 23,193
-------- --------
Total Liabilities and Stockholders' Equity........ $249,416 $241,953
======== ========
</TABLE>

See notes to unaudited consolidated financial statements.

F-20
<PAGE> 74

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Interest Income:
Interest and Fees on loans................................ $2,857 $2,685
Interest on Investment Securities:
U. S. Treasury securities.............................. 288 308
Obligations of other U. S. government agencies......... 354 402
Mortgage-backed securities and collateralized mortgage
obligations........................................... 558 546
Obligations of states and political subdivisions....... 161 219
Other investments...................................... 11 12
Interest on federal funds sold............................ 113 50
------ ------
4,342 4,222
------ ------
Interest Expense:
Interest on savings, NOW and money market deposit
accounts............................................... 549 522
Interest on time deposits................................. 1,360 1,380
Interest on federal funds purchased....................... -- 2
------ ------
1,909 1,904
------ ------
Net interest income............................... 2,433 2,318
Provision for loan losses................................... 30 (750)
------ ------
Net interest income after provision for loan
losses.......................................... 2,403 3,068
------ ------
Other Income:
Service fees.............................................. 410 397
Gains (losses), net -- Other real estate, other assets,
fixed assets........................................... 10 13
Other income.............................................. 126 119
------ ------
546 529
------ ------
Other Expenses:
Salaries and employee benefits............................ 930 843
Occupancy expenses, net................................... 109 128
Other operating expenses.................................. 529 553
FDIC insurance............................................ 1 10
------ ------
1,569 1,534
------ ------
Income before federal income taxes.......................... 1,380 2,063
Federal income taxes........................................ 426 641
------ ------
Net Income........................................ $ 954 $1,422
====== ======
Earnings Per Share:
Net Income (Note 2)............................... $ 2.02 $ 3.18
====== ======
</TABLE>

See notes to unaudited consolidated financial statements.

F-21
<PAGE> 75

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK LOSSES ON
------------------- RETAINED AVAILABLE FOR TREASURY
SHARES PAR VALUE SURPLUS EARNINGS SALE SECURITIES STOCK TOTAL
------- --------- ------- --------- --------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996................... 499,180 $4,992 $6,222 $13,226 $(311) $(936) $23,193
Net income................................. -- -- -- 954 -- -- 954
Cash dividend.............................. -- -- -- (591) -- -- (591)
Purchase of Treasury Stock................. -- -- -- -- -- (4) (4)
Change in unrealized loss on securities
available-for-sale....................... -- -- -- -- 20 -- 20
------- ------ ------ ------- ----- ----- -------
Balance, March 31, 1997...................... 499,180 $4,992 $6,222 $13,589 $(291) $(940) $23,572
======= ====== ====== ======= ===== ===== =======
</TABLE>

See notes to unaudited consolidated financial statements.

F-22
<PAGE> 76

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities
Net income.................................................. $ 954 $ 1,422
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation.............................................. 81 80
Provision charged (credited) to operating expense......... 30 (750)
Amortization of goodwill.................................. 10 10
Deferred Federal income tax (benefit)..................... (391) 4
Net amortization on investment securities................. 73 117
(Gain) on sale or ORE..................................... (12) (12)
Deferred loan costs, net.................................. (12) (17)
Federal Home Loan Bank stock dividends.................... (11) (12)
Change in Assets and Liabilities:
Decrease in interest receivable......................... 20 84
Decrease in prepaid expenses and other assets........... 57 84
Increase (decrease) in accrued interest payable......... (45) 54
Increase (decrease) in accrued expenses and other
liabilities............................................ (11) 89
Increase in Federal income tax payable.................. 825 534
-------- -------
Net Cash Provided by Operating Activities.......... 1,568 1,687
-------- -------
Cash Flows From Investing Activities (Increase) in federal
funds sold................................................ (1,117) (5,485)
Purchases of securities available-for-sale................ (4,054) --
Purchases of securities to be held-to-maturity............ (1,004) --
Proceeds from maturities of securities held-to-maturity... 5,185 5,735
Principal payments received on securities................. 710 1,404
Net (increase) in loans................................... (5,960) (2,809)
Net (increase) in bank premises and equipment............. (50) (44)
Payments received on previously charged-off loans......... 42 45
Proceeds from the sale of ORE............................. 47 17
-------- -------
Net Cash (Used in) Investing Activities............ (6,201) (1,137)
-------- -------
Cash Flows From Financing Activities
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts.................................... 5,460 (2,014)
Net increase in time deposits............................. 855 2,137
(Decrease) in federal funds purchased..................... -- (2,350)
Dividends paid............................................ (591) (501)
Purchase of treasury stock................................ (4) --
-------- -------
Net Cash Provided by (Used in) Financing
Activities....................................... 5,720 (2,728)
-------- -------
Net increase (decrease) in cash and cash equivalents........ 1,087 (2,178)
Cash and cash equivalents at beginning of year.............. 10,881 11,331
-------- -------
Cash and cash equivalents at end of year.................... $ 11,968 $ 9,153
======== =======
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest.................................................. $ 1,980 $ 1,915
Income taxes.............................................. 20 103
</TABLE>

See notes to unaudited consolidated financial statements.

F-23
<PAGE> 77

FREDONIA BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 1: FINANCIAL STATEMENT PRESENTATION

The consolidated balance sheet as of March 31, 1997, the consolidated
statements of income and cash flows for the three months ended March 31, 1997
and 1996 and the statement of stockholders' equity for the three months ended
March 31, 1997, have been prepared by Fredonia, without audit. In the opinion of
management, all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position, results of operations and
cash flows at March 31, 1997 and for all period presented have been made.
Operating results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the entire year ending
December 31, 1997.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted in accordance with Article 10 of Regulation S-X. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended December
31, 1996 included elsewhere herein.

NOTE 2: NET INCOME PER SHARE

Net income per share of common stock is computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period (472,411 shares and 472,442 shares for the three-month periods ended
March 31, 1997 and 1996, respectively).

F-24
<PAGE> 78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Arkansas Business Corporation Act of 1987 (the "Act") codified at Ark.
Code Ann. ss.4-27-101 et. seq. and more specifically at Ark. Code Ann.
ss.4-27-850 permits an Arkansas Corporation to indemnify directors, officers,
employees and agents under some circumstances, and mandates indemnification
under certain limited circumstances. The Act permits a corporation to indemnify
a director, officer, employee, or agent for expenses (including attorneys'
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification against expenses incurred by a director, officer, employee or
agent in connection with his defense of a proceeding against such person for
actions in such capacity is mandatory to the extent that such person has been
successful on the merits. If a director, officer, employee, or agent is
determined to be liable to the corporation, indemnification for expenses is not
allowable, subject to limited exceptions where a court deems the award of
expenses appropriate. The Act grants express power to an Arkansas corporation
to purchase liability insurance for its directors, officers, employees and
agents, regardless of whether any such person is otherwise eligible for
indemnification by the corporation. Advancement of expenses is permitted, but a
person receiving such advances must repay those expenses if it is ultimately
determined that he is not entitled to indemnifications.

The Amended and Restated Articles of Incorporation and the Bylaws of First
United provides that the directors, officers, employees and agents of First
United shall be indemnified as set forth below.

AMENDED AND RESTATED ARTICLES OF INCORPORATION

TWELFTH. The corporation may indemnify any person who was, or is, a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding to the fullest extent permitted by the Arkansas
Business Corporation Act as it now exists or may hereafter be amended.

BY-LAWS

Article VII, Section 6. INDEMNIFICATION. Every person who was or is a
party or is threatened to be made a party to or is involved in any action,
suit, proceeding, whether civil, criminal, administrative, or investigative, by
reason of the fact that he is or was a director or officer of the Corporation
or is or was serving at the request of the Corporation as a director or officer
of another corporation, or as its representative in a partnership, joint
venture, trust, or other enterprise, shall be indemnified and held harmless to
the fullest extent legally permissible under and pursuant to any procedure
specified in the Arkansas Business Corporation Act of the State of Arkansas, as
amended and as the same may be amended hereafter, against all expenses,
liabilities, and losses (including attorney's fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by
him in connection therewith. Such right of indemnification shall be a contract
right that may be enforced in any lawful manner by such person. Such right of
indemnification shall not be exclusive of any other right which such director
or officer may have or hereafter acquire and, without limiting the generality
of such statement, he shall be entitled to his rights of indemnification under
any agreement, vote of stockholders, provisions of law, or otherwise, as well
as his rights under this paragraph.

The board of directors may cause the Corporation to purchase and maintain
insurance on behalf of any person who is or was a Director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out
of such status, whether or not the Corporation would have power to indemnify
such person.

II-1
<PAGE> 79

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2 Agreement and Plan of Reorganization Between First United Bancshares, Inc., First United of
Texas, Inc. and Fredonia Bancshares, Inc. and Plan of Merger attached as Exhibit A thereto. (2)

3(i) Articles of Incorporation of First United Bancshares, Inc. (2)

3(ii) Bylaws of First United Bancshares, Inc. (2)

5 Opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. (1)

8 Tax Opinion of Bracewell & Patterson, L.L.P. regarding Fredonia Bancshares, Inc. Acquisition
(1)

21 Subsidiaries of First United Bancshares, Inc. (2)

23(a) Consent of Arthur Andersen LLP (1)

23(b) Consent of Axley & Rode LLP (1)

23(c) Consent of Hoefer & Arnett, Incorporated (1)

24 Power of Attorney - Signature Page of the Registration Statement (2)

99 Fredonia Bancshares, Inc. Form of Proxy (1)
</TABLE>

- ----------------

(1) Filed herewith.
(2) As previously filed.

ITEM 22. UNDERTAKINGS

(1) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(2) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus,
to deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.

(3) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.

(4) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (3) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not

II-2
<PAGE> 80

be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.

(6) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

(7) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.

(8) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement.

(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;

(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;

Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 (ss.239.13 of this chapter)
or Form S-8 (ss.239.16b of this chapter), and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.

II-3
<PAGE> 81

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Amendment No. 1 to Registration Statement No. 333-30007 to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of El Dorado, State of Arkansas, on July 17, 1997.

FIRST UNITED BANCSHARES, INC.

/s/ James V. Kelley
----------------------------------------
James V. Kelley
Chairman, President and Chief
Executive Officer

/s/ John E. Burns
----------------------------------------
John E. Burns,
Vice President, Chief Financial
Officer and Principal Accounting Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to Registration Statement No. 333-30007 has been signed by the following
persons in the capacities and on the dates indicated.

IN WITNESS WHEREOF, I have hereunto set my hand this 17th day of July, 1997.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James V. Kelley Chairman, President, July 17, 1997
----------------------------- Chief Executive Officer
James V. Kelley and Director

/s/ John E. Burns Vice President, Chief July 17, 1997
----------------------------- Financial Officer and
John E. Burns Principal Accounting Officer

/s/ E. Larry Burrow * Director July 17, 1997
-----------------------------
E. Larry Burrow

Director
-----------------------------
Claiborne P. Deming

/s/ Tommy Hillman * Director July 17, 1997
-----------------------------
Tommy Hillman
</TABLE>

<PAGE> 82

<TABLE>
<S> <C> <C>
/s/ Roy E. Ledbetter * Director July 17, 1997
-----------------------------
Roy E. Ledbetter

/s/ Michael F. Mahony * Director July 17, 1997
-----------------------------
Michael F. Mahony

/s/ Richard H. Mason * Director July 17, 1997
-----------------------------
Richard H. Mason

/s/ Jack W. McNutt * Director July 17, 1997
-----------------------------
Jack W. McNutt

/s/ R. Madison Murphy * Director July 17, 1997
-----------------------------
R. Madison Murphy

/s/ Robert C. Nolan * Director July 17, 1997
-----------------------------
Robert C. Nolan

/s/ Cal Partee, Jr. * Director July 17, 1997
-----------------------------
Cal Partee, Jr.

/s/ Carolyn Tennyson * Director July 17, 1997
-----------------------------
Carolyn Tennyson

/s/ John D. Trimble, Jr. * Director July 17, 1997
-----------------------------
John D. Trimble, Jr.

*By: JAMES V. KELLEY
- --------------------------------------
JOHN E. BURNS
James V. Kelley
John E. Burns
(Attorneys-in-fact)
</TABLE>

<PAGE> 83
FIRST UNITED BANCSHARES, INC.
FORM S-4 REGISTRATION STATEMENT

Index to Exhibits

<TABLE>
<S> <C>
2 Agreement and Plan of Reorganization Between First United Bancshares,
Inc., First United of Texas, Inc. and Fredonia Bancshares, Inc. and
Plan of Merger attached as Exhibit A thereto. (2)

3(i) Articles of Incorporation of First United Bancshares, Inc. (2)

3(ii) Bylaws of First United Bancshares, Inc. (2)

5 Opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C. (1)

8 Tax Opinion of Bracewell & Patterson, L.L.P. regarding Fredonia
Bancshares, Inc. Acquisition (1)

21 Subsidiaries of First United Bancshares, Inc. (2)

23(a) Consent of Arthur Andersen LLP (1)

23(b) Consent of Axley & Rode LLP (1)

23(c) Consent of Hoefer & Arnett, Incorporated (1)

24 Power of Attorney - Signature Page of the Registration Statement (2)

99 Fredonia Bancshares, Inc. Form of Proxy (1)
</TABLE>

(1) Filed herewith.
(2) Previously filed.

<PAGE> 1

EXHIBIT 5

Opinion of Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C.

<PAGE> 2

Exhibit 5

July 17, 1997

First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730

Gentlemen:

In our opinion, the shares of First United Bancshares, Inc. common
stock $1.00 par value per share, being registered under Registration Statement
No. 333-30007, filed on June 27, 1997, and Amendment No. 1 thereto, when issued
in exchange for the outstanding common stock of Fredonia Bancshares, Inc., will
constitute legally issued, fully paid, nonassessable shares of First United
Bancshares, Inc.

We consent to the inclusion of this opinion in the Registration
Statement and reference to us under the caption "Legal Opinions" in the Proxy
Statement included in the Registration Statement.

MITCHELL, WILLIAMS, SELIG,
GATES & WOODYARD, P.L.L.C.

/s/ Mitchell, Williams, Selig,
Gates & Woodyard, P.L.L.C.

<PAGE> 1

EXHIBIT 8

Tax Opinion of Bracewell & Patterson, L.L.P.

Regarding Fredonia Bancshares, Inc. Acquisition

<PAGE> 2
EXHIBIT 8

July 14, 1997

Board of Directors
Fredonia Bancshares, Inc.
2400 North Street
Nacogdoches,Texas 75961

Dear Sirs:

We are special tax counsel to Fredonia Bancshares, Inc. ("Fredonia")
in connection with certain transactions contemplated by the Agreement and Plan
of Reorganization, dated as of April 25, 1997 among First United Bancshares,
Inc. ("First United"), First United of Texas, Inc. and Fredonia, pursuant to
which First United would issue to the shareholders of Fredonia shares of First
United Stock in exchange for all the issued and outstanding stock of Fredonia
through a merger transaction (the "Merger") in which Fredonia would be merged
with and into First United. In that connection, our opinion is as set forth in
the section entitled, "THE MERGER - Federal Income Tax Consequences" in this
Registration Statement.

We hereby consent to the filing of this letter as Exhibit 8 to the
Registration Statement on Form S-4 which the Proxy Statement is a part and to
the reference to us in the section entitled "THE MERGER - Federal Income Tax
Consequences" in the Proxy Statement.

Very truly yours,

/s/ Bracewell & Patterson, L.L.P.
-----------------------------------
Bracewell & Patterson, L.L.P.

<PAGE> 1
EXHIBIT 23(a)

Consent of Arthur Andersen LLP

<PAGE> 2

EXHIBIT 23(a)

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation by reference in this Amendment No. 1 to Registration Statement on
Form S-4 No. 333-30007 of our report dated January 22, 1997 included in First
United Bancshares, Inc.'s Form 10-K for the year ended December 31, 1996 and to
all references to our Firm included in this Registration Statement.

ARTHUR ANDERSEN LLP

Jackson, Mississippi

July 15, 1997

<PAGE> 1

EXHIBIT 23(b)

Consent of Axley & Rode LLP

<PAGE> 2

AXLEY & RODE LLP
CERTIFIED PUBLIC ACCOUNTANTS
LUFKIN o NACOGDOCHES o CROCKETT o LIVINGSTON
TEXAS

EXHIBIT 23(b)

CONSENT OF INDEPENDENT AUDITORS

As independent auditors, we hereby consent to the use of our report dated
February 20, 1997 on the consolidated financial statements of Fredonia
Bancshares, Inc. as of December 31, 1996 and for the year then ended and to all
references to our firm included in this Registration Statement on Form S-4 and
related Prospectus of First United Bancshares, Inc. for the registration of up
to 1,610,000 shares of its common stock.

/s/ Axley & Rode LLP
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CERTIFIED PUBLIC ACCOUNTANTS

July 16, 1997

Lufkin, Texas

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EXHIBIT 23(c)

Consent of Hoefer & Arnett

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EXHIBIT 23(c)

CONSENT OF INDEPENDENT FINANCIAL ADVISOR

July 14, 1997

Board of Directors
Fredonia Bancshares, Inc.
2400 North Street
Nacogdoches, Texas 75963

Gentlemen:

We have been retained by the Board of Directors of Fredonia Bancshares, Inc.,
Nacogdoches, Texas ("Fredonia") to render our opinion with respect to the
fairness, from a financial point of view, of the consideration to be received
by shareholders of Fredonia in connection with certain transactions
contemplated by the Agreement and Plan of Reorganization dated as of April 25,
1997 pursuant to which First United Bancshares, Inc., El Dorado, Arkansas
("First United") would issue to the shareholders of Fredonia shares of First
United stock in exchange for all the issued and outstanding stock of Fredonia
through a merger transaction (the "Merger") in which Fredonia would be merged
with and into First United. In that connection, our fairness opinion is as set
forth in the section entitled "The Merger -- Opinion of Fredonia's Financial
Advisor" in this Registration Statement.

We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement on Form S-4 which the Proxy Statement is a part and to
the reference to us in the section entitled "The Merger -- Opinion of
Fredonia's Financial Advisor" in the Proxy Statement.

Very truly yours,

/s/ Hoefer & Arnett, Incorporated
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Hoefer & Arnett, Incorporated

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EXHIBIT 99

Fredonia Bancshares, Inc. Form of Proxy

<PAGE> 2

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PROXY
FREDONIA BANCSHARES, INC.
NACOGDOCHES, TEXAS

AUGUST 19, 1997

The undersigned Shareholders of Fredonia Bancshares, Inc. ("Fredonia")
hereby appoints and constitutes Gordon Lewis and J. R. Honea or either of them,
each with full power of substitution, as attorneys and proxies of the
undersigned, to represent the undersigned at the Special Meeting of Shareholders
of Fredonia to be held on August 19, 1997 at 3:00 p.m. local time at 2400 North
Street, Nacogdoches, Texas and at any adjournment or adjournments thereof and to
vote all shares of stock of Fredonia held of record by the undersigned and which
the undersigned would be entitled to vote if personally present at the Special
Meeting on the following matters:

1. Approval of the Agreement and Plan of Reorganization dated April 25, 1997
which provides for the merger of Fredonia with and into First United of
Texas, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

IN THEIR SOLE DISCRETION ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FREDONIA
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)

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