<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-------------------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
September 30, 1997
Commission file number: 0-11916
FIRST UNITED BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Arkansas 71-0538646
(State of Incorporation) (I.R.S. Employer
Identification No.)
Main and Washington Streets
El Dorado, Arkansas 71730
(Address of principal executive offices) (Zip Code)
(870) 863-3181
(Registrant's telephone number, including area code)
-------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at November 1, 1997 was 9,851,892.
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<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
SEPTEMBER 30, 1997
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition, September 30,
1997 and December 31, 1996. 3
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1997 and 1996. 4
Consolidated Statements of Cash Flow for the Nine
Months Ended September 30, 1997 and 1996. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks ................................................... $ 76,577 $ 72,075
----------- -----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell .............................................. 26,721 44,677
Other Short-Term Investments ............................................ 18,842 21,593
----------- -----------
Total Short-Term Investments ........................................... 45,563 66,270
----------- -----------
Securities Available-for-Sale ............................................. 485,684 455,488
----------- -----------
Investment Securities ..................................................... 245,315 276,314
----------- -----------
Total Loans ............................................................... 934,990 847,320
Unearned Discount ....................................................... (3,445) (3,065)
Allowance for Possible Loan Losses ...................................... (13,491) (12,655)
----------- -----------
Net Loans .............................................................. 918,054 831,600
----------- -----------
Premises and Equipment .................................................... 33,608 32,688
----------- -----------
Goodwill .................................................................. 10,882 11,447
----------- -----------
Other Real Estate ......................................................... 834 1,090
----------- -----------
Other Assets .............................................................. 25,770 26,020
----------- -----------
Total Assets ........................................................... $ 1,842,287 $ 1,772,992
=========== ===========
LIABILITIES
Deposits:
Demand .................................................................. $ 263,176 $ 254,426
Savings and Interest-Bearing Demand ..................................... 456,899 469,377
Time .................................................................... 845,110 790,235
----------- -----------
Total Deposits ......................................................... 1,565,185 1,514,038
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase .......................................... 55,734 50,024
Other Liabilities ......................................................... 14,168 13,710
Notes Payable:
Unaffiliated Bank ....................................................... 17,250 17,426
Affiliated Company ...................................................... 5,000 5,000
----------- -----------
Total Liabilities ...................................................... 1,657,337 1,600,198
----------- -----------
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 1997
and 1996; none outstanding) ............................................. -0- -0-
Common Stock (Par value of $1.00; 24,000 shares authorized; 9,852
shares outstanding in 1997 and 1996) ............................... 9,852 9,846
Surplus ................................................................... 22,295 21,975
Undivided Profits ......................................................... 151,852 140,909
Net Unrealized Gains (Losses) on Securities Available-for-Sale ............ 951 64
----------- -----------
Total Capital Accounts ................................................. 184,950 172,794
----------- -----------
Total Liabilities and Capital Accounts ................................. $ 1,842,287 $ 1,772,992
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except share data) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ............. $ 21,346 $ 19,751 $ 60,990 $ 57,966
Interest on Securities:
Taxable Securities ................... 10,470 9,532 31,403 28,086
Nontaxable Securities ................ 1,091 1,185 3,367 3,618
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ................. 528 644 1,775 2,006
Interest on Deposits in Banks .......... 164 269 659 806
-------- -------- -------- --------
TOTAL INTEREST INCOME .............. 33,599 31,381 98,194 92,482
-------- -------- -------- --------
INTEREST EXPENSE
Interest on Deposits ................... 14,328 13,616 42,111 40,524
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ............. 775 506 2,120 1,810
Interest on Notes Payable .............. 288 424 1,104 1,033
-------- -------- -------- --------
TOTAL INTEREST EXPENSE ............. 15,391 14,546 45,335 43,367
-------- -------- -------- --------
NET INTEREST INCOME ................ 18,208 16,835 52,859 49,115
Provision for Possible Loan Losses ..... 742 390 1,435 305
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .......... 17,466 16,445 51,424 48,810
-------- -------- -------- --------
OTHER INCOME
Service Charges on Deposit Accounts .... 1,945 1,929 5,217 5,191
Trust Fee Income ....................... 613 483 1,792 1,384
Security Gains (Losses) ................ (3) (33) 1 12
Other Operating Income ................. 1,239 691 3,385 2,508
-------- -------- -------- --------
TOTAL OTHER INCOME ................. 3,794 3,070 10,395 9,095
-------- -------- -------- --------
OTHER EXPENSE
Salaries ............................... 5,008 4,514 15,023 13,619
Pension and Other Employee Benefits .... 1,687 1,673 4,911 4,583
Net Occupancy Expense .................. 1,087 1,043 3,142 2,975
Equipment Expense ...................... 814 677 2,282 2,129
Data Processing Expense ................ 656 420 2,238 1,451
Other Operating Expenses ............... 3,271 3,281 9,305 9,332
-------- -------- -------- --------
TOTAL OTHER EXPENSE ................ 12,523 11,608 36,901 34,089
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ............. 8,737 7,907 24,918 23,816
INCOME TAX EXPENSE ..................... 2,696 2,321 7,360 6,735
-------- -------- -------- --------
NET INCOME ......................... $ 6,041 $ 5,586 $ 17,558 $ 17,081
======== ======== ======== ========
EARNINGS PER SHARE ..................... $ 0.61 $ 0.57 $ 1.78 $ 1.73
======== ======== ======== ========
CASH DIVIDENDS PER SHARE ............... $ 0.20 $ 0.14 $ 0.57 $ 0.46
======== ======== ======== ========
AVERAGE SHARES ISSUED AND
OUTSTANDING ............................ 9,852 9,852 9,852 9,852
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
--------- ---------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................................ $ 17,558 $ 17,081
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ........................................................... 2,302 1,971
Amortization of Goodwill ............................................... 307 786
Provision for Possible Loan Losses ..................................... 1,435 305
(Gain) Loss on Sales of Securities ..................................... (1) (12)
Accretion of Bond Discount, Net ........................................ (1,518) (894)
(Increase) Decrease in Other Assets .................................... 764 (2,509)
Increase (Decrease) in Other Liabilities ............................... (20) 2,710
--------- ---------
Net Cash Provided by Operating Activities ................................. 20,827 19,438
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities ........................ 27,800 19,453
Proceeds from Maturities of Securities Available-for-Sale ................ 119,937 85,754
Proceeds from Sales of Securities Available-for-Sale ..................... 8,922 11,621
Purchase of Investment Securities ........................................ (20,686) (24,353)
Purchase of Available-for-Sale Securities ................................ (132,963) (141,731)
(Increase) Decrease in Federal Funds, Net ................................ 23,666 (19,004)
(Increase) Decrease in Other Short-Term Investments ...................... 2,751 (4,673)
(Increase) Decrease in Loans ............................................. (87,889) (84,526)
Capital (Additions) Retirements, Net ..................................... (3,222) (4,614)
--------- ---------
Net Cash Used in Investing Activities ..................................... (61,684) (162,073)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits ......... (3,728) 63,251
Increase (Decrease) in Time Deposits ..................................... 54,875 105,153
Repayment of Notes Payable ............................................... (176) 6,995
Dividends Paid ........................................................... (5,612) (4,562)
--------- ---------
Net Cash Provided by Financing Activities ................................. 45,359 170,837
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ...................... 4,502 28,202
Cash and Cash Equivalents, Beginning ...................................... 72,075 61,816
--------- ---------
Cash and Cash Equivalents, Ending ......................................... $ 76,577 $ 90,018
========= =========
</TABLE>
5
<PAGE> 6
FIRST UNITED BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of First United Bancshares, Inc.
("First United") include the accounts of the parent company and its wholly-owned
subsidiaries, First United Trust Company, N.A., The First National Bank of El
Dorado, First National Bank of Magnolia, Merchants and Planters Bank, N.A. of
Camden, City National Bank of Fort Smith, Commercial Bank at Alma, The Bank of
North Arkansas, FirstBank (Texarkana, Texas), First United Bank (Stuttgart,
Arkansas) and Fredonia State Bank (Nacogdoches, Texas). All material
intercompany transactions have been eliminated.
The consolidated statements of condition as of September 30, 1997 and
the related consolidated statements of income for the three and nine month
periods ended September 30, 1997 and 1996 and the consolidated statements of
cash flows for the nine month period ended September 30, 1997 and 1996 are
unaudited; in the opinion of management, all adjustments necessary for a fair
presentation of the financial statements are included.
2. BUSINESS COMBINATIONS
On September 3, 1997, First United acquired all of the issued and
outstanding common stock of Fredonia Bancshares, Inc., Nacogdoches, Texas,
through the issuance of approximately 1,605,000 shares of First United common
stock in a transaction accounted for as a pooling of interests. First United's
financial statements for September 30, 1996 have been restated to include the
results of Fredonia.
On June 18, 1997, First United signed a definitive agreement with City
Bank & Trust of Shreveport ("CBT") having its principal office in Shreveport,
Louisiana, whereby First United would acquire by merger all of the outstanding
shares and stock options of CBT common stock. Consummation of the merger
transaction is subject to approval of First United and CBT shareholders and of
regulatory authorities. CBT, a bank chartered under the laws of the state of
Louisiana, has over $60 million in total assets. Under the agreement, CBT
shareholders will receive 425,000 shares of First United common stock. The
merger is to be a tax-free exchange to CBT shareholders and will be accounted
for as a pooling of interests. The transaction is expected to be completed in
the first quarter of 1998.
On September 15, 1997, First United signed a definitive agreement with
Citizens Bancshares of Hope, Inc. ("Citizens") having its principal office in
Hope, Arkansas, whereby First United would acquire by merger all of the issued
and outstanding shares of Citizens common stock. Consummation of the merger
transaction is subject to approval of First United and Citizens shareholders and
of regulatory authorities. Citizens, a bank holding company with over $260
million in assets, is incorporated and organized under the laws of the State of
Arkansas and is the parent company of The Citizens National Bank of Hope,
Peoples Bank & Loan Company (Lewisville, Arkansas), and Citizens Investment
Services, Inc. Under the Agreement, Citizens shareholders will receive 1,570,000
shares of First United common stock. The merger is to be a tax-free exchange to
citizens shareholders and will be accounted for as a pooling-of-interests. The
transaction is expected to be completed in the first or second quarter of 1998.
3. RESULTS OF OPERATIONS
The results for the three and nine month period ended September 30,
1997 are not necessarily indicative of the results for the entire year of 1997.
This report should be read in conjunction with First United's 1996 Annual Report
to Shareholders for a complete understanding of First United's accounting
policies and their effect on the financial statements as a whole.
4. PRIOR YEAR BALANCES
Certain reclassifications have been made to previously reported
balances for 1996 to conform to the 1997 presentation. Such reclassifications
are of a normal recurring nature in accordance with Rule 10-02(b)(8) of
Regulation S-X.
5. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the nine months ended September
30, 1997 and 1996 amounted to $609,000 and $536,000 respectively.
6
<PAGE> 7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of First United Bancshares, Inc.
("First United") and its subsidiaries, The First National Bank of El Dorado ("El
Dorado"), City National Bank of Fort Smith ("Ft. Smith"), First National Bank of
Magnolia ("Magnolia"), Merchants and Planters Bank, N.A. of Camden ("Camden"),
Commercial Bank at Alma ("Alma"), The Bank of North Arkansas ("Melbourne"),
FirstBank ("Texarkana"), First United Bank ("Stuttgart"), First United Trust
Company, N.A. ("FUTC"), and Fredonia State Bank ("Nacogdoches"), focuses on the
results from operations which are not otherwise apparent from the consolidated
financial statements. Reference should be made to these financial statements and
the notes to the financial statements for an understanding of this review and
discussion.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1997 was $6.04
million, or $ .61 per share compared with $5.59 million or $.57 per share during
the same period in 1996. Net income for the nine months ended September 30, 1997
was $17.56 million or $1.78 per share compared with $17.08 million or $1.73 per
share for the same period in 1996. The annualized return on average assets from
continuing operations for the nine months ended September 30, 1997 and 1996 was
1.30% and 1.33% respectively, while the annualized return on average equity was
13.29% and 13.83% respectively for the same periods. The increase in net income
was due primarily to higher net interest income resulting from the increase in
loan volume.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the
difference between the income generated by earning assets and the total interest
cost of the funds obtained to carry them. Net interest income, as referred to in
this discussion, is on a fully tax-equivalent basis, which adjusts for the tax
exempt status of income earned on certain loans and investments. The reported
interest income for the tax-free assets is increased by the amount of tax
savings less the nondeductible portion of interest expense incurred to acquire
the tax-free assets. Net interest income is affected by variations in both
interest rates and the volume of interest-earning assets and interest-bearing
liabilities.
On a tax equivalent basis, net interest income for the first nine
months of 1997 was $55.30 million compared with $51.06 million in the first nine
months of 1996. Net interest income also increased when compared with 1995. This
increase in net interest income was primarily the result of higher loan volumes
and a larger securities portfolio. The net interest margin through September 30,
1997 was 4.40% compared with 4.22% and 4.36% for the years ended December 31,
1996 and 1995, respectively. First United expects no material change in the net
interest margin through the remainder of 1997.
First United has debt of approximately $22.25 million at September 30,
1997 and interest expense associated with this debt totaled $1.10 million during
the first nine months of 1997 compared with $1.03 million during the same period
in 1996. First United will make a principal payment of $1.3 million on its
installment note payable to an unaffiliated bank in November of this year. These
borrowings contain financial covenants relating to the issuance of additional
debt and maintenance of minimum tangible net worth. First United's $5.00
million note payable to an affiliated company matures in August of 1998.
Interest is payable quarterly on both notes.
Pursuant to the Interest Rate Control Amendment to the Constitution of
the State of Arkansas, "consumer loans and credit sales" have a maximum
limitation of 17% per annum and all "general loans" have a maximum limitation of
5% over the Federal Reserve Discount Rate in effect at the time the loan was
made. The Arkansas Supreme Court has determined that "consumer loans and credit
sales" are "general loans" and are subject to the limitation of 5% over the
Federal Reserve Discount Rate as well as a Maximum limitation of 17% per annum.
As a general rule, the Company and its subsidiary banks are required to comply
with the Arkansas usury laws on loans made within the State of Arkansas.
7
<PAGE> 8
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------------ ---------------
<S> <C> <C> <C>
Yield on Earning asset 7.97% 7.87% 7.84%
Break-even yield 3.57% 3.65% 3.56%
Net interest margin 4.40% 4.22% 4.36%
Net interest spread 3.56% 3.52% 3.29%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $934.99 million at
September 30, 1997 compared with $847.30 million at December 31, 1996. The
Company has no foreign loans or leases and it is the policy of the Company to
avoid out of territory loans.
A sound credit policy combined with periodic and independent credit
reviews are the key factors of the credit risk management program. All affiliate
banks operate under written loan policies that help maintain a consistent
lending function and provide sound credit decisions. Credit decisions continue
to be based on the borrower's cash flow position and the value of the underlying
collateral, as well as other relevant factors. Each bank is responsible for
evaluating its loans to identify those credits beginning to show signs of
deterioration so that prompt corrective action may be taken. In addition, an
internal audit and loan review staff operate independently of the affiliate
banks. This review team performs periodic examinations of each bank's loans and
related documentation. Results of these examinations are reviewed with the
Chairman and Chief Executive Officer, the management and board of the respective
affiliate banks and the Audit Committees.
Total loans increased 10.35% during the first nine months of this year
primarily as a result of above average economic conditions present in the
Company's market areas. First United is continuing to emphasize loan growth in
order to increase total revenues.
8
<PAGE> 9
The following table lists those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- ------------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $1,223 $ 929 $1,865
Real Estate 1,329 1,667 1,284
Consumer 272 288 174
------ ------ ------
$2,824 $2,884 $3,323
------ ------ ------
Past due 90 days or more:
Commercial $ 248 $ 287 $ 173
Real Estate 445 358 208
Consumer 277 340 312
------ ------ ------
$ 970 $ 985 $ 693
------ ------ ------
Renegotiated Commercial
Loans: $ 536 $1,094 $1,325
------ ------ ------
Total non-performing Loans: $4,330 $4,963 $5,341
Other Real Estate, Net 1,024 1,090 1,306
------ ------ ------
Total non-performing
Assets: $5,354 $6,053 $6,647
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .46% .59% .71%
Non-Performing Assets as a
% of Equity Capital 2.89% 3.50% 4.43%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of
September 30, 1997.
Management remains committed to reducing the level of non-performing
assets and to minimize future risks by continuous review of the loan portfolio.
During the past year, First United has issued revised credit policies for real
estate lending in order to control loan risks.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The provision for possible loan losses represents management's
evaluation of the overall loan portfolio quality and loss experience. During
management's periodic review of the provision throughout each quarter, the
amount to be provided is determined by the level of net charge-offs, the size of
the loan portfolio, the non-performing assets, anticipated and current economic
conditions and specific reviews of performing and non-performing loans.
9
<PAGE> 10
During the first nine months of 1997 First United made provisions for
possible loan losses of $1.43 million compared with $305 thousand for the same
period in 1996. Total non-performing loans decreased $633 thousand from $4.96
million at December 31, 1996 to $4.33 million at September 30, 1997. Net
charge-offs through September 30, 1997 totaled $601 thousand.
<TABLE>
<CAPTION>
September 30, Year Ended December 31,
1997 1996 1995
------------- -----------------------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.44% 1.49% 1.70%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 312% at September 30, 1997 compared with 255% at
December 31, 1996.
The allocation of the allowance for possible loan losses by major
categories of loans is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- -------------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 4,315 $ 3,479 $ 3,969
Real Estate 1,949 1,567 1,307
Consumer 2,831 2,267 2,132
Unallocated 4,396 5,342 5,474
------- ------- -------
Total $13,491 $12,655 $12,882
======= ======= =======
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize that growth of non-interest income in
providing new revenue to the income stream. Future profitability depends upon
income derived from providing loan and deposit services, discount brokerage
fees, trust service income, mortgage service fees and service charges on deposit
accounts.
The table represented below is a comparison of the dollar and
percentage change for each component of non-interest income:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
----------------- ----------------------
1997 1996 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $ 5,217 $ 5,191 $ 26 .50%
Trust Income 1,792 1,384 408 29.48%
Security Gains (Losses) 1 12 (11) (91.67)%
Other Income 3,385 2,508 877 35.00%
------- ------- ------- -----
Total Other Income $10,395 $ 9,095 $ 1,300 14.29%
======= ======= ======= =====
</TABLE>
Excluding security gains and losses, non-interest income increased approximately
$1.31 million when comparing 1997 with 1996 results. This increase was primarily
related to higher fee income from trust services offered by First United Trust
Company. First United is focusing on non-interest income revenues and
opportunities to increase fee income.
10
<PAGE> 11
INVESTMENT SECURITIES
During the first nine months of 1997, First United had security gains
of approximately $1 thousand.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- ----------------------
<S> <C> <C> <C>
(In thousands)
Market Value $247,367 $277,954 $274,235
Amortized Cost 245,315 276,314 271,735
-------- -------- --------
Difference $ 2,052 $ 1,640 $ 2,500
======== ======== ========
</TABLE>
At September 30, 1997, First United's securities portfolio classified
as Investment Securities was composed primarily of municipal and short-term
fixed rate CMO securities.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- ----------------------
<S> <C> <C> <C>
(In thousands)
Market Value $485,684 $455,488 $375,767
Amortized Cost 483,930 455,300 373,862
-------- -------- --------
Difference $ 1,754 $ 188 $ 1,905
======== ======== ========
</TABLE>
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of First United's
major objectives. Non-interest expenses include salaries, employee benefits,
occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Change
------------------- ----------------------
1997 1996 $ %
---- ---- --- ---
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $15,023 $13,619 $ 1,404 10.31%
Pension and Employee Benefits 4,911 4,583 328 7.16%
Net Occupancy Expense 3,142 2,975 167 5.61%
Equipment Expense 2,282 2,129 153 7.19%
Data Processing Expense 2,238 1,451 787 54.24%
Other Operating Expense 9,305 9,332 (27) (.29%)
------- ------- ------- -----
Total Non-Interest Expense $36,901 $34,089 $ 2,812 8.25%
======= ======= ======= =====
</TABLE>
Pension and employee benefits increased approximately 7% during the
first nine months of 1997 when compared with the same period in 1996 primarily
as a result of higher salary expense which is the basis for 401(k) and ESOP
contributions by First United.
INCOME TAXES
The effective tax rate of First United for the nine month period ended
September 30, 1997 was 29.5% compared to 28.3% for the same period in 1996. The
increase in the 1997 effective tax rate from 1996 was due primarily to a higher
proportion of taxable income resulting from loan growth and increases in the
taxable securities portfolio.
11
<PAGE> 12
CAPITAL AND LIQUIDITY
The assessment of capital adequacy depends primarily on a number of
factors which include asset quality, liquidity, stability of earnings, changing
competitive forces, economic conditions in the various markets served and
strength of management. Management of capital focuses on achieving the rate of
return for shareholders while following guidelines set forth by bank regulators.
First United's equity capital totaled $184.95 million at September 30,
1997, compared to the December 31, 1996 level of $172.79 million. The growth and
retention of earnings continues to be First United's primary source of
additional capital. Currently, First United does not have any plans for issuing
subordinated notes and First United has not issued any new common or preferred
stock during the past twelve months.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- -----------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.98% 9.75% 9.54%
Primary Capital to Total Assets 10.69% 10.35% 10.28%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
September 30, Regulatory
1997 Requirements
---- ------------
<S> <C> <C>
Total Capital/Total Assets 10.69% 6.00%
Primary Capital/Total Assets 10.69% 5.50%
Total Risk Based Capital 17.78% 8.00%
Tier 1 Capital 16.53% 4.00%
Leverage Ratio 9.44% 3.00%
</TABLE>
Note: Unrealized gains on securities available-for-sale have been excluded when
computing capital ratios.
Liquidity management is concerned with meeting the cash requirements of
customers, including the withdrawal of funds by depositors or drawing down of
approved lines of credit and commitments by borrowers. First United is aided
significantly in meeting its short term liquidity needs by its strong capital
position, its high rate of internal capital generation and its level of loan
loss reserves.
12
<PAGE> 13
DIVIDEND POLICY
First United strives to maintain a balance between the retention of
earnings for the support of growth and expansion and a dividend payout that
meets the required return for investors. First United anticipates continuing its
policy of regular cash dividends, although there is no assurance as to future
increases in dividends because they are dependent upon future earnings, capital
requirements and economic conditions.
During the second quarter, the Board of Directors of First United
increased the annual cash dividend rate approximately 17.6%. The current annual
dividend rate is $.80 per share compared with $.68 per share prior to the
increase.
The following table sets forth the dividend payout ratio for the last
two years and for the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
September 30, Year Ended,
1997 1996 1995
------------- -------------------------
<S> <C> <C> <C>
Dividend payout ratio 28.60% 25.72% 26.26%
</TABLE>
ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings
Per Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. It requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures. This Statement is effective for financial statements issued
for periods ending after December 15, 1997. First United believes that the
adoption of this Statement will not have a material effect on the Company's
consolidated results of operations or financial position.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. It includes all changes
in equity except those resulting from investments by owners and distributions
to owners. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. This Statement is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined the impact
that this Statement will have on the Company's consolidated results of
operations or financial position. However, any impact will be in presentation
only.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprises and Related information." This Statement establishes
standards for reporting information about operating segments in annual
financial statements of public business enterprises and requires disclosure of
selected information about operating segments in interim financial reports. The
Statement is effective for financial statements for periods beginning after
December 15, 1997. First United believes that the adoption of this Statement
will not have a material effect on the Company's consolidated results of
operations or financial position.
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
On September 3, 1997, First United Bancshares, Inc. ("First
United") acquired all of the issued and outstanding shares of common
stock of Fredonia Bancshares, Inc., Nacogdoches, Texas ("Fredonia"), in
exchange for the issuance of 1,599,807 shares of common stock, $1.00
par value, of First United and satisfied unexercised stock options of
Fredonia common stock by issuing an additional 5,876 shares of First
United common stock. As of the date of this filing, First United has
issued and outstanding 9,851,892 shares of common stock, $1.00 par
value. Said shares have been publicly registered with the Securities
and Exchange Commission and are traded on the National Association of
Securities Dealers Automated Quotation System under the symbol "UNTD".
The above referenced issuance of common stock did not materially
modify, limit or qualify the rights of the holders of First United's
common stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER INFORMATION
On June 18, 1997, First United and City Bank & Trust of
Shreveport, Shreveport, Louisiana ("CBT") entered into an Agreement and
Plan of Reorganization. CBT is a bank chartered under the laws of the
state of Louisiana with over $60 million in assets. Under the
Agreement, First United has agreed to acquire one hundred percent
(100%) of the issued and outstanding shares of CBT and all outstanding
options to acquire CBT common stock in exchange for total consideration
of Four Hundred Twenty-Five Thousand (425,000) shares of fully paid and
nonassessable shares of common stock, $1.00 par value, of First United
On September 15, 1997, First United signed a definitive
agreement with Citizens Bancshares of Hope, Inc. ("Citizens"), having
its principal office in Hope, Arkansas, whereby First United would
acquire by merger all of the issued and outstanding shares of Citizens
in exchange for total consideration consisting of one million five
hundred seventy thousand (1,570,000) shares of fully paid and
nonassessable shares of common stock, $1.00 par value, of First United.
Citizens, a bank holding company with over $260 million in assets is
incorporated and organized under the laws of the State of Arkansas and
is the parent company of The Citizens National Bank of Hope, Peoples
Bank & Loan company (Lewisville, Arkansas), and Citizens Investment
Services, Inc.
14
<PAGE> 15
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated
by references to previously filed materials.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2(a) Agreement and Plan of Reorganization Between First United
Bancshares, Inc. and Fredonia Bancshares, Inc. and Plan of
Merger Attached as Exhibit A thereto is incorporated hereby
by reference as previously filed by the Company in its Form
S-4 Registration Statement under the Securities Act of 1933,
Registration Statement No. 333-30007 as filed with the
Securities and Exchange Commission on June 25, 1997, and
Amendment No. 1 thereto, filed on July 17, 1997, which became
effective on July 18, 1997.
2(b) Agreement and Plan of Reorganization Between First United
Bancshares, Inc. and City Bank and Trust of Shreveport and
Plan of Merger Attached as Exhibit A thereto is incorporated
hereby by reference as previously filed by the Company in its
Form S-4 Registration Statement, under the Securities Act of
1933, Registration Statement No. 333-37281 as filed with the
Securities and Exchange Commission on October 6, 1997, and
Amendment No. 1 thereto, filed on November 3, 1997, which
became effective on November 4, 1997.
27 Financial Data Schedule.
</TABLE>
REPORTS ON FORM 8-K
On September 16, 1997, First United filed a Current Report on
Form 8-K under Items 2 and 7 regarding the First United's September 3,
1997 acquisition of all of the issued and outstanding shares of common
stock in Fredonia Bancshares, Inc., Nacogdoches, Texas ("Fredonia")
pursuant to an Agreement and Plan of Reorganization, dated April 25,
1997, whereby First United acquired all of the issued and outstanding
shares of common stock of Fredonia in exchange for the issuance of
1,599,807 shares of First United common stock and satisfied unexercised
stock options of Fredonia common stock by issuing an additional 5,876
shares of First United common stock.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST UNITED BANCSHARES, INC.
BY /s/ James V. Kelley
-------------------------------
James V. Kelley
Chairman, President and Chief
Executive Officer
BY /s/ John E. Burns
-------------------------------
John E. Burns
Chief Financial Officer and
Principal Accounting Officer
Date: November 13, 1997
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 76,577
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 26,721
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 485,684
<INVESTMENTS-CARRYING> 245,315
<INVESTMENTS-MARKET> 247,367
<LOANS> 931,545
<ALLOWANCE> 13,491
<TOTAL-ASSETS> 1,842,287
<DEPOSITS> 1,565,185
<SHORT-TERM> 55,734
<LIABILITIES-OTHER> 14,168
<LONG-TERM> 22,250
0
0
<COMMON> 32,147
<OTHER-SE> 151,852
<TOTAL-LIABILITIES-AND-EQUITY> 1,842,287
<INTEREST-LOAN> 60,990
<INTEREST-INVEST> 34,770
<INTEREST-OTHER> 2,434
<INTEREST-TOTAL> 98,194
<INTEREST-DEPOSIT> 42,111
<INTEREST-EXPENSE> 45,335
<INTEREST-INCOME-NET> 52,859
<LOAN-LOSSES> 1,435
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 36,901
<INCOME-PRETAX> 24,918
<INCOME-PRE-EXTRAORDINARY> 24,918
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,558
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 7.97
<LOANS-NON> 2,824
<LOANS-PAST> 970
<LOANS-TROUBLED> 536
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,655
<CHARGE-OFFS> 1,694
<RECOVERIES> 1,095
<ALLOWANCE-CLOSE> 13,491
<ALLOWANCE-DOMESTIC> 13,491
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
