<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------------------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
March 31, 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)
(501) 863-3181
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at April 1, 1997 was 8,246,209.
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
MARCH 31, 1997
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition, March 31,
1997 and December 31, 1996. 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1996. 4
Consolidated Statements of Cash Flow for the Three
Months Ended March 31, 1997 and 1996. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management`s Discussion and Analysis of Financial
Condition and Results of Operation. 7 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security
Holders N/A
Item 5. Other Information 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>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks ....................................... $ 73,053 $ 61,194
------------ ------------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell ................................ 39,710 35,285
Other Short-Term Investments ................................ 18,375 21,593
------------ ------------
Total Short-Term Investments .............................. 58,085 56,878
------------ ------------
Securities Available-for-Sale ................................. 429,401 420,953
------------ ------------
Investment Securities ......................................... 219,390 218,287
------------ ------------
Total Loans ................................................... 730,726 723,018
Unearned Discount ........................................... (2,182) (1,857)
Allowance for Possible Loan Losses .......................... (11,481) (11,241)
------------ ------------
Net Loans .................................................. 717,063 709,920
------------ ------------
Premises and Equipment ........................................ 29,530 29,524
------------ ------------
Goodwill ...................................................... 10,969 11,447
------------ ------------
Other Real Estate ............................................. 412 516
------------ ------------
Other Assets .................................................. 22,141 22,320
------------ ------------
Total Assets ............................................... $ 1,560,044 $ 1,531,039
============ ============
LIABILITIES
Deposits:
Demand ...................................................... $ 223,017 $ 221,473
Savings and Interest-Bearing Demand ......................... 404,296 391,874
Time ........................................................ 688,089 683,926
------------ ------------
Total Deposits ............................................. 1,315,402 1,297,273
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase .............................. 57,007 50,024
Other Liabilities ............................................. 14,169 11,715
Notes Payable:
Unaffiliated Bank ........................................... 17,414 17,426
Affiliated Company .......................................... 5,000 5,000
------------ ------------
Total Liabilities .......................................... 1,408,992 1,381,438
------------ ------------
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;
8,246 shares outstanding in 1997 and 1996) .................. 8,246 8,246
Surplus ....................................................... 13,297 13,297
Undivided Profits ............................................. 131,104 127,683
Net Unrealized Gains (Losses) on Securities
Available-for-Sale .......................................... (1,595) 375
------------ ------------
Total Capital Accounts ..................................... 151,052 149,601
------------ ------------
Total Liabilities and Capital Accounts ..................... $ 1,560,044 $ 1,531,039
============ ============
</TABLE>
See the accompanying notes to these financial statements.
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
(In thousands, except share data) 1997 1996
-------- --------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans .............................. $ 16,627 $ 16,235
Interest on Securities:
Taxable Securities .................................... 9,032 7,895
Nontaxable Securities ................................. 981 1,011
Interest on Federal Funds Sold and
Securities Purchased Under Agreements to Resell ....... 506 707
Interest on Deposits in Banks ........................... 272 261
-------- --------
TOTAL INTEREST INCOME ............................... 27,418 26,109
-------- --------
INTEREST EXPENSE
Interest on Deposits .................................... 11,805 11,543
Interest on Federal Funds Purchased
and Securities Sold Under Agreements to Repurchase .... 673 618
Interest on Notes Payable ............................... 361 299
-------- --------
TOTAL INTEREST EXPENSE .............................. 12,839 12,460
-------- --------
NET INTEREST INCOME ................................. 14,579 13,649
Provision for Possible Loan Losses ...................... 359 93
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ........................... 14,220 13,556
-------- --------
OTHER INCOME
Service Charges on Deposit Accounts ..................... 1,198 1,212
Trust Income ............................................ 689 443
Security Gains (Losses) ................................. 12 59
Other Operating Income .................................. 885 888
-------- --------
TOTAL OTHER INCOME .................................. 2,784 2,602
-------- --------
OTHER EXPENSE
Salaries ................................................ 4,207 3,818
Pension and Other Employee Benefits ..................... 1,419 1,252
Net Occupancy Expense ................................... 886 835
Equipment Expense ....................................... 624 607
Data Processing Expense ................................. 709 450
Other Operating Expenses ................................ 2,558 2,419
-------- --------
TOTAL OTHER EXPENSE ................................. 10,403 9,381
-------- --------
INCOME BEFORE INCOME TAXES .............................. 6,601 6,777
INCOME TAX EXPENSE ...................................... 1,777 2,030
-------- --------
NET INCOME .......................................... $ 4,824 $ 4,747
======== ========
EARNINGS PER SHARE ...................................... $ 0.59 $ 0.58
======== ========
CASH DIVIDENDS PER SHARE ................................ $ 0.17 $ 0.15
======== ========
AVERAGE SHARES ISSUED AND OUTSTANDING ................... 8,246 8,246
======== ========
</TABLE>
See the accompanying notes to these financial statements.
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................................... $ 4,824 $ 4,747
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ..................................................... 667 649
Amortization of Goodwill ......................................... 284 262
Provision for Possible Loan Losses ............................... 359 93
Gain on Sales of Securities ...................................... (7) (59)
Accretion of Bond Discount, Net .................................. (532) (1,436)
Decrease in Other Assets ......................................... 477 569
Increase (Decrease) in Other Liabilities ......................... (836) 1,742
-------- --------
Net Cash Provided by Operating Activities ........................... 5,236 6,567
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities .................. 10,117 17,700
Proceeds from Maturities of Securities Available-for-Sale .......... 38,318 29,991
Proceeds from Sales of Securities Available-for-Sale ............... 596 3,540
Purchase of Investment Securities .................................. (8,304) (18,921)
Purchase of Available-for-Sale Securities .......................... (51,709) (55,700)
(Increase) Decrease in Federal Funds, Net .......................... 5,848 (10,758)
(Increase) Decrease in Other Short-Term Investments ................ 3,218 (1,526)
Increase in Loans .................................................. (7,502) (2,181)
Capital Additions, Net ............................................. (673) (1,155)
-------- --------
Net Cash Used in Investing Activities ............................... (10,091) (39,010)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits ... 13,966 4,615
Increase in Time Deposits .......................................... 4,163 21,254
Repayment of Notes Payable ......................................... (12) (547)
Dividends Paid ..................................................... (1,403) (1,134)
-------- --------
Net Cash Provided by Financing Activities ........................... 16,714 24,188
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ................ 11,859 (8,255)
Cash and Cash Equivalents, Beginning ................................ 61,194 54,700
-------- --------
Cash and Cash Equivalents, Ending ................................... $ 73,053 $ 46,445
======== ========
</TABLE>
See the accompanying notes to these financial statements.
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, Citizens Bank and Trust, FirstBank of
Arkansas, Hazen First State Bank and First United Bank. All material
intercompany transactions have been eliminated.
The consolidated statements of condition as of March 31, 1997 and the
related consolidated statements of income for the three month period ended
March 31, 1997 and 1996 and the consolidated statements of cash flows for the
three month period ended March 31, 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 August 30, 1996, First United acquired all of the issued and
outstanding common stock of Carlisle Bancshares, Inc., Little Rock, Arkansas,
through the issuance of approximately 507,000 shares of First United common
stock in a transaction accounted for as a pooling-of-interests. First United's
financial statements for March 31, 1996 have been restated to include the
results of Carlisle.
On April 25, 1997, First United signed a definitive agreement with
Fredonia Bancshares, Inc. ("Fredonia") whereby Fredonia would merge with and
into First United of Texas, Inc., a wholly-owned subsidiary of First United,
pending approval of Fredonia's shareholders and of regulatory authorities.
Fredonia, a $240 million bank holding company, is the parent company of
Fredonia State Bank (Nacogdoches, Texas). Under the agreement, Fredonia
shareholders will receive approximately 1,600,000 shares of First United common
stock in exchange for all of the outstanding shares of Fredonia's common stock
and outstanding stock options. The merger is to be a tax-free exchange to
Fredonia's shareholders and will be accounted for as a pooling of interests.
The transaction is expected to be completed in the fourth quarter of 1997.
3. RESULTS OF OPERATIONS
The results for the three month period ended March 31, 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 three months ended March 31,
1997 and 1996 amounted to $174 thousand and $176 thousand, respectively. No
income taxes were paid during the three months ended March 31, 1997 or 1996.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of First United Bancshares, Inc.
("First United") and its subsidiaries, First United Trust Company, N.A. ("Trust
Company"), 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"),
Citizens Bank and Trust ("Carlisle"), First Bank of Arkansas ("Brinkley"),
Hazen First State Bank ("Hazen") and First United Bank ("Stuttgart"), focuses
on the results from operations which are not otherwise apparent from the
consolidated financial statements. Reference should be made to these financial
statements and the notes to the financial statements for an understanding of
this review and discussion.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $4.8 million,
or $.59 per share compared with $4.7 million or $.58 per share during the same
period in 1996. The annualized return on average assets from continuing
operations for the three months ended March 31, 1997 and 1996 was 1.27% and
1.30% respectively, while the annualized return on average equity was 13.01%
and 13.40% respectively for the same periods. The increase in net income was
due primarily to higher net interest income resulting from higher loan volume
and a lower tax burden, both of which were partially offset by a higher
provision for loan losses and higher operating expenses.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the difference
between the income generated by earning assets and the total interest cost of
the funds obtained to carry them. Net interest income, as referred to in this
discussion, is on a fully tax-equivalent basis, which adjusts for the tax
exempt status of income earned on certain loans and investments. The reported
interest income for the tax-free assets is increased by the amount of tax
savings less the nondeductible portion of interest expense incurred to acquire
the tax-free assets. Net interest income is affected by variations in both
interest rates and the volume of interest-earning assets and interest-bearing
liabilities.
On a tax equivalent basis, net interest income for the first three
months of 1997 was $15.1 million compared with $14.2 million in the first three
months of 1996. Net interest income also increased when compared with 1995.
This increase in net interest income was primarily the result of an increase in
total loans, which carry a higher interest rate, as well as higher interest
income from the securities portfolio. The net interest margin through March 31,
1997 was 4.36% compared with 4.30% for the year ended December 31, 1996. Due
primarily to competitive pressures, First United anticipates that margins for
the remainder of 1997 will be substantially the same as that of 1996. During
1996 and 1997, First United maintained a short maturity structure of its
investment portfolio in order to minimize the effect of any potential rise in
interest rates.
First United has debt of approximately $22.4 million at March 31, 1997
and interest expense associated with this debt totaled $361 thousand during the
first three months of 1997. First United will make a principal payment of $1.1
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 1997. Interest is payable quarterly on both notes.
Pursuant to the Interest Rate Control Amendment to the Constitution of
the State of Arkansas, "consumer loans and credit sales" have a maximum
limitation of 17% per annum and all "general loans" have a maximum limitation
of 5% over the Federal Reserve Discount Rate in effect at the time the loan was
made. The Arkansas Supreme Court has determined that "consumer loans and
credit sales" are "general loans" and are subject to the limitation of 5% over
the Federal Reserve Discount Rate as well as a Maximum limitation of 17% per
annum. As a general rule, the Company and its subsidiary banks are required to
comply with the Arkansas usury laws on loans made within the State of Arkansas.
7
<PAGE> 8
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
-------- ------------------
<S> <C> <C> <C>
Yield on Earning Assets 7.94% 8.05% 8.07%
Break-even yield 3.58% 3.71% 3.68%
Net interest margin 4.36% 4.34% 4.39%
Net interest spread 3.51% 3.52% 3.41%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $730.7 million at March
31, 1997 compared with $723 million at December 31, 1996. Although the Company
experienced a modest increase in loans, overall loan volume ratios continue to
be below peer averages. In light of the local economic outlook for the
remainder of 1997, the Company does not anticipate a significant further
increase in loan volume. The Company has no foreign loans or leases and it is
the policy of the Company to avoid out of territory loans.
A sound credit policy combined with periodic and independent credit
reviews are the key factors of the credit risk management program. All
affiliate banks operate under written loan policies that help maintain a
consistent lending function and provide sound credit decisions. Credit
decisions continue to be based on the borrower's cash flow position and the
value of the underlying collateral, as well as other relevant factors. Each
bank is responsible for evaluating its loans to identify those credits
beginning to show signs of deterioration so that prompt corrective action may
be taken. In addition, an internal audit and loan review staff operate
independently of the affiliate banks. This review team performs periodic
examinations of each bank's loans and related documentation. Results of these
examinations are reviewed with the Chairman and Chief Executive Officer, the
management and board of the respective affiliate banks and the Audit
Committees.
8
<PAGE> 9
The following table lists those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
-------- ----------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $ 920 $ 869 $1,843
Real Estate 1,017 1,143 724
Consumer 263 150 76
------ ------ ------
$2,200 $2,162 $2,643
------ ------ ------
Past due 90 days or more:
Commercial $ 157 $ 282 $ 83
Real Estate 385 250 117
Consumer 220 316 272
------ ------ ------
$ 762 $ 848 $ 472
------ ------ ------
Renegotiated Commercial
Loans: $ 735 $ 677 $ 851
------ ------ ------
Total non-performing Loans: $3,697 $3,687 $3,966
Other Real Estate, Net 412 516 712
------ ------ ------
Total non-performing
Assets: $4,109 $4,203 $4,678
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .51% .51% .62%
Non-Performing Assets as a
% of Equity Capital 2.72% 2.81% 3.59%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of
March 31, 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 three months of 1997 First United made provisions for
possible loan losses of $359 thousand compared with $93 thousand for the same
period in 1996. Total non-performing loans increased $10 thousand from $3.68
million at December 31, 1996 to $3.69 million at March 31, 1997. Net charge-
offs through March 31, 1997 totaled $119 thousand.
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
1997 1996 1995
--------- -----------------------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.58% 1.55% 1.65%
</TABLE>
The allowance for possible loan losses as a percentage of non-performing
loans was approximately 311% at March 31, 1997 compared with 305% at December
31, 1996.
The allocation of the allowance for possible loan losses by major
categories of loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
--------- -----------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 4,024 $ 3,479 $ 3,969
Real Estate 1,810 1,567 1,307
Consumer 2,068 2,267 2,132
Unallocated 3,579 3,928 3,173
------- ------- -------
Total $11,481 $11,241 $10,581
======= ======= =======
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize that growth of non-interest income in
providing new revenue to the income stream. Future profitability depends upon
income derived from providing loan and deposit services, discount brokerage
fees, trust service income, mortgage service fees and service charges on
deposit accounts.
The table represented below is a comparison of the dollar and percentage
change for each component of non-interest income:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
------------------ ------------------
1997 1996 $ %
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $1,198 $1,212 $ (14) (1%)
Trust Income 689 443 246 55%
Security Gains (Losses) 12 59 (47) (80%)
Other Income 885 888 (3) (1%)
------ ------ ------ ------
Total Other Income $2,784 $2,602 $ 182 7%
====== ====== ====== ======
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $229 thousand when comparing 1997 with 1996 results. This
increase was primarily related to higher trust income within First United Trust
Company, N.A.
10
<PAGE> 11
INVESTMENT SECURITIES
During the first three months of 1997, First United had no security
gains from sales of securities.
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
-------- -------------------
<S> <C> <C> <C>
(In thousands)
Market Value $219,464 $219,517 $202,949
Amortized Cost 219,390 218,287 201,093
-------- -------- --------
Difference $ 74 $ 1,230 $ 1,856
======== ======== ========
</TABLE>
At March 31, 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>
March 31, December 31,
1997 1996 1995
--------- ---------------------
<S> <C> <C> <C>
(In thousands)
Market Value $ 429,401 $ 420,953 $ 339,028
Amortized Cost 431,513 420,295 336,920
--------- --------- ---------
Difference $ (2,112) $ 658 $ 2,108
========= ========= =========
</TABLE>
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of First United's
major objectives. Non-interest expenses include salaries, employee benefits,
occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
------------------ -----------------
1997 1996 $ %
------- ------- ------- -------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $ 4,207 $ 3,818 $ 389 10%
Pension and Employee Benefits 1,419 1,252 167 13%
Net Occupancy Expense 886 835 51 6%
Equipment Expense 624 607 17 3%
Data Processing Expense 709 450 259 57%
Other Operating Expense 2,558 2,419 139 6%
------- ------- ------- -------
Total Non-Interest Expense $10,403 $ 9,381 $ 1,022 11%
======= ======= ======= =======
</TABLE>
Pension and employee benefits increased approximately 13% during the
first three months of 1997 when compared with the same period in 1996,
primarily as a result of higher salary expense.
Data processing expense increased when compared to the prior period
primarily as a result of one-time conversion costs related to the
implementation of a new management information system and customer service
systems.
11
<PAGE> 12
INCOME TAXES
The effective tax rate of First United for the three month period ended
March 31, 1997 was 26.9% compared to 29.95% for the same period in 1996. The
decrease in the 1997 effective tax rate from 1996 was due to an increase in the
proportion of nontaxable income to total income.
CAPITAL AND LIQUIDITY
The assessment of capital adequacy depends primarily on a number of
factors which include asset quality, liquidity, stability of earnings, changing
competitive forces, economic conditions in the various markets served and
strength of management. Management of capital focuses on achieving the rate of
return for shareholders while following guidelines set forth by bank
regulators.
First United's equity capital totaled $151.05 million at March 31, 1997,
compared to the December 31, 1996 level of $149.60 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 except as disclosed in Note 5 to
these financial statements.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996 1995
-------- ----------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.77% 9.75% 9.67%
Primary Capital to Total Assets 10.43% 10.41% 10.39%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
March 31, Regulatory
1997 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>
Note: Unrealized losses on securities available-for-sale have been excluded
when computing capital ratios.
Liquidity management is concerned with meeting the cash requirements of
customers, including the withdrawal of funds by depositors or drawing down of
approved lines of credit and commitments by borrowers. First United is aided
significantly in meeting its short term liquidity needs by its strong capital
position, its high rate of internal capital generation and its level of loan
loss reserves.
12
<PAGE> 13
DIVIDEND POLICY
First United strives to maintain a balance between the retention of
earnings for the support of growth and expansion and a dividend payout that
meets the required return for investors. First United anticipates continuing
its policy of regular cash dividends, although there is no assurance as to
future increases in dividends because they are dependent upon future earnings,
capital requirements and economic conditions.
The following table sets forth the dividend payout ratio for the last
two years and for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
March 31, Year Ended,
1997 1996 1995
-------- ----------------
<S> <C> <C> <C>
Dividend payout ratio 29.06% 28.90% 28.81%
</TABLE>
13
<PAGE> 14
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER MATTERS
On August 30, 1996, First United acquired all of the issued and
outstanding common stock of Carlisle Bancshares, Inc., Little Rock,
Arkansas, through the issuance of approximately 507,000 shares of First
United common stock in a transaction accounted for as a pooling of
interests.
On April 25, 1997, First United and Fredonia Bancshares, Inc.,
Nacogdoches, Texas ("Fredonia") entered into an Agreement and Plan of
Reorganization whereby First United has agreed to acquire one hundred
percent (100%) of the issued and outstanding shares of Fredonia in
exchange for 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 dissenting stockholders, shall be converted into the right to
receive a pro rata portion of the Purchase Price based upon each
Stockholder's of Fredonia 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 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.
Fredonia is a bank holding company incorporated and organized
under the laws of the State of Texas with one bank subsidiary, Fredonia
State Bank, Nacogdoches, Texas, which it owns indirectly through its
wholly owned subsidiary, Fredonia Bancshares of Delaware, Inc. Fredonia
has roughly $240 million in assets and with the
14
<PAGE> 15
acquisition First United will have assets of approximately $1.80
billion. Consummation of the Agreement and Plan of Reorganization is
subject to approval by the appropriate bank regulatory authorities.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
Reports on Form 8-K
First United did not file any reports on Form 8-K during the quarter for
which this report is filed.
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: May 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-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 73,053
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,710
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 429,401
<INVESTMENTS-CARRYING> 219,390
<INVESTMENTS-MARKET> 219,464
<LOANS> 728,544
<ALLOWANCE> 11,481
<TOTAL-ASSETS> 1,560,044
<DEPOSITS> 1,315,402
<SHORT-TERM> 57,007
<LIABILITIES-OTHER> 14,169
<LONG-TERM> 22,414
0
0
<COMMON> 21,543
<OTHER-SE> 129,509
<TOTAL-LIABILITIES-AND-EQUITY> 1,560,044
<INTEREST-LOAN> 16,627
<INTEREST-INVEST> 10,013
<INTEREST-OTHER> 778
<INTEREST-TOTAL> 27,418
<INTEREST-DEPOSIT> 11,805
<INTEREST-EXPENSE> 12,839
<INTEREST-INCOME-NET> 14,579
<LOAN-LOSSES> 359
<SECURITIES-GAINS> 12
<EXPENSE-OTHER> 10,403
<INCOME-PRETAX> 6,601
<INCOME-PRE-EXTRAORDINARY> 6,601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,824
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
<YIELD-ACTUAL> 7.94
<LOANS-NON> 2,200
<LOANS-PAST> 762
<LOANS-TROUBLED> 735
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,241
<CHARGE-OFFS> 527
<RECOVERIES> 409
<ALLOWANCE-CLOSE> 11,481
<ALLOWANCE-DOMESTIC> 11,481
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
