<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
--------------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
June 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 August 1, 1997 was 8,246,209.
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<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
JUNE 30, 1997
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition,
June 30, 1997 and December 31, 1996. 3
Consolidated Statements of Income for the
Three and Six Months Ended June 30,
1997 and 1996. 4
Consolidated Statements of Cash Flow for
the Six Months Ended June 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 N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and Due From Banks .......................................... $ 67,374 $ 61,194
------------ ------------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell ..................................... 11,858 35,285
Other Short-Term Investments ................................... 16,649 21,593
------------ ------------
Total Short-Term Investments .................................. 28,507 56,878
------------ ------------
Securities Available-for-Sale .................................... 459,537 420,953
------------ ------------
Investment Securities ............................................ 196,470 218,287
------------ ------------
Total Loans ...................................................... 763,995 723,018
Unearned Discount .............................................. (2,117) (1,857)
Allowance for Possible Loan Losses ............................. (11,483) (11,241)
------------ ------------
Net Loans ..................................................... 750,395 709,920
------------ ------------
Premises and Equipment ........................................... 30,270 29,524
------------ ------------
Goodwill ......................................................... 10,693 11,447
------------ ------------
Other Real Estate ................................................ 417 516
------------ ------------
Other Assets ..................................................... 22,603 22,320
------------ ------------
Total Assets .................................................. $ 1,566,266 $ 1,531,039
============ ============
LIABILITIES
Deposits:
Demand ......................................................... $ 216,349 $ 221,473
Savings and Interest-Bearing Demand ............................ 404,686 391,874
Time ........................................................... 697,917 683,926
------------ ------------
Total Deposits ................................................ 1,318,952 1,297,273
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ................................. 58,030 50,024
Other Liabilities ................................................ 11,153 11,715
Notes Payable:
Unaffiliated Bank .............................................. 17,309 17,426
Affiliated Company ............................................. 5,000 5,000
------------ ------------
Total Liabilities ............................................. 1,410,444 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 ................................................ 134,202 127,683
Net Unrealized Gains (Losses) on Securities Available-for-Sale ... 77 375
------------ ------------
Total Capital Accounts ........................................ 155,822 149,601
------------ ------------
Total Liabilities and Capital Accounts ........................ $ 1,566,266 $ 1,531,039
============ ============
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
(In thousands, except share data) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ............ $ 17,133 $ 16,610 $ 33,760 $ 32,845
Interest on Securities:
Taxable Securities .................. 9,404 8,187 18,436 16,082
Nontaxable Securities ............... 1,001 1,007 1,982 2,018
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ................ 569 506 1,075 1,213
Interest on Deposits in Banks ......... 223 276 495 537
-------- -------- -------- --------
TOTAL INTEREST INCOME ............. 28,330 26,586 55,748 52,695
-------- -------- -------- --------
INTEREST EXPENSE
Interest on Deposits .................. 12,159 11,593 23,964 23,136
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ............ 669 684 1,342 1,302
Interest on Notes Payable ............. 455 310 816 609
-------- -------- -------- --------
TOTAL INTEREST EXPENSE ............ 13,283 12,587 26,122 25,047
-------- -------- -------- --------
NET INTEREST INCOME ............... 15,047 13,999 29,626 27,648
Provision for Possible Loan Losses .... 274 572 633 665
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ......... 14,773 13,427 28,993 26,983
-------- -------- -------- --------
OTHER INCOME
Service Charges on Deposit Accounts ... 1,250 1,253 2,448 2,465
Trust Fee Income ...................... 490 455 1,179 898
Security Gains (Losses) ............... (8) (14) 4 45
Other Operating Income ................ 897 690 1,782 1,578
-------- -------- -------- --------
TOTAL OTHER INCOME ................ 2,629 2,384 5,413 4,986
-------- -------- -------- --------
OTHER EXPENSE
Salaries .............................. 4,302 3,855 8,509 7,673
Pension and Other Employee Benefits ... 1,351 1,221 2,770 2,473
Net Occupancy Expense ................. 943 849 1,829 1,684
Equipment Expense ..................... 593 613 1,217 1,220
Data Processing Expense ............... 755 496 1,464 946
Other Operating Expenses .............. 2,706 2,955 5,264 5,374
-------- -------- -------- --------
TOTAL OTHER EXPENSE ............... 10,650 9,989 21,053 19,370
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ............ 6,752 5,822 13,353 12,599
INCOME TAX EXPENSE .................... 2,005 1,386 3,782 3,416
-------- -------- -------- --------
NET INCOME ........................ $ 4,747 $ 4,436 $ 9,571 $ 9,183
======== ======== ======== ========
EARNINGS PER SHARE .................... $ 0.57 $ 0.54 $ 1.16 $ 1.11
======== ======== ======== ========
CASH DIVIDENDS PER SHARE .............. $ 0.20 $ 0.15 $ 0.37 $ 0.30
======== ======== ======== ========
AVERAGE SHARES ISSUED AND
OUTSTANDING ......................... 8,246 8,246 8,246 8,246
======== ======== ======== ========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
-------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................................... $ 9,571 $ 9,183
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ..................................................... 1,437 1,345
Amortization of Goodwill ......................................... 565 524
Provision for Possible Loan Losses ............................... 633 665
(Gain) Loss on Sales of Securities ............................... 4 (45)
Accretion of Bond Discount, Net .................................. 1,051 (516)
(Increase) Decrease in Other Assets .............................. 5 (386)
Increase (Decrease) in Other Liabilities ......................... (562) (5,560)
-------- --------
Net Cash Provided by Operating Activities ........................... 12,704 5,210
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities .................. 17,746 30,205
Proceeds from Maturities of Securities Available-for-Sale .......... 75,571 48,189
Proceeds from Sales of Securities Available-for-Sale ............... 3,064 14,999
Purchase of Investment Securities .................................. (17,646) (28,238)
Purchase of Available-for-Sale Securities .......................... (96,856) (90,325)
(Increase) Decrease in Federal Funds, Net .......................... 31,433 11,904
(Increase) Decrease in Other Short-Term Investments ................ 4,944 2,633
(Increase) Decrease in Loans ....................................... (41,108) (17,929)
Capital (Additions) Retirements, Net ............................... (2,183) (2,062)
-------- --------
Net Cash Used in Investing Activities ............................... (25,035) (30,624)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits ... 7,688 7,893
Increase (Decrease) in Time Deposits ............................... 13,991 21,231
Repayment of Notes Payable ......................................... (117) (3,508)
Dividends Paid ..................................................... (3,051) (2,450)
-------- --------
Net Cash Provided by (Used in) Financing Activities ................. 18,511 23,166
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ................ 6,180 (2,248)
Cash and Cash Equivalents, Beginning ................................ 61,194 54,700
-------- --------
Cash and Cash Equivalents, Ending ................................... $ 67,374 $ 52,452
======== ========
</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),and First United
Bank (Stuttgart, Arkansas). All material intercompany transactions have been
eliminated.
The consolidated statements of condition as of June 30, 1997 and the
related consolidated statements of income for the three and six month periods
ended June 30, 1997 and 1996 and the consolidated statements of cash flows for
the six month period ended June 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 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 third quarter of 1997.
On June 18, 1997, First United signed a definitive agreement with City
Bank and 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 fourth quarter of 1997.
3. RESULTS OF OPERATIONS
The results for the three and six month period ended June 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 six months ended June 30, 1997
and 1996 amounted to $387,000 and $324,000, 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") and
First United Trust Company, N.A. ("FUTC"), 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 June 30, 1997 was $4.75 million, or
$.57 per share compared with $4.44 million or $.54 per share during the same
period in 1996. Net income for the six months ended June 30, 1997 was $9.57
million or $1.16 per share compared with $9.18 million or $1.11 per share for
the same period in 1996. The annualized return on average assets from
continuing operations for the six months ended June 30, 1997 and 1996 was 1.24%
and 1.23% respectively, while the annualized return on average equity was
12.69% and 12.76% 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 six months of
1997 was $30.69 million compared with $28.73 million in the first six 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 June 30, 1997 was
4.33% compared with 4.34% and 4.39% 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 1996.
First United has debt of approximately $22.31 million at June 30, 1997 and
interest expense associated with this debt totaled $816 thousand during the
first six months of 1997 compared with $609 thousand 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 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>
June 30, December 31,
1997 1996 1995
-------- ----- -----
<S> <C> <C> <C>
Yield on Earning asset 7.90% 8.05% 8.07%
Break-even yield 3.57% 3.71% 3.68%
Net interest margin 4.33% 4.34% 4.39%
Net interest spread 3.47% 3.52% 3.41%
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $763.99 million at June 30,
1997 compared with $723.02 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 5.67% during the first six 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>
June 30, December 31,
1997 1996 1995
------- ------ ------
(In thousands)
<S> <C> <C> <C>
Non-performing loans:
Non-accrual loans:
Commercial & Financial $1,077 $ 869 $1,843
Real Estate 1,029 1,143 724
Consumer 211 150 76
------ ------ ------
$2,317 $2,162 $2,643
------ ------ ------
Past due 90 days or more:
Commercial $ 223 $ 282 $ 83
Real Estate 508 250 117
Consumer 184 316 272
------ ------ ------
$ 915 $ 848 $ 472
------ ------ ------
Renegotiated Commercial
Loans: $ 747 $ 677 $ 851
------ ------ ------
Total non-performing Loans: $3,979 $3,687 $3,966
Other Real Estate, Net 639 516 712
------ ------ ------
Total non-performing
Assets: $4,618 $4,203 $4,678
====== ====== ======
Non-Performing Loans as a %
of Outstanding Loans .61% .51% .62%
Non-Performing Assets as a
% of Equity Capital 2.96% 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 June
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 six months of 1997 First United made provisions for
possible loan losses of $633 thousand compared with $665 thousand for the same
period in 1996. Total non-performing loans increased $292 thousand from $3.69
million at December 31, 1996 to $3.98 million at June 30, 1997. Net charge-offs
through June 30, 1997 totaled $391 thousand.
<TABLE>
<CAPTION>
June 30, Year Ended December 31,
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.51% 1.55% 1.65%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 289% at June 30, 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>
June 30, December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Commercial & Financial $ 4,279 $ 3,479 $ 3,969
Real Estate 1,675 1,567 1,307
Consumer 2,456 2,267 2,132
Unallocated 3,073 3,928 3,173
-------- -------- --------
Total $ 11,483 $ 11,241 $ 10,581
======== ======== ========
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize 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>
Six Months Ended
June 30, Change
------------------ -------------------
1997 1996 $ %
------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Service Charges on Deposit
Accounts
Trust Income $2,448 $2,465 $ (17) (.69)%
Security Gains (Losses) 1,179 898 281 31.29%
Other Income 4 45 (41) (91.11)%
Total Other Income 1,782 1,578 204 12.93%
------ ------ ------ -------
$5,413 $4,986 $ 427 8.56%
====== ====== ====== =======
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $468 thousand 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 six months of 1997, First United had no security gains.
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Market Value $196,255 $219,517 $202,949
Amortized Cost 196,470 218,287 201,093
-------- -------- --------
Difference $ (215) $ 1,230 $ 1,856
======== ======== ========
</TABLE>
At June 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>
June 30, December 31,
1997 1996 1995
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Market Value $459,537 $420,953 $339,028
Amortized Cost 459,101 420,295 336,920
-------- -------- --------
Difference $ 436 $ 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>
Six Months Ended
June 30, Change
------------------- --------------------
1997 1996 $ %
-------- -------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Salaries $ 8,509 $ 7,673 $ 836 10.90 %
Pension and Employee Benefits 2,770 2,473 297 12.01 %
Net Occupancy Expense 1,829 1,684 145 8.61 %
Equipment Expense 1,217 1,220 (3) (.25)%
Data Processing Expense 1,464 946 518 54.76 %
Other Operating Expense 5,264 5,374 (110) (2.05)%
-------- -------- -------- -----
Total Non-Interest Expense $ 21,053 $ 19,370 $ 1,683 8.69 %
======== ======== ======== =====
</TABLE>
Pension and employee benefits increased approximately 12% during the first
six 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 expense
calculations.
11
<PAGE> 12
INCOME TAXES
The effective tax rate of First United for the six month period ended June
30, 1997 was 28.3% compared to 27.1% 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.
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 $155.82 million at June 30, 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.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.94% 9.75% 9.67%
Primary Capital to Total Assets 10.60% 10.41% 10.39%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
June 30, Regulatory
1997 Requirements
------- ------------
<S> <C> <C>
Total Capital/Total Assets 10.60% 6.00%
Primary Capital/Total Assets 10.60% 5.50%
Total Risk Based Capital 17.56% 8.00%
Tier 1 Capital 16.31% 4.00%
Leverage Ratio 9.33% 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.
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 six months ended June 30, 1997:
<TABLE>
<CAPTION>
June 30, Year Ended,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Dividend payout ratio 31.88% 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
On May 27, 1997, First United held its annual stockholders meeting to
elect the Board of Directors who will serve until the next annual meeting
of the stockholders and to ratify the appointment of Arthur Andersen LLP
as independent auditors of First United until the next annual meeting of
stockholders. The vote results in the election for directors were as
follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD ABSTAINED AGAINST
<S> <C> <C> <C> <C>
E. Larry Burrow 7,168,394 479 4,796 1,464
Claiborne P. Deming 7,101,869 67,004 4,796 1,464
Tommy Hillman 7,138,647 30,226 4,796 1,464
James V. Kelley 7,168,394 479 4,796 1,464
Roy E. Ledbetter 7,168,394 479 4,796 1,464
Michael F. Mahony 7,164,442 4,431 4,796 1,464
Richard H. Mason 7,167,194 1,679 4,796 1,464
Jack W. McNutt 7,168,394 479 4,796 1,464
R. Madison Murphy 7,168,394 479 4,796 1,464
Robert C. Nolan 7,168,394 479 4,796 1,464
Cal Partee, Jr. 7,167,452 479 4,796 2,406
Carolyn Tennyson 7,167,194 1,679 4,796 1,464
John D. Trimble, Jr. 7,168,394 479 4,796 1,464
</TABLE>
At the annual meeting, 7,165,342 shares were voted in favor of
ratification of Arthur Andersen LLP, 1,464 against, and 8,319 abstained
from voting.
Item 5. OTHER MATTERS
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. 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
14
<PAGE> 15
through its wholly owned subsidiary, Fredonia Bancshares of Delaware, Inc.
Fredonia has roughly $240 million in assets and with the acquisition First
United will have assets of approximately $1.80 billion.
On June 18, 1997, First United and City Bank and 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 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
("Purchase Price"). All of the issued and outstanding shares of CBT common
stock, other than dissenting stockholders, and all outstanding options to
purchase common stock of CBT (the "CBT Stock Options"), shall be converted
into the right to receive a pro rata portion of the Purchase Price based
upon each Stockholder's and Optionholder's of CBT pro rata ownership of
the total number of issued and outstanding shares and outstanding options
of CBT common stock at the effective time of the merger. Fractional shares
of First United common stock shall not be issued. Any CBT Shareholder or
holder of options to purchase CBT common stock 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. Each outstanding CBT Stock Option
to purchase CBT 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.
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 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, as
amended, under the Securities Act of 1933, Registration
Statement No. 333-30007 as filed with the Securities and
Exchange Commission on July 17, 1997 which became
effective on July 18, 1997.
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: August 13, 1997
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
2 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, as
amended, under the Securities Act of 1933, Registration
Statement No. 333-30007 as filed with the Securities and
Exchange Commission on July 17, 1997 which became
effective on July 18, 1997.
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> JUN-30-1997
<CASH> 67,374
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,858
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 459,537
<INVESTMENTS-CARRYING> 196,470
<INVESTMENTS-MARKET> 196,255
<LOANS> 761,878
<ALLOWANCE> 11,483
<TOTAL-ASSETS> 1,566,266
<DEPOSITS> 1,318,952
<SHORT-TERM> 58,030
<LIABILITIES-OTHER> 11,153
<LONG-TERM> 22,309
0
0
<COMMON> 21,543
<OTHER-SE> 134,202
<TOTAL-LIABILITIES-AND-EQUITY> 1,566,266
<INTEREST-LOAN> 33,760
<INTEREST-INVEST> 20,418
<INTEREST-OTHER> 1,570
<INTEREST-TOTAL> 55,748
<INTEREST-DEPOSIT> 23,964
<INTEREST-EXPENSE> 26,122
<INTEREST-INCOME-NET> 29,626
<LOAN-LOSSES> 633
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 21,053
<INCOME-PRETAX> 13,353
<INCOME-PRE-EXTRAORDINARY> 13,353
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,571
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.16
<YIELD-ACTUAL> 7.90
<LOANS-NON> 2,317
<LOANS-PAST> 915
<LOANS-TROUBLED> 747
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,241
<CHARGE-OFFS> 1,043
<RECOVERIES> 650
<ALLOWANCE-CLOSE> 11,483
<ALLOWANCE-DOMESTIC> 11,483
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
