<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 3 , 1997
FIRST UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 0-11916 71-0538646
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
MAIN AND WASHINGTON STREETS, EL DORADO, ARKANSAS 71730
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 863-3181
<PAGE> 2
ITEM 5. OTHER EVENTS.
Effective September 3, 1997, First United Bancshares, Inc., El Dorado,
Arkansas ("First United"), acquired all of the issued and outstanding common
stock of Fredonia Bancshares, Inc., Nacogdoches, Texas ("Fredonia") in a
transaction accounted for as a pooling of interests.
The following supplemental consolidated financial statements of First
United as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 and the following unaudited supplemental
consolidated financial statements as of June 30, 1997 and 1996, give
retroactive effect to the merger with Fredonia on September 3, 1997, which has
been accounted for as a pooling-of-interest.
The supplemental consolidated financial statements as of June 30, 1997
and for the six months then ended may not be indicative of the results of
operations that actually would have occurred if the acquisition of Fredonia had
been consummated on the dates assumed above or the results of operations that
may be achieved in the future.
2
<PAGE> 3
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CONDITION
First United Bancshares, Inc.
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks ............................................... $ 72,075 $ 61,816
----------- -----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased Under
Agreements to Resell .............................................. 44,677 31,897
Other Short-Term Investments ........................................ 21,593 24,252
----------- -----------
Total Short-Term Investments ...................................... 66,270 56,149
----------- -----------
Securities Available-For-Sale ......................................... 455,488 375,767
----------- -----------
Investment Securities (Fair Value of $277,954 and $274,235 at
December 31, 1996 and 1995, respectively) ............................. 276,314 271,735
----------- -----------
Total Loans ........................................................... 847,320 756,924
Unearned Discount ................................................... (3,065) (2,962)
Allowance for Possible Loan Losses .................................. (12,655) (12,882)
----------- -----------
Net Loans ......................................................... 831,600 741,080
----------- -----------
Premises and Equipment ................................................ 32,688 29,600
----------- -----------
Goodwill .............................................................. 11,447 11,761
----------- -----------
Other Real Estate ..................................................... 1,090 1,307
----------- -----------
Other Assets .......................................................... 26,020 23,467
----------- -----------
Total Assets ...................................................... $ 1,772,992 $ 1,572,682
=========== ===========
LIABILITIES
Deposits:
Demand .............................................................. $ 254,426 $ 227,070
Savings and Interest-bearing Demand ................................. 469,377 420,224
Time ................................................................ 790,235 693,198
----------- -----------
Total Deposits .................................................... 1,514,038 1,340,492
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase ............................................ 50,024 49,245
Other Liabilities ..................................................... 13,710 15,950
Notes Payable:
Unaffiliated Bank ................................................... 17,426 11,832
Affiliated Company .................................................. 5,000 5,000
----------- -----------
Total Liabilities ................................................. 1,600,198 1,422,519
----------- -----------
Commitments and Contingencies
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 1996
and 1995; none outstanding) ....................................... -0- -0-
Common Stock (Par value of $1.00; 24,000 shares authorized;
9,846 and 9,338 shares issued and outstanding in 1996 and 1995,
respectively) ................................................. 9,846 9,338
Surplus ............................................................... 21,975 19,650
Undivided Profits ..................................................... 140,909 120,981
Treasury stock ........................................................ -0- (936)
Net Unrealized Gain on Securities Available-for-Sale, Net of Tax ...... 64 1,130
----------- -----------
Total Capital Accounts ............................................ 172,794 150,163
----------- -----------
Total Liabilities and Capital Accounts ............................ $ 1,772,992 $ 1,572,682
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
First United Bancshares, Inc.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans .......................... $ 77,171 $ 65,732 $ 48,784
Interest on Securities:
Taxable Securities ................................ 37,877 34,680 31,384
Non-taxable Securities ............................ 4,975 4,776 4,539
Interest on Federal Funds Sold and Securities
Purchased Under Agreements to Resell ............. 2,936 2,203 1,367
Interest on Deposits in Banks ....................... 988 688 540
--------- --------- --------
TOTAL INTEREST INCOME ........................... 123,947 108,079 86,614
--------- --------- --------
INTEREST EXPENSE
Interest on Deposits ................................ 54,344 47,445 34,460
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ................ 2,334 1,768 1,037
Interest on Notes Payable ........................... 1,687 1,356 639
--------- --------- --------
TOTAL INTEREST EXPENSE .......................... 58,365 50,569 36,136
--------- --------- --------
NET INTEREST INCOME ............................. 65,582 57,510 50,478
Provision for Loan Losses ........................... (725) (574) (334)
--------- --------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ............................... 64,857 56,936 50,144
--------- --------- --------
OTHER INCOME
Service Charges on Deposit Accounts ................. 6,609 5,876 4,661
Trust Department Income ............................. 2,180 1,799 1,379
Security Gains (Losses) ............................. 122 (355) 5
Other Operating Income .............................. 3,365 2,311 1,815
--------- --------- --------
TOTAL OTHER INCOME .............................. 12,276 9,631 7,860
--------- --------- --------
OTHER EXPENSE
Salaries ............................................ 17,302 15,228 13,268
Pension and Other Employee Benefits ................. 5,882 4,919 4,271
Net Occupancy Expense ............................... 4,162 3,350 2,823
Equipment Expense ................................... 2,852 1,953 1,504
Data Processing Expense ............................. 2,331 1,715 1,526
Other Operating Expenses ............................ 13,142 12,793 10,882
--------- --------- --------
TOTAL OTHER EXPENSE ............................. 45,671 39,958 34,274
--------- --------- --------
INCOME BEFORE INCOME TAX EXPENSE .................... 31,462 26,609 23,730
INCOME TAX EXPENSE .................................. 9,090 8,233 7,019
--------- --------- --------
NET INCOME .......................................... $ 22,372 $ 18,376 $ 16,711
========= ========= ========
EARNINGS PER SHARE .................................. $ 2.27 $ 1.97 $ 1.79
========= ========= ========
CASH DIVIDENDS PER SHARE ............................ $ 0.59 $ 0.52 $ 0.45
========= ========= ========
AVERAGE SHARES ISSUED AND
OUTSTANDING ........................................ 9,846 9,338 9,338
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS
First United Bancshares, Inc.
(in thousands)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities
Common Stock Undivided Treasury Available-For
Shares Amount Surplus Profits Stock Sale, Net of Tax
------ ------- ------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 9,349 $ 9,349 $19,611 $ 95,113 $(175) $ (21)
Change in Accounting Method -0- -0- -0- -0- -0- 1,271
Retirement of Treasury Stock (12) (12) -0- (118) 130 -0-
Net Income -0- -0- -0- 16,711 -0- -0-
Cash Dividends -0- -0- -0- (4,276) -0- -0-
Increase in Unrealized Loss on
Securities Available-For-Sale, Net of
Tax -0- -0- -0- -0- -0- (12,145)
Issuance of Common Stock 1 1 27 -0- -0- -0-
------ ------- ------- --------- ----- --------
Balance, December 31, 1994 9,338 9,338 19,638 107,430 (45) (10,895)
Net Income -0- -0- -0- 18,376 -0- -0-
Cash Dividends -0- -0- -0- (4,825) -0- -0-
Sale of Treasury Stock -0- -0- 12 -0- 45 -0-
Purchase of Treasury Stock -0- -0- -0- -0- (936) -0-
Increase in Unrealized Gain on
Securities Available-For-Sale, Net of
Tax -0- -0- -0- -0- -0- 12,025
------ ------- ------- --------- ----- --------
Balance, December 31, 1995 9,338 9,338 19,650 120,981 (936) 1,130
Effect of Carlisle Acquisition 508 508 2,325 4,247 -0- (77)
Net Income -0- -0- -0- 22,372 -0- -0-
Cash Dividends -0- -0- -0- (5,755) -0- -0-
Retirement of Treasury Stock -0- -0- -0- (936) 936 -0-
Decrease in Unrealized Gain on
Securities Available-For-Sale, Net
of Tax -0- -0- -0- -0- -0- (989)
------ ------- ------- --------- ----- --------
Balance, December 31, 1996 9,846 $ 9,846 $21,975 $ 140,909 $ -0- $ 64
====== ======= ======= ========= ===== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
First United Bancshares, Inc.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ...................................................... $ 22,372 $ 18,376 $ 16,711
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation ............................................. 2,938 2,474 1,890
Amortization of Goodwill ................................. 1,158 979 490
Provision for Possible Loan Losses ....................... 725 574 334
Provision for Deferred Taxes ............................. 521 249 793
(Gain) Loss on Sales of Securities ....................... (122) 355 (5)
Accretion of Bond Discount, Net .......................... (3,463) (1,436) (923)
Decrease (Increase) in Other Assets ...................... (580) 1,541 (430)
Increase (Decrease) in Other Liabilities ................. (5,011) 4,941 244
--------- --------- ---------
Net Cash Provided by Operating Activities ....................... 18,538 28,053 19,104
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities ............. 52,110 43,023 36,564
Proceeds from Maturities of Securities Available-for-Sale ..... 120,624 90,737 142,629
Proceeds from Sales of Securities Available-for-Sale .......... 17,187 50,951 12,257
Purchase of Investment Securities ............................. (47,607) (63,849) (54,479)
Purchase of Available-for-Sale Securities ..................... (194,311) (118,439) (135,514)
Decrease in Federal Funds, Net ................................ (8,328) 36,834 (3,567)
(Increase) Decrease in Other Short-Term Investments ........... 2,802 (16,988) (1,178)
Increase in Loans ............................................. (29,656) (52,469) (18,055)
Capital Additions ............................................. (4,483) (8,974) (3,528)
Purchase of Subsidiary Bank ................................... -0- (19,079) (587)
--------- --------- ---------
Net Cash Used in Investing Activities ........................... (91,662) (58,253) (25,458)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings and Interest-bearing
Demand Deposits .............................................. 41,857 (20,077) 2,857
Increase in Time Deposits ..................................... 48,158 55,467 2,255
Issuance (Repayment) of Notes Payable ......................... (877) 2,940 6,170
Purchase of treasury stock .................................... -0- (879) -0-
Dividends Paid ................................................ (5,755) (4,825) (4,276)
--------- --------- ---------
Net Cash Provided by Financing Activities ....................... 83,383 32,626 7,006
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ............ 10,259 2,426 652
Cash and Cash Equivalents, Beginning ............................ 61,816 59,390 58,738
--------- --------- ---------
Cash and Cash Equivalents, Ending ............................... $ 72,075 $ 61,816 $ 59,390
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
First United Bancshares, Inc.
1. THE MERGER
On September 3, 1997, First United Bancshares, Inc. ("First United")
merged with Fredonia Bancshares, Inc. ("Fredonia") and in connection therewith
issued approximately 1,610,000 shares of common stock for all of Fredonia's
outstanding common stock (the "Merger"). The Merger was accounted for as a
pooling-of-interests and, accordingly, First United's financial statements for
periods prior to the Merger have been restated to include the results of
Fredonia for all periods presented. Separate and combined results of operations
for periods prior to the Merger are as follows (in thousands):
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net Interest Income:
First United $57,257 $49,485 $42,961
Fredonia 8,325 8,025 7,517
------- ------- -------
$65,582 $57,510 $50,478
======= ======= =======
Net Income:
First United $18,259 $15,204 $14,008
Fredonia 4,113 3,172 2,703
------- ------- -------
$22,372 $18,376 $16,711
======= ======= =======
</TABLE>
2. BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS:
First United Bancshares, Inc. ("the Company") engages in the general
banking business and activities closely related to banking and provides these
services primarily to customers in Arkansas and Texas through its subsidiary
banks and trust company. The Company is subject to the regulations of certain
federal and state agencies and undergoes periodic examinations by those
regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION:
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, the Company is required to make estimates and
assumptions, the most significant of which is the estimate of the required
amount of the allowance for possible loan losses, that affect the reported
amounts of assets and liabilities as of the dates of the statements of
condition and the
7
<PAGE> 8
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
reported amounts of income and expenses for the years then ended. Actual
results could differ significantly from those estimates.
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, 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; First United Bank
(Stuttgart); The Bank of North Arkansas (Melbourne); FirstBank (Texarkana,
Texas); Citizens Bank & Trust (Carlisle); Hazen First State Bank; FirstBank of
Arkansas (Brinkley); Fredonia State Bank (Nacogdoches, Texas); and First United
Trust Company, N.A. All significant intercompany accounts have been eliminated.
SECURITIES:
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1994. Pursuant to SFAS No. 115, debt securities not
classified as trading account securities or investment securities expected to
be held to maturity and all equity securities are classified as
available-for-sale securities and reported at fair value, with net unrealized
gains and losses reported, net of tax, as a separate component of stockholders'
equity. The adoption of this statement on January 1, 1994 resulted in
reflecting an unrealized gain, net of tax, of approximately $1,271,000 as a
separate component of the capital accounts.
Management determines the appropriate classification of securities at
the time of purchase. Securities available-for-sale include securities that
Management intends to use as part of its asset-liability management strategy
and that could be sold in response to changes in interest rates or other
economic factors. The amortized costs of the specific securities sold are used
to compute gains and losses on the sale of securities. Realized gains or losses
upon sale of the securities available-for-sale are classified as securities
gains (losses). When Management has the intent and ability at the time of
purchase to hold securities until maturity, these securities are classified as
investment securities and carried at amortized cost.
LOANS:
Loans are stated at the amount of unpaid principal, reduced by
unearned income and an allowance for possible loan losses. Unearned income on a
portion of installment loans is recognized as income over the terms of the
loans by a method which approximates the interest method. Interest on other
loans is calculated by using the simple interest method on daily balances of
the principal amount outstanding.
The allowance for possible loan losses is established through a
provision for possible loan losses charged to expense. Loans are charged
against the allowance for loan losses when Management believes that the
collectibility of the principal is unlikely. The allowance is an amount that
Management believes will be adequate to absorb possible losses on existing
loans that may become uncollectible, based on evaluations of the collectibility
8
<PAGE> 9
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
of loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans and
current economic conditions that may affect the borrower's ability to pay.
Accrual of interest is discontinued on a loan when Management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of principal or interest
is doubtful. This evaluation is inherently subjective as it requires material
estimates including the amounts and timing of future cash flows expected to be
received on impaired loans that may be susceptible to significant change.
In 1995, the Company adopted SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure." Under the new
standard, the allowance for possible loan losses related to loans that are
identified for evaluation in accordance with SFAS No. 114 is based on
discounted cash flows using the loan's effective interest rate or the fair
value of the collateral for certain collateral dependent loans. The effect of
this statement upon adoption was not material.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed over the estimated useful lives
of assets utilizing the straight-line method of depreciation as disclosed in
Note 8. Maintenance, repairs and minor improvements are charged to operating
expenses. Gains or losses on dispositions are reflected currently in the
Statement of Income.
GOODWILL:
Goodwill represents the excess of the purchase price over the fair
market value of net assets acquired in business combinations accounted for
under the purchase method. The Company amortizes goodwill over fifteen years
using the straight-line method. Accumulated amortization of goodwill was
$4,240,000 and $3,231,000 at December 31, 1996 and 1995, respectively.
OTHER REAL ESTATE:
Other real estate owned represents properties that have been acquired
in satisfaction of debt. Other real estate is valued at the lower of its fair
value or the recorded investment in the related loan upon foreclosure. If at a
later date the Company determines that the recorded investment cannot be
recovered, the loss is recognized by a charge to income. When the property is
in a condition for use or sale at the time of the foreclosure, any subsequent
holding costs are included in expense as incurred. Legal fees and other direct
costs incurred by the Company in foreclosure are expensed when they are
incurred. Payments received for the rental or lease of property held in other
real estate are recognized as income in the period in which the payment is
received. The net costs of operating other real estate (including provisions
for real estate losses and gains and losses on sales of real estate) were
approximately $30,000 for the year ended December 31, 1996. The Company had net
gains of $70,000 and $58,000 for the years ended December 31, 1995 and 1994,
respectively.
9
<PAGE> 10
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
PER SHARE DATA:
Income per share is based on the weighted average shares outstanding
during the year. All per share data and number of shares outstanding have been
retroactively restated to reflect the effect of a 3-for-2 stock split. (See
Note 16).
STATEMENT OF CASH FLOWS:
For purposes of the Statement of Cash Flows, the Company considers all
currency on hand as well as all due from bank balances to be cash equivalents.
RECENT PRONOUNCEMENTS:
In March 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." This statement requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS No.
121 also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted SFAS No. 121 on January 1, 1996. The adoption
of this statement did not have a material impact on the Company's consolidated
financial statements.
The Company also adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights and Excess Servicing Receivables and for Securitization of
Mortgage Loans" on January 1, 1996. The statement amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," and primarily eliminates
the distinction between purchased mortgage servicing rights and mortgage
servicing rights on loans originated by the financial institution. SFAS No. 122
is effective for fiscal years beginning after December 15, 1995. The adoption
of this statement did not have a material impact on the Company's consolidated
financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995. This statement
also allows an entity to continue to measure compensation cost for those plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." However, entities electing to remain with the accounting in Opinion
No. 25 must make pro forma disclosures as if the fair value based method of
accounting defined in SFAS No. 123 had been applied. Management of the Company
elected to remain with the accounting in Opinion No. 25. The adoption of this
statement did not have a material impact on the Company's consolidated
financial statements.
In June 1996, FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities based on consistent
application of a "financial- components approach" that focuses on control. The
impact of SFAS No. 125, when adopted on January 1, 1997, will not be material
to the Company's financial condition or results of operations.
10
<PAGE> 11
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS
On August 31, 1996, the Company acquired Carlisle Bancshares, Inc.
("Carlisle") in a merger accounted for as a pooling-of-interests (the
"Merger"). In connection with the Merger, the Company issued approximately
508,000 shares of common stock for all of Carlisle's outstanding common stock.
As the effect of the Merger has been deemed immaterial, the Company's
statements for years prior to the Merger have not been restated to include the
results of Carlisle.
On January 31, 1995, the Company acquired all of the issued and
outstanding stock of FirstBank for cash payments of approximately $25,000,000
funded through cash and borrowings. The transaction was accounted for as a
purchase. FirstBank had assets of approximately $154,000,000 at the date of
acquisition. The excess of the purchase price over the fair market value of the
net assets acquired was allocated to goodwill. The results of operations for
FirstBank are included in the consolidated statements of income from the date
of acquisition. Unaudited pro forma results of operations of the Company for
1994, assuming that the acquisition of FirstBank had been completed at the
beginning of 1994, would reflect net interest income of $57,117,000, net income
of $17,799,000 and earnings per share of $1.91.
On June 14, 1994, the Company merged with InvestArk Bankshares, Inc.
("InvestArk") and in connection therewith issued approximately 886,000 shares
of common stock for all of InvestArk's outstanding common stock (the "InvestArk
Merger"). The InvestArk Merger was accounted for as a pooling-of-interests. The
Company's financial statements for periods prior to the InvestArk Merger have
been restated to include the results of InvestArk for all periods presented.
4. SECURITIES AVAILABLE-FOR-SALE
The carrying values and estimated fair values of securities
available-for-sale at December 31, 1996 and 1995 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
U.S. Treasury Securities and
Other U.S. Government
Agencies $336,550 $1,884 $ 1,612 $336,822
Obligations of States and
Political Subdivisions 1,294 19 7 1,306
Mortgage-Backed Securities 112,381 918 1,046 112,253
Other 5,075 38 6 5,107
-------- ------ -------- --------
$455,300 $2,859 $ 2,671 $455,488
======== ====== ======== ========
</TABLE>
11
<PAGE> 12
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C> <C> <C>
1995
U.S. Treasury Securities and
Other U.S. Government
Agencies $277,192 $2,764 $ 1,423 $278,533
Obligations of States and
Political Subdivisions 1,730 21 8 1,743
Mortgage-Backed Securities 85,169 1,075 712 85,532
Other 9,771 205 17 9,959
-------- ------ -------- --------
$373,862 $4,065 $ 2,160 $375,767
======== ====== ======== ========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale at December 31, 1996, by contractual maturity, are shown
below (in thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---------- ----------
<S> <C> <C>
Due in One Year or Less $106,453 $106,668
Due After One Year Through Five Years 211,429 211,539
Due After Five Years Through Ten Years 24,302 24,282
Due After Ten Years 735 746
Mortgage-Backed Securities 112,381 112,253
-------- --------
$455,300 $455,488
======== ========
</TABLE>
Proceeds from sales of securities available-for-sale were $17,187,000,
$50,951,000, and $12,257,000 during 1996, 1995 and 1994, respectively. Gross
gains realized on these sales during 1996 and 1994 were $122,000 and $5,000,
respectively. There were gross losses of $355,000 during 1995.
5. INVESTMENT SECURITIES
The carrying values and estimated fair values of investments in debt
securities as of December 31, 1996 and 1995 are as follows (in thousands):
12
<PAGE> 13
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated Fair
1996 Cost Gains Losses Value
--------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
Other U.S. Government
Agencies $103,051 $ 518 $ 463 $103,106
Obligations of States and
Political Subdivisions 79,687 1,464 224 80,927
Mortgage-Backed Securities 91,680 836 562 91,954
Other 1,896 76 5 1,967
-------- -------- -------- --------
$276,314 $ 2,894 $ 1,254 $277,954
======== ======== ======== ========
1995
U.S. Treasury Securities and
Other U.S. Government
Agencies $ 52,762 $ 659 $ 198 $ 53,223
Obligations of States and
Political Subdivisions 98,600 1,994 480 100,114
Mortgage-Backed Securities 116,462 1,301 805 116,958
Other 3,911 46 17 3,940
-------- -------- -------- --------
$271,735 $ 4,000 $ 1,500 $274,235
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
<S> <C> <C>
Due in One Year or Less $ 41,115 $ 41,714
Due After One Year Through Five Years 78,047 78,251
Due After Five Years Through Ten Years 42,095 42,776
Due After Ten Years 23,377 23,259
Mortgage-Backed Securities 91,680 91,954
-------- --------
$276,314 $277,954
======== ========
</TABLE>
There were no sales of investment securities during 1996.
Securities with a carrying value of $305,910,000 at December 31, 1996 were
pledged to secure public deposits and for other purposes required by law.
13
<PAGE> 14
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The changes in the allowance for possible loan losses during 1996, 1995 and
1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $ 12,882 $ 12,250 $ 12,704
Allowance Applicable to Loans of
Acquired Bank 1,215 1,627 86
Provision Charged Against Income 725 574 334
Recoveries on Loans Charged-Off 1,880 1,550 1,953
Loans Charged-Off (4,047) (3,119) (2,827)
-------- -------- --------
Balance at End of Year $ 12,655 $ 12,882 $ 12,250
======== ======== ========
</TABLE>
14
<PAGE> 15
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
7. LOANS
Loans consist of the following categories (in thousands):
<TABLE>
<CAPTION>
TYPE 1996 1995
-------- --------
<S> <C> <C>
Real Estate Loans Collateralized by -
Residential Properties, Primarily
Single Family Residences $248,314 $216,339
Commercial Properties 240,532 218,383
Commercial and Industrial Loans, Other
Than Real Estate and Energy-Related 190,253 162,988
Energy-Related Loans 17,633 18,268
Consumer Loans 149,867 133,599
Loans for Purchasing or Carrying
Securities 116 6,835
Financing Leases 605 512
-------- --------
$847,320 $756,924
======== ========
</TABLE>
In the normal course of business, officers and directors of the Company and
their related interests maintain certain loan relationships with the Company's
subsidiary banks. At December 31, 1996 and 1995, officers, directors, and
related parties had loans of approximately $17,644,000 and $16,707,000,
respectively. At the time of acquisition by the Company, Carlisle also had
loans outstanding of $607,000 to officers, directors and related parties.
During the year ended December 31, 1996, loans made to these parties totalled
$8,819,000 and repayments totalled $8,372,000. Loans to related parties at
December 31, 1995 included loans of $117,000 to directors who retired during
1996.
A summary of non-performing assets as of December 31, 1996 and 1995 is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Non-Accrual Loans $2,467 $2,858
Past Due Loans (90 Days or more and
still accruing) 985 693
Renegotiated Loans 1,094 1,316
------ ------
4,546 4,867
Other Real Estate 1,090 1,307
------ ------
Total Non-Performing Assets $5,636 $6,174
====== ======
</TABLE>
The Company's non-accrual policy had the effect of reducing interest and
fees on loans in 1996 and 1995 by approximately $81,000 and $87,000,
respectively. Substantially all payments on non-accrual loans were applied to
principal.
15
<PAGE> 16
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
8. PREMISES AND EQUIPMENT
Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Principal
Depreciation Estimated
Method Useful Life 1996 1995
------------- ----------- ------- -------
<S> <C> <C> <C> <C>
Land $ 7,139 $ 6,675
Buildings and Leasehold
Improvements Straight-line 5-40 years 32,221 30,594
Furniture, Fixtures and
Equipment Straight-line 3-10 years 20,725 14,103
------- -------
60,085 51,372
Less: Accumulated
Depreciation (27,397) (21,772)
------- -------
$32,688 $29,600
======= =======
</TABLE>
Depreciation included in other expense, net occupancy expense and equipment
expense was $2,938,000 in 1996, $2,474,000 in 1995 and $1,890,000 in 1994.
The Company leases land on which two branches are located and rents on a
monthly basis an employee parking lot from a company with common officers and
directors of the Company. Rental payments related to these arrangements were
approximately $20,000 during each of the years ended December 31, 1996, 1995
and 1994.
9. INCOME TAXES
Income tax expense is composed of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Currently Payable $8,569 $7,984 $6,226
Deferred 521 249 793
------ ------ ------
$9,090 $8,233 $7,019
====== ====== ======
</TABLE>
The income tax provision included $35,000, ($109,000) and $1,000 for the
years ended December 31, 1996, 1995 and 1994, respectively, resulting from
securities transactions.
16
<PAGE> 17
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The effective income tax rates in the accompanying statements of income are
less than the statutory income tax rate because of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0% 35.0%
Less:
Non-Taxable Interest Income (5.5) (6.2) (6.7)
Charitable Contributions (0.7) -0- -0-
Amortization of Goodwill 1.1 1.2 0.7
Other Items, Net (1.0) 0.9 0.6
-------- -------- ------
Effective Income Tax Rate 28.9% 30.9% 29.6%
======== ======== ======
</TABLE>
At December 31, 1996 and 1995, temporary differences between the financial
statement carrying amounts and the tax bases of assets and liabilities give
rise to the following net deferred tax asset, which is included in other assets
(in thousands).
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accelerated Depreciation $(1,213) $ (867)
Provision for Possible Loan Losses 3,266 3,564
Unrealized Gain on Marketable
Securities (43) (637)
Effects of Pension and Benefit
Plans (295) (333)
Difference in Tax and Book Basis
of Securities (586) (553)
Write-down of Other Real Estate 88 155
Other 39 (146)
------- -------
$ 1,256 $ 1,183
======= =======
</TABLE>
The Company has evaluated the need for a valuation allowance and, based on
the weight of available evidence, has determined that it is more likely than
not that all deferred tax assets will be realized.
10. OTHER BORROWED FUNDS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other
borrowed funds consist of term federal funds purchased and treasury tax and
loan deposits and generally are repaid within one to 120 days from the
transaction date. Information concerning securities sold under agreements to
repurchase is summarized below.
17
<PAGE> 18
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Average balance during the year $52,251 $36,162
Average interest rate during the year 4.46% 4.89%
Maximum month-end balance during the year $58,357 $49,245
U.S. government securities pledged as collateral
for the repurchase agreements:
Carrying Value $80,988 $64,821
Estimated Fair Value 81,015 65,063
</TABLE>
11. NOTES PAYABLE
A summary of notes payable as of December 31, 1996 and 1995 is as follows
(in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Promissory Note Bearing Interest at 1.20% Above
the 30-Day LIBOR (6.763% and 7.1375% at
December 31, 1996 and 1995), Principal Due 1997 $ 5,000 $ 5,000
Promissory Note Bearing Interest at 0.1% Above the
30-Day LIBOR (5.475% and 6.0375% at
December 31, 1996 and 1995), Principal Due 2001 5,000 5,000
Promissory Note to Unaffiliated Bank Bearing
Interest at 1.20% Above the 30-Day LIBOR
(6.763% and 7.1375% at December 31, 1996 and
1995), $872,000 Due Annually 4,362 5,235
Other Installment Notes Payable Bearing Interest at
Rates Varying From 4.400% to 7.470% and With
Maturities Varying From 1998 to 2023 4,670 1,597
Line of Credit from Unaffiliated Bank Bearing
Interest at 1.20% Above the 30-Day LIBOR
(6.763% at December 31, 1996), Principal Due
January 31, 1998 3,394 -0-
------- -------
$22,426 $16,832
======= =======
</TABLE>
18
<PAGE> 19
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The promissory note to the unaffiliated bank is secured by the outstanding
stock of City National Bank of Fort Smith and contains financial covenants
relating to the issuance of additional debt and maintenance of minimum tangible
net worth.
The notes payable require principal repayments as follows: 1997 -
$6,078,000; 1998 - $4,461,000; 1999 - $2,140,000; 2000 - $1,883,000; 2001 -
$6,215,000; and thereafter - $1,649,000.
12. BENEFIT PLANS
The Company has a defined benefit pension plan (the "Plan") which covers
substantially all of the Company's employees. Operating expenses of the Plan
are paid by the Company and no contributions are required of participants. The
annual contribution to the Plan by the Company ($762,000 in 1996, $695,000 in
1995 and $618,000 in 1994) is determined by various actuarial factors. The Plan
contains provisions for early retirements, disability and death benefits. The
following tables set forth the Plan's funded status and amounts recognized in
the Company's balance sheet at December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Actuarial Present Value of Benefit
Obligation at December 31: 1996 1995
-------- --------
<S> <C> <C>
Accumulated Benefit Obligation $(11,942) $(11,310)
Effect of Projected Future
Compensation Levels (1,222) (1,099)
-------- --------
Projected Benefit Obligation for
Service Rendered to Date (13,164) (12,409)
Plan Assets at Fair Value, Primarily
Stock and U.S. Government Securities 13,873 13,059
-------- --------
Plan Assets Greater Than Projected
Benefit Obligation 709 650
Unrecognized Net Loss From Past
Experience Different From That
Assumed 2,496 2,314
Unrecognized Net Obligations (1,156) (1,227)
-------- --------
Prepaid Pension Cost $ 2,049 $ 1,737
======== ========
</TABLE>
19
<PAGE> 20
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The Plan's net pension cost for 1996, 1995 and 1994 included the following
components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Service Cost $ 578 $ 424 $ 412
Interest Cost on Projected
Benefit Obligation 915 845 801
Actual Return on Assets (1,104) (1,948) (99)
Net Amortization and
Deferral 61 1,120 (854)
------- ------- -----
$ 450 $ 441 $ 260
======= ======= =====
Significant Assumptions:
Weighted Average
Discount Rate 7.25% 7.50% 7.50%
Estimated Future Pay
Increases 4.00% 4.00% 4.00%
Expected Return on Assets 7.50% 7.50% 7.50%
</TABLE>
The Company has an Employee Stock Ownership Plan for substantially all of
its employees. Contributions to the Plan during any one year are determined by
the Company and limited to 15 percent of the payroll for the participants.
During 1996, 1995 and 1994, the Company's expenses totalled approximately
$777,000, $601,000, and $525,000 respectively.
20
<PAGE> 21
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The Company offers qualified employees the opportunity to participate in
one of its defined contribution employee benefit plans, qualifying under
Section 401(k) of the Internal Revenue Code. Contributions to the plans are
based on the total amount of salary the employee elects to defer, a matching
contribution which in none of the plans exceeds 5% of each employee's salary,
and a discretionary amount determined each year by the Company. The amount of
expense recognized in 1996, 1995 and 1994 was $569,000, $607,000 and $300,000,
respectively.
The Company has a stock option plan under which options to purchase up to
100,000 shares of the Company's common stock may be granted to officers and
other key employees of the Company. Terms and conditions of the Company's
options including exercise price and period in which options are exercisable
are generally at the discretion of the Board of Directors; however, no options
are exercisable for more than 10 years after date of grant.
The table below details the stock option activity for the past three years.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995 December 31, 1994
AMOUNT OF Average Amount of Average Amount of Average
OPTIONS Exercise Options Exercise Options Exercise
OUTSTANDING Price Outstanding Price Outstanding Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 14,166 $ 18.96 7,248 $19.00 -0- $ -0-
Granted 34,103 26.44 6,918 18.92 7,248 19.00
Exercised -0- -0- -0- -0- -0- -0-
Canceled -0- -0- -0- -0- -0- -0-
------ ------ -----
Outstanding, end of year 48,269 $ 24.25 14,166 $18.96 7,248 $19.00
====== ====== =====
</TABLE>
Options to purchase 5,354 shares of common stock were exercisable at an average
exercise price of $18.96 at December 31, 1996. Using the Black-Scholes model,
the Company determined the pro forma effect of these options on 1996 and 1995
net income and earnings per share would not be material.
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include standby letters of credit and commitments
to extend credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
Statement of Condition.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on Management's credit evaluation of the counterparty. The extent of collateral
varies for each commitment but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
21
<PAGE> 22
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
Standby letters of credit are commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. Most
guarantees expire in 1997. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Company holds collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments at December 31, 1996 varies from 0 percent to 100 percent; the
average amount collateralized is 50 percent.
Financial instruments whose amounts represent credit risk as of December
31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Commitments to Extend Credit $133,568 $107,479
Standby Letters of Credit 8,593 13,386
</TABLE>
The Company has a facilities management contract with a data processing
firm to provide computer equipment and the needed personnel for systems
support. Payments related to this contract, which expires in 1998, are expensed
when paid. This contract requires future annual minimum payments as follows:
1997 - $1,416,000 and 1998 - $1,473,000.
Certain branch facilities and warehouse space are leased under various
operating lease agreements. These leases require approximate minimum annual
rentals as follows: 1997-$132,000; 1998-$127,000; 1999-$65,000; 2000-$55,000;
2001-$118,000; and thereafter-$66,000.
The Company has been named as a defendant in certain lawsuits which are
currently pending. In the opinion of Management, after consulting with legal
counsel, any liability incurred in connection with the ultimate outcome of
these suits will not have a material adverse effect on the Company.
14. RESTRICTIONS
Each of the Company's subsidiary banks is subject to either national or
state banking regulations which restrict the level of dividends that may be
paid in a given year. Such restrictions are based on a percentage of the
subsidiary bank's net income. During 1996, the Company's subsidiary banks will
have available for payment of dividends, without regulatory approval,
approximately $16,508,000 of undistributed earnings plus the net income earned
in 1997.
At December 31, 1996, the Company was required to maintain reserve
balances in cash and due from accounts of approximately $11,559,000.
Banking regulations also require that banks pay insurance premiums to the
Federal Deposit Insurance Corporation (the "FDIC") in exchange for the FDIC
insuring the deposits of the Company's customers. Insurance premiums paid to
the FDIC for the years ended December 31, 1996, 1995 and 1994 were
approximately $102,000,
22
<PAGE> 23
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
$1,483,000 and $2,633,000, respectively, and those premiums were included in
other operating expenses on the Company`s Consolidated Statements of Income.
15. SUPPLEMENTARY DATA FOR CASH FLOWS
Income taxes paid by the Company during the years ended December 31,
1996, 1995 and 1994 amounted to $7,621,000, $7,023,000 and $7,137,000,
respectively. Interest paid on notes payable during the years ended December
31, 1996, 1995 and 1994 was $9,157,000, $8,266,000 and $6,421,000,
respectively.
In connection with the acquisition in 1995, the Company acquired assets and
assumed liabilities as follows (in thousands):
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Fair Value of Assets Acquired $ 154,811
Goodwill 8,707
Liabilities Assumed (138,518)
---------
Cash Paid 25,000
Cash Acquired (5,921)
---------
Net Payment for Purchase $ 19,079
=========
</TABLE>
16. CAPITAL ACCOUNTS
On May 20, 1996, the Company declared a 3-for-2 stock split which was
effected in the form of a fifty percent (50%) stock dividend. The dividend was
distributed on June 28, 1996 and increased the issued and outstanding common
stock of the Company from 6,225 to 9,338 shares. All per share data and number
of shares outstanding have been retroactively restated to reflect the effect of
this stock split.
The Company and each of its subsidiary banks are subject to minimum capital
requirements which are administered by various federal regulatory agencies.
These capital requirements, as defined by federal guidelines, involve
quantitative and qualitative measures of assets, liabilities and certain
off-balance sheet instruments. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
financial statements of the Company and its subsidiaries.
Management believes, as of December 31, 1996, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are subject.
At December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized each of the subsidiaries as well
capitalized. To be categorized as well capitalized, a bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios (as
defined in applicable regulations) as set forth in the table below. There are
no conditions or events since the notification that Management believes have
changed any of the subsidiary banks' category.
23
<PAGE> 24
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The actual regulatory capital amounts and ratios for the Company and the
most significant of its bank subsidiaries are presented in the table below
(dollars in thousands):
<TABLE>
<CAPTION>
Minimum
Minimum Regulatory
Actual Regulatory Provision to be
Regulatory Capital Capital Required Well Capitalized
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Total Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $172,253 17.85% $77,217 8.00% N/A
City National Bank of Fort Smith $ 36,846 14.31% $20,478 8.00% $25,597 10.00%
Tier 1 Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $160,287 16.61% $38,608 4.00% N/A
City National Bank of Fort Smith $ 33,623 13.06% $10,239 4.00% $15,359 6.00%
Tier 1 Capital (to Average Assets)
First United Bancshares, Inc. $160,287 9.10% $70,475 4.00% N/A
City National Bank of Fort Smith $ 33,623 8.39% $16,025 4.00% $20,031 5.00%
At December 31, 1995:
Total Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $146,559 16.97% $69,088 8.00% N/A
City National Bank of Fort Smith $ 32,890 14.56% $18,019 8.00% $27,524 10.00%
Tier 1 Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $135,751 15.72% $34,544 4.00% N/A
City National Bank of Fort Smith $ 30,067 13.31% $ 9,010 4.00% $13,515 6.00%
Tier 1 Capital (to Average Assets)
First United Bancshares, Inc. $135,751 8.71% $62,326 4.00% N/A
City National Bank of Fort Smith $ 30,067 8.62% $13,944 4.00% $17,430 5.00%
</TABLE>
24
<PAGE> 25
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
17. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The financial position of First United Bancshares, Inc. (parent company
only), its results of operations and cash flows are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
CONDENSED FINANCIAL POSITION:
<S> <C> <C>
Assets:
Cash $ 15,848 $ 14,582
Investment in Subsidiaries 165,157 145,540
Other Assets 5,556 2,484
-------- --------
Total Assets $186,561 $162,606
======== ========
Liabilities and Capital Accounts:
Notes Payable $ 12,756 $ 10,235
Other Liabilities 1,011 2,208
-------- --------
Total Liabilities 13,767 12,443
-------- --------
Total Capital 172,794 150,163
-------- --------
Total Liabilities and Capital $186,561 $162,606
======== ========
</TABLE>
25
<PAGE> 26
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CONDENSED OPERATING RESULTS:
Dividend Income From Subsidiaries $ 14,135 $ 31,870 $ 14,413
Management Fees 427 537 1,458
Other Income 100 35 43
-------- -------- --------
14,662 32,442 15,914
-------- -------- --------
Interest Expense 812 836 498
Other Expense 3,406 1,956 2,620
-------- -------- --------
4,218 2,792 3,118
-------- -------- --------
Income Before Tax Benefit and Equity in
Undistributed Income of Subsidiaries 10,444 29,650 12,796
Income Tax Benefit 1,754 864 602
-------- -------- --------
Income Before Equity in Undistributed
Income of Subsidiaries 12,198 30,514 13,398
Equity in Undistributed Income of
Subsidiaries 10,174 (12,138) 3,313
-------- -------- --------
Net Income $ 22,372 $ 18,376 $ 16,711
======== ======== ========
CONDENSED STATEMENTS OF CASH FLOWS:
Cash Flows From Operating Activities:
Net Income $ 22,372 $ 18,376 $ 16,711
Depreciation 17 17 13
Undistributed Income (10,174) 12,138 (3,313)
Increase in Other Assets (2,623) (1,023) (316)
(Decrease) Increase in Other Liabilities (1,310) (485) 791
-------- -------- --------
8,282 29,023 13,886
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of Subsidiaries (500) (25,000) -0-
Purchase of Investment Securities -0- (1,495) (1,490)
Maturities of Investment Securities -0- 3,000 -0-
-------- -------- --------
(500) (23,495) (1,490)
-------- -------- --------
Cash Flows From Financing Activities:
Principal Repayments on Notes Payable (4,155) (2,875) (1,926)
Issuance of Notes Payable 3,394 5,936 -0-
Proceeds From Sale of Treasury Stock -0- 57 -0-
Purchase of Treasury Stock -0- (936) -0-
Payment of Dividends (5,755) (4,825) (4,276)
-------- -------- --------
(6,516) (2,643) (6,202)
-------- -------- --------
Net Increase in Cash 1,266 2,885 6,194
Cash at Beginning of Year 14,582 11,697 5,503
-------- -------- --------
Cash at End of Year $ 15,848 $ 14,582 $ 11,697
======== ======== ========
Supplementary Data for Cash Flows:
Taxes Paid $ 7,621 $ 7,023 $ 7,137
Interest Paid on Notes Payable 1,609 1,199 639
</TABLE>
26
<PAGE> 27
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosure about Fair Values of Financial Instruments,"
requires disclosure of the fair value for all financial instruments as well as
the methodology and significant assumptions used in estimating fair values. In
cases where quoted market prices are not available, fair values are based on
estimates using present value techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates for those
assets or liabilities cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of
the instrument. The estimated fair values of financial instruments with
immediate and shorter term maturities (generally 90 days or less) are assumed
to be the same as the recorded value. All non-financial instruments, by
definition, have been excluded from these disclosure requirements. Accordingly,
the aggregate fair value amounts presented below do not represent the
underlying value of the Company and may not be indicative of amounts that might
ultimately be realized upon disposition or settlement of those assets and
liabilities. The carrying amount and estimated fair values of financial
instruments for December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Short-Term Investments $ 138,345 $ 138,345 $ 117,965 $ 117,965
Securities 731,802 733,442 647,502 650,002
Loans 844,255 830,238 753,962 748,447
LIABILITIES
Deposits $1,514,038 $1,514,027 $1,340,492 $1,341,652
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase 50,024 50,024 49,245 49,245
Notes Payable 22,426 22,426 16,832 16,832
</TABLE>
The methodology and significant assumptions used in estimating the fair values
presented above are as follows:
CASH AND SHORT-TERM INVESTMENTS
The carrying amounts for cash and due from banks and short-term investments
(federal funds sold and securities purchased under agreements to resell and
other short-term investments) approximate fair value because of the short
maturity of those financial instruments.
27
<PAGE> 28
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES
Fair values for securities available-for-sale and investment securities are
based on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS
The fair values of loans are estimated for portfolios of loans with similar
financial characteristics. For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
values. The fair values for loans with a pre-determined or fixed rate are
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for
the same remaining maturities. Fair values for non-performing loans are
estimated using the current carrying value less any specific reserve for which
the Company has provided.
Pursuant to the Interest Rate Control Amendment to the Constitution of the
State of Arkansas, all "general loans" have a maximum financing limitation of
5% over the Federal Reserve Discount Rate. As of December 31, 1996, the maximum
financing limitation is 10.00%. This law limits the Company's flexibility in
pricing loans according to credit and rate risk through the use of a greater
spread in financing rates. Accordingly, the difference between the carrying
amount and estimated fair value of the Company's loans is not as great as would
be the case without such a law.
DEPOSITS
The fair value of deposits with no stated maturity, such as
non-interest-bearing deposits, interest-bearing demand deposits and savings
accounts are, by definition, equal to the amount payable on demand at the
reporting date, commonly referred to as the carrying value. Fair value of
certificates of deposit are based upon the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
SHORT-TERM LIABILITIES
The carrying amounts for federal funds purchased, securities sold under
agreements to repurchase and other liabilities approximate their fair values.
OFF-BALANCE SHEET INSTRUMENTS
The fair values of loan commitments and standby letters of credit approximate
the fees currently charged for similar agreements. The fees associated with
these financial instruments are immaterial.
28
<PAGE> 29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of First United Bancshares, Inc.:
We have audited the accompanying supplemental consolidated statements
of condition of First United Bancshares, Inc. and subsidiaries as of December
31,1996 and 1995, and the related supplemental consolidated statements of
income, changes in capital accounts and cash flows for each of the years in the
three-year period ended December 31, 1996. The supplemental consolidated
statements give retroactive effect to the merger with Fredonia Bancshares, Inc.
on September 3, 1997, which has been accounted for as a pooling of interests as
described in Note 1. These supplemental financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these supplemental financial statements based on our audits.
We did not audit the financial statements of Fredonia Bancshares, Inc.
included in the supplemental consolidated financial statements of First United
Bancshares, Inc. which statements reflect total assets and total interest
income constituting 14 percent and 13 percent, respectively, in 1996 and 15
percent and 14 percent, respectively, in 1995 of the related supplemental
consolidated totals. These statements were audited by other auditors whose
report thereon has been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Fredonia Bancshares, Inc., is
based solely upon the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audit and the report of the other
auditors, the supplemental consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
United Bancshares, Inc. and its subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, after giving retroactive
effect to the merger with Fredonia Bancshares, Inc. as described in Note 1, all
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New Orleans, Louisiana,
October 3, 1997.
29
<PAGE> 30
FIRST UNITED BANCSHARES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(In thousands)
<S> <C> <C>
ASSETS
Cash and Due From Banks .............................................. $ 76,715 $ 72,075
----------- -----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell ......................................... 12,582 44,677
Other Short-Term Investments ....................................... 16,649 21,593
----------- -----------
Total Short-Term Investments ...................................... 29,231 66,270
----------- -----------
Securities Available-for-Sale ........................................ 499,242 455,488
----------- -----------
Investment Securities ................................................ 249,192 276,314
----------- -----------
Total Loans .......................................................... 898,635 847,320
Unearned Discount .................................................. (3,415) (3,065)
Allowance for Possible Loan Losses ................................. (12,948) (12,655)
----------- -----------
Net Loans ......................................................... 882,272 831,600
----------- -----------
Premises and Equipment ............................................... 33,345 32,688
----------- -----------
Goodwill ............................................................. 11,169 11,447
----------- -----------
Other Real Estate .................................................... 846 1,090
----------- -----------
Other Assets ......................................................... 26,344 26,020
----------- -----------
Total Assets ...................................................... $ 1,808,356 $ 1,772,992
=========== ===========
LIABILITIES
Deposits:
Demand ............................................................. $ 250,870 $ 254,426
Savings and Interest-Bearing Demand ................................ 477,434 469,377
Time ............................................................... 803,700 790,235
----------- -----------
Total Deposits .................................................... 1,532,004 1,514,038
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ..................................... 58,030 50,024
Other Liabilities .................................................... 16,217 13,710
Notes Payable:
Unaffiliated Bank .................................................. 17,309 17,426
Affiliated Company ................................................. 5,000 5,000
----------- -----------
Total Liabilities ................................................. 1,628,560 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; 8,246
shares outstanding in 1997 and 1996) ............................. 9,846 9,846
Surplus .............................................................. 21,971 21,975
Undivided Profits .................................................... 148,149 140,909
Net Unrealized Gains (Losses) on Securities Available-for- Sale ...... (170) 64
----------- -----------
Total Capital Accounts ............................................ 179,796 172,794
----------- -----------
Total Liabilities and Capital Accounts ............................ $ 1,808,356 $ 1,772,992
=========== ===========
</TABLE>
30
<PAGE> 31
FIRST UNITED BANCSHARES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<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 ............... $ 20,158 $ 19,292 $39,644 $ 38,215
Interest on Securities:
Taxable Securities ..................... 10,689 9,390 20,933 18,554
Nontaxable Securities .................. 1,135 1,203 2,276 2,433
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ................... 630 609 1,247 1,362
Interest on Deposits in Banks ............ 223 276 495 537
-------- -------- ------- --------
TOTAL INTEREST INCOME ................ 32,835 30,770 64,595 61,101
-------- -------- ------- --------
INTEREST EXPENSE
Interest on Deposits ..................... 14,072 13,460 27,783 26,908
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ............... 669 687 1,345 1,304
Interest on Notes Payable ................ 455 310 816 609
-------- -------- ------- --------
TOTAL INTEREST EXPENSE ............... 15,196 14,457 29,944 28,821
-------- -------- ------- --------
NET INTEREST INCOME .................. 17,639 16,313 34,651 32,280
Provision for Possible Loan Losses ....... 304 572 693 (85)
-------- -------- ------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ............ 17,335 15,741 33,958 32,365
-------- -------- ------- --------
OTHER INCOME
Service Charges on Deposit Accounts ...... 1,664 1,653 3,272 3,262
Trust Fee Income ......................... 490 458 1,179 901
Security Gains (Losses) .................. (8) (14) 4 45
Other Operating Income ................... 797 2,146 1,817
-------- -------- ------- --------
1,125
TOTAL OTHER INCOME ................... 3,271 2,894 6,601 6,025
-------- -------- ------- --------
OTHER EXPENSE
Salaries ................................. 5,041 4,606 10,015 9,105
Pension and Other Employee Benefits ...... 1,642 1,496 3,224 2,910
Net Occupancy Expense .................... 1,060 969 2,055 1,932
Equipment Expense ........................ 802 794 1,468 1,452
Data Processing Expense .................. 852 579 1,582 1,031
Other Operating Expenses ................. 3,009 3,122 6,034 6,051
-------- -------- ------- --------
TOTAL OTHER EXPENSE .................. 12,406 11,566 24,378 22,481
-------- -------- ------- --------
INCOME BEFORE INCOME TAXES ............... 8,200 7,069 16,181 15,909
INCOME TAX EXPENSE ....................... 2,461 1,743 4,664 4,414
-------- -------- ------- --------
NET INCOME ........................... $ 5,739 $ 5,326 $11,517 $ 11,495
======== ======== ======= ========
EARNINGS PER SHARE ....................... $ 0.58 $ 0.54 $ 1.17 $ 1.17
======== ======== ======= ========
CASH DIVIDENDS PER SHARE ................. $ 0.17 $ 0.17 $ 0.37 $ 0.49
======== ======== ======= ========
AVERAGE SHARES ISSUED AND OUTSTANDING .... 9,846 9,846 9,846 9,846
======== ======== ======= ========
</TABLE>
31
<PAGE> 32
FIRST UNITED BANCSHARES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
--------- --------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................................... $ 11,517 $ 11,495
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ..................................................... 1,599 1,505
Amortization of Goodwill ......................................... 585 544
Provision for Possible Loan Losses ............................... 693 (85)
(Gain) Loss on Sales of Securities ............................... 4 (45)
Accretion of Bond Discount, Net .................................. 1,051 (516)
(Increase) Decrease in Other Assets .............................. (387) (133)
Increase (Decrease) in Other Liabilities ......................... 2,507 (5,231)
--------- --------
Net Cash Provided by Operating Activities ........................... 17,569 7,534
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities .................. 25,381 42,972
Proceeds from Maturities of Securities Available-for-Sale .......... 76,506 48,689
Proceeds from Sales of Securities Available-for-Sale ............... 3,064 14,999
Purchase of Investment Securities .................................. (20,655) (28,238)
Purchase of Available-for-Sale Securities .......................... (102,856) (90,325)
(Increase) Decrease in Federal Funds, Net .......................... 40,101 3,216
(Increase) Decrease in Other Short-Term Investments ................ 4,944 2,633
(Increase) Decrease in Loans ....................................... (51,365) (24,254)
Capital (Additions) Retirements, Net ............................... (2,256) (2,096)
--------- --------
Net Cash Used in Investing Activities ............................... (27,136) (32,404)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits ... 4,501 6,006
Increase (Decrease) in Time Deposits ............................... 13,465 22,154
Repayment of Notes Payable ......................................... (117) (3,508)
Dividends Paid ..................................................... (3,642) (2,951)
--------- --------
Net Cash Provided by (Used in) Financing Activities ................. 14,207 21,701
--------- --------
Net Increase (Decrease) in Cash and Cash Equivalents ................ 4,640 (3,169)
Cash and Cash Equivalents, Beginning ................................ 72,075 66,031
--------- --------
Cash and Cash Equivalents, Ending ................................... $ 76,715 $ 62,862
========= ========
</TABLE>
32
<PAGE> 33
FIRST UNITED BANCSHARES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 of Nacogdoches, Texas. 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 September 3, 1997, First United merged with Fredonia Bancshares,
Inc. ("Fredonia") and in connection therewith issued approximately 1,610,000
shares of First United common stock in exchange for all of the outstanding
shares of Fredonia's common stock and outstanding stock options. Was accounted
for as a pooling-of-interests and, accordingly, First United's financial
statements have been restated to include the results of Fredonia for all
periods presented.
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Net Interest Income:
First United $ 29,626 $ 27,648
Fredonia 5,025 4,632
-------- --------
$ 34,651 $ 32,280
-------- --------
Net Income:
First United $ 9,571 $ 9,183
Fredonia 1,946 2,312
-------- --------
$ 11,517 $ 11,495
-------- --------
</TABLE>
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 June 30, 1996 have been restated to include the
results of Carlisle.
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.
<PAGE> 34
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.
(REGISTRANT)
By /s/ John E. Burns
------------------------------
John E. Burns, Vice President
and Chief Financial Officer
Date: October 3, 1997
