<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
----------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
March 31, 1998
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 April 1, 1998 was 12,646,253.
================================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
MARCH 31, 1998
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition, March 31, 1998
and December 31, 1997.
3
Consolidated Statements of Income for
the Three Months Ended March 31,
1998 and 1997. 4
Consolidated Statements of Cash Flow
for the Three Months Ended March 31,
1998 and 1997. 5
Notes to Consolidated Financial
Statements. 6
Item 2. Management`s Discussion and Analysis
of Financial Condition and Results of
Operation. 7 - 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities 13
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
(In thousands)
ASSETS
Cash and Due From Banks ........................................................ $ 105,997 $ 85,111
----------- -----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased
Under Agreements to Resell ................................................... 84,301 58,117
Other Short-Term Investments ................................................. 18,920 22,779
----------- -----------
Total Short-Term Investments ................................................ 103,221 80,896
----------- -----------
Securities Available-for-Sale .................................................. 638,893 664,405
----------- -----------
Investment Securities .......................................................... 219,528 237,424
----------- -----------
Total Loans .................................................................... 1,248,814 1,219,467
Unearned Discount ............................................................ (6,135) (6,133)
Allowance for Possible Loan Losses ........................................... (17,219) (17,694)
----------- -----------
Net Loans ................................................................... 1,225,460 1,195,640
----------- -----------
Premises and Equipment ......................................................... 41,208 41,440
----------- -----------
Goodwill ....................................................................... 10,374 10,597
----------- -----------
Other Real Estate .............................................................. 1,248 983
----------- -----------
Other Assets ................................................................... 36,391 37,718
----------- -----------
Total Assets ................................................................ $ 2,382,320 $ 2,354,214
=========== ===========
LIABILITIES
Deposits:
Demand ....................................................................... $ 310,578 $ 309,700
Savings and Interest-Bearing Demand .......................................... 552,164 531,197
Time ......................................................................... 1,160,007 1,149,262
----------- -----------
Total Deposits .............................................................. 2,022,749 1,990,159
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ............................................... 71,140 75,017
Other Liabilities .............................................................. 24,007 28,506
Notes Payable:
Unaffiliated Bank ............................................................ 20,337 22,165
Affiliated Company ........................................................... 5,000 5,000
----------- -----------
Total Liabilities ........................................................... 2,143,233 2,120,847
----------- -----------
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 1998
and 1997; none outstanding) .................................................. -0- -0-
Common Stock (Par value of $1.00; 24,000 shares authorized; 12,647
shares outstanding in 1998 and 1997) ..................................... 12,647 12,647
Surplus ........................................................................ 35,988 35,988
Undivided Profits .............................................................. 187,876 182,208
Net Unrealized Gains (Losses) on Securities Available-for-Sale ................. 2,576 2,524
----------- -----------
Total Capital Accounts ...................................................... 239,087 233,367
----------- -----------
Total Liabilities and Capital Accounts ...................................... $ 2,382,320 $ 2,354,214
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
(In thousands, except share data) 1998 1997
---- ----
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ....................... $ 28,506 $ 24,371
Interest on Securities:
Taxable Securities ............................. 12,117 12,544
Nontaxable Securities .......................... 1,631 1,555
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ........................... 778 734
Interest on Deposits in Banks .................... 302 280
-------- --------
TOTAL INTEREST INCOME ........................ 43,334 39,484
-------- --------
INTEREST EXPENSE
Interest on Deposits ............................. 18,865 17,424
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ....................... 1,000 838
Interest on Notes Payable ........................ 348 361
-------- --------
TOTAL INTEREST EXPENSE ....................... 20,213 18,623
-------- --------
NET INTEREST INCOME .......................... 23,121 20,861
Provision for Possible Loan Losses ............... 317 469
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................... 22,804 20,392
-------- --------
OTHER INCOME
Service Charges on Deposit Accounts .............. 2,256 2,007
Trust Fee Income ................................. 526 692
Security Gains (Losses) .......................... 102 (1)
Other Operating Income ........................... 1,495 1,270
-------- --------
TOTAL OTHER INCOME ........................... 4,379 3,968
-------- --------
OTHER EXPENSE
Salaries ......................................... 6,494 5,921
Pension and Other Employee Benefits .............. 2,123 1,998
Net Occupancy Expense ............................ 1,224 1,171
Equipment Expense ................................ 978 917
Data Processing Expense .......................... 1,010 775
Other Operating Expenses ......................... 4,093 3,602
-------- --------
TOTAL OTHER EXPENSE .......................... 15,922 14,384
-------- --------
INCOME BEFORE INCOME TAXES ....................... 11,261 9,976
INCOME TAX EXPENSE ............................... 3,064 2,760
-------- --------
NET INCOME ................................... $ 8,197 $ 7,216
======== ========
EARNINGS PER SHARE ............................... $ 0.65 $ 0.57
======== ========
CASH DIVIDENDS PER SHARE ......................... $ 0.20 $ 0.17
======== ========
AVERAGE SHARES ISSUED AND
OUTSTANDING ...................................... 12,647 12,647
======== ========
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1998 1997
---- ----
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ........................................................... $ 8,197 $ 7,216
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ...................................................... 996 777
Amortization of Goodwill .......................................... 290 284
Provision for Possible Loan Losses ................................ 317 469
(Gain) Loss on Sales of Securities ................................ (102) 1
Accretion of Bond Discount, Net ................................... (48) (518)
(Increase) Decrease in Other Assets ............................... (995) 477
Increase (Decrease) in Other Liabilities .......................... (4,500) (836)
--------- ---------
Net Cash Provided by Operating Activities ............................ 6,145 7,870
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities ................... 24,924 10,117
Proceeds from Maturities of Securities Available-for-Sale ........... 96,659 50,818
Proceeds from Sales of Securities Available-for-Sale ................ 1,748 596
Purchase of Investment Securities ................................... (7,028) (10,804)
Purchase of Available-for-Sale Securities ........................... (72,693) (57,486)
(Increase) Decrease in Federal Funds, Net ........................... (31,807) 6,112
(Increase) Decrease in Other Short-Term Investments ................. 3,859 1,914
(Increase) Decrease in Loans ........................................ (30,137) (10,406)
Capital (Additions) Retirements, Net ................................ (764) (1,023)
--------- ---------
Net Cash Used in Investing Activities ................................ (15,239) (10,162)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand Deposits .... 21,845 19,722
Increase (Decrease) in Time Deposits ................................ 10,745 12,334
Repayment of Notes Payable .......................................... (81) (12)
Dividends Paid ...................................................... (2,529) (1,403)
--------- ---------
Net Cash Provided by (Used in) Financing Activities .................. 29,980 30,641
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ................. 20,886 28,349
Cash and Cash Equivalents, Beginning ................................. 85,111 72,075
--------- ---------
Cash and Cash Equivalents, Ending .................................... $ 105,997 $ 100,424
========= =========
</TABLE>
5
<PAGE> 6
FIRST UNITED BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of First United Bancshares, Inc.
("First United") include the accounts of the parent company and its wholly-owned
subsidiaries, First United Trust Company, N.A., The First National Bank of El
Dorado, First National Bank of Magnolia, Merchants and Planters Bank, N.A. of
Camden, City National Bank of Fort Smith, Commercial Bank at Alma, The Bank of
North Arkansas, FirstBank (Texarkana, Texas), First United Bank (Stuttgart,
Arkansas), Fredonia State Bank (Nacogdoches, Texas), City Bank & Trust of
Shreveport (Shreveport, Louisiana), The Citizens National Bank of Hope (Hope,
Arkansas), Peoples Bank & Loan Company (Lewisville, Arkansas), and First
Republic Bank (Rayville, Louisiana). All material intercompany transactions have
been eliminated.
The consolidated statements of condition as of March 31, 1998 and the
related consolidated statements of income for the three month period ended March
31, 1998 and 1997 and the consolidated statements of cash flows for the three
month period ended March 31, 1998 and 1997 are unaudited; in the opinion of
management, all adjustments necessary for a fair presentation of the financial
statements are included.
2. BUSINESS COMBINATIONS
On September 3, 1997, First United acquired all of the issued and
outstanding common stock of Fredonia Bancshares, Inc., Nacogdoches, Texas,
through the issuance of approximately 1,605,000 shares of First United common
stock in a transaction accounted for as a pooling of interests.
On December 31, 1997, First United acquired by merger all of the issued
and outstanding common stock and unexercised stock options of City Bank & Trust
of Shreveport, Shreveport, Louisiana, through the issuance of 424,880 shares of
First United common stock in a transaction accounted for as a pooling of
interests.
On March 30, 1998, First United also acquired by merger all of the
issued and outstanding common stock of Citizens National Bancshares of Hope,
Inc., Hope, Arkansas, through the issuance of 1,569,887 shares of First United
common stock in a transaction accounted for as a pooling of interests.
On March 30, 1998, First United also acquired by merger all of the
issued and outstanding common stock of First Republic Bancshares, Inc.,
Rayville, Louisiana("Republic"), including shares issuable to persons entitled
to receive performance shares and holders of Republic debentures, through the
issuance of 799,864 shares of First United common stock in a transaction
accounted for as a pooling of interests.
3. RESULTS OF OPERATIONS
The results for the three month period ended March 31, 1998 are not
necessarily indicative of the results for the entire year of 1998. This report
should be read in conjunction with First United's 1997 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 1997 to conform to the 1998 presentation. Such reclassifications
are of a normal recurring nature in accordance with Rule 10-02(b)(8) of
Regulation S-X.
5. COMPREHENSIVE INCOME (LOSS)
In January 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The Company's comprehensive income, which includes net
income and the change in unrealized gain (loss) on securities available for
sale, net of tax, was $8.249 million and $5.396 million for the quarters ended
March 31, 1998 and 1997, respectfully.
6
<PAGE> 7
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the three months ended March 31,
1998 and 1997 amounted to $202,000 and $92,000 respectively.
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, First United Trust Company, N.A. ("Trust
Company"), The First National Bank of El Dorado ("El Dorado"), City National
Bank of Fort Smith ("Ft. Smith"), First National Bank of Magnolia ("Magnolia"),
Merchants and Planters Bank, N.A. of Camden ("Camden"), Commercial Bank at Alma
("Alma"), The Bank of North Arkansas ("Melbourne"), FirstBank ("Texarkana"),
First United Bank ("Stuttgart"), First United Trust Company, N.A. ("FUTC"),
Fredonia State Bank ("Nacogdoches"), City Bank & Trust of Shreveport
("Shreveport"), The Citizens National Bank of Hope ("Hope"), Peoples Bank & Loan
Company ("Lewisville"), and First Republic Bank ("Republic"), focuses on the
results from operations which are not otherwise apparent from the consolidated
financial statements. Reference should be made to these financial statements and
the notes to the financial statements for an understanding of this review and
discussion.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 was $8.20
million, or $.65 per share compared with $7.22 million or $.57 per share during
the same period in 1997. The annualized return on average assets from continuing
operations for the three months ended March 31, 1998 and 1997 was 1.42% and
1.30% respectively, while the annualized return on average equity was 14.31% and
13.02% 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 three
months of 1998 was $24.00 million compared with $21.70 million in the first
three months of 1997. Net interest income also increased when compared with
1996. This increase in net interest income was primarily the result of higher
loan volumes and a larger securities portfolio. The net interest margin through
March 31, 1998 was 4.44% compared with 4.45% and 4.31% for the years ended
December 31, 1997 and 1996, respectively. First United expects no material
change in the net interest margin through the remainder of 1998.
First United has debt of approximately $25.34 million at March 31,
1998 and interest expense associated with this debt totaled $.35 million during
the first three months of 1998 compared with $.36 million during the same period
in 1997. First United will make a principal payment of $1.1 million on its
installment note payable to an unaffiliated bank in November of this year. These
borrowings contain financial covenants relating to the issuance of additional
debt and maintenance of minimum tangible net worth. First United's $ 5.00
million note payable to an affiliated company matures in August of 1998.
Interest is payable quarterly on both notes.
Pursuant to the Interest Rate Control Amendment to the Constitution
of the State of Arkansas, "consumer loans and credit sales" have a maximum
limitation of 17% per annum and all "general loans" have a maximum limitation of
5% over the Federal Reserve Discount Rate in effect at the time the loan was
made. The Arkansas Supreme Court has determined that "consumer loans and credit
sales" are "general loans" and are subject to the limitation of 5% over the
Federal Reserve Discount Rate as well as a Maximum limitation of 17% per annum.
As a general rule, the Company and its subsidiary banks are required to comply
with the Arkansas usury laws on loans made within the State of Arkansas.
7
<PAGE> 8
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Yield on Earning Assets 8.21 8.20 8.09
Break-even Yield 3.70 3.75 3.78
Net Interest Margin 4.51 4.45 4.31
Net Interest Spread 3.73 3.57 3.48
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $1,248.81 million at
March 31, 1998 compared with $1,219.47 million at December 31, 1997. 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 2.41% during the first three 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.
The following table lists those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1996
--------- -------------------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans: $ 2,760 $ 1,437 $ 1,395
Commercial & Financial 1,297 2,714 2,285
Real Estate 389 406 386
------- ------- -------
Consumer $ 4,446 $ 4,557 $ 4,066
------- ------- -------
Past due 90 days or more: $ 1,696 $ 1,268 $ 787
Commercial 316 1,430 1,089
Real Estate 254 507 500
------- ------- -------
Consumer $ 2,266 $ 3,205 $ 2,376
------- ------- -------
Renegotiated Commercial
Loans: $ 913 $ 1,008 $ 1,236
------- ------- -------
Total non-performing Loans: $ 7,625 $ 8,770 $ 7,678
Other Real Estate, Net 1,562 1,069 1,292
------- ------- -------
Total non-performing
Assets: $ 9,187 $ 9,839 $ 8,970
======= ======= =======
Non-Performing Loans as a %
of Outstanding Loans .61% .72% .73%
Non-Performing Assets as a
% of Equity Capital 3.84% 4.27% 4.31%
</TABLE>
8
<PAGE> 9
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of March
31, 1998.
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.
During the first three months of 1998 First United made provisions
for possible loan losses of $317 thousand compared with $469 thousand for the
same period in 1997. Total non-performing loans decreased $1.14 million from
$8.77 million at December 31, 1997 to $7.63 million at March 31, 1998. Net
charge-offs through March 31, 1998 totaled $765 thousand.
<TABLE>
<CAPTION>
Year Ended
March 31, December 31,
1998 1997 1996
--------- ----------------------------
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.38% 1.45% 1.42%
</TABLE>
The reserve for possible loan losses as a percentage of
non-performing loans was approximately 227% at March 31, 1998 compared with 202%
at December 31, 1997.
The allocation of the allowance for possible loan losses by major
categories of loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1996
--------- ----------------------------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 7,468 $ 5,356 $ 4,847
Real Estate 2,921 3,318 2,408
Consumer 3,050 2,578 2,610
Unallocated 3,780 6,442 5,086
-------- -------- --------
Total $ 17,219 $ 17,694 $ 14,951
======== ======== ========
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize that growth of non-interest income
in providing new revenue to the income stream. Future profitability depends upon
income derived from providing loan and deposit services, discount brokerage
fees, trust service income, mortgage service fees and service charges on deposit
accounts.
The table represented below is a comparison of the dollar and
percentage change for each component of non-interest income:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
---------------------- -------------------
1998 1997 $ %
---- ---- --- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Service Charges on Deposit
Accounts $ 2,256 $ 2,007 $ 249 12.41%
Trust Income 526 692 (166) (23.99)%
Security Gains (Losses) 102 (1) 103 103.00%
Other Income 1,495 1,270 225 17.72%
------- ------- ------ -----
Total Other Income $ 4,379 $ 3,968 $ 411 10.36 %
======= ======= ====== =====
</TABLE>
9
<PAGE> 10
Excluding security gains and losses, non-interest income increased
approximately $308 thousand when comparing 1998 with 1997 results. This increase
was primarily related to higher fee income from deposit accounts. First United
is focusing on non-interest income revenues and opportunities to increase fee
income.
INVESTMENT SECURITIES
During the first three months of 1998, First United had security
gains of approximately $102 thousand.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1996
--------- ---------------------------
(In thousands)
<S> <C> <C> <C>
Market Value $ 220,515 $ 239,766 $ 277,954
Amortized Cost 219,528 237,424 276,314
--------- --------- ---------
Difference $ 987 $ 2,342 $ 1,640
========= ========= =========
</TABLE>
At March 31, 1998, First United's securities portfolio classified as
Investment Securities was composed primarily of municipal and short-term fixed
rate CMO securities.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997 1996
--------- ---------------------------
(In thousands)
<S> <C> <C> <C>
Market Value $ 638,893 $ 664,405 $ 612,336
Amortized Cost 634,952 660,975 611,937
--------- --------- ---------
Difference $ 3,941 $ 3,430 $ 399
========= ========= =========
</TABLE>
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of First
United's major objectives. Non-interest expenses include salaries, employee
benefits, occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
----------------- ------
1998 1997 $ %
---- ---- --- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Salaries $ 6,494 $ 5,921 $ 573 9.68%
Pension and Employee Benefits 2,123 1,998 125 6.26%
Net Occupancy Expense 1,224 1,171 53 4.53%
Equipment Expense 978 917 61 6.65%
Data Processing Expense 1,010 775 235 30.32%
Other Operating Expense 4,093 3,602 491 13.63%
-------- -------- ------- -----
Total Non-Interest Expense $ 15,922 $ 14,384 $ 1,538 10.69%
======== ======== ======= =====
</TABLE>
Data Processing expense increased approximately 30.32% during the
first three months of 1998 when compared with the same period in 1997 primarily
as a result of a computer conversion.
INCOME TAXES
The effective tax rate of First United for the three month period
ended March 31, 1998 was 27.2% compared to 27.7% for the same period in 1997.
The decrease in the 1998 effective tax rate from 1997 was due primarily to a
decrease in the taxable securities portfolio.
10
<PAGE> 11
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 $239.09 million at March 31,
1998, compared to the December 31, 1997 level of $233.37 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>
March 31, December 31,
1998 1997 1996
--------- ---------------------------
<S> <C> <C> <C>
Equity Capital to Total Assets 9.93% 9.80% 9.58%
Primary Capital to Total Assets 10.22% 10.11% 9.69%
</TABLE>
The table presented below is a comparison of First United's capital position
with regulatory capital requirements:
<TABLE>
<CAPTION>
March 31, Regulatory
1998 Requirements
---- ------------
<S> <C> <C>
Total Capital/Total Assets 9.93% 6.00%
Primary Capital/Total Assets 10.22% 5.50%
Total Risk Based Capital 17.53% 8.00%
Tier 1 Capital 16.28% 4.00%
Leverage Ratio 9.54% 3.00%
</TABLE>
Note: Unrealized gains on securities available-for-sale have been excluded when
computing capital ratios.
Liquidity management is concerned with meeting the cash requirements
of customers, including the withdrawal of funds by depositors or drawing down of
approved lines of credit and commitments by borrowers. First United is aided
significantly in meeting its short term liquidity needs by its strong capital
position, its high rate of internal capital generation and its level of loan
loss reserves.
DIVIDEND POLICY
First United strives to maintain a balance between the retention of
earnings for the support of growth and expansion and a dividend payout that
meets the required return for investors. First United anticipates continuing its
policy of regular cash dividends, although there is no assurance as to future
increases in dividends because they are dependent upon future earnings, capital
requirements and economic conditions.
The following table sets forth the dividend payout ratio for the last
two years and for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
March 31, Year Ended
1998 1997 1996
--------- ----------------------------
<S> <C> <C> <C>
Dividend payout ratio 30.85% 27.62% 27.65%
</TABLE>
11
<PAGE> 12
ASSET - LIABILITY MANAGEMENT
First United, like most financial institutions, provides for the
relative stability in profits and the control in interest rate risk through
asset-liability management. An important element of asset-liability management
is the analysis and examination of the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap." An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
that time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets expected to mature or reprice
within a time period and the amount of interest-bearing liabilities expected to
mature or reprice within that same time period. A gap is considered negative
when the amount of interest rate sensitive liabilities maturing within a
specific time frame exceeds the amount of interest rate sensitive assets
maturing within that same time frame. During a period of falling interest rates,
a negative gap tends to result in an increase in net interest income. Whereas in
a rising interest rate environment, an institution with a negative gap could
experience the opposite results. At December 31, 1997, First United's
interest-bearing liabilities maturing or repricing within one year exceeded the
interest-bearing assets maturing or repricing within the same time period.
First United continually monitors its asset-liability position in
order to maximize profits and minimize interest rate risk. Additionally, First
United can reduce the impact that changing interest rates have on earnings and
adapt to changes in the economic environment by closely monitoring its Statement
of Condition. There have been no material changes in First United's
asset-liability position since December 31, 1997.
12
<PAGE> 13
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
On March 30, 1998, First United acquired by merger all of the issued
and outstanding common stock of Citizens National Bancshares of Hope, Inc.,
Hope, Arkansas, through the issuance of 1,569,887 shares of First United common
stock in a transaction accounted for as a pooling of interests. On March 30,
1998, First United also acquired by merger all of the issued and outstanding
common stock of First Republic Bancshares, Inc., Rayville, Louisiana
("Republic"), including shares issuable to persons entitled to receive
performance shares and holders of Republic debentures, through the issuance of
799,864 shares of First United common stock in a transaction accounted for as a
pooling of interests.
As of the date of this filing, First United has issued and outstanding
12,646,253 shares of common stock, $1.00 par value. Said shares have been
publicly registered with the Securities and Exchange Commission and are traded
on the National Association of Securities Dealers Automated Quotation System
under the symbol "UNTD". The above referenced issuances of common stock did not
materially modify, limit or qualify the rights of the holders of First United's
common stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 24, 1998, the Company held a special shareholders meeting
where the Board of Directors of the Company submitted to the shareholders a
proposal to vote upon the Agreement and Plan of Reorganization, dated September
15, 1997 (the "Citizens Agreement"), by and between the Company and Citizens
National Bancshares of Hope, Inc., where the Company would acquire all of the
issued and outstanding shares of common stock of Citizens National Bancshares of
Hope, Inc. in exchange for the issuance of the Company's common stock based upon
an exchange formula as described in the Citizens Agreement. The exchange formula
is more fully described in the Company's Form S-4 Registration Statement under
the Securities Act of 1933, as amended, Registration No. 333-43637 as filed with
the Securities and Exchange Commission on December 31, 1997, and Amendment No. 1
thereto, filed on February 3, 1998, which became effective on February 6, 1998,
and in the Company's current report on Form 8-K filed with the Securities and
Exchange Commission on April 10, 1998. Of the 10,276,772 shares voted at the
special meeting 8,327,262 were voted in favor of the Citizens Agreement, 455
voted against the Citizens Agreement and 12,393 abstained from voting.
At the March 24, 1998 special shareholders meeting, the Board of
Directors of the Company also submitted to the shareholders a proposal to vote
upon the Agreement and Plan of Reorganization, dated December 9, 1997 (the
"Republic Agreement"), by and between the Company and First Republic Bancshares,
Inc., where the Company would acquire all of the issued and outstanding shares
of common stock of First Republic Bancshares, Inc. in exchange for the issuance
of the Company's common stock based upon an exchange formula as described in the
Republic Agreement. The exchange formula is more fully described in the
Company's Form S-4 Registration Statement under the Securities Act of 1933, as
amended, Registration No. 333-44601 as filed with the Securities and Exchange
Commission on January 21, 1998, and Amendment No. 1 thereto, filed on February
4, 1998, which became effective on February 6, 1998, and in the Company's
current report on Form 8-K filed with the Securities and Exchange Commission on
April 10, 1998. Of the 10,276,772 shares entitled to be voted at the special
meeting 8,326,585 were voted in favor of the Republic Agreement, 455 voted
against the Republic Agreement and 13,070 abstained from voting.
13
<PAGE> 14
Item 5. OTHER MATTERS
Not Applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated by
reference to previously filed material.
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- -----------------------
<S> <C>
2(a) Agreement and Plan of Reorganization Between First
United Bancshares, Inc. and City Bank and Trust of
Shreveport and Plan of Merger Attached as Exhibit A
thereto is incorporated hereby by reference as
previously filed by the Company in its Form S-4
Registration Statement, under the Securities Act of
1933, Registration Statement No. 333-37281 as filed
with the Securities and Exchange Commission on
October 6, 1997, and Amendment No. 1 thereto, filed
on November 3, 1997, which became effective on
November 4, 1997.
2(b) Agreement and Plan of Reorganization between First
United Bancshares, Inc. and Citizens National
Bancshares of Hope, Inc. and Plan of Merger
attached as Exhibit A thereto (previously filed by
First United in its Form S-4 Registration Statement
under the Securities Act of 1933, Registration No.
333-43637 as filed with the Securities and Exchange
Commission on December 31, 1997, and Amendment No.
1 thereto, filed on February 3, 1998, which became
effective February 6, 1998) incorporated herein by
reference.
2(c) Agreement and Plan of Reorganization between First
United Bancshares, Inc. and First Republic
Bancshares, Inc. and Plan of Merger attached as
Exhibit A thereto (previously filed by First United
in its Form S-4 Registration Statement under the
Securities Act of 1933, Registration No. 333-44601
as filed with the Securities and Exchange
Commission on January 21, 1998, and Amendment No. 1
thereto, filed on February 4, 1998, which became
effective February 6, 1998) incorporated herein by
reference.
27 Financial Data Schedule
</TABLE>
Reports on Form 8-K
On January 14, 1998, First United filed a Current Report on Form 8-K
under Items 2 and 7 regarding the December 31, 1997, acquisition of the issued
and outstanding common stock of City Bank & Trust of Shreveport, Shreveport,
Louisiana ("CBT"), pursuant to the Agreement and Plan of Reorganization, dated
April 25, 1997, whereby First United acquired all of the outstanding shares of
common stock of CBT and satisfied unexercised stock options of CBT common stock
in exchange for the issuance of 424,880 shares of First United common stock.
On February 10, 1998, First United filed a Current Report on Form 8-K
under Item 5 in connection with the acquisition of CBT disclosing a summary of
certain financial data of the combined operation of CBT and First United for the
period ended January 30, 1998, whereby First United acquired all of the
outstanding shares of common stock of CBT and satisfied unexercised stock
options of CBT common stock in exchange for the issuance of 424,880 shares of
First United common stock.
Because the transaction was accounted for using the pooling of
interest method, certain trading restrictions were placed on the shares of
common stock of First United held by affiliates of CBT received pursuant to the
Agreement until the publication of the financial data disclosing 30 day
post-merger combined operations of the constituent corporations.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST UNITED BANCSHARES, INC.
BY /s/ James V. Kelley
-----------------------------------
James V. Kelley
Chairman, President and Chief
Executive Officer
BY /s/ John E. Burns
-----------------------------------
John E. Burns
Chief Financial Officer and Principal
Accounting Officer
Date: May 14, 1998
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
2(a) Agreement and Plan of Reorganization Between First
United Bancshares, Inc. and City Bank and Trust of
Shreveport and Plan of Merger Attached as Exhibit A
thereto is incorporated hereby by reference as
previously filed by the Company in its Form S-4
Registration Statement, under the Securities Act of
1933, Registration Statement No. 333-37281 as filed
with the Securities and Exchange Commission on
October 6, 1997, and Amendment No. 1 thereto, filed
on November 3, 1997, which became effective on
November 4, 1997.
2(b) Agreement and Plan of Reorganization between First
United Bancshares, Inc. and Citizens National
Bancshares of Hope, Inc. and Plan of Merger
attached as Exhibit A thereto (previously filed by
First United in its Form S-4 Registration Statement
under the Securities Act of 1933, Registration No.
333-43637 as filed with the Securities and Exchange
Commission on December 31, 1997, and Amendment No.
1 thereto, filed on February 3, 1998, which became
effective February 6, 1998) incorporated herein by
reference.
2(c) Agreement and Plan of Reorganization between First
United Bancshares, Inc. and First Republic
Bancshares, Inc. and Plan of Merger attached as
Exhibit A thereto (previously filed by First United
in its Form S-4 Registration Statement under the
Securities Act of 1933, Registration No. 333-44601
as filed with the Securities and Exchange
Commission on January 21, 1998, and Amendment No. 1
thereto, filed on February 4, 1998, which became
effective February 6, 1998) incorporated herein by
reference.
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 105,997
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 84,301
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 638,893
<INVESTMENTS-CARRYING> 219,528
<INVESTMENTS-MARKET> 220,515
<LOANS> 1,242,679
<ALLOWANCE> 17,219
<TOTAL-ASSETS> 2,382,320
<DEPOSITS> 2,022,749
<SHORT-TERM> 71,140
<LIABILITIES-OTHER> 24,007
<LONG-TERM> 25,337
0
0
<COMMON> 48,635
<OTHER-SE> 187,876
<TOTAL-LIABILITIES-AND-EQUITY> 2,382,320
<INTEREST-LOAN> 28,506
<INTEREST-INVEST> 13,748
<INTEREST-OTHER> 1,080
<INTEREST-TOTAL> 43,334
<INTEREST-DEPOSIT> 18,865
<INTEREST-EXPENSE> 20,213
<INTEREST-INCOME-NET> 23,121
<LOAN-LOSSES> 317
<SECURITIES-GAINS> 102
<EXPENSE-OTHER> 15,922
<INCOME-PRETAX> 11,261
<INCOME-PRE-EXTRAORDINARY> 11,261
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,197
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 8.21
<LOANS-NON> 4,446
<LOANS-PAST> 2,266
<LOANS-TROUBLED> 913
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,694
<CHARGE-OFFS> 1,233
<RECOVERIES> 468
<ALLOWANCE-CLOSE> 17,219
<ALLOWANCE-DOMESTIC> 17,219
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
