<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:
June 30, 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 August 1, 1998 was 25,294,296.
================================================================================
<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
JUNE 30, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION:
<S> <C>
Item 1. Consolidated Statements of Condition,
June 30, 1998 and December 31, 1997. 3
Consolidated Statements of Income for the
Three and Six Months Ended June 30,
1998 and 1997. 4
Consolidated Statements of Cash Flow for
the Six Months Ended June 30, 1998 and
1997. 5
Notes to Consolidated Financial
Statements. 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 8 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Change in Securities 15
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
(In thousands)
ASSETS
<S> <C> <C>
Cash and Due From Banks .......................................... $ 93,309 $ 85,111
Short-Term Investments
Federal Funds Sold and Securities Purchased
Under Agreement to Resell .................................... 107,670 58,117
Other Short-Term Investments ................................... 16,400 22,779
----------- -----------
Total Short-Term Investments ..................................... 124,070 80,896
Securities Available-for-Sale .................................... 608,174 664,405
Investment Securities ............................................ 219,550 237,424
Total Loans ...................................................... 1,300,556 1,219,467
Unearned Discount .............................................. (6,276) (6,133)
Allowance for Possible Loan Losses ............................. (18,113) (17,694)
----------- -----------
Net Loans ..................................................... 1,276,167 1,195,640
Premises and Equipment ........................................... 41,526 41,440
Goodwill ......................................................... 10,406 10,597
Other Real Estate ................................................ 863 983
Other Assets ..................................................... 35,297 37,718
----------- -----------
Total Assets .................................................. $ 2,409,362 $ 2,354,214
=========== ===========
LIABILITIES
Deposits:
Demand ......................................................... $ 343,769 $ 309,700
Savings and Interest-Bearing Demand ............................ 553,176 531,197
Time ........................................................... 1,154,121 1,149,262
----------- -----------
Total Deposits ................................................ 2,051,066 1,990,159
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase ....................................... 68,046 75,017
Other Liabilities ................................................ 19,931 28,506
Notes Payable:
Unaffiliated Bank .............................................. 21,186 22,165
Affiliated Company ............................................. 5,000 5,000
----------- -----------
Total Liabilities ............................................. 2,165,229 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; 50,000 shares authorized; 25,294
shares outstanding in 1998 and 1997) ........................ 25,294 25,294
Surplus .......................................................... 25,128 23,341
Undivided Profits ................................................ 191,302 182,208
Net Unrealized Gains (Losses) on Securities Available-for- Sale .. 2,409 2,524
----------- -----------
Total Capital Accounts ........................................ 244,133 233,367
----------- -----------
Total Liabilities and Capital Accounts ........................ $ 2,409,362 $ 2,354,214
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except share data) 1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ........ $30,078 $27,072 $58,584 $52,555
Interest on Securities:
Taxable Securities .............. 11,234 13,041 23,351 25,691
Nontaxable Securities ........... 1,688 1,616 3,319 3,212
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ............ 1,164 729 1,942 1,484
Interest on Deposits in Banks ..... 249 242 551 535
------- ------- ------- -------
TOTAL INTEREST INCOME ......... 44,413 42,700 87,747 83,477
------- ------- ------- -------
INTEREST EXPENSE
Interest on Deposits .............. 19,208 18,251 38,073 36,078
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ........ 985 1,031 1,985 1,869
Interest on Notes Payable ......... 364 455 712 816
------- ------- ------- -------
TOTAL INTEREST EXPENSE ........ 20,557 19,737 40,770 38,763
------- ------- ------- -------
NET INTEREST INCOME ........... 23,856 22,963 46,977 44,714
Provision for Possible Loan Losses 1,350 810 1,667 1,284
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ..... 22,506 22,153 45,310 43,430
------- ------- ------- -------
OTHER INCOME
Service Charges on Deposit Accounts 2,285 2,262 4,541 4,436
Trust Fee Income .................. 595 496 1,121 1,188
Security Gains (Losses) ........... 49 37 151 36
Other Operating Income ............ 1,202 1,236 2,697 2,530
------- ------- ------- -------
TOTAL OTHER INCOME ............ 4,131 4,031 8,510 8,190
------- ------- ------- -------
OTHER EXPENSE
Salaries .......................... 6,664 6,343 13,158 12,458
Pension and Other Employee Benefits 2,114 2,085 4,237 4,112
Net Occupancy Expense ............. 1,297 1,312 2,521 2,521
Equipment Expense ................. 947 964 1,925 1,919
Data Processing Expense ........... 997 909 2,007 1,715
Merger-related Costs .............. 411 0 567 0
Other Operating Expenses .......... 3,976 4,041 7,913 7,830
------- ------- ------- -------
TOTAL OTHER EXPENSE ........... 16,406 15,654 32,328 30,555
------- ------- ------- -------
INCOME BEFORE INCOME TAXES ........ 10,231 10,530 21,492 21,065
INCOME TAX EXPENSE ................ 2,942 3,077 6,006 6,008
------- ------- ------- -------
NET INCOME .................... $ 7,289 $ 7,453 $15,486 $15,057
======= ======= ======= =======
EARNINGS PER SHARE ................ $ 0.29 $ 0.29 $ 0.61 $ 0.60
======= ======= ======= =======
BASIC ............................. $ 0.29 $ 0.29 $ 0.61 $ 0.60
======= ======= ======= =======
DILUTED ........................... $ 0.29 $ 0.29 $ 0.61 $ 0.60
======= ======= ======= =======
CASH DIVIDENDS PER SHARE .......... $ 0.115 $ 0.10 $ 0.215 $ 0.185
======= ======= ======= =======
AVERAGE SHARES ISSUED AND
OUTSTANDING ....................... 25,294 25,294 25,294 25,294
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
--------- ---------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................................... $ 15,486 $ 15,057
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ................................................. 1,827 1,773
Amortization of Goodwill ..................................... 580 589
Provision for Possible Loans Losses .......................... 1,667 1,284
(Gain) Loss on Sales of Securities ........................... (151) (36)
Accretion of Bond Discount, Net .............................. -- (1,227)
(Increase) Decrease in Other Assets .......................... 2,411 (185)
Increase (Decrease) in Other Liabilities ..................... (7,635) 5,918
--------- ---------
Net Cash Provided by Operating Activities ....................... 14,185 23,173
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities .............. 44,267 17,746
Proceeds from Maturities of Securities Available-for-Sale ...... 202,027 66,499
Proceeds from Sales of Securities Available-for-Sale ........... 5,953 60,532
Purchase of Investment Securities .............................. (26,393) (20,862)
Purchase of Available-for-Sale Securities ...................... (151,627) (176,691)
(Increase) Decrease in Federal Funds, Net ...................... (56,524) 34,676
(Increase) Decrease in Other Short-Term Investments ............ 8,201 6,254
(Increase) Decrease in Loans ................................... (82,190) 50,224
Capital (Additions) Retirements, Net ........................... (1,912) (969)
--------- ---------
Net Cash Used in Investing Activities ........................... (58,198) 37,409
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Demand, Savings and Interest-bearing Demand
Deposits ....................................................... 50,908 (11,267)
Increase (Decrease) in Time Deposits ........................... 9,999 (36,006)
Repayment of Notes Payable ..................................... (1,534) (117)
Exercise of stock options ...................................... 17 --
Dividends Paid ................................................. (5,359) (4,117)
--------- ---------
Net Cash Provided by (Used in) Financing Activities ............. 54,031 (51,507)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ............ 10,018 9,075
Cash and Cash Equivalents, Beginning ............................ 83,291 83.610
--------- ---------
Cash and Cash Equivalents, Ending ............................... $ 93,309 $ 92,685
========= =========
</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 and Trust
(Shreveport, Louisiana), Citizens National Bank (Hope, Arkansas), Peoples Bank
and Trust Co. (Lewisville, Arkansas), and First Republic Bank (Rayville,
Louisiana). All material intercompany transactions have been eliminated.
The consolidated statements of condition as of June 30, 1998 and the
related consolidated statements of income for the three and six months period
ended June 30, 1998 and 1997 and the consolidated statements of cash flows for
the six month period ended June 30, 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 August 30, 1997, First United acquired all of the issued and
outstanding common stock of Fredonia Bancshares, Inc., Nacogdoches, Texas,
through the issuance of approximately 1,600,000 shares of First United common
stock in a transaction accounted for as a pooling of interests. All 1997 results
have been restated to include the results of Fredonia and City Bank & Trust of
Shreveport, Shreveport, Louisiana.
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 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 and six months period ended June 30, 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. CAPITAL ACCOUNTS
On May 26, 1998, First United declared a two-for-one stock split. The
additional shares were issued on June 30, 1998 to shareholders of record on June
1, 1998. As a result, First United's current outstanding shares have been
increased to 25,294,000. All per share data and number of shares outstanding
have been retroactively restated to reflect the effect of this stock split.
Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding, 25,294,000 for the second quarter of 1998
and 1997. Diluted EPS was computed by dividing net income by the sum of the
6
<PAGE> 7
weighted average shares of common stock outstanding and the effect of stock
options outstanding. The effect of the stock options was to increase the
weighted average number of shares by 99,000 in 1998 and 69,000 in 1997.
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 $7.122 million and $9.334 million, and $15.371 million and
$14.935 million for the three months and six months ended June 30, 1998 and
1997, respectively.
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the six months ended June 30,
1998 and 1997 amounted to $401,000 and $388,000 respectively.
7
<PAGE> 8
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of First United Bancshares, Inc.
("First United") and its subsidiaries, The First National Bank of El Dorado ("El
Dorado"), City National Bank of Fort Smith ("Ft. Smith"), First National Bank of
Magnolia ("Magnolia"), Merchants and Planters Bank, N.A. of Camden ("Camden"),
Commercial Bank at Alma ("Alma"), The Bank of North Arkansas ("Melbourne"),
FirstBank ("Texarkana"), First United Bank ("Stuttgart"), First United Trust
Company, N.A. ("FUTC"), Fredonia State Bank ("Nacogdoches"), City Bank and Trust
("Shreveport"), Citizens National Bank ("Hope"), Peoples Bank and Trust Co.
("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 before merger-related costs for the three months ended June
30, 1998 was $7.70 million, or $.30 per share compared with $7.45 million, or
$.29 per share during the same period in 1997. Net income before merger-related
costs for the six months ended June 30, 1998 was $16.09 million, or $.63 per
share compared with $15.06 million, or $.60 per share for the same period in
1997.
Including merger-related costs, net income for the three months ended
June 30, 1998 was $7.29 million, or $.29 per share compared with $7.45 million,
or $.29 per share during the same period in 1997. Including merger-related
costs, net income for the six months ended June 30, 1998 was $15.49 million, or
$ .61 per share compared with $15.06 million or $.60 per share during the same
period in 1997. The annualized return on average assets from continuing
operations for the six months ended June 30, 1998 and 1997 was 1.32% and 1.39%
respectively, while the annualized return on average equity was 13.37% and
14.39% respectively for the same periods. The increase in net income was due
primarily to higher net interest income resulting from the increase in loan
volume.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the
difference between the income generated by earning assets and the total interest
cost of the funds obtained to carry them. Net interest income, as referred to in
this discussion, is on a fully tax-equivalent basis, which adjusts for the
tax-exempt status of income earned on certain loans and investments. The
reported interest income for the tax-free assets is increased by the amount of
tax savings less the nondeductible portion of interest expense incurred to
acquire the tax-free assets. Net interest income is affected by variations in
both interest rates and the volume of interest-earning assets and
interest-bearing liabilities.
On a tax equivalent basis, net interest income for the first six months
of 1998 was $24.68 million compared with $24.35 million in the first six 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 June 30, 1998
was 4.49% 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 $26.19 million at June 30, 1998
and interest expense associated with this debt totaled $.71 million during the
first six months of 1998 compared with $.82 million during the same period in
1997. First United will make a principal payment of $1.10 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.
8
<PAGE> 9
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.
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
Yield on Earning Assets 8.20 8.20 8.09
Break-even Yield 3.71 3.75 3.78
Net Interest Margin 4.49 4.45 4.31
Net Interest Spread 3.62 3.57 3.48
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $1.30 billion at June 30,
1998 compared with $1.22 billion 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 6.65% during the first six months of this year
primarily as a result of above average economic conditions present in the
Company's market areas. First United is continuing to emphasize loan growth in
order to increase total revenues.
9
<PAGE> 10
The following table lists those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $ 2,705 $ 1,437 $ 1,395
Real Estate 1,405 2,714 2,285
Consumer 355 406 386
------- ------- -------
$ 4,465 $ 4,557 $ 4,066
------- ------- -------
Past due 90 days or more:
Commercial $ 4,173 $ 1,268 $ 787
Real Estate 588 1,430 1,089
Consumer 346 507 500
------- ------- -------
$ 5,107 $ 3,205 $ 2,376
------- ------- -------
Renegotiated Commercial
Loans: $ 1,063 $ 1,008 $ 1,236
------- ------- -------
Total non-performing Loans: $10,635 $ 8,770 $ 7,678
Other Real Estate, Net 1,124 1,069 1,292
------- ------- -------
Total non-performing
Assets: $11,759 $ 9,839 $ 8,970
======= ======= =======
Non-Performing Loans as a %
of Outstanding Loans .81% .72% .73%
Non-Performing Assets as a
% of Equity Capital 4.82% 4.27% 4.31%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of June
30, 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.
10
<PAGE> 11
During the first six months of 1998 First United made provisions for
possible loan losses of $1.67 million compared with $1.28 million for the same
period in 1997. Total non-performing loans increased $1.87 million from $8.77
million at December 31, 1997 to $10.64 million at June 30, 1998. Net charge-offs
through June 30, 1998 totaled $.57 million.
<TABLE>
<CAPTION>
June 30, Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.39% 1.45% 1.42%
</TABLE>
The reserve for possible loan losses as a percentage of non-performing
loans was approximately 170% at June 30, 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>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 6,103 $ 5,356 $ 4,847
Real Estate 3,229 3,318 2,408
Consumer 1,986 2,578 2,610
Unallocated 6,795 6,442 5,086
------- ------- -------
Total $18,113 $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>
Six months Ended
June 30, Change
1998 1997 $ %
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit Accounts $4,541 $4,436 $ 105 2.37%
Trust Income 1,121 1,188 (67) (5.64)%
Security Gains (Losses) 151 36 115 319.44%
Other Income 2,697 2,530 167 6.60%
------ ------ ------ ------
Total Other Income $8,510 $8,190 $ 320 3.91%
====== ====== ====== ======
</TABLE>
Excluding security gains and losses, non-interest income increased approximately
$.21 million 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.
11
<PAGE> 12
INVESTMENT SECURITIES
During the first six months of 1998, First United had security gains of
approximately $.15 million.
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Market Value $221,820 $239,766 $277,954
Amortized Cost 219,550 237,424 276,314
-------- -------- --------
Difference $ 2,270 $ 2,342 $ 1,640
======== ======== ========
</TABLE>
At June 30, 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>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
(In thousands)
Market Value $608,174 $664,405 $612,336
Amortized Cost 604,494 660,975 611,937
-------- -------- --------
Difference $ 3,680 $ 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>
Six months Ended
June 30, Change
1998 1997 $ %
------- ------- ------- ------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $13,158 $12,458 $ 700 5.62%
Pension and Employee Benefits 4,237 4,112 125 3.04%
Net Occupancy Expense 2,521 2,521 0 0%
Equipment Expense 1,925 1,919 6 .31%
Data Processing Expense 2007 1,715 292 17.03%
Merger-related Costs 567 0 567 100.0%
Other Operating Expense 7,913 7,830 83 1.06%
------- ------- ------- ------
Total Non-Interest Expense $32,328 $30,555 $ 1,773 5.80%
======= ======= ======= ======
</TABLE>
Data Processing expense increased approximately 17.03% during the first
six 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 six month period ended
June 30, 1998 was 27.95% compared to 28.52% for the same period in 1997.
12
<PAGE> 13
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 $244.13 million at June 30, 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>
June 30, December 31,
1998 1997 1996
<S> <C> <C> <C>
Equity Capital to Total Assets 10.03% 9.80% 9.58%
Primary Capital to Total Assets 10.33% 10.11% 9.69%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
June 30, Regulatory
1998 Requirements
<S> <C> <C>
Total Capital/Total Assets 10.03% 6.00%
Primary Capital/Total Assets 10.33% 5.50%
Total Risk Based Capital 17.35% 8.00%
Tier 1 Capital 16.10% 4.00%
Leverage Ratio 9.65% 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.
13
<PAGE> 14
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 six months ended June 30, 1998:
<TABLE>
<CAPTION>
June 30, Year Ended,
1998 1997 1996
<S> <C> <C> <C>
Dividend payout ratio 34.61% 27.62% 27.65%
</TABLE>
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.
YEAR 2000 COMPLIANCE
First United has established a task force to review all computer-based
systems and applications and develop an action plan to ensure that its computer
and information systems will function properly in the year 2000. This plan,
which has been approved by the Board of Directors and Management, documents
First United's approach to having all systems and applications year 2000
compliant by December 31, 1998 with final testing to take place during 1999. At
this time, Management believes that implementation of its year 2000 plan will
not materially affect First United's future operations. However, First United
could be affected by the unsuccessful attempt of other entities in addressing
this issue. First United is in the process of identifying which of its systems
could be adversely affected by the year 2000 issue and is developing an
implementation plan to resolve the issue. Management does not expect the cost of
any of the required modifications to have a material effect on First United's
consolidated financial statements.
14
<PAGE> 15
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
On May 14, 1998, the Company issued 625 shares as a result of
the exercise of a non-statutory stock option granted in connection with
the Company's 1994 Equity Participation Plan which increased the issued
and outstanding stock of the Company from 12,646,523 to 12,647,148
shares. The Board of Directors of First United Bancshares, Inc. (the
"Company") declared a 2-for-1 stock split which was effected in the
form of a one hundred percent (100%) stock dividend. The stock dividend
was distributed on June 30, 1998 and increased the issued and
outstanding stock of the Company to 25,294,296 shares. The
above-referenced stock split did not materially modify, limit or
qualify the rights of the holders of the Company's common stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 26, 1998, the Company held its annual stockholders
meeting to elect the Board of Directors who will serve until the next
annual meeting of the stockholders and to ratify the appointment of
Arthur Andersen LLP as independent auditors of First United until the
next annual meeting of stockholders.
The Board of Directors of the Company also submitted to the
shareholders at the annual meeting a proposed amendment to Article
Fourth and a separate amendment to Article Seventh of the Company's
Articles of Incorporation, both of which were approved. The amendment
to Article Fourth increased the number of authorized shares of Company
common stock, $1.00 par value, from 24,000,000 shares to 50,000,000
shares. The Amendment to Article Seventh allows the Board of Directors
to approve business acquisitions of other business entities without
obtaining shareholder approval, if the number of shares of Company
common stock issued in the transaction would not equal or exceed twenty
percent (20%) of the number outstanding prior to consumption of the
acquisition.
15
<PAGE> 16
The vote results in the election for directors were as follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD ABSTAINED AGAINST
<S> <C> <C> <C> <C>
E. Larry Burrow 8,526,515 6,630 170 9,128
Claiborne P. Deming 8,445,010 88,135 170 9,128
Al Graves, Jr. 8,526,515 6,630 170 9,128
Tommy Hillman 8,526,515 6,630 170 9,128
James V. Kelley 8,526,515 6,630 170 9,128
Roy E. Ledbetter 8,526,515 6,630 170 9,128
Michael F. Mahony 8,526,515 6,630 170 9,128
Richard H. Mason 8,526,515 6,630 170 9,128
Jack W. McNutt 8,526,515 6,630 170 9,128
George F. Middlebrook, III 8,524,810 8,335 170 9,128
R. Madison Murphy 8,445,010 88,135 170 9,128
Robert C. Nolan 8,526,515 6,630 170 9,128
Cal Partee, Jr. 8,526,515 6,630 170 9,128
Carolyn Tennyson 8,526,515 6,630 170 9,128
John D. Trimble, Jr. 8,526,515 6,630 170 9,128
</TABLE>
At the annual meeting, 8,522,693 shares were voted in favor of
ratification of Arthur Andersen LLP, 490 against, and 13,020 abstained
from voting. A total of 8,383,128 were voted in favor of the amendment
to Article Fourth, 54,025 against, and 99,050 abstained from voting. A
total of 8,026,186 were voted in favor of the amendment to Article
Seventh, 136,435 against, and 37,607 abstained from voting.
Item 5. OTHER INFORMATION
John Burns resigned his position as Senior Vice President, Chief
Financial Officer and Secretary of the Company effective July 28, 1998, Robert
L. Jones, President of First National Bank of Magnolia and Assistant Secretary
of the Company is serving as Chief Financial Officer and Secretary of the
Company on an interim basis.
The Company has entered into a letter of intent to acquire Mountain
Bancshares, Inc., Yellville, Arkansas, and its wholly owned subsidiary The Bank
of Yellville in exchange for 950,000 shares of the Company's common stock.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated
by references to previously filed materials.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- ----------------------
<S> <C>
2(a) Agreement and Plan of Reorganization between First
United Bancshares, Inc. and 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(b) 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 April 10, 1998, First United filed a Current Report on Form
8-K under Items 2 and 7 regarding the March 30, 1998, acquisition of the issued
and outstanding common stock of Citizens National Bancshares of Hope, Inc.,
Hope, Arkansas ("Citizens"), pursuant to the Agreement and Plan of
Reorganization, dated September 15, 1997, whereby First United acquired all of
the outstanding shares of common stock of Citizens in exchange for the issuance
of 1,569,887 shares of First United common stock. On April 10, 1998, First
United filed a second Current Report on Form 8-K under Items 2 and 7 regarding
the March 30, 1998, acquisition of the issued and outstanding common stock of
First Republic Bancshares, Inc., Rayville, Louisiana ("Republic"), pursuant to
the Agreement and Plan of Reorganization, dated December 9, 1997, whereby First
United acquired all of the outstanding shares of common stock of Republic
including shares issuable to persons entitled to receive performance shares and
holders of Republic indentures in exchange for the issuance of 799,864 shares
of First United common stock.
On May 15, 1998, First United filed a Current Report on Form
8-K under Item 5 in connection with the acquisition of Citizens and Republic
disclosing a summary of certain financial data of the combined operation of
Citizens, Republic and First United for the period ended April 29, 1998.
Because the transactions were 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 Citizens and Republic received pursuant
to the Agreement until the publication of the financial data disclosing 30 day
post-merger combined operations of the constituent corporations.
16
<PAGE> 17
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/ Robert L. Jones
---------------------------------
Robert L. Jones
Acting Chief Financial Officer
and Principal Accounting
Officer
Date: August 14, 1998
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- ----------------------
<S> <C>
27 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 93,309
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 107,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 608,174
<INVESTMENTS-CARRYING> 219,550
<INVESTMENTS-MARKET> 221,820
<LOANS> 1,300,556
<ALLOWANCE> 18,113
<TOTAL-ASSETS> 2,409,362
<DEPOSITS> 2,051,066
<SHORT-TERM> 68,046
<LIABILITIES-OTHER> 19,931
<LONG-TERM> 26,186
0
0
<COMMON> 50,422
<OTHER-SE> 193,711
<TOTAL-LIABILITIES-AND-EQUITY> 2,409,362
<INTEREST-LOAN> 58,584
<INTEREST-INVEST> 26,670
<INTEREST-OTHER> 2,493
<INTEREST-TOTAL> 87,747
<INTEREST-DEPOSIT> 38,073
<INTEREST-EXPENSE> 40,770
<INTEREST-INCOME-NET> 46,977
<LOAN-LOSSES> 1,667
<SECURITIES-GAINS> 151
<EXPENSE-OTHER> 32,328
<INCOME-PRETAX> 21,492
<INCOME-PRE-EXTRAORDINARY> 21,492
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,486
<EPS-PRIMARY> .61
<EPS-DILUTED> .61
<YIELD-ACTUAL> 8.20
<LOANS-NON> 10,635
<LOANS-PAST> 5,107
<LOANS-TROUBLED> 1,063
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,694
<CHARGE-OFFS> 2,488
<RECOVERIES> 1,240
<ALLOWANCE-CLOSE> 18,113
<ALLOWANCE-DOMESTIC> 18,113
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
