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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______________ TO ________________
COMMISSION FILE NO. 0-11916
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FIRST UNITED BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0538646
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
MAIN AND WASHINGTON STREETS, EL DORADO, ARKANSAS 71730
- ------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (870) 863-3181
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF CLASS WHICH REGISTERED
-------------- ------------------------
Common Stock, $1.00 par value NASDAQ-NMS
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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 period 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 [ ]
As of March 1, 1999, 25,294,296 shares of the Registrant's Common
Stock, $1.00 par value were issued and outstanding, and the approximate
aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $386,963,544. (For purposes of the above stated
amount only, all directors and officers of the registrant are presumed to be
affiliates.)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into
the listed Parts and Items of Form 10-K:
Annual Report to Stockholders for the year ending December 31, 1998 to
the extent indicated in the Form 10-K cross reference index - PARTS II, III, and
IV.
Definitive Proxy Statement to Stockholders to be filed with the
Securities and Exchange Commission not later than 120 days after the close of
the Registrant's fiscal year - PART III.
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FIRST UNITED BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1998
CROSS REFERENCE SHEET AND INDEX
<TABLE>
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PART I.
ITEM NO. LOCATION*
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<S> <C>
Item 1. Business...................................................................... Page 4 of Form 10-K
Item 2. Properties.................................................................... Page 5 of Form 10-K
Item 3. Legal Proceedings............................................................. Page 5 of Form 10-K
Item 4. Submission of Matters to a Vote
of Security Holders........................................................... Page 5 of Form 10-K
PART II.
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................................... Page 11 of the 1998
Annual Report
to Stockholders
Item 6. Selected Financial Data....................................................... Page 17 of the 1998
Annual Report to
Stockholders
Item 7. Managements's Discussion and Analysis
of Financial Condition and Results of
Operations.................................................................... Pages 3 - 16 of the
1998 Annual Report
to Stockholders
Item 8. Financial Statements and Supplementary Data................................... Pages 19 - 36 of the
1998 Annual Report
to Stockholders
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................................ Not Applicable
</TABLE>
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FIRST UNITED BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1998
CROSS REFERENCE SHEET AND INDEX (CONTINUED)
<TABLE>
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PART III.
ITEM NO. LOCATION*
- -------- ---------
<S> <C>
Item 10. Directors and Executive Officers of the
Registrant ................................................................... Page 38 of the 1998
Annual Report to
Stockholders
</TABLE>
The remaining information for Item 10 and the information required by
Items 11 through 13 are incorporated by reference to the Registrant's
Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders
filed with the Securities and Exchange Commission.
<TABLE>
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PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K....................................................... Page 7
</TABLE>
* Page number references are to the locations of the listed items
contained in this Annual Report on Form 10-K for the year ended
December 31, 1998. The Registrant's 1998 Annual Report to Stockholders
and Definitive Proxy Statement are referred to above where such
information is incorporated by reference into this Annual Report on
Form 10-K from such 1998 Annual Report to Stockholders and Definitive
Proxy Statement.
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FIRST UNITED BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1998
PART I
ITEM 1. BUSINESS.
DESCRIPTION OF BUSINESS
First United Bancshares, Inc. (First United) is a multi-bank holding
company incorporated in 1980 for the purpose of holding all of the outstanding
stock of The First National Bank of El Dorado (FNBE). Between 1981 and 1998,
First United acquired fifteen other banks in different cities within Arkansas,
Louisiana and Texas. The banks acquired were the First National Bank of Magnolia
(FNBM), Merchants and Planters Bank, N.A., of Camden (MPBC), City National Bank
of Fort Smith (CNBFS), Commercial Bank at Alma (CBA), The Bank of North Arkansas
(BNA), First Stuttgart Bank and Trust Company n\k\a First United Bank (FUB),
FirstBank, Texarkana, Texas (FBTX), Citizens Bank & Trust of Carlisle (CBT
Carlisle), Hazen First State Bank of Hazen (HFSB), First Bank of Arkansas of
Brinkley (FBA), City Bank & Trust of Shreveport, Shreveport, Louisiana (CBT),
Fredonia State Bank, Nacogdoches, Texas (FSB), Citizens National Bank of Hope,
Hope, Arkansas (CNBH), Peoples Bank & Loan Company, Lewisville, Arkansas (PBLC),
and First Republic Bank, Rayville, Louisiana (FRB). CBT Carlisle, HFSB and FBA
were merged with and into FUB in 1997. First United formed First United Trust
Company, N.A. (FUTC) in 1996. Each of the banks and the trust company are
wholly-owned by First United.
The banks offer customary services of banks of similar size and similar
markets, including interest-bearing and non-interest-bearing deposit accounts,
commercial, real estate and personal loans, correspondent banking services and
safe deposit box activities. The trust company provides trust services and
fiduciary functions of First United's affiliated banks which provide such
services except that FBTX continues to act as the fiduciary for all of its
accounts and FUB maintains a limited number of its accounts on a full service
basis. For further discussion of First United operations, see pages 3 through 16
of the Annual Report to Stockholders, which is incorporated by reference to Item
7 in the Form 10-K.
COMPETITION
The banking business is highly competitive. The banking and trust
subsidiaries of First United compete actively with national and state banks,
savings and loan associations, trust companies, securities dealers, mortgage
bankers, finance companies and insurance companies.
REGULATION
First United is a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "Act"), and as such, is subject to
regulation and examination by the Federal Reserve Board and is required to file
with the Federal Reserve Board annual reports and other information regarding
the business operations of itself and its subsidiaries. The Act provides that a
bank holding company may be required to obtain Federal Reserve Board approval
for the acquisition of more than 5% of the voting securities or substantially
all of the assets of any bank or bank holding company, unless it already owns a
majority of the voting securities of such bank. The Act prohibits First United
from engaging in any business other than banking or bank-related activities
specifically allowed by the Federal Reserve Board. The Act also prohibits First
United and its subsidiaries from engaging in certain tie-in arrangements in
connection with the extension of credit, the lease or sale of property or the
provision of any services. Under Title VI of the Financial Institutions, Reform,
Recovery and Enforcement Act of 1989, the Act has been amended to authorize bank
holding companies to acquire savings and thrift institutions without tandem
operations restrictions.
First United's thirteen banking subsidiaries ("the Banks") are subject
to a variety of regulations concerning the maintenance of reserves against
deposits, limitations on the rates that can be charged on loans or paid on
deposits, branching, restrictions on the nature and amounts of loans and
investments that can be made and limits on daylight overdrafts. All of the Banks
are regulated by the Federal Deposit Insurance Corporation. In addition, as
national banking associations, FNBE, FNBM, MPBC, CNBFS, and CNBH are subject to
the regulation and supervision of the Comptroller of the Currency, while CBA,
BNA, FUB, and PBLC are subject to the regulation of the Arkansas State Bank
Department, CBT and FRB are subject to the regulation of the Louisiana Office of
Financial Institutions and FBTX and FSB are subject to the regulation of the
Texas Department of Banking. FNBE, MPBC, CNBFS, FNBM, CNBH and FUTC are members
of the Federal Reserve System and subject to regulation by the Federal Reserve
Board. FUTC is also subject to regulation by the Comptroller of Currency.
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The Banks are limited in the amount of dividends they may declare.
Prior approval must be obtained from the appropriate regulatory authorities
before dividends can be paid by the Banks to First United if the amount of
adjusted capital, surplus and retained earnings is below defined regulatory
limits. See Note 14 of Notes to the Consolidated Financial Statements, which is
incorporated by reference into Item 8 of this Annual Report on Form 10-K. The
Banks are also restricted from extending credit or making loans to or
investments in First United and certain other affiliates as defined in the
Federal Reserve Act. Furthermore, loans and extensions of credit are subject to
certain other collateral requirements.
EMPLOYEES
At December 31, 1998, First United and its subsidiaries had
approximately 1,000 full-time equivalent employees and considers its
relationship with its employees to be good.
YEAR 2000 COMPLIANCE
First United's Year 2000 program is discussed under the caption
"Regulatory and Accounting Issues" on page 14 of the Annual Report to
Stockholders, which is included as Exhibit 13 hereto.
ITEM 2. PROPERTIES.
PROPERTIES
The thirteen (13) banking subsidiaries of First United hold in fee and
primarily occupy their main office buildings. In addition, the subsidiaries
occupy and operate branches located in thirty-eight (38) communities throughout
Arkansas, Louisiana and Texas. The majority of the branch locations are held in
fee. The locations not held in fee are leased for various terms. First United
leases real property in connection with its data processing operations. First
United does not own any real property. The administrative office space required
for First United's officers and employees is leased from FNBE. FUTC is also
located in facilities owned by FNBE.
ITEM 3. LEGAL PROCEEDINGS.
LEGAL PROCEEDINGS
First United and its subsidiaries have been named as defendants in
various legal actions arising from normal business activities in which damages
of various amounts are claimed. The amount, if any, of ultimate liability with
respect to such matters cannot be determined. However, after consulting with
legal counsel, management believes any such liability will not have a material
effect on First United's consolidated financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
NAMED EXECUTIVE OFFICERS OF THE REGISTRANT
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James V. Kelley, 49 . . . . . . . . Chairman, President and Chief Executive Officer of First
United since 1987; Chairman and Chief Executive Officer
of FNBE since 1985.
Robert L. Jones, 63 . . . . . . . . Acting Chief Financial Officer and Principal Accounting
Officer of First United since August, 1998; President and
Chief Executive Officer of FNBM since 1991; President and
Chief Executive Officer of MPBC from 1984 to 1991.
</TABLE>
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<TABLE>
<S> <C>
Jim N. Harwood, 59 . . . . . . . . . North and West Arkansas Regional Chairman of the Company since
April, 1998; President and Chief Executive Officer of CNBFS since
1993; Executive Vice President of CNBFS from 1983 to 1993.
Gordon Lewis, 49 . . . . . . . . . . Texas and Louisiana Regional Chairman of the Company
since April, 1998; Chairman and President of FSB since
March, 1995; President and CEO of FSB from April, 1990
to March, 1995.
John Robert Graves, 57 . . . . . . . South Arkansas Regional Chairman of the Company since
April, 1998; Chairman and Chief Executive Officer of
CNBH, since 1989; President of CNBH from 1988 to
January, 1999.
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Common Stock and
Dividends" on page 11 of the Annual Report to Stockholders, which is included as
Exhibit 13 hereto.
ITEM 6. SELECTED FINANCIAL DATA.
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Selected Financial
Data" on page 17 of the Annual Report to Stockholders, which is included as
Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Financial Analysis"
on pages 3 - 16 of the Annual Report to Stockholders, which is included as
Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required in response to this Item is incorporated by
reference from the disclosure contained under the caption "Financial Statements
and Notes" on pages 19 - 36 of the Annual Report to Stockholders, which is
included as Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Pursuant to general instruction G(3) of the instructions to Form 10-K,
information concerning First United's named executive officers is included under
the separate captions "Named Executive Officers of the Registrant" at the end of
Part I of this report. The remaining information required in response to this
Item is incorporated by reference from the disclosure
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contained under the caption "Executive Officers and Directors" on page 38 of
the Annual Report to Stockholders, which is included as Exhibit 13 hereto, and
is incorporated by reference from the Definitive Proxy Statement which will be
filed with the Securities and Exchange Commission no later than 120 days after
the end of the 1998 fiscal year covered by this Annual Report on 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in response to this Item is incorporated by
reference from the Definitive Proxy Statement which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
1998 fiscal year covered by this Annual Report on 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required in response to this Item is incorporated by
reference from the Definitive Proxy Statement which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
1998 fiscal year covered by this Annual Report on 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required in response to this Item is incorporated by
reference from the Definitive Proxy Statement which will be filed with the
Securities and Exchange Commission no later than 120 days after the end of the
1998 fiscal year covered by this Annual Report on 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORT ON FORM 8-K.
ITEM 14(a)(1) FINANCIAL STATEMENTS.
The following consolidated financial statements and the report of
independent auditors of First United Bancshares, Inc. and subsidiaries for the
year ended December 31, 1998 as required by Item 8, are:
<TABLE>
<CAPTION>
Page(s) in 1998 Annual
Report to Stockholders
<S> <C>
Reports of Management and Independent Auditors ............................................. Page 37
Consolidated Statements of Condition as of
December 31, 1998 and 1997 ............................................................ Page 19
Consolidated Statement of Income
for the three years ended December 31, 1998, 1997 and 1996 ............................ Page 20
Consolidated Statements of Changes in Capital Accounts
for the three years ended December 31, 1998, 1997 and 1996 ............................ Page 21
Consolidated Statements of Cash Flows
for the three years ended December 31, 1998, 1997 and 1996 ............................ Page 22
Notes to Consolidated Financial Statements-December 31, 1998 ............................... Pages 23-36
</TABLE>
ITEM 14(a)(2) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
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ITEM 14(a)(3) FINANCIAL STATEMENT SCHEDULES.
The Exhibits required by Item 601 of Regulation S-K which are required
to be filed in response to this Item 14(a)(3) are submitted as a separate
section of this Annual Report on Form 10-K under the caption "Exhibit Index".
ITEM 14(b) REPORTS ON FORM 8-K.
Not applicable.
ITEM 14(c) EXHIBITS.
The exhibits required by Item 601 of Regulation S-K which are required
to be filed in response to this Item 14(c) are submitted as a separate section
of this Annual Report on Form 10-K under the caption "Exhibit Index".
ITEM 14(d) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 15th day of
March, 1998.
FIRST UNITED BANCSHARES, INC.
By: /s/ ROBERT L. JONES
----------------------------------------
Robert L. Jones, Acting Chief Financial
Officer and Principal Accounting Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes James V.
Kelley and/or Robert L. Jones, to file one or more amendments to this Annual
Report on Form 10-K, which amendments may make such changes to the Annual Report
on Form 10-K as he deems appropriate, and each such person hereby appoints James
V. Kelley and/or Robert L. Jones as his lawful attorney-in-fact to execute in
the name and on behalf of each such person individually, and in each capacity
stated below, any such amendments to the Annual Report on Form 10-K.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
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<S> <C> <C>
/s/ JAMES V. KELLEY Chairman of the Board, President, Chief March 15, 1999
- ----------------------- Executive Officer
James V. Kelley
/s/ ROBERT L. JONES Acting Chief Financial Officer, and March 15, 1999
- ----------------------- Principal Accounting Officer
Robert L. Jones
/s/ E. LARRY BURROW Director March 15, 1999
- -----------------------
E. Larry Burrow
- ----------------------- Director March 15, 1999
Claiborne P. Deming
</TABLE>
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<TABLE>
<S> <C> <C>
/s/ AL GRAVES, JR. Director March 15, 1999
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Al Graves, Jr.
/s/ TOMMY HILLMAN Director March 15, 1999
Tommy Hillman
/s/ ROY E. LEDBETTER Director March 15, 1999
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Roy E. Ledbetter
/s/ MICHAEL F. MAHONY Director March 15, 1999
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Michael F. Mahony
- --------------------------- Director March 15, 1999
Richard H. Mason
/s/ JACK W. MCNUTT Director March 15, 1999
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Jack W. McNutt
/s/ GEORGE MIDDLEBROOK, III Director March 15, 1999
- ---------------------------
George Middlebrook, III
/s/ R. MADISON MURPHY Director March 15, 1999
- ---------------------------
R. Madison Murphy
/s/ ROBERT C. NOLAN Director March 15, 1999
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Robert C. Nolan
/s/ CAL PARTEE, JR. Director March 15, 1999
- ---------------------------
Cal Partee, Jr.
- --------------------------- Director March 15, 1999
Carolyn Tennyson
/s/ JOHN D. TRIMBLE, JR. Director March 15, 1999
- ---------------------------
John D. Trimble, Jr.
</TABLE>
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FIRST UNITED BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1998
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
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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 the Company 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 the Company 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.
3(a) Articles of Incorporation of First United Bancshares, Inc., as Amended.
3(b) Restated Bylaws of First United Bancshares, Inc. (Filed as Exhibit 3(b) to the
Annual Report on Form 10-K for the Year Ended December 31, 1995) incorporated
herein by reference.
9 Trust Agreement dated June 14, 1994, by and among Jackson T. Stephens, the
W. R. Stephens Trust, the W. R. Stephens, Jr. Trust, W. R. Stephens, Jr., Warren A.
Stephens, the Elizabeth Ann Stephens Campbell Trust, Stephens Group, Inc. and the
Bank of New York, a Trustee (filed as Exhibit 9 to the Registration Statement of
Form S-4 of the Company filed with the Securities and Exchange Commission on
May 4, 1994) incorporated by reference herein.
10(a) First United Bancshares, Inc. 1994 Equity Participation Plan (previously filed as
Exhibit 99 to the Company's Registration Statement on Form S-8, Registration No.
033-56387) incorporated herein by reference.
10(b) Shareholders Agreement dated December 17, 1993 by and among First United, W.
R. Stephens, Jr., the W. R. Stephens Trust, W. R. Stephens, Jr. Trust, Jackson T.
Stephens, Warren A. Stephens, Elizabeth Ann Stephens Trust and Stephens Group,
Inc. (filed as Exhibit 10 to the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission on May 4, 1994) incorporated by reference
herein.
10(c) Executive Severance Agreement between First United Bancshares, Inc. and
James V. Kelley, dated July 27, 1998.
10(d) Executive Severance Agreement between First United Bancshares, Inc. and Jim N.
Harwood, dated July 27, 1998.
</TABLE>
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<TABLE>
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10(e) Employment Agreement between Fredonia State Bank and Gordon Lewis, dated
effective September 2, 1997.
10(f) Executive Severance Agreement between First United Bancshares, Inc. and John
Robert Graves, dated July 27, 1998.
11 Statement of Computation of Per Share Earnings (see page 20 of the Consolidated
Financial Statements of First United Bancshares, Inc. contained in the 1998 Annual
Report to Stockholders which is included herein as Exhibit 13).
13 First United Bancshares, Inc. 1998 Annual Report to Stockholders.
21 Subsidiaries of First United Bancshares, Inc.
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Axley & Rode LLP.
23(c) Consent of Frazier, Minchew, Robinson, Gardner and Langston, CPAs.
23(d) Consent of Moore Stephens Frost
24 Power of Attorney (see signature page).
27 Financial Data Schedule.
</TABLE>
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EXHIBIT 3(a)
ARTICLES OF INCORPORATION
OF
FIRST UNITED BANCSHARES, INC., AS AMENDED
FIRST. The name of the corporation is FIRST UNITED BANCSHARES, INC.
SECOND. The period of its duration is perpetual.
THIRD. The purposes for which the corporation is organized are:
(a) To engage in all business activities allowable for a bank
holding company and to own and manage banks and other
businesses in the area of financial services.
(b) To acquire and own property, both real and personal,
including common stock or other beneficial interest
incorporations, associations, trusts and other forms of
business whether incorporated or unincorporated, and to
provide services to and for such businesses, and to engage in
businesses related to any such businesses, and to do any and
all lawful acts necessary, convenient, advisable or desirable
which may be incidental or pertinent to such businesses.
(c) To engage in any business not prohibited by law.
FOURTH. The total number of shares of authorized capital stock which
the corporation shall have the authority to issue shall be as follows:
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SHARES CLASS PAR VALUE PER SHARE
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<S> <C> <C>
50,000,000 Common $1.00
500,000 Preferred $1.00
</TABLE>
The board of directors may determine, in whole or in part, the preferences,
limitations, and relative rights of any class of stock, or one (1) or more
series within a class, before the issuance of such class or series,
respectively, and may amend The Articles of Incorporation to set forth such
preferences, limitations, and relative rights without shareholders approval or
action.
FIFTH. Shareholders shall have no pre-emptive right to acquire
additional or treasury shares of the corporation.
SIXTH. All shareholders are entitled to cumulate their votes for the
election of directors.
SEVENTH. Except upon the approval of two-thirds (2/3) of all shares
issued and outstanding that are entitled to vote at a duly called shareholders
meeting, the corporation shall not:
(i) effect any transaction pursuant to which a purchaser would
acquire control of the corporation, whether by merger,
consolidation, purchase of stock or otherwise,
(ii) effect a merger or share exchange with another entity
pursuant to which the corporation would issue shares of
common stock in an amount greater than twenty percent (20%)
of the number of shares of common stock issued and
outstanding immediately prior to consummation of the
transaction,
(iii) sell, exchange, lease or otherwise dispose of all or
substantially all of the corporation's assets and property
other than in the usual and regular course of business of the
corporation,
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(iv) effect a dissolution or liquidation of the corporation, or
(v) amend these Articles of Incorporation.
EIGHTH. The internal affairs of the corporation shall be regulated in
accordance with the By-Laws duly adopted in accordance with the laws of the
State of Arkansas.
NINTH. The address of the registered office of the corporation is
First National Bank Building, Main at Washington, El Dorado, Arkansas 71730.
The name of its registered agent at such address is Robert G. Dudley.
TENTH. The number of directors that constitutes the Board of Directors
of the corporation shall not exceed twenty-five (25). The number of directors
shall be determined by the stockholders at each annual meeting or may be
determined at any special meeting. The Board of Directors may increase or
decrease by thirty percent (30%) or less the number of directors last fixed by
the stockholders, provided that the number of directors shall not be less than
three (3) nor more than twenty-five (25). The Board of Directors may fill a
vacancy created by the Board of Directors under this Article Tenth.
ELEVENTH. To the fullest extent permitted by the Arkansas Business
Corporation Act, as is now exists or may hereafter be amended, a director of
this corporation shall not be liable to the corporation or its shareholders for
monetary damages for breach of fiduciary duty as a director.
TWELFTH. The corporation may indemnify any person who was, or is, a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding to the fullest extent permitted by the
Arkansas Business Corporation Act as it now exists or may hereafter be amended.
THIRTEENTH. The corporation elects to be governed by the provisions of
the Arkansas Business Corporation Act of 1987 as it now exists or may hereafter
be amended from time to time.
FOURTEENTH. The name and address of the incorporator is:
Robert G. Dudley
Main at Washington Streets
El Dorado, Arkansas 71730
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EXHIBIT 10(c)
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), made and entered
into on the 27th day of July, 1998, by and between First United Bancshares, Inc.
(the "Company"), a corporation organized and existing under the laws of the
State of Arkansas, and James V. Kelley (the "Executive").
R E C I T A L S:
The Company acknowledges that Executive's contributions to the past
and future growth and success of the Company have been and will continue to be
substantial. As a publicly held corporation, the Company recognizes that there
exists a possibility of a Change in Control of the Company. The Board of
Directors of the Company (the "Board") also recognizes that the possibility of
such a Change in Control may contribute to uncertainty on the part of senior
management and may result in the departure of senior management or distraction
of senior management from their operating responsibilities.
Outstanding management of the Company is always essential to advancing
the best interests of the Company and its shareholders. In the event of a
threat or occurrence of a bid to acquire or change control of the Company or to
effect a business combination, it is particularly important that the Company's
business be continued with a minimum of disruption. The Company believes that
the objective of securing and retaining outstanding management will be achieved
if the Company's key management employees are given assurances of employment
security so they will not be distracted by personal uncertainties and risks
created by such circumstances.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations herein and the compensation the Company agrees herein to pay the
Executive, and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive
agree as follows:
ARTICLE 1
TERM OF AGREEMENT
1.1 Term. This Agreement shall become effective as of the date on
which it is executed by the Company (the "Effective Date"). The Agreement shall
be effective for thirty-six months (36) and will automatically be extended for
twelve (12) months as of each anniversary date of the Effective Date (the
"Agreement Term") unless the Agreement Term is terminated by the Company upon
written notification to the Executive, within thirty days before an anniversary
date of the Effective Date, that the Agreement will terminate as of last day of
the Agreement Term as in effect immediately prior to such anniversary date.
Unless the Company has effectively terminated this Agreement as
prescribed above in this Section 1.1, in the event of a Change in Control, the
Agreement Term shall be extended for an additional 12 months and shall then
expire at the end of such additional 12 month period.
1.2 Change in Control, means if: (i) after the date of the Agreement,
any person, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, becomes the owner or beneficial owner of
Company securities having 20% or more of the combined voting power of the then
outstanding Company securities that may be cast for the election of the
Company's directors (other than as a result of an issuance of securities
initiated by the Company, or open market purchases approved by the Board, as
long as the majority of the Board approving the purchases are directors at the
time the purchases are made); or (ii) as the direct or indirect result of, or
in connection with, a cash tender or exchange offer, a merger or other business
combination, a sale of assets, a contested election of directors, or any
combination of these transactions, the persons who were directors of the
Company before such transactions cease to constitute a majority of the Board,
or any successor's board, within two years of the last of such transactions.
1.3 Control Change Date, means the date on which an event described in
Section 1.2 occurs. If a Change in Control occurs on account of a series of
transactions, the Control Change Date is the date of the last of such
transactions.
1
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ARTICLE 2
TERMINATION OF EMPLOYMENT
2.1 General. The Executive shall have the right during an Agreement
Term to receive Termination Compensation without regard to the event or reason
for his termination of employment, provided he elects in writing in a manner
prescribed by the Company to receive such Termination Compensation within a 30
day period commencing as of the anniversary date of a Control Change Date.
2.2 Termination Compensation. Termination Compensation equal to 3.00
times Executive's Base Period Income shall be paid in a single sum payment in
cash or in common stock of the Company, at the election of the Executive.
Payment of Termination Compensation to Executive shall be made on the later of
the thirtieth business day after Executive's employment termination or the
first day of the month following his employment termination.
2.3 Base Period Income. Executive's Base Period Income equals his
annual base salary as of Executive's termination date, plus the greater of the
average of any incentive bonus payable to Executive for the Company's last two
completed fiscal years or the Executive's target bonus opportunity under the
Company's annual incentive plan.
ARTICLE 3
GROSS UP OF PAYMENTS
In the event that any amount required to be paid or distributed to the
Executive pursuant to this Agreement shall constitute a parachute payment
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor statutory provision ("Excess Parachute
Payments") and the aggregate of such parachute payments and any other amounts
otherwise required to be paid or distributed to the Executive by the Company
would cause the Executive to be subject to the excise tax on excess parachute
payments under Section 4999 of the Code (the "Excise Tax"), or any successor or
similar provision thereof, the Company shall pay to the Executive such
additional amounts as are necessary so that, after taking into account any tax
imposed by such Section 4999 or any successor statutory provision, only on any
Net Excess Parachute Payments, as well as on payments made pursuant to this
sentence, and any federal or state income taxes payable as a result of any
payments due to the Executive pursuant to this sentence, the Executive is in
the same after-tax position the Executive would have been in if such Section
4999 or any successor statutory provision did not apply and no payments were
made pursuant to this sentence.
ARTICLE 4
ATTORNEY'S FEES
In the event that the Executive incurs any attorney's fees in
protecting or enforcing his rights under this Agreement, the Company shall
reimburse the Executive for such reasonable attorneys' fees and for any other
reasonable expenses related thereto. Such reimbursement shall be made within
thirty (30) days following final resolution of the dispute or occurrence giving
rise to such fees and expenses.
ARTICLE 5
WELFARE BENEFIT PLAN EQUIVALENTS
If the Executive is entitled to receive Termination Compensation under
this Agreement the Company, at its sole expense, shall maintain in full force
and effect for the continued benefit of Executive and his eligible dependents,
for a period of thirty-six (36) months following the date of termination, each
Welfare Benefit Plan in which the Executive was entitled to participate
immediately prior to the date of termination, at the benefit levels then in
effect; provided, however, in the event that the Executive's continued
participation in any such plan is not permitted thereunder, then the Company,
at its sole expense, shall provide the Executive and his eligible dependents a
benefit substantially similar to and no less favorable than the benefit
provided under such plan immediately prior to such termination of coverage;
provided further, however, at the termination of any period of coverage
provided above, the Executive shall have the option to have assigned to him, at
no cost and no apportionment of prepaid premiums, any assignable insurance
owned by the Company and relating specifically to the Executive. In lieu of
being provided with the benefits as described in the preceding sentence, the
Executive may, at the Executive's election and sole discretion, require the
Company to include in the Executive's Termination Compensation a lump sum
amount equal to the value of the benefits described in the preceding
2
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sentence. The term Welfare Benefit Plan as used in this Article 5 refers to any
plan, fund or program as defined under Section 3(1) of the Employee Retirement
Income Security Act (ERISA), which has been established and is maintained by
the Company for the purpose of providing its employees or their beneficiaries,
through the purchase of insurance or otherwise, medical, surgical, hospital
care or benefits, or benefits in the event of sickness, accident, disability or
death.
ARTICLE 6
MITIGATION OF PAYMENT
The Company and the Executive agree that, following the termination of
employment by the Executive with Company, the Executive has no obligation to
take any steps whatsoever to secure other employment and such failure by the
Executive to search for or to find other employment upon termination from
Company shall in no way impact the Executive's right to receive payment under
any of the provisions of this Agreement.
ARTICLE 7
DECISIONS BY COMPANY; FACILITY OF PAYMENT
Any powers granted to the Board hereunder may be exercised by a
committee, appointed by the Board, and such committee, if appointed, shall have
general responsibility for the administration and interpretation of this
Agreement. If the Board or the committee shall find that any person to whom any
amount is or was payable hereunder is unable to care for his affairs because of
illness or accident, or has died, then the Board or the committee, if it so
elects, may direct that any payment due him or his estate (unless a prior claim
therefore has been made by a duly appointed legal representative) or any part
thereof be paid or applied for the benefit of such person or to or for the
benefit of his spouse, children or other dependents, an institution maintaining
or having custody of such person, any other person deemed by the Board or
committee to be a proper recipient on behalf of such person otherwise entitled
to payment, or any of them, in such manner and proportion as the Board or
committee may deem proper. Any such payment shall be in complete discharge of
the liability of the Company therefore.
ARTICLE 8
INDEMNIFICATION
The Company shall indemnify the Executive during his employment and
thereafter to the maximum extent permitted by applicable law for any and all
liability of the Executive arising out of, or in connection with, his
employment by the Company or membership on the Board; provided, that in no
event shall such indemnity of the Executive at any time during the period of
his employment by the Company be less than the maximum indemnity provided by
the Company at any time during such period to any other officer or director
under an indemnification insurance policy or the bylaws or charter of the
Company or by agreement.
ARTICLE 9
SOURCE OF PAYMENTS; NO TRUST
The obligations of the Company to make payments hereunder shall
constitute a liability of the Company to the Executive. Such payments shall be
from the general funds of the Company, and the Company shall not be required to
establish or maintain any special or separate fund, or otherwise to segregate
assets to assure that such payments shall be made, and neither the Executive
nor his designated beneficiary shall have any interest in any particular asset
of the Company by reason of its obligations hereunder. Nothing contained in
this Agreement shall create or be construed as creating a trust of any kind or
any other fiduciary relationship between the Company and the Executive or any
other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company.
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ARTICLE 10
SEVERABILITY
All agreements and covenants contained herein are severable, and in
the event any of them shall be held to be invalid by any competent court, this
Agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein.
ARTICLE 11
ASSIGNMENT PROHIBITED
This Agreement is personal to each of the parties hereto, and neither
party may assign nor delegate any of his or its rights or obligations
hereunder.
ARTICLE 12
NO ATTACHMENT
Except as otherwise provided in this Agreement or required by
applicable law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge or hypothecation or to execution, attachment, levy,
or similar process or assignment by operation of law and any attempt, voluntary
or involuntary, to effect any such action shall be null, void and of no effect.
ARTICLE 13
HEADINGS
The headings of articles, paragraphs and sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
ARTICLE 14
GOVERNING LAW
The parties intend that this Agreement and the performance hereunder
and all suits and special proceedings hereunder shall be construed in
accordance with and under and pursuant to the laws of the State of Arkansas,
and that in any action, special proceeding or other proceeding that may be
brought arising out of, in connection with, or by reason of this Agreement, the
laws of the State of Arkansas, shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the jurisdiction in
which any action or special proceeding may be instituted.
ARTICLE 15
BINDING EFFECT
This Agreement shall be binding upon, and inure to the benefit of, the
Executive and his heirs, executors, administrators and legal representatives
and the Company and its permitted successors and assigns.
ARTICLE 16
MERGER OR CONSOLIDATION
The Company will not consolidate or merge into or with another
corporation, or transfer all or substantially all of its assets to another
corporation (the "Successor Corporation") unless the Successor Corporation
shall assume this Agreement, and upon such assumption, the Executive and the
Successor Corporation shall become obligated to perform the terms and
conditions of this Agreement.
ARTICLE 17
COUNTERPARTS
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
4
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ARTICLE 18
ENTIRE AGREEMENT
This Agreement expresses the whole and entire agreement between the
parties with referenced to the employment of the Executive and, as of the
effective date hereof, supersedes and replaces any prior employment agreement,
understanding or arrangement (whether written or oral) between the Company and
the Executive. Each of the parties hereto has relied on his or its own judgment
in entering into this Agreement.
ARTICLE 19
NOTICES
All notices, requests and other communications to any party under this
Agreement shall be in writing and shall be given to such party at its address
set forth below or such other address as such party may hereafter specify for
the purpose by notice to the other party:
(a) If to the Executive:
James V. Kelley
--------------------------------
--------------------------------
(b) If to the Company:
First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730
ATTN.:
Each such notice, request or other communication shall be effective
(i) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (ii) if given
by any other means, when delivered at the address specified in this ARTICLE 19.
ARTICLE 20
MODIFICATION OF AGREEMENT
No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in writing and
duly executed by the party to be charged therewith. No evidence of any waiver
of modification shall be offered or received in evidence at any proceeding,
arbitration, or litigation between the parties hereto arising out of or
affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing, duly executed as
aforesaid. The parties further agree that the provisions of this ARTICLE 20 may
not be waived except as herein set forth.
ARTICLE 21
TAXES
To the extent required by applicable law, the Company shall deduct and
withhold all necessary Social Security taxes and all necessary federal and
state withholding taxes and any other similar sums required by laws to be
withheld from any payments made pursuant to the terms of this Agreement.
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ARTICLE 22
RECITALS
The Recitals to this Agreement are incorporated herein and shall
constitute an integral part of this Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
EXECUTIVE:
/s/ James V. Kelley
------------------------------------------
FIRST UNITED BANCSHARES, INC.:
By: /s/ Robert C. Nolan
--------------------------------------
Name: Robert C. Nolan
------------------------------------
Title: Chairman, Compensation Committee
-----------------------------------
6
<PAGE> 1
EXHIBIT 10(d)
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), made and entered
into on the 27th day of July, 1998, by and between First United Bancshares,
Inc. (the "Company"), a corporation organized and existing under the laws of the
State of Arkansas, and Jim N. Harwood, (the "Executive").
R E C I T A L S:
The Company acknowledges that Executive's contributions to the past and
future growth and success of the Company have been and will continue to be
substantial. As a publicly held corporation, the Company recognizes that there
exists a possibility of a Change in Control of the Company. The Board of
Directors of the Company (the "Board") also recognizes that the possibility of
such a Change in Control may contribute to uncertainty on the part of senior
management and may result in the departure of senior management or distraction
of senior management from their operating responsibilities.
Outstanding management of the Company is always essential to advancing
the best interests of the Company and its shareholders. In the event of a threat
or occurrence of a bid to acquire or change control of the Company or to effect
a business combination, it is particularly important that the Company's business
be continued with a minimum of disruption. The Company believes that the
objective of securing and retaining outstanding management will be achieved if
the Company's key management employees are given assurances of employment
security so they will not be distracted by personal uncertainties and risks
created by such circumstances.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations herein and the compensation the Company agrees herein to pay the
Executive, and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive agree
as follows:
ARTICLE 1
TERM OF AGREEMENT
1.1 Term. This Agreement shall become effective as of the date on which
it is executed by the Company (the "Effective Date"). The Agreement shall be
effective for twenty-four (24) months and will automatically be extended for
twelve (12) months as of each anniversary date of the Effective Date (the
"Agreement Term") unless the Agreement Term is terminated by the Company upon
written notification to the Executive, within thirty days before an anniversary
date of the Effective Date, that the Agreement will terminate as of last day of
the Agreement Term as in effect immediately prior to such anniversary date.
Unless the Company has effectively terminated this Agreement as
prescribed above in this Section 1.1, in the event of a Change in Control, the
Agreement Term shall be extended for an additional 12 months and shall then
expire at the end of such additional 12 month period.
1.2 Change in Control, means if: (i) after the date of the Agreement,
any person, including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes the owner or beneficial owner of Company
securities having 20% or more of the combined voting power of the then
outstanding Company securities that may be cast for the election of the
Company's directors (other than as a result of an issuance of securities
initiated by the Company, or open market purchases approved by the Board, as
long as the majority of the Board approving the purchases are directors at the
time the purchases are made); or (ii) as the direct or indirect result of, or in
connection with, a cash tender or exchange offer, a merger or other business
combination, a sale of assets, a contested election of directors, or any
combination of these transactions, the persons who were directors of the Company
before such transactions cease to constitute a majority of the Board, or any
successor's board, within two years of the last of such transactions.
1.3 Control Change Date, means the date on which an event described in
Section 1.2 occurs. If a Change in Control occurs on account of a series of
transactions, the Control Change Date is the date of the last of such
transactions.
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ARTICLE 2
TERMINATION OF EMPLOYMENT
2.1 General. Executive is entitled to receive Termination Compensation,
as defined in Section 2.4, according to the remaining provisions of this section
if Executive's employment with the Company terminates because of an event
described in Sections 2.2 or 2.3 which occurs during an Agreement Term and (i)
on or after a Control Change Date, or (ii) within the 180 days immediately
preceding a Control Change Date. If Executive's employment terminates during an
Agreement Term and if an event described in Sections 2.2 or 2.3 has not
occurred, this Agreement terminates.
2.2 Termination by the Company. Executive is entitled to receive
Termination Compensation (as described in Section 2.4) if Executive's employment
is terminated by the Company without Cause. Cause, means, for purposes of this
Agreement, (i) willful and continued failure by the Executive to perform his
duties as established by the Board of Directors of the Company; (ii) a material
breach by the Executive of his fiduciary duties of loyalty or care to the
Company; (iii) conviction of a felony; or (iv) willful, flagrant, deliberate and
repeated infractions of material published policies and regulations of the
Company of which the Executive has actual knowledge (the "Cause Exception"). If
the Company desires to discharge the Executive under the Cause Exception, it
shall give notice to the Executive as provided in Section 2.6 and the Executive
shall have thirty (30) days after notice has been given to him in which to cure
the reason for the Company's exercise of the Cause Exception. If the reason for
the Company's exercise of the Cause Exception is timely cured by the Executive
(as determined by a committee appointed by the Board of Directors), the
Company's notice shall become null and void.
2.3 Voluntary Termination. Executive is entitled to receive Termination
Compensation if Executive voluntarily terminates employment with Good Reason.
Good Reason means, for purposes of this Agreement, the Executive's resignation
from the Company's employment within six (6) months following the occurrence of
any one of the following events:
(a) the failure by the Board to reelect the Executive to a
responsible executive position in the Company;
(b) a material modification by the Board of the duties, functions
and responsibilities of the Executive without his consent;
(c) the failure of the Company to permit the Executive to exercise
such responsibilities as are consistent with the Executive's
position and are of such a nature as are usually associated
with such office of a corporation engaged in substantially the
same business as the Company;
(d) the Company requires the Executive to relocate his employment
more than fifty (50) miles from his place of employment,
without the consent of the Executive, excluding reasonably
required business travel or temporary assignments for a
reasonable period of time;
(e) a reduction in Executive's compensation or benefits; or
(f) the Company shall fail to make a payment when due to the
Executive.
2.4 Termination Compensation. Termination Compensation equal to 2.00
times Executive's Base Period Income shall be paid in a single sum payment in
cash or in common stock of the Company, at the election of the Executive.
Payment of Termination Compensation to Executive shall be made on the later of
the thirtieth business day after Executive's employment termination or the first
day of the month following his employment termination.
2.5 Base Period Income. Executive's Base Period Income equals his
annual base salary as of Executive's termination date, plus the greater of the
average of any incentive bonus payable to Executive for the Company's last two
completed fiscal years or the Executive's target bonus opportunity under the
Company's annual incentive plan.
2.6 Notice of Termination. Any termination by the Company under the
Cause Exception or by the Executive for Good Reason shall be communicated by
Notice of Termination to the other party hereto. For purposes of Sections 2.2
and 2.3, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for
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<PAGE> 3
termination of the Executive's employment under the provision so indicated and
(iii) if the termination date is other than the date of receipt of such notice,
specifies the effective date of termination.
ARTICLE 3
GROSS UP OF PAYMENTS
In the event that any amount required to be paid or distributed to the
Executive pursuant to this Agreement shall constitute a parachute payment within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor statutory provision ("Excess Parachute Payments")
and the aggregate of such parachute payments and any other amounts otherwise
required to be paid or distributed to the Executive by the Company would cause
the Executive to be subject to the excise tax on excess parachute payments under
Section 4999 of the Code (the "Excise Tax"), or any successor or similar
provision thereof, the Company shall pay to the Executive such additional
amounts as are necessary so that, after taking into account any tax imposed by
such Section 4999 or any successor statutory provision, only on any Net Excess
Parachute Payments, as well as on payments made pursuant to this sentence, and
any federal or state income taxes payable as a result of any payments due to the
Executive pursuant to this sentence, the Executive is in the same after-tax
position the Executive would have been in if such Section 4999 or any successor
statutory provision did not apply and no payments were made pursuant to this
sentence.
ARTICLE 4
ATTORNEY'S FEES
In the event that the Executive incurs any attorney's fees in
protecting or enforcing his rights under this Agreement, the Company shall
reimburse the Executive for such reasonable attorneys' fees and for any other
reasonable expenses related thereto. Such reimbursement shall be made within
thirty (30) days following final resolution of the dispute or occurrence giving
rise to such fees and expenses.
ARTICLE 5
WELFARE BENEFIT PLAN EQUIVALENTS
If the Executive is entitled to receive Termination Compensation under
this Agreement the Company, at its sole expense, shall maintain in full force
and effect for the continued benefit of Executive and his eligible dependents,
for a period of twenty-four (24) months following the date of termination, each
Welfare Benefit Plan in which the Executive was entitled to participate
immediately prior to the date of termination, at the benefit levels then in
effect; provided, however, in the event that the Executive's continued
participation in any such plan is not permitted thereunder, then the Company, at
its sole expense, shall provide the Executive and his eligible dependents a
benefit substantially similar to and no less favorable than the benefit provided
under such plan immediately prior to such termination of coverage; provided
further, however, at the termination of any period of coverage provided above,
the Executive shall have the option to have assigned to him, at no cost and no
apportionment of prepaid premiums, any assignable insurance owned by the Company
and relating specifically to the Executive. In lieu of being provided with the
benefits as described in the preceding sentence, the Executive may, at the
Executive's election and sole discretion, require the Company to include in the
Executive's Termination Compensation a lump sum amount equal to the value of the
benefits described in the preceding sentence. The term Welfare Benefit Plan as
used in this Article 5 refers to any plan, fund or program as defined under
Section 3 (1) of the Employee Retirement Income Security Act (ERISA), which has
been established and is maintained by the Company for the purpose of providing
its employees or their beneficiaries, through the purchase of insurance or
otherwise, medical, surgical, hospital care or benefits, or benefits in the
event of sickness, accident, disability or death.
ARTICLE 6
MITIGATION OF PAYMENT
The Company and the Executive agree that, following the termination of
employment by the Executive with Company, the Executive has no obligation to
take any steps whatsoever to secure other employment and such failure by the
Executive to search for or to find other employment upon termination from
Company shall in no way impact the Executive's right to receive payment under
any of the provisions of this Agreement.
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ARTICLE 7
DECISIONS BY COMPANY; FACILITY OF PAYMENT
Any powers granted to the Board hereunder may be exercised by a
committee, appointed by the Board, and such committee, if appointed, shall have
general responsibility for the administration and interpretation of this
Agreement. If the Board or the committee shall find that any person to whom any
amount is or was payable hereunder is unable to care for his affairs because of
illness or accident, or has died, then the Board or the committee, if it so
elects, may direct that any payment due him or his estate (unless a prior claim
therefore has been made by a duly appointed legal representative) or any part
thereof be paid or applied for the benefit of such person or to or for the
benefit of his spouse, children or other dependents, an institution maintaining
or having custody of such person, any other person deemed by the Board or
committee to be a proper recipient on behalf of such person otherwise entitled
to payment, or any of them, in such manner and proportion as the Board or
committee may deem proper. Any such payment shall be in complete discharge of
the liability of the Company therefore.
ARTICLE 8
INDEMNIFICATION
The Company shall indemnify the Executive during his employment and
thereafter to the maximum extent permitted by applicable law for any and all
liability of the Executive arising out of, or in connection with, his employment
by the Company or membership on the Board; provided, that in no event shall such
indemnity of the Executive at any time during the period of his employment by
the Company be less than the maximum indemnity provided by the Company at any
time during such period to any other officer or director under an
indemnification insurance policy or the bylaws or charter of the Company or by
agreement.
ARTICLE 9
SOURCE OF PAYMENTS; NO TRUST
The obligations of the Company to make payments hereunder shall
constitute a liability of the Company to the Executive. Such payments shall be
from the general funds of the Company, and the Company shall not be required to
establish or maintain any special or separate fund, or otherwise to segregate
assets to assure that such payments shall be made, and neither the Executive nor
his designated beneficiary shall have any interest in any particular asset of
the Company by reason of its obligations hereunder. Nothing contained in this
Agreement shall create or be construed as creating a trust of any kind or any
other fiduciary relationship between the Company and the Executive or any other
person. To the extent that any person acquires a right to receive payments from
the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
ARTICLE 10
SEVERABILITY
All agreements and covenants contained herein are severable, and in the
event any of them shall be held to be invalid by any competent court, this
Agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein.
ARTICLE 11
ASSIGNMENT PROHIBITED
This Agreement is personal to each of the parties hereto, and neither
party may assign nor delegate any of his or its rights or obligations hereunder.
ARTICLE 12
NO ATTACHMENT
Except as otherwise provided in this Agreement or required by
applicable law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy, or similar
process or assignment by operation of law and any attempt, voluntary or
involuntary, to effect any such action shall be null, void and of no effect.
4
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ARTICLE 13
HEADINGS
The headings of articles, paragraphs and sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
ARTICLE 14
GOVERNING LAW
The parties intend that this Agreement and the performance hereunder
and all suits and special proceedings hereunder shall be construed in accordance
with and under and pursuant to the laws of the State of Arkansas, and that in
any action, special proceeding or other proceeding that may be brought arising
out of, in connection with, or by reason of this Agreement, the laws of the
State of Arkansas, shall be applicable and shall govern to the exclusion of the
law of any other forum, without regard to the jurisdiction in which any action
or special proceeding may be instituted.
ARTICLE 15
BINDING EFFECT
This Agreement shall be binding upon, and inure to the benefit of, the
Executive and his heirs, executors, administrators and legal representatives and
the Company and its permitted successors and assigns.
ARTICLE 16
MERGER OR CONSOLIDATION
The Company will not consolidate or merge into or with another
corporation, or transfer all or substantially all of its assets to another
corporation (the "Successor Corporation") unless the Successor Corporation shall
assume this Agreement, and upon such assumption, the Executive and the Successor
Corporation shall become obligated to perform the terms and conditions of this
Agreement.
ARTICLE 17
COUNTERPARTS
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
ARTICLE 18
ENTIRE AGREEMENT
This Agreement expresses the whole and entire agreement between the
parties with referenced to the employment of the Executive and, as of the
effective date hereof, supersedes and replaces any prior employment agreement,
understanding or arrangement (whether written or oral) between the Company and
the Executive. Each of the parties hereto has relied on his or its own judgment
in entering into this Agreement.
ARTICLE 19
NOTICES
All notices, requests and other communications to any party under this
Agreement shall be in writing and shall be given to such party at its address
set forth below or such other address as such party may hereafter specify for
the purpose by notice to the other party:
(a) If to the Executive:
Jim N. Harwood
3109 Enid
Fort Smith, AR 72903
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(b) If to the Company:
First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730
ATTN.:
Each such notice, request or other communication shall be effective (i)
if given by mail, 72 hours after such communication is deposited in the mails
with first class postage prepaid, addressed as aforesaid or (ii) if given by any
other means, when delivered at the address specified in this ARTICLE 19.
ARTICLE 20
MODIFICATION OF AGREEMENT
No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in writing and
duly executed by the party to be charged therewith. No evidence of any waiver of
modification shall be offered or received in evidence at any proceeding,
arbitration, or litigation between the parties hereto arising out of or
affecting this Agreement, or the rights or obligations of the parties hereunder,
unless such waiver or modification is in writing, duly executed as aforesaid.
The parties further agree that the provisions of this ARTICLE 20 may not be
waived except as herein set forth.
ARTICLE 21
TAXES
To the extent required by applicable law, the Company shall deduct and
withhold all necessary Social Security taxes and all necessary federal and state
withholding taxes and any other similar sums required by laws to be withheld
from any payments made pursuant to the terms of this Agreement.
ARTICLE 22
RECITALS
The Recitals to this Agreement are incorporated herein and shall
constitute an integral part of this Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
EXECUTIVE:
/s/ Jim N. Harwood
FIRST UNITED BANCSHARES, INC.:
By: /s/ James V. Kelley
------------------------------------
Name: James V. Kelley
----------------------------------
Title: Chairman and President
---------------------------------
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<PAGE> 1
EXHIBIT 10(e)
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Fredonia
State Bank, a Texas banking corporation (the "Bank"), and Gordon R. Lewis, an
individual residing in Nacogdoches, Nacogdoches County, Texas (the "Employee"),
effective as of September 2, 1997 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in
this Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as Chairman of the Board of Directors and President (the
"Office") of the Bank, and Employee hereby accepts employment with the Bank
according to the terms set forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location
of the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention
during normal working hours to the Office during the term of this Agreement for
the profit and benefit of Bank. During the term of this Agreement, the Employee
shall not directly or indirectly render any services or be engaged in any
activity of a business, commercial, or professional nature to any other person
or organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits
payable to Employee under this Agreement shall constitute the full consideration
to be paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as
determined by the Board of Directors of the Bank which is stated on Exhibit "A"
attached hereto. The Employee's annual salary shall be payable in accordance
with the Bank's customary policies, subject to payroll and withholding
deductions as may be required by law and other deductions applied generally to
employees of the Bank for insurance or other employee benefit plans.
3.2 Employee shall be reimbursed for any and all reasonable
costs and expenses incurred by Employee in performance of his services and
duties as specified in this Agreement or incurred by Employee on behalf of, or
in furtherance of the business of, the Bank, including, but not limited to
business expenses incurred in connection with travel and entertainment;
provided, however, that Employee shall submit to the Bank supporting receipts
and information satisfactory to the Bank with respect to such reasonable costs
and expenses.
3.3 During the term of Employee's employment, he shall be
entitled (i) to receive health insurance benefits with the same coverages and
deductibles as are currently in effect with respect to Employee (subject to the
availability of such benefits at a reasonable cost), (ii) to participate in the
Bank's other benefit plans to such extent as determined by the Board of
Directors of the Bank, (iii) to participate in the Bank's other policies,
including vacation and sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote
his entire time, attention, energies and business efforts to his duties as an
employee of the Bank and to the business of the Bank. Employee shall not, during
the term of this Agreement, directly or indirectly, for and on behalf of himself
or any person, firm, partnership, corporation or other legal entity, own,
manage, operate, control, invest in, make loans on advances to, guarantee the
obligations of or
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participate in the ownership or management or operations of or be employed by or
otherwise engage in the operation of any business that is in competition in any
manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all
technical and business information (including financial statements and related
books and records, personnel records, customer lists, arrangements with
customers and suppliers, manuals and reports) of the Bank and its affiliates
(whether such information is owned by, licensed to or otherwise possessed by the
Bank or any affiliate), whether patentable or not, which is of a confidential,
trade secret and/or proprietary character and which is either developed by
Employee (alone or with others) or to which Employee has had access during his
employment. "Confidential Information" shall include but is not limited to
information of a technical or business nature such as ideas, discoveries,
inventions, improvements, trade secrets, know-how, manufacturing processes,
specifications, writings and other works of authorship, computer programs,
financial figures and reports, marketing plans, customer lists and data, and/or
business plans or data which relate to the actual or anticipated business of the
Bank or any affiliate or its actual or anticipated areas of research and
development. "Confidential Information" shall also include but is not limited to
confidential evaluations of, and the confidential use or non-use by Bank or any
affiliate of, technical or business information in the public domain.
5.2 Employee shall, both during and after his employment with
the Bank, protect and maintain the confidential, trade secret and/or proprietary
character of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the
termination of his employment, or at any other time at the Bank's request,
without retaining any copies, all documents and other material in his possession
relating, directly or indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall
also apply to the confidential, trade secret and proprietary information learned
or acquired by him during his employment from others with whom the Bank or any
affiliate has a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years
commencing on the Effective Date and shall automatically be extended each day
from the Effective Date.
6.2 Termination of Agreement. Except as may otherwise be
provided herein, this Agreement may terminate prior to the end of the Term upon
the occurrence of:
(a) Thirty (30) days after written notice of termination is
given by either party to the other; or
(b) Employees's death or, at the Bank's option, upon
Employee's becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If
the Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above,
or if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
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<PAGE> 3
(a) to the extent not theretofore paid, Employee's
annual salary in effect at the time of such termination
through the date of termination; and
(b) in the case of compensation previously deferred
by Employee, all amounts previously deferred (together with
any accrued interest thereon) and not yet paid by the Bank and
any accrued vacation pay not yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued
to, vested in, earned by Employee through the date of
termination under the then existing or applicable plans,
programs, arrangements, and policies of Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The aggregate
amount of such obligations owing or accrued to, vested in, or earned by Employee
through the date of termination, including, but not limited to, the Accrued
Obligations, shall be paid by the Bank to Employee in cash in one lump sum
within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before
or After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid,
Employee's annual salary at the annual rate in effect
at the time of such termination through the date of
termination; and
(ii) to the extent not theretofore paid, any
bonus through the date of termination; and
(iii) in the case of compensation previously
deferred by Employee, all amounts previously deferred
(together with any accrued interest thereon) and not
yet paid by the Bank, and any accrued vacation pay
not yet paid by the Bank; and
(iv) all other amounts or benefits owing or
accrued to, vested in, or earned by Employee through
the date of termination under the then existing or
applicable plans, programs, arrangements, and
policies of the Bank; and
(v) any and all other Accrued Obligations
not otherwise described in clause (i), (ii), (iii),
(iv) or (v) of this Section 7.2; and
(vi) an amount equal to two (2) times the
Employee's annual salary in effect at the time of
such termination.
7.3 Death or Disabilities. If Employee's employment is
terminated under Section 6.2(b) hereof by reason of Employee's death or
Disability, the Bank shall pay to Employee's legal representatives cash in one
lump sum within thirty (30) days after the date of Employee's death or
Disability the full amount of the obligations owing or accrued to, vested in, or
earned by Employee through the date of Employee's death or disability,
including, but not limited to, the Accrued Obligations. Anything in this
Agreement to the contrary notwithstanding, the Employee's legal representatives
or beneficiaries shall be entitled to receive benefits provided under the then
existing or applicable plans, programs, or arrangements and policies of the Bank
relating to death or disability. As used herein, "Disabled" shall have the
meanings as being disabled under the Fredonia Bancshares, Inc. Stock Option
Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means
(i) willful misconduct by Employee, (ii) the gross neglect by Employee of his
duties as an employee, officer or director of the Bank which continues for more
than thirty (30) days after written notice from the Bank to Employee
specifically identifying the gross negligence of Employee and directing Employee
to discontinue same, (iii) the commission by Employee of an act, other than an
act taken
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<PAGE> 4
in good faith within the course and scope of Employee's employment, which is
directly detrimental to the Bank and which act exposes the Bank to material
liability.
7.5 Good Reason-Change in Control. As used in this Agreement,
the term "Good Reason-Change in Control" means after the occurrence of a Change
in Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the
removal by the Bank from Employee of those duties usually appertaining
to the Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written
consent, in Employee's responsibilities to the Bank as such
responsibilities existed at the time of the occurrence of such Change
in Control (or as such responsibilities may thereafter exist from time
to time as a result of changes in such responsibilities made with
Employee's prior written consent); or
(c) any removal of Employee from, or any failure to elect or
reelect Employee to, the Office, except in connection with Employee's
promotion, with his prior written consent, to a higher office (if any)
with the Bank; or
(d) the Bank's direction that Employee discontinue service (or
not seek reelection or reappointment) as a director, officer or member
of any corporation or other entity of which Employee is a director,
officer or member at the time of the occurrence of such Change in
Control; or
(e) the failure of the Bank to continue to provide Employee
with office space, related facilities and support personnel (including,
but not limited to, administrative and secretarial assistance) that are
both commensurate with the Office and Employee's responsibilities to
and position with the Bank at the time of the occurrence of such Change
in Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive
officers of the Bank; or
(f) a reduction by the Bank in the amount of Employee's
minimum salary specified in Section 2.1(a) (or as subsequently
increased) and as in effect at the time of the occurrence of such
Change in Control, or a failure of the Bank to pay such minimum annual
salary to the Employee at the time and in the manner specified in
Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related
facilities or support space or the related facilities or support
personnel referred to in paragraph (e) of this Section 7.5 cease to be
located within the Bank's principal executive offices, or for a period
of more than 45 consecutive days Employee is required by the Bank to
perform a majority of this duties outside the Bank's principal
executive offices; or
(h) the relocation, without Employee's prior written consent,
of the Bank's principal executive offices to a location outside the
county in which such offices are located at the time of the occurrence
of such Change in Control; or
(i) the failure of the Bank to obtain the assumption by any
successor to the Bank of the obligations imposed upon the Bank under
this Agreement, as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is
terminated by the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to
observe or perform one or more of the obligations of the Bank under
this Agreement; or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in
Control" shall mean the occurrence with respect to the Bank or Fredonia
Bancshares, Inc. (the "Parent") of any of the following events:
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<PAGE> 5
(a) a report on Schedule 13D is filed with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any person, entity or group (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Bank or the
Parent (or one of its subsidiaries) or any employee benefit plan
sponsored by the Bank or the Parent (or one of its subsidiaries), is
the beneficial owner (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of 20 percent or more
of the outstanding shares of common stock of the Bank or the Parent or
the combined voting power of the then-outstanding securities of the
Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a
response to either Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act, or to Item 1 of Form 8-K
promulgated under the Exchange Act, or to any similar reporting
requirement hereafter promulgated by the SEC;
(c) any person, entity or group (within the meaning of Section
13(d) or 14(d) of the Exchange Act), other than the Bank or the Parent
(or one of its subsidiaries) or any employee benefit plan sponsored by
the Bank or the Parent (or one of its subsidiaries), shall purchase
securities pursuant to a tender offer or exchange offer to acquire any
common stock of the Bank or the Parent (or securities convertible into
common stock) for cash, securities or any other consideration, provided
that after consummation of the offer, the person, entity or group in
question is the beneficial owner (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of 20
percent or more of the combined voting power of the then-outstanding
securities of the Bank or the Parent (as determined under paragraph (d)
of Rule 13d-3 promulgated under the Exchange Act, in the case of rights
to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of
the Bank or the Parent:
(A) in which the Bank or the Parent is not
the continuing or surviving corporation,
(B) pursuant to which shares of common stock
of the Bank or the Parent would be converted into
cash, securities or other property,
(C) with a corporation which prior to such
merger, consolidation, or reorganization owned 20
percent or more of the combined voting power of the
then-outstanding securities of the Bank or the
Parent, or
(D) in which the Bank or the Parent will not
survive as an independent corporation;
(ii) any sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or
the Parent;
(e) the stockholders of the Bank or the Parent shall approve a
merger, consolidation, reorganization, recapitalization, exchange
offer, purchase of assets or other transaction after the consummation
of which any person, entity or group (as defined in accordance with
Section 13(d) or 14(d) of the Exchange Act) would own beneficially in
excess of 50% of the outstanding shares of common stock of the Bank or
the Parent or in excess of 50% of the combined voting power of the
then-outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals
who at the beginning of such period constituted the Board of Directors
of Bank or the Parent cease for any reason to constitute a majority of
such Board, unless the election or nomination for election by the Bank
or the Parent's stockholders of each new director during any such
two-year period was approved by the vote by two-thirds of the directors
then still in office who were directors at the beginning of such
two-year period.
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8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute
Payments payable to or in respect of the Employee by reason of a Change in
Control of the Bank or the Parent under all Incentive Agreements then in effect
is greater than or equal to three times the Base Amount, then the Aggregate
Present Value of Parachute Payments made to the Employee shall be limited to an
amount equal to the greater of the portion of the Parachute Payments
constituting Reasonable Compensation or three times the Base Amount less one
dollar. Any amount required to be withheld from payments made to the Employee
pursuant to this Paragraph 8.2 shall be deducted from the Change in Control-Lump
Sum Payment referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
10. Controlling Law. This Agreement shall be governed by the laws of
the State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of
the parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank
agree that Employee's breach of Sections 4 and 5 of this Agreement will result
in irreparable harm to the Bank, that no adequate remedy at law is available,
and that the Bank shall be entitled to injunctive relief; however, nothing
herein shall prevent the Bank from pursuing any other remedies at law or at
equity available to the Bank. Should a court of competent jurisdiction declare
any of the covenants set forth in Sections 4 or 5 unenforceable, the court shall
be empowered to modify or reform such covenants so as to provide relief
reasonably necessary to protect the interests of the Bank and Employee and to
award injunctive relief, or damages, or both, to which the Bank may be entitled.
If any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank. Employee
shall observe and fulfill proper standards of fiduciary responsibility attendant
upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
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and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver by the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for
convenience of reference and shall not be used in the interpretation or
construction of this Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands
that signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the 29th day of
August , 1997.
"EMPLOYEE" "BANK"
Fredonia State Bank
/s/ Gordon R. Lewis By: /s/ J. R. Honea
- -------------------------- ---------------------------------------
Gordon R. Lewis Name: J. R. Honea
Title: Executive Vice President & Cashier
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Exhibit "A"
Employment Agreement By and Between
Fredonia State Bank and Gordon R. Lewis
<TABLE>
<CAPTION>
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
<S> <C> <C> <C>
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
</TABLE>
8
<PAGE> 1
EXHIBIT 10(f)
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), made and entered
into on the 27th day of July, 1998, by and between First United Bancshares,
Inc. (the "Company"), a corporation organized and existing under the laws of
the State of Arkansas, and John Robert Graves, (the "Executive").
R E C I T A L S:
The Company acknowledges that Executive's contributions to the past
and future growth and success of the Company have been and will continue to be
substantial. As a publicly held corporation, the Company recognizes that there
exists a possibility of a Change in Control of the Company. The Board of
Directors of the Company (the "Board") also recognizes that the possibility of
such a Change in Control may contribute to uncertainty on the part of senior
management and may result in the departure of senior management or distraction
of senior management from their operating responsibilities.
Outstanding management of the Company is always essential to advancing
the best interests of the Company and its shareholders. In the event of a
threat or occurrence of a bid to acquire or change control of the Company or to
effect a business combination, it is particularly important that the Company's
business be continued with a minimum of disruption. The Company believes that
the objective of securing and retaining outstanding management will be achieved
if the Company's key management employees are given assurances of employment
security so they will not be distracted by personal uncertainties and risks
created by such circumstances.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations herein and the compensation the Company agrees herein to pay the
Executive, and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive
agree as follows:
ARTICLE 1
TERM OF AGREEMENT
1.1 Term. This Agreement shall become effective as of the date on
which it is executed by the Company (the "Effective Date"). The Agreement shall
be effective for twenty-four (24) months and will automatically be extended for
twelve (12) months as of each anniversary date of the Effective Date (the
"Agreement Term") unless the Agreement Term is terminated by the Company upon
written notification to the Executive, within thirty days before an anniversary
date of the Effective Date, that the Agreement will terminate as of last day of
the Agreement Term as in effect immediately prior to such anniversary date.
Unless the Company has effectively terminated this Agreement as
prescribed above in this Section 1.1, in the event of a Change in Control, the
Agreement Term shall be extended for an additional 12 months and shall then
expire at the end of such additional 12 month period.
1.2 Change in Control, means if: (i) after the date of the Agreement,
any person, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, becomes the owner or beneficial owner of
Company securities having 20% or more of the combined voting power of the then
outstanding Company securities that may be cast for the election of the
Company's directors (other than as a result of an issuance of securities
initiated by the Company, or open market purchases approved by the Board, as
long as the majority of the Board approving the purchases are directors at the
time the purchases are made); or (ii) as the direct or indirect result of, or
in connection with, a cash tender or exchange offer, a merger or other business
combination, a sale of assets, a contested election of directors, or any
combination of these transactions, the persons who were directors of the
Company before such transactions cease to constitute a majority of the Board,
or any successor's board, within two years of the last of such transactions.
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1.3 Control Change Date, means the date on which an event described in
Section 1.2 occurs. If a Change in Control occurs on account of a series of
transactions, the Control Change Date is the date of the last of such
transactions.
ARTICLE 2
TERMINATION OF EMPLOYMENT
2.1 General. Executive is entitled to receive Termination
Compensation, as defined in Section 2.4, according to the remaining provisions
of this section if Executive's employment with the Company terminates because
of an event described in Sections 2.2 or 2.3 which occurs during an Agreement
Term and (i) on or after a Control Change Date, or (ii) within the 180 days
immediately preceding a Control Change Date. If Executive's employment
terminates during an Agreement Term and if an event described in Sections 2.2
or 2.3 has not occurred, this Agreement terminates.
2.2 Termination by the Company. Executive is entitled to receive
Termination Compensation (as described in Section 2.4) if Executive's
employment is terminated by the Company without Cause. Cause, means, for
purposes of this Agreement, (i) willful and continued failure by the Executive
to perform his duties as established by the Board of Directors of the Company;
(ii) a material breach by the Executive of his fiduciary duties of loyalty or
care to the Company; (iii) conviction of a felony; or (iv) willful, flagrant,
deliberate and repeated infractions of material published policies and
regulations of the Company of which the Executive has actual knowledge (the
"Cause Exception"). If the Company desires to discharge the Executive under the
Cause Exception, it shall give notice to the Executive as provided in Section
2.6 and the Executive shall have thirty (30) days after notice has been given
to him in which to cure the reason for the Company's exercise of the Cause
Exception. If the reason for the Company's exercise of the Cause Exception is
timely cured by the Executive (as determined by a committee appointed by the
Board of Directors), the Company's notice shall become null and void.
2.3 Voluntary Termination. Executive is entitled to receive
Termination Compensation if Executive voluntarily terminates employment with
Good Reason. Good Reason means, for purposes of this Agreement, the Executive's
resignation from the Company's employment within six (6) months following the
occurrence of any one of the following events:
(a) the failure by the Board to reelect the Executive to
a responsible executive position in the Company;
(b) a material modification by the Board of the duties,
functions and responsibilities of the Executive
without his consent;
(c) the failure of the Company to permit the Executive
to exercise such responsibilities as are consistent
with the Executive's position and are of such a
nature as are usually associated with such office of
a corporation engaged in substantially the same
business as the Company;
(d) the Company requires the Executive to relocate his
employment more than fifty (50) miles from his place
of employment, without the consent of the Executive,
excluding reasonably required business travel or
temporary assignments for a reasonable period of
time;
(e) a reduction in Executive's compensation or benefits;
or
(f) the Company shall fail to make a payment when due to
the Executive.
2.4 Termination Compensation. Termination Compensation equal to 2.00
times Executive's Base Period Income shall be paid in a single sum payment in
cash or in common stock of the Company, at the election of the Executive.
Payment of Termination Compensation to Executive shall be made on the later of
the thirtieth business day after Executive's employment termination or the
first day of the month following his employment termination.
2.5 Base Period Income. Executive's Base Period Income equals his
annual base salary as of Executive's termination date, plus the greater of the
average of any incentive bonus payable to Executive for the Company's last two
completed fiscal years or the Executive's target bonus opportunity under the
Company's annual incentive plan.
2
<PAGE> 3
2.6 Notice of Termination. Any termination by the Company under the
Cause Exception or by the Executive for Good Reason shall be communicated by
Notice of Termination to the other party hereto. For purposes of Sections 2.2
and 2.3, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (iii) if the termination date is other than the date of receipt
of such notice, specifies the effective date of termination.
ARTICLE 3
GROSS UP OF PAYMENTS
In the event that any amount required to be paid or distributed to the
Executive pursuant to this Agreement shall constitute a parachute payment
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor statutory provision ("Excess Parachute
Payments") and the aggregate of such parachute payments and any other amounts
otherwise required to be paid or distributed to the Executive by the Company
would cause the Executive to be subject to the excise tax on excess parachute
payments under Section 4999 of the Code (the "Excise Tax"), or any successor or
similar provision thereof, the Company shall pay to the Executive such
additional amounts as are necessary so that, after taking into account any tax
imposed by such Section 4999 or any successor statutory provision, only on any
Net Excess Parachute Payments, as well as on payments made pursuant to this
sentence, and any federal or state income taxes payable as a result of any
payments due to the Executive pursuant to this sentence, the Executive is in
the same after-tax position the Executive would have been in if such Section
4999 or any successor statutory provision did not apply and no payments were
made pursuant to this sentence.
ARTICLE 4
ATTORNEY'S FEES
In the event that the Executive incurs any attorney's fees in
protecting or enforcing his rights under this Agreement, the Company shall
reimburse the Executive for such reasonable attorneys' fees and for any other
reasonable expenses related thereto. Such reimbursement shall be made within
thirty (30) days following final resolution of the dispute or occurrence giving
rise to such fees and expenses.
ARTICLE 5
WELFARE BENEFIT PLAN EQUIVALENTS
If the Executive is entitled to receive Termination Compensation under
this Agreement the Company, at its sole expense, shall maintain in full force
and effect for the continued benefit of Executive and his eligible dependents,
for a period of twenty-four (24) months following the date of termination, each
Welfare Benefit Plan in which the Executive was entitled to participate
immediately prior to the date of termination, at the benefit levels then in
effect; provided, however, in the event that the Executive's continued
participation in any such plan is not permitted thereunder, then the Company,
at its sole expense, shall provide the Executive and his eligible dependents a
benefit substantially similar to and no less favorable than the benefit
provided under such plan immediately prior to such termination of coverage;
provided further, however, at the termination of any period of coverage
provided above, the Executive shall have the option to have assigned to him, at
no cost and no apportionment of prepaid premiums, any assignable insurance
owned by the Company and relating specifically to the Executive. In lieu of
being provided with the benefits as described in the preceding sentence, the
Executive may, at the Executive's election and sole discretion, require the
Company to include in the Executive's Termination Compensation a lump sum
amount equal to the value of the benefits described in the preceding sentence.
The term Welfare Benefit Plan as used in this Article 5 refers to any plan, fund
or program as defined under Section 3(1) of the Employee Retirement Income
Security Act (ERISA), which has been established and is maintained by the
Company for the purpose of providing its employees or their beneficiaries,
through the purchase of insurance or otherwise, medical, surgical, hospital care
or benefits, or benefits in the event of sickness, accident, disability or
death.
ARTICLE 6
MITIGATION OF PAYMENT
The Company and the Executive agree that, following the termination of
employment by the Executive with Company, the Executive has no obligation to
take any steps whatsoever to secure other employment and such failure by the
3
<PAGE> 4
Executive to search for or to find other employment upon termination from
Company shall in no way impact the Executive's right to receive payment under
any of the provisions of this Agreement.
ARTICLE 7
DECISIONS BY COMPANY; FACILITY OF PAYMENT
Any powers granted to the Board hereunder may be exercised by a
committee, appointed by the Board, and such committee, if appointed, shall have
general responsibility for the administration and interpretation of this
Agreement. If the board or the committee shall find that any person to whom any
amount is or was payable hereunder is unable to care for his affairs because of
illness or accident, or has died, then the Board or the committee, if it so
elects, may direct that any payment due him or his estate (unless a prior claim
therefore has been made by a duly appointed legal representative) or any part
thereof be paid or applied for the benefit of such person or to or for the
benefit of his spouse, children or other dependents, an institution maintaining
or having custody of such person, any other person deemed by the Board or
committee to be a proper recipient on behalf of such person otherwise entitled
to payment, or any of them, in such manner and proportion as the Board or
committee may deem proper. Any such payment shall be in complete discharge of
the liability of the Company therefore.
ARTICLE 8
INDEMNIFICATION
The Company shall indemnify the Executive during his employment and
thereafter to the maximum extent permitted by applicable law for any and all
liability of the Executive arising out of, or in connection with, his
employment by the Company or membership on the Board; provided, that in no
event shall such indemnity of the Executive at any time during the period of
his employment by the Company be less than the maximum indemnity provided by
the Company at any time during such period to any other officer or director
under an indemnification insurance policy or the bylaws or charter of the
Company or by agreement.
ARTICLE 9
SOURCE OF PAYMENTS; NO TRUST
The obligations of the Company to make payments hereunder shall
constitute a liability of the Company to the Executive. Such payments shall be
from the general funds of the Company, and the Company shall not be required to
establish or maintain any special or separate fund, or otherwise to segregate
assets to assure that such payments shall be made, and neither the Executive
nor his designated beneficiary shall have any interest in any particular asset
of the Company by reason of its obligations hereunder. Nothing contained in
this Agreement shall create or be construed as creating a trust of any kind or
any other fiduciary relationship between the Company and the Executive or any
other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company.
ARTICLE 10
SEVERABILITY
All agreements and covenants contained herein are severable, and in
the event any of them shall be held to be invalid by any competent court, this
Agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein.
ARTICLE 11
ASSIGNMENT PROHIBITED
This Agreement is personal to each of the parties hereto, and neither
party may assign nor delegate any of his or its rights or obligations
hereunder.
4
<PAGE> 5
ARTICLE 12
NO ATTACHMENT
Except as otherwise provided in this Agreement or required by
applicable law, no right to receive payments under this Agreement shall be
subject to anticipation, commutation, alienation, sale, assignment,
encumbrance, charge, pledge or hypothecation or to execution, attachment, levy,
or similar process or assignment by operation of law and any attempt, voluntary
or involuntary, to effect any such action shall be null, void and of no effect.
ARTICLE 13
HEADINGS
The headings of articles, paragraphs and sections herein are included
solely for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
ARTICLE 14
GOVERNING LAW
The parties intend that this Agreement and the performance hereunder
and all suits and special proceedings hereunder shall be construed in
accordance with and under and pursuant to the laws of the State of Arkansas,
and that in any action, special proceeding or other proceeding that may be
brought arising out of, in connection with, or by reason of this Agreement, the
laws of the State of Arkansas, shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the jurisdiction in
which any action or special proceeding may be instituted.
ARTICLE 15
BINDING EFFECT
This Agreement shall be binding upon, and inure to the benefit of, the
Executive and his heirs, executors, administrators and legal representatives
and the Company and its permitted successors and assigns.
ARTICLE 16
MERGER OR CONSOLIDATION
The Company will not consolidate or merge into or with another
corporation, or transfer all or substantially all of its assets to another
corporation (the "Successor Corporation") unless the Successor Corporation
shall assume this Agreement, and upon such assumption, the Executive and the
Successor Corporation shall become obligated to perform the terms and
conditions of this Agreement.
ARTICLE 17
COUNTERPARTS
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
ARTICLE 18
ENTIRE AGREEMENT
This Agreement expresses the whole and entire agreement between the
parties with referenced to the employment of the Executive and, as of the
effective date hereof, supersedes and replaces any prior employment agreement,
understanding or arrangement (whether written or oral) between the Company and
the Executive. Each of the parties hereto has relied on his or its own judgment
in entering into this Agreement.
ARTICLE 19
NOTICES
All notices, requests and other communications to any party under this
Agreement shall be in writing and shall be given to such party at its address
set forth below or such other address as such party may hereafter specify for
the purpose by notice to the other party:
5
<PAGE> 6
(a) If to the Executive:
John Robert Graves
1701 Sammy Circle
Hope, AR 71801
(b) If to the Company:
First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730
ATTN.:
Each such notice, request or other communication shall be effective
(i) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (ii) if given
by any other means, when delivered at the address specified in this ARTICLE 19.
ARTICLE 20
MODIFICATION OF AGREEMENT
No waiver or modification of this Agreement or of any covenant,
condition, or limitation herein contained shall be valid unless in writing and
duly executed by the party to be charged therewith. No evidence of any waiver
of modification shall be offered or received in evidence at any proceeding,
arbitration, or litigation between the parties hereto arising out of or
affecting this Agreement, or the rights or obligations of the parties
hereunder, unless such waiver or modification is in writing, duly executed as
aforesaid. The parties further agree that the provisions of this ARTICLE 20 may
not be waived except as herein set forth.
ARTICLE 21
TAXES
To the extent required by applicable law, the Company shall deduct and
withhold all necessary Social Security taxes and all necessary federal and
state withholding taxes and any other similar sums required by laws to be
withheld from any payments made pursuant to the terms of this Agreement.
ARTICLE 22
RECITALS
The Recitals to this Agreement are incorporated herein and shall
constitute an integral part of this Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
EXECUTIVE:
/s/ John Robert Graves
------------------------------------
FIRST UNITED BANCSHARES, INC.:
By: /s/ James V. Kelley
---------------------------------
Name: James V. Kelley
-------------------------------
Title: Chairman and President
------------------------------
6
<PAGE> 1
EXHIBIT 13
FIRST UNITED BANCSHARES, INC.
1998 ANNUAL REPORT TO STOCKHOLDERS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights ............................................................1
Letter to the Stockholders ......................................................2
Financial Analysis ...........................................................3-16
Selected Financial Data ........................................................17
Quarterly Results of Operations ................................................18
Financial Statements and Notes ..............................................19-36
Report of Independent Public Accountants .......................................37
Report of Management on Financial Statements ...................................37
Officers and Directors of First United and its Subsidiaries .................38-40
Corporate Information ..........................................................41
</TABLE>
<PAGE> 3
FINANCIAL HIGHLIGHTS
FIRST UNITED BANCSHARES, INC.
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
%
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
INCOME DATA
Net Income $ 30,268 $ 25,772 17.45%
Net Interest Income 94,410 90,657 4.14%
PER COMMON SHARE DATA
Net Income $ 1.20 $ 1.02 17.65%
Book Value (End of Period) 10.11 9.27 9.06%
Tangible Book Value (End of Period) 9.57 8.72 9.75%
Market Value (End of Period) 17.75 21.00 (15.48%)
Cash Dividends .45 .39 15.38%
BALANCE SHEET DATA (YEAR END)
Total Securities(1) $ 910,745 $ 901,906 0.98%
Loans(2) 1,353,161 1,213,338 11.52%
Earning Assets(2) 2,351,530 2,197,962 6.99%
Total Assets 2,516,457 2,355,255 6.84%
Deposits 2,133,951 1,990,159 7.23%
Stockholders' Equity 255,633 234,549 8.99%
KEY RATIOS
Return on Average Assets 1.26% 1.12%
Return on Average Equity 12.64% 11.38%
Net Interest Margin (FTE) 4.34% 4.43%
Allowance for Loan Losses to Loans(2) 1.27% 1.46%
Equity to Assets(3) 10.05% 9.86%
Leverage Ratio 10.08% 9.59%
Primary Capital Ratio 10.66% 10.53%
</TABLE>
(1) Includes available-for-sale and investment securities.
(2) Net of unearned income.
(3) Excludes unrealized gains or losses on securities available-for-sale.
1
<PAGE> 4
LETTER TO STOCKHOLDERS
To our Stockholders and Friends,
The year 1998 was a year of mixed results as far as First United was
concerned. While we showed solid growth in both deposits and loans, consummated
two merger transactions, converted four banks to our Data Center and posted
solid earnings ratios, our earnings growth and the market performance of our
stock, indeed most bank stocks, was disappointing.
First United Bancshares ended the year with $2.52 billion in assets. This
represents an internal growth rate of 7%. Our loan totals grew by $140 million
or 11.5%. While this is impressive growth, it brings our loan to deposit ratio
to 62.6% allowing the opportunity for continued growth in this area. With
spreads and margins narrowing, this will be an important factor in our continued
success.
Our earnings for the year were $30.3 million or $1.20 per share. This
equated to a 1.26% Return on Assets and a 12.64% Return on Equity. While these
are certainly respectable numbers, they did not meet our expectations and are
somewhat equal to last year's results on an originally reported basis.
In March, we completed mergers with First Republic Bank, a $170 million
asset bank with locations in Monroe, West Monroe, Ruston and Rayville,
Louisiana, and with Citizens National Bancshares, a $260 million asset bank with
locations in Hope, Lewisville and Texarkana, Arkansas. Both of these fine
organizations bring a history of community service and dedicated management to
First United. Accordingly, the results shown elsewhere in this report are
restated for the effects of a pooling of interest. That is, our 1997 and 1996
results include the results of First Republic and Citizens National.
During 1998, we converted four of our largest banks to our Data Center in
Little Rock. The conversions and the operations thereafter were and continue to
be much more costly than anticipated. However, the capabilities of this system
and the potential it offers remain. It is incumbent on us to look for the
efficiencies that this system offers.
During 1998 and building into 1999, there has been quite a bit of talk
and speculation about the effect of Year 2000 (Y2K) on computer systems in our
nation. First United has expended enormous time, effort, and dollars to test our
systems to make sure that there will be no interruption of service to our
customers. These tests included operating our systems on dates that would be
affected by Y2K. We will continue our efforts and planning throughout 1999. Our
efforts are more fully discussed elsewhere in this report.
In mid to late summer of 1998, regional bank stocks began to decline
after quite a period of continued price appreciation and lofty price/earning
ratios. Ours was no exception as we ended the year at $17.75 per share. During
the second half of 1998 and continuing into 1999, the merger and acquisition
pace in the banking industry has slowed considerably. Lower stock prices,
integration of previous merger partners and concentration on internal factors,
such as Y2K, have combined to interrupt the incredible merger and acquisition
pace of the 1990s.
Although affected by the above factors, First United continues to search for
candidates for merger and acquisition that share our vision and will help us in
meeting our shareholder enrichment goals.
Our reason for being is shareholder enrichment and all actions we take
are for that end. In that light, we announced a 2-for-1 stock split in May and
again raised our dividend rate, from 10 cents per share to 11 1/2 cents per
share per quarter. This is a 15% increase and the seventh consecutive year we
have been able to do so. We are afforded this opportunity due to our earnings
level and strong capital ratios.
The year 1999, like others, brings both challenge and opportunity. The
challenges of narrowing interest margins, economic uncertainties and growth
prospects, if somewhat accentuated, are not new. These are issues we must face
because of the nature of our industry.
The opportunities come from our proven ability to meet customer needs in
a "user-friendly" way. We are prepared with the technology, the products and,
most importantly, the people to meet our challenges in a successful way.
Your support of our efforts is very much appreciated.
James V. Kelley
Chairman, President and
Chief Executive Officer
2
<PAGE> 5
FINANCIAL ANALYSIS
OVERVIEW
The following financial review and analysis is intended to highlight
the significant factors affecting First United Bancshares, Inc. (First United)
Consolidated Statements of Condition and Statements of Income presented in this
Annual Report. This discussion is designed to provide readers with a more
comprehensive review of the operating results and financial position than would
be obtained from an examination of the financial statements alone. Reference
should be made to those statements and the selected financial data presented
elsewhere in this Annual Report for an understanding of the following review and
analysis.
In 1998, First United increased its quarterly cash dividend for the
seventh consecutive year to a split adjusted rate of $0.11 1/2 in 1998 as
compared to $0.10 per share in 1997. The current annual dividend rate is $0.46
per share.
[ GRAPH ]
On March 30, 1998, First United merged with two institutions, First
Republic Bancshares, Inc., Rayville, Louisiana, and Citizens National Bancshares
of Hope, Inc. of Hope, Arkansas. In connection with the First Republic
Bancshares, Inc. transaction, approximately 1,600,000 shares were issued and
with the Citizens National Bancshares of Hope, Inc. transaction, 3,140,000
shares were issued. Both mergers were accounted for as a pooling of interests
and, accordingly, First United's financials prior to the mergers have been
restated to include results from First Republic Bancshares and Citizens National
Bancshares for all periods presented.
Operations for 1998 resulted in net income of $30.3 million or $1.20
per share compared to $25.8 million or $1.02 per share in 1997. A detailed
discussion of the components of net income is given throughout this Financial
Analysis.
Net income as a percentage of total average assets (ROA) was 1.26% in
1998 versus 1.12% in 1997. The return on stockholders' equity (ROE) was 12.64%
in 1998 versus 11.38% in 1997. These measures compare favorably with banks of
similar size nationwide.
Total assets at December 31, 1998 were $2.52 billion as compared to the
year-end 1997 balance of $2.36 billion. The book value of First United's common
stock increased 9.06% to $10.11 per share in 1998 from $9.27 per share in 1997.
3
<PAGE> 6
FINANCIAL ANALYSIS
TABLE 1: CHANGES IN PER SHARE INCOME
<TABLE>
<CAPTION>
December 31, [ GRAPH ]
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C> <C>
Prior year income $ 1.02 $ 1.11 $ 0.96
Increase (decrease) attributable to:
Effect of immaterial pooling -0- 0.03 0.02
Net interest income 0.15 0.25 0.30
Provision for loan losses 0.08 (0.15) (0.02)
Non-interest income -0- 0.10 0.10
Non-interest expense 0.10 (0.40) (0.23)
Income taxes (0.15) 0.08 (0.02)
--------- --------- ---------
Current year income $ 1.20 $ 1.02 $ 1.11
========= ========= =========
</TABLE>
EARNINGS ANALYSIS
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 it is referred
to in this discussion, is on a fully tax-equivalent basis, which adjusts for the
tax-exempt status of income earned on certain municipal loans and investments.
The reported interest income for these tax-free assets is increased by the
amount of income tax savings less the nondeductible portion of interest expense
incurred to acquire the tax-free assets.
On a tax-equivalent basis, net interest income for the year ended
December 31, 1998 was $98.1 million, an increase of 4.30% over the year-end 1997
total of $94.1 million. Net interest income for the year ended December 31, 1996
was $84.2 million. The growth in net interest income for 1998 and 1997 was the
result of the effects of increased levels of earning assets.
TABLE 2: ANALYSIS OF NET INTEREST MARGIN
[ GRAPH ]
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Yield on earning assets 8.00% 8.17% 8.10%
Break-even yield 3.66% 3.74% 3.78%
Net interest margin 4.34% 4.43% 4.32%
Net interest spread 3.45% 3.60% 3.52%
</TABLE>
The net interest margin decreased in 1998 when compared with the previous year,
from 4.43% in 1997 to 4.34% in 1998.
Earning assets increased from a level of $2.2 billion at December 31,
1997 to a level of $2.4 billion at year-end 1998. Short-term investments
increased $4.9 million, securities increased $8.8 million and loans increased
$140 million. As a percentage of earning assets, short-term investments remained
at 4%, total securities decreased from 41% to 39% and loans increased from 55%
to 57%. The relative level and mix of earning assets reflected the effect of
higher earnings being available in the investment market.
Interest-bearing deposits increased $115 million during 1998. Total
interest-bearing deposits were $1.80 billion at December 31, 1998 compared with
$1.68 billion at year-end 1997. Non-interest-bearing demand deposits increased
$28.7 million or 9.27% during 1998. The increase is attributable to a general
increase in deposits on hand at First United's subsidiary banks.
4
<PAGE> 7
FINANCIAL ANALYSIS
PROVISION FOR LOAN LOSSES
The provision for possible loan losses is the amount charged to current
period earnings. In order to ensure that the provisions maintain the allowance
at an adequate level, First United considers factors such as watch list trends,
the collateral adequacy of loans on the watch list, economic conditions, net
charge-offs and the size of the loan portfolio in determining the current period
provision.
[ GRAPH ]
The provision for loan losses totaled $3.2 million in 1998 versus $5.2
million in 1997 and $1.4 million in 1996. First United's loan portfolio modestly
reflects the national trend of increased levels of consumer spending and
borrowings.
NON-INTEREST INCOME
Total non-interest income was $18.3 million for 1998 compared with
$18.2 million in 1997 and $14.9 million in 1996. The increase in 1997 compared
to 1996 is primarily the result of continued increases in fee income earned on
deposits and other operating income. Since 1996, deposits subject to service
charges have increased by 6.2% while trust assets under management have
increased by 8.3%.
NON-INTEREST EXPENSE
Non-interest expense decreased 3.5% or $2.4 million in 1998 over 1997
levels, and increased 21.8% in 1997 over 1996 levels. The increase in 1997 is
due to employee benefits, data processing and professional fees incurred for the
mergers closed in 1998.
INCOME TAXES
Federal income taxes as a percentage of pre-tax income were 30.0% in
1998, 26.4% in 1997 and 28.3% in 1996. Additional information regarding income
taxes can be found in Note 9 in the Notes to the Consolidated Financial
Statements.
BALANCE SHEET ANALYSIS
LOANS AND CREDIT RISK MANAGEMENT
A sound credit policy combined with periodic and independent credit
reviews are the key factors for First United's credit risk management program.
All subsidiary banks operate under written loan policies that help maintain a
consistent lending function and provide sound credit decisions.
TABLE 3: LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, Financial and
Agricultural $ 325,487 $ 293,430 $ 250,767 $ 226,945 $ 193,201
Real Estate 830,394 724,706 618,414 546,984 436,544
Consumer Loans 202,520 200,803 183,343 167,252 131,702
Loans for Purchasing or
Carrying Securities 276 237 116 6,835 2,461
Financing Leases 808 424 605 512 237
---------- ---------- ---------- ---------- ----------
Total Loans $1,359,485 $1,219,600 $1,053,245 $ 948,528 $ 764,145
========== ========== ========== ========== ==========
Non-Performing Assets $ 12,056 $ 9,623 $ 8,687 $ 8,608 $ 7,307
========== ========== ========== ========== ==========
</TABLE>
5
<PAGE> 8
FINANCIAL ANALYSIS
TABLE 4: LOAN MATURITIES
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------
(Dollars in Thousands) 1 Year Over 1 through Over
or Less 5 years 5 years Total
-------- -------------- ------- -----
<S> <C> <C> <C> <C>
Commercial,
Financial &
Agricultural $181,784 $119,428 $ 24,275 $325,487
======== ======== ======== ========
Variable Rate $114,628
Pre-determined Rate $210,859
</TABLE>
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, First United has a loan review function that
operates independently of the subsidiary banks. The loan review teams perform
periodic examinations of each bank's loans and related documentation. Results of
these examinations are reviewed with the Chairman and Chief Executive Officer of
First United, the management and boards of the respective subsidiary banks, and
the First United Audit Committee.
Construction loans outstanding at December 31, 1998 are not material in
amount. However, to the extent loans are made to finance construction, those
amounts are included in Table 3 as Real Estate Loans.
A primary measure of loan quality is the percentage of the loan
portfolio that moves from an earning category to one of non-performing and thus
becomes a burden to earnings performance. Non-performing loans totaled $10.7
million and $8.6 million at December 31, 1998 and 1997, respectively. The level
of non-performing loans represented 0.8% and 0.7% of loans for the years ended
1998 and 1997.
[ GRAPH ]
Non-accrual loans are those where management has considerable doubt
about the borrower's ability to repay on the terms originally contracted. In
addition to discontinuing the accrual of interest, interest previously recorded
in the current period as earned that has not been collected is reversed.
Non-accrual loans at December 31, 1998 totaled $6.8 million compared with $3.9
million at year ended 1997. It is the policy of First United to place loans on
non-accrual status when interest and/or principal payments for such loans become
90 days or more past due. However, there are instances when loans 90 days or
more past due continue to accrue interest because management considers that such
loans are in the process of collection. First United's non-accrual policy had
the effect of reducing interest income on non-performing loans in 1998 and 1997
by approximately $0.2 and $0.3 million, respectively.
Certain loans are renegotiated to provide a reduction or deferral of
interest or principal because of deterioration in the financial condition of the
respective borrowers. Once a loan is placed in this category, it remains there
until the terms are not more favorable than those of other customers.
Other real estate (ORE) that has been acquired through foreclosure has
a carrying value of $1.4 million at year ended 1998. This compares with $1.0
million at year ended 1997.
First United has no foreign credits in its loan portfolio. The intent
of management is to deploy its funds in its primary trade area where management
is familiar with its customers. This policy of First United permits funds
obtained locally to be re-channeled into the communities First United serves,
promoting economic growth.
Although First United maintains sound credit policies, certain credits
unexpectedly deteriorate and are charged off as a loss. The allowance for
possible loan losses is maintained to absorb potential losses, and the
management of First United views the allowance as a source of financial
strength. The allowance is increased by regular provisions which are based on
the current level and character of the loan and lease portfolio, historical
charge-off experience, watch list trends and national and local economic trends
and the evaluation of specific loans. First United continues to revise and
enhance its credit policies as well as its formal loan review program, and is
committed to reducing the level of non-performing assets.
6
<PAGE> 9
FINANCIAL ANALYSIS
TABLE 5: SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan
Losses at Beginning of Period ................. $ 17,694 $ 14,951 $ 15,259 $ 14,291 $ 14,611
--------- --------- --------- --------- ---------
Allowance Applicable to Loans of Acquired Bank ... -0- 426 1,215 1,627 86
--------- --------- --------- --------- ---------
Loans Charged-Off:
Commercial, Financial and Agricultural ........ 3,011 1,446 1,017 1,561 1,178
Real Estate ................................... 615 1,075 921 551 348
Consumer ...................................... 2,044 2,175 3,057 1,553 1,468
Other ......................................... -0- 2 -0- 7 9
--------- --------- --------- --------- ---------
Total Loans Charged-Off .......................... 5,670 4,698 4,995 3,672 3,003
--------- --------- --------- --------- ---------
Recoveries of Loans Previously Charged-Off:
Commercial, Financial and Agricultural ........ 986 998 720 897 912
Real Estate ................................... 257 210 250 176 238
Consumer ...................................... 805 641 1,059 579 921
--------- --------- --------- --------- ---------
Total Recoveries ................................. 2,048 1,849 2,029 1,652 2,071
--------- --------- --------- --------- ---------
Net Loans Charged-Off ............................ 3,622 2,849 2,966 2,020 932
--------- --------- --------- --------- ---------
Provision to Allowance ........................... 3,230 5,166 1,443 1,361 526
--------- --------- --------- --------- ---------
Balance at End of Period ......................... $ 17,302 $ 17,694 $ 14,951 $ 15,259 $ 14,291
========= ========= ========= ========= =========
Ratio of Net Charge-Offs to Loans Outstanding .... .27% .23% .28% .21% .12%
</TABLE>
TABLE 6: ALLOCATION OF RESERVE BY CATEGORY
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
------------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
% Loans % Loans % Loans
in each in each in each
Amount Category Amount Category Amount Category
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial and
Financial ....... $ 3,916 24% $ 4,721 24% $ 4,451 24%
Real Estate ........ 3,785 61% 3,949 59% 2,804 59%
Consumer ........... 2,316 15% 2,534 17% 2,610 17%
Unallocated ........ 7,285 -0- 6,490 -0- 5,086 -0-
------- ------- ------- ------- ------- -------
Total .............. $17,302 100% $17,694 100% $14,951 100%
======= ======= ======= ======= ======= =======
Allowance as a
Percentage of
Total Loans ..... 1.27% 1.45% 1.42%
<CAPTION>
(Dollars in Thousands)
December 31,
---------------------------------------------
1995 1994
------------------- -------------------
% Loans % Loans
in each in each
Amount Category Amount Category
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commercial and
Financial ....... $ 4,732 23% $ 6,146 25%
Real Estate ........ 2,128 58% 1,435 57%
Consumer ........... 2,387 18% 2,055 18%
Unallocated ........ 6,012 1% 4,655 -0-
------- ------- ------- -------
Total .............. $15,259 100% $14,291 100%
======= ======= ======= =======
Allowance as a
Percentage of
Total Loans ..... 1.61% 1.87%
</TABLE>
Allowance for possible loan losses as a percentage of non-performing
loans was approximately 162%, 205% and 199% at December 31, 1998, 1997 and 1996,
respectively.
All non-performing assets of First United as of December 31, 1998 were
previously classified as substandard, doubtful or loss by First United or its
regulators. At December 31, 1998, First United's management has no loans about
which serious doubts exist as to collectibility other than those disclosed in
Table 7.
7
<PAGE> 10
FINANCIAL ANALYSIS
TABLE 7: RISK ELEMENTS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------
(Dollars in Thousands) 1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Commercial & Financial ................................ $ 3,020 $ 1,570 $ 1,382 $ 2,834 $ 934
Real Estate ........................................... 3,236 2,010 2,285 1,600 3,041
Consumer .............................................. 521 365 389 284 230
------- ------- ------- ------- -------
Total Non-Accrual Loans ............................. 6,777 3,945 4,056 4,718 4,205
------- ------- ------- ------- -------
Past Due 90 Days or More and Still Accruing:
Commercial ............................................ 1,225 1,235 787 404 240
Real Estate ........................................... 1,293 2,034 1,089 282 343
Consumer .............................................. 294 548 500 460 248
------- ------- ------- ------- -------
Total Past Due 90 Days or More and Still Accruing ... 2,812 3,817 2,376 1,146 831
------- ------- ------- ------- -------
Renegotiated Loans .................................... 1,068 878 1,082 1,301 819
------- ------- ------- ------- -------
Total Non-Performing Loans ............................ 10,657 8,640 7,514 7,165 5,855
Other Real Estate ..................................... 1,399 983 1,173 1,443 1,452
------- ------- ------- ------- -------
Total Non-Performing Assets ........................... $12,056 $ 9,623 $ 8,687 $ 8,608 $ 7,307
======= ======= ======= ======= =======
Non-Performing Loans as a % of Outstanding Loans ...... .78% .71% .71% .76% .77%
Non-Performing Assets as a % of Equity Capital ........ 4.72% 4.10% 4.13% 4.71% 4.78%
</TABLE>
SECURITIES
First United's goal in managing the securities portfolio is to maximize
the long-term total return on invested funds. Debt securities that First United
has the positive intent and ability to hold to maturity are classified as
investment securities and reported at amortized cost. Debt and equity securities
which are not classified as investment securities are classified as
available-for-sale and reported at fair value, with unrealized gains and losses
reported as a separate component of stockholders' equity, net of income taxes.
Securities available-for-sale include securities that management intends to use
as part of its asset-liability strategy and that may be sold in response to
changes in interest rates or economic factors. The carrying value of
available-for-sale securities that were sold during 1998 was approximately $24.3
million as compared to $10.3 million and $18.3 million in 1997 and 1996,
respectively. See Notes 4 and 5 of the Notes to the Consolidated Financial
Statements for additional information on available-for-sale and investment
securities.
TABLE 8: SECURITIES CARRYING VALUE(1)
<TABLE>
<CAPTION>
(Dollars in Thousands) December 31,
-------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
U.S. Treasury Securities and Other U.S. Government Agencies $ 518,064 $ 551,283 $ 555,287
Obligations of States and Political Subdivisions 160,573 142,260 112,748
Mortgage-Backed Securities 231,480 187,622 213,527
Other Securities 628 20,741 7,003
--------- --------- ---------
$ 910,745 $ 901,906 $ 888,565
========= ========= =========
</TABLE>
(1) Includes available-for-sale and investment securities.
8
<PAGE> 11
FINANCIAL ANALYSIS
TABLE 9: SECURITIES MATURITY AND WEIGHTED AVERAGE YIELDS(1)
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
------------------------------------------------------------------------------------------
MATURING
------------------------------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS
------------------------------------------------------------------------------------------
(Dollars in Thousands) AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
and Other U.S.
Government Agencies $ 7,808 6.59% $ 15,024 6.58% $ 1,285 6.40%
State & Political
Subdivisions 17,496 5.16% 42,595 4.85% 39,888 5.16%
Mortgage-Backed Securities -0- 0.00% -0- 0.00% -0- 0.00%
Other 198 5.75% -0- 0.00% -0- 0.00%
---------- --------- ---------- --------- ---------- ----------
Total $ 25,502 5.60% $ 57,619 5.30% $ 41,173 5.20%
========== ========= ========== ========= ========== ==========
<CAPTION>
INVESTMENT SECURITIES
---------------------------------------------------------
MATURING
-------------------------
MORTGAGE-
AFTER TEN YEARS BACKED SECURITIES
---------------------------------------------------------
(Dollars in Thousands) AMOUNT YIELD AMOUNT YIELD
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities
and Other U.S.
Government Agencies $ -0- 0.00% $ -0- 0.00%
State & Political
Subdivisions 12,668 6.23% -0- 0.00%
Mortgage-Backed Securities -0- 0.00% 89,121 6.57%
Other -0- 0.00% -0- 0.00%
---------- ---------- ---------- -----------
Total $ 12,668 6.23% $ 89,121 6.57%
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
SECURITIES
---------------------
AMOUNT YIELD
-------- --------
<S> <C> <C>
U.S. Treasury Securities and Other U.S. Government Agencies $493,947 6.20%
State & Political Subdivisions 47,926 5.03%
Mortgage-Backed Securities 142,359 6.61%
Other 430 5.78%
-------- --------
Total $684,662 6.21%
======== ========
</TABLE>
(1) Yield information does not give effect to changes in fair value that
are reflected as a separate component of stockholders' equity.
TABLE 10: AVERAGE DEPOSITS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ------------------------------- ----------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE [ GRAPH ]
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
Demand Deposits $ 320,496 0.00% $ 314,404 0.00% $ 285,741 0.00%
Savings Deposits and
Interest-bearing Deposits 493,737 3.25% 553,379 2.98% 522,687 2.92%
Time Deposits of $100 or more 352,325 5.82% 327,022 5.92% 281,641 5.29%
Other Time Deposits 878,812 4.67% 751,544 5.03% 716,063 5.38%
------------- ------------- -------------
Total $ 2,045,370 $ 1,946,349 $ 1,806,132
============= ============= =============
</TABLE>
CAPITAL ADEQUACY AND RESOURCES
CAPITAL AND LIQUIDITY
The adequacy of bank capital in the banking industry has received
considerable attention in the past few years and continues to be a concern to
regulators and depositors.
First United is well capitalized with a primary capital to asset ratio
of 10.66% at December 31, 1998 compared with 10.53% in 1997 and 10.33% in 1996.
First United's stockholders' equity
9
<PAGE> 12
FINANCIAL ANALYSIS
for the year ended December 31, 1998 totaled $255.6 million compared with $234.5
million in 1997 and $210.1 million in 1996. Retention of earnings will continue
to be emphasized in order to provide a strong capital base to support future
growth.
[ GRAPH ]
In today's environment, liquidity for a banking organization is
essentially a function of its ability to renew and acquire new purchased
liabilities. First United is aided significantly in this respect by its strong
capital position and its continuing high rate of internal capital generation.
Additional liquidity is derived from the short maturity of First United's
investment portfolio, its relatively low level of problem loans and its
substantial local customer base at each member bank.
TABLE 11: MATURITIES OF TIME DEPOSITS OF $100,000 AND OVER
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31, 1998
-----------------
<S> <C>
Three Months or Less.............. $ 176,576
Over 3 Through 6 Months.......... 107,325
Over 6 Through 12 Months.......... 115,811
Over 12 Months.................... 66,265
----------
Total.......................... $ 465,977
==========
</TABLE>
TABLE 12: SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(Dollars in Thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at December 31................. $ 82,470 $ 75,017 $ 50,094
Daily Average Amount Outstanding....... 65,280 64,726 56,710
Maximum Month-End Balance.............. 89,448 76,344 63,678
Daily Average Interest Rate............ 5.11% 4.94% 4.85%
Weighted Average Interest Rate on......
Balance at December 31............... 5.14% 4.96% 4.94%
</TABLE>
TABLE 13: CAPITAL RATIOS(1)
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Equity Capital to Assets......... 10.05% 9.86% 9.66%
Primary Capital to Assets........ 10.66% 10.53% 10.33%
Leverage Ratio................... 10.08% 9.59% 9.34%
Tier 1 Capital................... 16.04% 16.26% 16.54%
Risk-Based Capital............... 17.19% 17.57% 17.79%
Dividend Payout Ratio............ 36.92% 38.28% 26.15%
</TABLE>
(1) Excludes unrealized gains and losses on securities available-for-sale.
TABLE 14: REGULATORY COMPARISON OF CAPITAL RATIOS
<TABLE>
<CAPTION>
Regulatory
December 31, 1998 First United Requirements
------------ ------------
<S> <C> <C>
Total Capital/Total Assets................. 10.66% 6.00%
Primary Capital/Total Assets............... 10.66% 5.50%
Total Risk-Based Capital................... 17.19% 8.00%
Tier 1 Capital............................. 16.04% 4.00%
Leverage Ratio............................. 10.08% 3.00%
</TABLE>
10
<PAGE> 13
FINANCIAL ANALYSIS
TABLE 15: COMMON STOCK MARKET PRICE AND DIVIDENDS PER SHARE
[GRAPH]
<TABLE>
<CAPTION>
High Low
1998 Sale Sale Div. Paid
- ---- ---- ---- ---------
<S> <C> <C> <C>
First quarter $26 3/4 $19 1/2 $.10
Second quarter 28 1/2 23 1/2 .11 1/2
Third quarter 25 1/2 17 3/4 .11 1/2
Fourth quarter 21 5/8 16 1/2 .11 1/2
</TABLE>
<TABLE>
<CAPTION>
High Low
1997 Sale Sale Div. Paid
- ---- ---- ---- ---------
<S> <C> <C> <C>
First quarter $20 7/16 $15 3/4 $.08 1/2
Second quarter 22 3/8 18 3/4 .10
Third quarter 24 5/8 19 1/2 .10
Fourth quarter 21 5/16 18 13/16 .10
</TABLE>
COMMON STOCK AND DIVIDENDS
First United anticipates continuing its policy of regular cash
dividends, although there is no assurance as to future dividends because they
are dependent on future earnings, capital requirements and the financial
condition of First United. First United strives to maintain a balance between
the retention of earnings for a support of growth and expansion and a fair cash
return for its stockholders. National banking law limits the amount of dividends
which banks can pay without obtaining prior approval from bank regulatory
authorities.
During the second quarter of 1998, First United increased its annual
cash dividend rate from $0.40 per share to $0.46 per share and during the second
quarter of 1997, First United increased its annual dividend from $0.34 to $0.40
per share. These increases result from higher sustainable earnings.
First United Common Stock is traded on the NASDAQ-NMS Over-the-Counter
Market under the symbol "UNTD."
All Over-the-Counter Market quotations are interdealer quotations
without retail mark-up, mark-down or commission, and may not represent actual
transactions. The high and low common stock market price quotations for each of
the quarters during 1998 and 1997 are listed in Table 15. Table 15 also lists
dividends paid by First United to its stockholders during each of those
quarters.
On February 12, 1999, the Company had approximately 1,935 stockholders
of record.
ASSET - LIABILITY MANAGEMENT
CHANGING INTEREST RATES
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.
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. At December 31, 1998, 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.
11
<PAGE> 14
FINANCIAL ANALYSIS
The interest rate sensitivity table that follows provides additional
information about the Company's financial instruments that are sensitive to
changes in interest rates. The quantitative information about market risk is
necessarily limited because it does not take into account operating
transactions. The tabular disclosure of the Company's market risk is also
limited by its failure to depict accurately the effect on assumptions of
significant changes in the economy or interest rates as well as changes in
Management's expectations or intentions. The information in the interest rate
sensitivity table that follows reflects contractual interest rate repricing
dates and contractual maturity (including principal amortization) dates.
Weighted average floating rates are based on the rate for that product as of
December 31, 1998.
TABLE 16: INTEREST RATE SENSITIVITY OTHER THAN TRADING PORTFOLIO
<TABLE>
<CAPTION>
(Dollars in Thousands) DECEMBER 31, 1998
-------------------------------------------------------------------------------
1999 2000 2001 2002
------------- ------------- ------------- -------------
LOANS
Fixed Rate ........................... $ 359,895 $ 155,763 $ 151,752 $ 104,416
Average Interest Rate ............. 9.14% 9.20% 8.93% 8.80%
Floating Rate ........................ 111,593 15,590 20,272 22,773
Average Interest Rate ............ 9.70% 8.40% 8.75% 8.62%
SECURITIES
Fixed Rate ........................... 102,826 87,361 85,392 91,561
Average Interest Rate ............. 4.98% 5.87% 6.12% 6.25%
Floating Rate ........................ 10,076 5,084 14,028 862
Average Interest Rate ............ 4.84% 4.65% 4.87% 8.68%
OTHER EARNING ASSETS
Fixed Rate ........................... 87,624 -0- -0- -0-
Average Interest Rate ............. 5.21% -0- -0- -0-
Floating Rate ........................ -0- -0- -0- -0-
Average Interest Rate ............ -0- -0- -0- -0-
TOTAL FINANCIAL ASSETS ............... $ 672,014 $ 263,798 $ 271,444 $ 219,612
Average Interest Rate ............ 8.02% 7.96% 7.82% 7.70%
DEPOSITS
Fixed Rate ........................... $ 963,268 $ 143,832 $ 42,873 $ 8,962
Average Interest Rate ............. 5.24% 5.51% 5.47% 5.72%
Floating Rate ........................ 631,762 4,088 -0- -0-
Average Interest Rate ............ 2.73% 5.23% -0- -0-
OTHER INTEREST-BEARING LIABILITIES
Fixed Rate ........................... -0- -0- -0- -0-
Average Interest Rate ............. -0- -0- -0- -0-
Floating Rate ........................ 82,470 -0- -0- -0-
Average Interest Rate ............. 5.14% -0- -0- -0-
LONG-TERM DEBT
Fixed Rate ........................... -0- -0- -0- -0-
Average Interest Rate ............. -0- -0- -0- -0-
Floating Rate ........................ 9,547 4,125 6,818 1,321
Average Interest Rate ............ 6.86% 6.78% 6.41% 6.01%
TOTAL FINANCIAL LIABILITIES .......... $ 1,687,047 $ 152,045 $ 49,691 $ 10,283
Average Interest Rate ............ 4.30% 5.54% 5.60% 5.76%
<CAPTION>
(Dollars in Thousands) DECEMBER 31, 1998
----------------------------------------------------------------------------
CURRENT
FAIR
2003 BEYOND TOTAL VALUE
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
LOANS
Fixed Rate ........................... $ 144,259 $ 146,428 $ 1,062,513 $ 1,059,329
Average Interest Rate ............. 8.47% 8.23% 8.87%
Floating Rate ........................ 27,640 92,780 290,648 290,648
Average Interest Rate ............ 8.36% 8.37% 8.93%
SECURITIES
Fixed Rate ........................... 91,285 285,847 744,272 746,803
Average Interest Rate ............. 6.18% 6.03% 5.92%
Floating Rate ........................ -0- 136,423 166,473 166,473
Average Interest Rate ............ -0- 6.27% 6.03%
OTHER EARNING ASSETS
Fixed Rate ........................... -0- -0- 87,624 87,624
Average Interest Rate ............. -0- -0- 5.21%
Floating Rate ........................ -0- -0- -0- -0-
Average Interest Rate ............ -0- -0- -0-
TOTAL FINANCIAL ASSETS ............... $ 263,184 $ 661,478 $ 2,351,530 $ 2,350,877
Average Interest Rate ............ 7.66% 6.90% 7.61%
DEPOSITS
Fixed Rate ........................... $ 752 -0- $ 1,159,687 $ 1,161,728
Average Interest Rate ............. 5.41% -0- 5.29%
Floating Rate ........................ -0- -0- 635,850 635,850
Average Interest Rate ............ -0- -0- 2.75%
OTHER INTEREST-BEARING LIABILITIES
Fixed Rate ........................... -0- -0- -0- -0-
Average Interest Rate ............. -0- -0- -0-
Floating Rate ........................ -0- -0- 82,470 82,470
Average Interest Rate ............. -0- -0- 5.14%
LONG-TERM DEBT
Fixed Rate ........................... -0- -0- -0- -0-
Average Interest Rate ............. -0- -0- -0-
Floating Rate ........................ 1,326 3,230 26,367 26,367
Average Interest Rate ............ 6.75% 6.18% 6.60%
TOTAL FINANCIAL LIABILITIES .......... $ 2,078 $ 3,230 $ 1,904,374 $ 1,906,415
Average Interest Rate ............ 6.27% 6.18% 4.45%
</TABLE>
12
<PAGE> 15
FINANCIAL ANALYSIS
INFLATION
Inflation also impacts the banking industry, but the problem with
inflation for banking institutions differs substantially from those incurred by
non-financial institutions. In industries with a high proportion of property and
equipment, there is a greater potential for earnings to be inflated by
understated depreciation charges, as well as the potential for significant
understatement of the current values of those assets. In industries with high
levels of inventories, reported earnings may reflect significant increases in
inventory values. Neither of these factors is important in the banking industry
since bank assets are primarily monetary assets which move in concert with
inflation; however, interest rates earned and paid by banks do not necessarily
move in the same direction or magnitude as general inflation. Because First
United has a significant investment in long-term securities and fixed-rate
loans, earnings on these assets will not keep up with yields available on
alternative investments during periods of rising inflation. Furthermore, First
United's liabilities are more sensitive to changes in interest rates than its
assets are, so in this respect, inflation has a negative impact on earnings.
13
<PAGE> 16
FINANCIAL ANALYSIS
REGULATORY AND ACCOUNTING ISSUES
REGULATORY ISSUES
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, First United's subsidiary banks are required to comply with
the Arkansas usury laws on loans made within the State of Arkansas.
The Federal Deposit Insurance Corporation Improvement Act of 1991
imposes strict statutory rules for a bank's senior management, outside
directors, independent auditors, examiners and regulators to ensure that a
bank's finances, management and legal compliance are thoroughly analyzed.
ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Management does not expect this standard to have a material
impact on First United's consolidated financial condition or results of
operations.
YEAR 2000 COMPLIANCE
The "Year 2000 Issue" has arisen due to the fact that many computer
hardware and software systems along with components of certain automated
equipment utilize only the last two digits of a date to refer to the year,
failing to distinguish dates within the twentieth century from those of the
twenty-first or other centuries. If not corrected, these systems could fail or
produce erroneous results with the advent of the twenty-first century.
First United has identified its systems, including computer-based
systems and applications and other systems with date sensitive embedded chips,
and assessed whether they will function properly in the Year 2000. This
assessment is part of a comprehensive action plan ("Year 2000 Readiness
Project") approved by the Board of Directors and Management documenting First
United's approach to having all systems and applications Year 2000 ready by June
30, 1999. First United does not anticipate that it will need to replace any
mission critical systems to achieve Year 2000 readiness.
Implementation of upgrades required to make mission critical systems
Year 2000 ready and testing of mission critical systems are expected to be
completed by June 30, 1999. Testing of the core banking systems for the majority
of First United's banks was completed by December 31, 1998 with the testing of
the remainder of the banks to be completed by March 31, 1999. While all mission
critical systems are currently expected to be Year 2000 ready, a contingency
plan will be developed prior to June 30, 1999, that will mitigate the risks
associated with the failure of any mission critical systems at critical Year
2000 dates.
Ultimately, the potential impact of the Year 2000 Issue will depend not
only on the corrective measures First United undertakes, but also on the way in
which the Year 2000 Issue is addressed by governmental agencies, businesses and
other entities who provide data to, or receive data from, First United, or whose
financial condition or operational capability is important to First United as
borrowers, vendors, customers or investment opportunities. Therefore,
communications with these parties has commenced to heighten their awareness of
the Year 2000 Issue. Over the next several months, the plans of such third
parties to address the Year 2000 Issue will be monitored and any identified
impact on First United will be evaluated.
First United estimates that the cumulative cost of the Year 2000
Readiness Project will be approximately $2 million. As of December 31, 1998,
First United has incurred $1.2 million of that amount. The cost estimates
include personnel cost related to all aspects of the Project, including testing
of mission critical systems, as well as the cost to purchase upgrades or
replacement hardware and software and other out-of-pocket expenses. The purchase
of hardware and software will be capitalized according to normal policy. Cost
associated with personnel and out-of-pocket expenses will be expensed in the
period incurred.
First United established a new data processing center in 1996 and
converted nine of its banks to its new data processing system between 1996 and
1998. The new system and equipment have been successfully tested as Year 2000
compliant. The conversion costs and equipment were allocated to regular data
processing costs. If such costs and equipment necessary for the new system had
been included as Year 2000 costs, First United's Year 2000 compliance costs
incurred and cost estimates would be substantially higher.
The forward-looking statements contained herein with regard to the
timing and overall cost estimates of First United's efforts to address the Year
2000 Issue are based upon First United's experience thus far in this effort.
Should First United encounter unforeseen difficulties either in the continuing
review of its computerized systems, their ultimate remediation, or the responses
of its business partners, the actual results could vary significantly from the
estimates contained in these forward-looking statements.
14
<PAGE> 17
FINANCIAL ANALYSIS
TABLE 17:
SUMMARY OF AVERAGE BALANCE SHEETS, INTEREST RATES AND
CHANGES IN NET INTEREST INCOME (FTE)(1)
<TABLE>
<CAPTION>
(Dollars in Thousands) 1998
---------------------------------------------------
Average
Balance Interest Rate
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans (net of unearned income) ............... $ 1,296,393 $ 120,035 9.26%
Securities(2):
Taxable Securities ........................... 716,667 44,934 6.27%
Non-taxable Securities ....................... 144,035 10,634 7.38%
Money-Market Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to Resell
and Other Short-Term Investments .......... 103,273 5,335 5.17%
------------- ------------- -------------
Total Interest-Earning Assets .......... 2,260,368 180,938 8.00%
------------- ------------- -------------
NON-INTEREST-EARNING ASSETS:
Cash and Due From Banks ...................... 70,283
Premises and Equipment, Net .................. 42,785
Other Assets ................................. 43,897
Less Allowance for Loan Losses ............... (17,728)
-------------
Total ................................... $ 2,399,605
=============
LIABILITIES
INTEREST-BEARING LIABILITIES:
Savings and Interest-Bearing Deposits ........ $ 493,737 $ 16,056 3.25%
Time Deposits of $100 or More ................ 352,325 20,502 5.82%
Other Time Deposits .......................... 878,812 41,081 4.67%
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ............ 65,280 3,336 5.11%
Notes Payable ................................ 27,844 1,831 6.58%
------------- ------------- -------------
Total Interest-Bearing Liabilities ....... 1,817,998 82,806 4.55%
------------- ------------- -------------
NON-INTEREST-BEARING LIABILITIES:
Demand Deposits .............................. 320,496
Other Liabilities ............................ 21,658
Stockholders' Equity ......................... 239,453
-------------
Total .................................... $ 2,399,605
=============
Net Interest-Earnings ................... $ 98,132
============
Net Interest Margin ..................... 4.34%
=============
<CAPTION>
(Dollars in Thousands) 1997
---------------------------------------------------
Average
Balance Interest Rate
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans (net of unearned income) ............... $ 1,150,955 $ 108,790 9.45%
Securities(2):
Taxable Securities ........................... 786,831 50,739 6.45%
Non-taxable Securities ....................... 128,138 9,788 7.64%
Money-Market Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to Resell
and Other Short-Term Investments .......... 57,006 4,105 7.20%
------------- ------------- -------------
Total Interest-Earning Assets .......... 2,122,930 173,422 8.17%
------------- ------------- -------------
NON-INTEREST-EARNING ASSETS:
Cash and Due From Banks ...................... 100,431
Premises and Equipment, Net .................. 41,782
Other Assets ................................. 49,002
Less Allowance for Loan Losses ............... (15,773)
------------
Total ................................... $ 2,298,372
============
LIABILITIES
INTEREST-BEARING LIABILITIES:
Savings and Interest-Bearing Deposits ........ $ 553,379 $ 16,492 2.98%
Time Deposits of $100 or More ................ 327,022 19,361 5.92%
Other Time Deposits .......................... 751,544 37,802 5.03%
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ............ 64,726 3,229 4.99%
Notes Payable ................................ 38,023 2,455 6.46%
------------ ------------- -------------
Total Interest-Bearing Liabilities ....... 1,734,694 79,339 4.57%
------------ ------------- -------------
NON-INTEREST-BEARING LIABILITIES:
Demand Deposits .............................. 314,404
Other Liabilities ............................ 22,844
Stockholders' Equity ......................... 226,430
------------
Total .................................... $ 2,298,372
============
Net Interest-Earnings ................... $ 94,083
=============
Net Interest Margin ..................... 4.43%
=============
</TABLE>
(1) Marginal tax rate of 35%.
(2) Includes available-for-sale and investment securities.
15
<PAGE> 18
FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
1998 Compared to 1997 1996
- ---------------------------------------------- -------------------------------------------
Total Due To Due To
Increase Change Change Average
(Decrease) In Volume In Rate Balance Interest Rate
---------- --------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C>
$ 11,245 $ 13,747 $ (2,502) $ 1,031,620 $ 97,962 9.50%
(5,805) (4,526) (1,279) 719,444 45,434 6.32%
846 1,214 (368) 123,851 10,275 8.30%
1,230 3,332 (2,102) 76,872 4,377 5.69%
----------- --------- --------- ------------ ---------- ----
7,516 13,767 (6,251) 1,951,787 158,048 8.10%
----------- --------- --------- ------------ ---------- ----
87,767
39,227
47,483
(15,591)
------------
$ 2,110,673
============
$ (436) $ (1,777) $ 1,341 $ 522,687 $ 15,262 2.92%
1,141 1,498 (357) 281,641 14,902 5.29%
3,279 6,401 (3,122) 716,063 38,510 5.38%
107 27 80 56,710 2,573 4.54%
(624) (665) 41 35,204 2,560 7.27%
----------- --------- --------- ------------ ---------- ----
3,467 5,484 (2,017) 1,612,305 73,807 4.58%
----------- --------- --------- ------------ ---------- ----
285,741
17,494
195,133
------------
$ 2,110,673
$ 4,049 $ 8,283 $ (4,234) ============ $ 84,241
=========== ========= ========= =========
4.32%
====
<CAPTION>
1997 Compared to 1996
-------------------------------------------
Total Due To Due To
Increase Change Change
(Decrease) In Volume In Rate
---------- --------- -------
<S> <C> <C>
$ 10,828 $ 11,332 $ (504)
5,305 4,256 1,049
(487) 356 (843)
(272) (1,131) 859
---------- --------- --------
15,374 14,813 561
---------- --------- --------
$ 1,230 $ 896 $ 334
4,459 2,401 2,058
(708) 1,908 (2,616)
656 388 268
(105) 191 (296)
---------- --------- ---------
5,532 5,784 (252)
---------- --------- ---------
$ 9,842 $ 9,029 $ 813
========== ========= =========
</TABLE>
16
<PAGE> 19
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
(In Thousands, Except Per Share Data)
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Total Interest Income ........... $ 177,216 $ 169,996 $ 154,452 $ 133,909 $ 107,423
Net Interest Income ............. 94,410 90,657 80,645 70,580 61,820
Provision for Possible Loan
Losses .................. 3,230 5,166 1,443 1,361 526
Net Income ...................... 30,268 25,772 27,059 22,527 20,236
PER SHARE DATA
Net Income ...................... $ 1.20 $ 1.02 $ 1.11 $ .96 $ .87
Cash Dividends Paid ............. .45 .39 .33 .31 .23
SELECTED BALANCE
SHEET ITEMS
Year Ended Balances
Total Assets .................... $2,516,457 $2,355,255 $2,172,561 $1,935,896 $1,649,565
Total Securities(1) ............... 910,745 901,906 888,565 784,512 727,834
Net Loans(2) ...................... 1,353,161 1,213,338 1,048,179 928,283 747,801
Total Deposits .................. 2,133,951 1,990,159 1,859,854 1,645,444 1,420,106
Notes Payable ................... 26,367 30,636 35,311 31,314 27,488
Capital Accounts ................ 255,633 234,549 210,099 184,364 152,975
</TABLE>
(1) Includes available-for-sale and investment securities.
(2) Net of unearned discount.
17
<PAGE> 20
QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended
(Unaudited) (In Thousands, Except Per Share Data)
-----------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- --------
1998
<S> <C> <C> <C> <C>
Interest Income ........................ $ 43,334 $ 44,413 $ 44,782 $ 44,687
Interest Expense ....................... 20,213 20,557 20,921 21,115
Net Interest Income .................... 23,121 23,856 23,861 23,572
Provision for Possible Loan Losses ..... (317) (1,350) (513) (1,050)
Other Income ........................... 4,379 4,131 5,075 4,673
Other Expense .......................... 15,922 16,406 17,432 16,458
Income Tax Expense ..................... 3,064 2,942 3,753 3,193
-------- -------- -------- --------
Net Income ............................. $ 8,197 $ 7,289 $ 7,238 $ 7,544
======== ======== ======== ========
Earnings Per Share ..................... $ 0.32 $ 0.29 $ 0.29 $ 0.30
======== ======== ======== ========
1997
Interest Income ........................ $ 39,484 $ 43,993 $ 43,392 $ 43,127
Interest Expense ....................... 18,623 20,140 19,996 20,580
Net Interest Income .................... 20,861 23,853 23,396 22,547
Provision for Possible Loan Losses ..... (469) (815) (870) (3,012)
Other Income ........................... 3,968 4,222 4,582 5,384
Other Expense .......................... 14,384 16,171 15,717 22,353
Income Tax Expense ..................... 2,760 3,248 3,442 (200)
-------- -------- -------- --------
Net Income ............................. $ 7,216 $ 7,841 $ 7,949 $ 2,766
======== ======== ======== ========
Earnings Per Share ..................... $ 0.29 $ 0.31 $ 0.31 $ 0.11
======== ======== ======== ========
</TABLE>
18
<PAGE> 21
CONSOLIDATED STATEMENTS OF CONDITION
First United Bancshares, Inc.
(in thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks ........................................... $ 91,207 $ 83,291
----------- -----------
Short-Term Investments:
Federal Funds Sold and Securities Purchased Under
Agreements to Resell ......................................... 71,928 58,117
Other Short-Term Investments ...................................... 15,696 24,601
----------- -----------
Total Short-Term Investments ................................... 87,624 82,718
----------- -----------
Securities Available-for-Sale ..................................... 684,662 664,482
----------- -----------
Investment Securities (Fair Value of $228,614 and $239,766 at
December 31, 1998 and 1997, respectively) ...................... 226,083 237,424
----------- -----------
Total Loans ....................................................... 1,359,485 1,219,600
Unearned Discount .............................................. (6,324) (6,262)
Allowance for Possible Loan Losses ............................. (17,302) (17,694)
----------- -----------
Net Loans .................................................... 1,335,859 1,195,644
----------- -----------
Premises and Equipment ............................................ 42,739 41,441
----------- -----------
Goodwill .......................................................... 10,674 11,636
----------- -----------
Other Real Estate ................................................. 1,399 983
----------- -----------
Other Assets ...................................................... 36,210 37,636
----------- -----------
Total Assets ................................................. $ 2,516,457 $ 2,355,255
=========== ===========
LIABILITIES
Deposits:
Demand ......................................................... $ 338,414 $ 309,699
Savings and Interest-bearing Demand ............................ 588,311 536,338
Time ........................................................... 1,207,226 1,144,122
----------- -----------
Total Deposits ................................................ 2,133,951 1,990,159
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase ....................................... 82,470 75,017
Other Liabilities ................................................. 18,036 24,894
Notes Payable:
Unaffiliated Bank .............................................. 21,367 25,636
Affiliated Company ............................................. 5,000 5,000
----------- -----------
Total Liabilities ............................................. 2,260,824 2,120,706
----------- -----------
Commitments and Contingencies
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 issued and outstanding in 1998 and 1997,
respectively) ................................................. 25,294 25,294
Surplus ........................................................... 26,610 25,111
Undivided Profits ................................................. 200,769 181,787
Treasury Stock .................................................... -0- (110)
Accumulated Other Comprehensive Income ............................ 2,960 2,467
----------- -----------
Total Capital Accounts ........................................ 255,633 234,549
----------- -----------
Total Liabilities and Capital Accounts ........................ $ 2,516,457 $ 2,355,255
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
First United Bancshares, Inc.
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans..................................... $ 120,035 $ 108,790 $ 97,962
Interest on Securities:
Taxable Securities........................................... 44,934 50,739 45,434
Non-taxable Securities....................................... 6,912 6,362 6,679
Interest on Federal Funds Sold and Securities
Purchased Under Agreements to Resell........................ 4,179 2,856 3,267
Interest on Deposits in Banks.................................. 1,156 1,249 1,110
---------- ----------- -----------
TOTAL INTEREST INCOME...................................... 177,216 169,996 154,452
---------- ----------- -----------
INTEREST EXPENSE
Interest on Deposits........................................... 77,639 73,655 68,674
Interest on Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase............................. 3,336 3,229 2,573
Interest on Notes Payable...................................... 1,831 2,455 2,560
---------- ----------- -----------
TOTAL INTEREST EXPENSE..................................... 82,806 79,339 73,807
---------- ----------- -----------
NET INTEREST INCOME........................................ 94,410 90,657 80,645
Provision for Loan Losses...................................... 3,230 5,166 1,443
---------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES........................................... 91,180 85,491 79,202
---------- ----------- -----------
OTHER INCOME
Service Charges on Deposit Accounts............................ 9,358 9,787 8,544
Trust Income................................................... 2,201 2,287 2,180
Security Gains (Losses)........................................ 444 99 264
Other Operating Income......................................... 6,255 5,983 3,871
---------- ----------- -----------
TOTAL OTHER INCOME......................................... 18,258 18,156 14,859
---------- ----------- -----------
OTHER EXPENSE
Salaries....................................................... 26,966 26,255 22,422
Pension and Other Employee Benefits............................ 8,078 9,562 6,543
Net Occupancy Expense.......................................... 5,218 5,831 5,328
Equipment Expense.............................................. 4,063 5,007 3,252
Data Processing Expense........................................ 4,497 3,127 2,331
Merger-related Costs........................................... 567 385 -0-
Other Operating Expenses....................................... 16,829 18,458 16,445
---------- ----------- -----------
TOTAL OTHER EXPENSE........................................ 66,218 68,625 56,321
---------- ----------- -----------
INCOME BEFORE INCOME TAX EXPENSE............................... 43,220 35,022 37,740
INCOME TAX EXPENSE............................................. 12,952 9,250 10,681
---------- ----------- -----------
NET INCOME..................................................... $ 30,268 $ 25,772 $ 27,059
========== =========== ===========
EARNINGS PER SHARE.............................................
Basic...................................................... $ 1.20 $ 1.02 $ 1.11
========== =========== ===========
Diluted.................................................... $ 1.20 $ 1.02 $ 1.11
========== =========== ===========
CASH DIVIDENDS PER SHARE....................................... $ 0.45 $ 0.39 $ 0.33
========== =========== ===========
AVERAGE SHARES ISSUED AND OUTSTANDING..........................
25,294 25,294 24,444
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 23
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS
First United Bancshares, Inc.
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
--------------------- Undivided Treasury Comprehensive
Shares Amount Surplus Profits Stock Income Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 .................. 23,428 $ 23,428 $ 20,451 $ 140,064 $ (1,142) $ 1,563 $ 184,364
Comprehensive Income:
Net Income ............................... -0- -0- -0- 27,059 -0- -0- 27,059
Increase (Decrease) in Unrealized Gain ... -0- -0- -0- -0- -0- (1,255) (1,255)
---------
Comprehensive Income .................. 25,804
Effect of Immaterial Pooling
Carlisle Acquisition .................. 1,016 1,016 1,817 4,247 -0- (77) 7,003
Purchase of Treasury Stock ............... -0- -0- -0- 8 (5) -0- 3
Dividends Paid ........................... -0- -0- -0- (7,075) -0- -0- (7,075)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 .................. 24,444 24,444 22,268 164,303 (1,147) 231 210,099
Comprehensive Income:
Net Income ............................... -0- -0- -0- 25,772 -0- -0- 25,772
Increase (Decrease) in Unrealized Gain ... -0- -0- -0- -0- -0- 2,180 2,180
---------
Comprehensive Income .................. 27,952
Effect of Immaterial Pooling
City Bank Acquisition ................. 850 850 2,843 2,514 -0- 56 6,263
Retirement of Treasury Stock ............. -0- -0- -0- (936) 1,037 -0- 101
Dividends Paid ........................... -0- -0- -0- (9,866) -0- -0- (9,866)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 .................. 25,294 25,294 25,111 181,787 (110) 2,467 234,549
Comprehensive Income:
Net Income ............................... -0- -0- -0- 30,268 -0- -0- 30,268
Increase (Decrease) in Unrealized Gain ... -0- -0- -0- -0- -0- 493 493
---------
Comprehensive Income .................. 30,761
Tax Effect of Exercise of Stock Options ..... -0- -0- 1,499 -0- -0- -0- 1,499
Retirement of Treasury Stock ................ -0- -0- -0- (110) 110 -0- -0-
Dividends Paid .............................. -0- -0- -0- (11,176) -0- -0- (11,176)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1998 .................. 25,294 $ 25,294 $ 26,610 $ 200,769 $ -0- $ 2,960 $ 255,633
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
First United Bancshares, Inc.
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................ $ 30,268 $ 25,772 $ 27,059
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation .......................................... 4,128 4,750 3,704
Amortization of Goodwill .............................. 962 1,149 1,188
Provision for Possible Loan Losses .................... 3,230 5,166 1,443
Provision (Benefit) for Deferred Taxes ................ 192 (1,012) 494
(Gain) Loss on Sales of Securities .................... (444) (99) (264)
Accretion of Bond Discount, Net ....................... (2,412) (2,832) (3,289)
Decrease (Increase) in Other Assets ................... 1,338 4,074 (946)
Increase (Decrease) in Other Liabilities .............. (6,858) 6,933 (5,109)
--------- --------- ---------
Net Cash Provided by Operating Activities ................. 30,404 43,901 24,280
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities ....... 53,693 49,708 52,110
Proceeds from Maturities of Securities Available-for-Sale 251,061 294,057 120,624
Proceeds from Sales of Securities Available-for-Sale .... 24,303 10,293 18,327
Purchase of Investment Securities ....................... (42,352) (34,158) (47,621)
Purchase of Available-for-Sale Securities ............... (291,216) (351,159) (215,486)
Increase (Decrease) in Federal Funds, Net ............... (6,358) 28,283 (14,608)
(Increase) Decrease in Other Short-Term Investments ..... 8,905 305 1,812
Increase in Loans ....................................... (143,445) (157,250) (44,821)
Capital Additions, Net .................................. (5,426) (3,233) (5,658)
--------- --------- ---------
Net Cash Used in Investing Activities ..................... (150,835) (163,154) (135,321)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings and
Interest-bearing Demand Deposits ...................... 80,688 20,399 49,365
Increase in Time Deposits ............................... 63,104 109,906 81,513
Repayment of Notes Payable .............................. (4,269) (4,675) (1,599)
Dividends Paid .......................................... (11,176) (8,214) (7,083)
--------- --------- ---------
Net Cash Provided by Financing Activities ................. 128,347 117,416 122,196
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents ...... 7,916 (1,837) 11,155
Cash and Cash Equivalents, Beginning ...................... 83,291 85,128 73,973
--------- --------- ---------
Cash and Cash Equivalents, Ending ......................... $ 91,207 $ 83,291 $ 85,128
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First United Bancshares, Inc.
1. THE MERGERS
On March 30, 1998, First United Bancshares, Inc. (the "Company") merged
with First Republic Bancshares, Inc. ("First Republic") and Citizens National
Bancshares of Hope, Inc. ("Citizens") and in connection therewith issued
approximately 4,740,000 shares of common stock for all of First Republic's and
Citizens' outstanding common stock (the "Mergers"). The Mergers were accounted
for as a pooling-of-interests and, accordingly, the Company's financial
statements for periods prior to the Mergers have been restated to include the
results of First Republic and Citizens for all periods presented. Separate and
combined results of operations for periods prior to the Mergers are as follows
(in thousands):
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Net Interest Income
First United $ 74,826 $ 65,582
First Republic 6,868 6,525
Citizens 8,963 8,538
-------- --------
$ 90,657 $ 80,645
======== ========
Net Income
First United $ 24,905 $ 22,372
First Republic (653) 1,353
Citizens 1,520 3,334
-------- --------
$ 25,772 $ 27,059
======== ========
</TABLE>
2. BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION, ACCOUNTING
POLICIES AND RECENT PRONOUNCEMENTS
BUSINESS:
The Company engages in the general banking business and activities
closely related to banking and provides these services primarily to customers in
Arkansas, Louisiana 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 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. All significant intercompany accounts
have been eliminated.
SECURITIES:
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.
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.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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.
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 $6,803,000 and
$5,841,000 at December 31, 1998 and 1997, 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 $362,000, $315,000 and $51,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
PER SHARE DATA:
Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding, 25,294,000 in 1998 and 1997 and 24,444,000
in 1996. Diluted EPS was computed by dividing net income by the sum of the
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 30,000 in 1998, 66,000 in 1997 and 38,000
in 1996.
All per share data and number of shares outstanding have been
retroactively restated to reflect the effect of a 2-for-1 stock split in 1998
and a 3-for-2 stock split during 1996.
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.
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECENT PRONOUNCEMENTS:
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which applies to all
entities, established accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated statement of
condition and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15,1999. Management does not expect this
standard to have a material impact on the Company's consolidated financial
condition or results of operations. Management intends to comply with this
standard in 2000.
3. ACQUISITIONS
On December 31, 1997, the Company acquired City Bank & Trust of
Shreveport, Louisiana ("City Bank") in a merger accounted for as a
pooling-of-interests (the "City Bank Merger"). In connection with the City Bank
Merger, the Company issued approximately 850,000 shares of common stock for all
of City Bank's outstanding common stock. As the effect of the City Bank Merger
has been deemed immaterial, the Company's statements for years prior to the City
Bank Merger have not been restated to include the results of City Bank.
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 3,200,000 shares of First United common
stock in a transaction accounted for as a pooling-of-interests. Results have
been restated to include the results of Fredonia.
4. SECURITIES AVAILABLE-FOR-SALE
The carrying values and estimated fair values of securities
available-for-sale at December 31, 1998 and 1997 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
U.S. Treasury Securities and Other U.S.
Government Agencies $ 491,617 $ 2,368 $ 38 $ 493,947
Obligations of States and Political
Subdivisions 46,259 1,667 -0- 47,926
Mortgage-Backed Securities 141,799 638 78 142,359
Other 432 -0- 2 430
----------- ----------- ----------- -----------
$ 680,107 $ 4,673 $ 118 $ 684,662
=========== =========== =========== ===========
1997
U.S. Treasury Securities and Other U.S.
Government Agencies $ 490,304 $ 2,171 $ 209 $ 492,266
Obligations of States and Political
Subdivisions 39,865 1,209 21 41,053
Mortgage-Backed Securities 109,871 1,160 456 110,575
Other 20,559 193 164 20,588
----------- ----------- ----------- -----------
$ 660,599 $ 4,733 $ 850 $ 664,482
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale at December 31, 1998, 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 $ 166,780 $ 167,539
Due After One Year Through Five Years 265,531 267,839
Due After Five Years Through Ten Years 83,781 84,532
Due After Ten Years 22,216 22,393
Mortgage-Backed Securities 141,799 142,359
----------- -----------
$ 680,107 $ 684,662
=========== ===========
</TABLE>
Gross gains realized on these sales during 1998, 1997 and 1996 were
$444,000, $99,000 and $264,000, respectively.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT SECURITIES
The carrying values and estimated fair values of investments in debt
securities as of December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1998
U.S. Treasury Securities and Other U.S.
Government Agencies $ 24,117 $ 215 $ -0- $ 24,332
Obligations of States and Political
Subdivisions 112,647 2,302 86 114,863
Mortgage-Backed Securities 89,121 117 17 89,221
Other 198 -0- -0- 198
----------- ---------- ----------- -----------
$ 226,083 $ 2,634 $ 103 $ 228,614
=========== ========== =========== ===========
1997
U.S. Treasury Securities and Other U.S.
Government Agencies $ 59,017 $ 230 $ 95 $ 59,152
Obligations of States and Political
Subdivisions 101,207 1,311 49 102,469
Mortgage-Backed Securities 77,047 949 4 77,992
Other 153 -0- -0- 153
----------- ---------- ----------- -----------
$ 237,424 $ 2,490 $ 148 $ 239,766
=========== ========== =========== ===========
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1998, 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 $ 25,502 $ 25,887
Due After One Year Through Five Years 57,619 58,983
Due After Five Years Through Ten Years 41,173 41,593
Due After Ten Years 12,668 12,930
Mortgage-Backed Securities 89,121 89,221
----------- -----------
$ 226,083 $ 228,614
=========== ===========
</TABLE>
There were no sales of investment securities during 1998 and 1997.
Securities with a carrying value of $421,516,000 at December 31, 1998 were
pledged to secure public deposits and for other purposes required by law.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The changes in the allowance for possible loan losses during 1998, 1997
and 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Year $ 17,694 $ 14,951 $ 15,259
Allowance Applicable to Loans of Acquired Bank -0- 426 1,215
Provision Charged Against Income 3,230 5,166 1,443
Recoveries on Loans Charged-Off 2,048 1,849 2,029
Loans Charged-Off (5,670) (4,698) (4,995)
-------- -------- --------
Balance at End of Year $ 17,302 $ 17,694 $ 14,951
======== ======== ========
</TABLE>
26
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LOANS
Loans consist of the following categories (in thousands):
<TABLE>
<CAPTION>
TYPE 1998 1997
---------- ----------
<S> <C> <C>
Real Estate Loans Collateralized by -
Residential Properties, Primarily Single Family Residences $ 407,075 $ 342,765
Commercial Properties 423,319 381,941
Commercial and Industrial Loans, Other Than Real Estate
and Energy-Related 314,120 282,364
Energy-Related Loans 11,367 11,066
Consumer Loans 202,520 200,803
Loans for Purchasing or Carrying Securities 276 237
Financing Leases 808 424
---------- ----------
$1,359,485 $1,219,600
========== ==========
</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, 1998 and 1997, officers, directors,
and related parties had loans of approximately $31,853,000 and $30,645,000,
respectively. During the year ended December 31, 1998, loans made to these
parties totaled $43,423,000 and repayments totaled $41,083,000. Loans to former
officers, directors and related parties included in the 1997 amounts totaled
$1,132,000.
A summary of non-performing assets as of December 31, 1998 and 1997 is
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Non-Accrual Loans $ 6,777 $ 3,945
Past Due Loans (90 Days or more and still accruing) 2,812 3,817
Renegotiated Loans 1,068 878
------- -------
10,657 8,640
Other Real Estate 1,399 983
------- -------
Total Non-Performing Assets $12,056 $ 9,623
======= =======
</TABLE>
The Company's non-accrual policy had the effect of reducing interest
and fees on loans in 1998, 1997 and 1996 by approximately $227,000, $300,000 and
$171,000, respectively. Substantially all payments on non-accrual loans were
applied to principal.
8. PREMISES AND EQUIPMENT
Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Principal
Depreciation Estimated 1998 1997
Method Useful Life
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Land $ 8,866 $ 8,441
Buildings and Leasehold Improvements Straight-line 5-40 years 41,512 41,414
Furniture, Fixtures and Equipment Straight-line 3-10 years 30,641 27,363
----------- ---------
81,019 77,218
Less: Accumulated Depreciation (38,280) (35,777)
----------- ---------
$ 42,739 $ 41,441
=========== =========
</TABLE>
27
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation included in other expense, net occupancy expense and
equipment expense was $4,128,000 in 1998, $4,750,000 in 1997 and $3,704,000 in
1996.
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 $10,000 for the year ended December 31, 1998 and $20,000 for each
of the years ended December 31, 1997 and 1996. In June of 1998, the Company
purchased the parking lot for $283,000.
9. INCOME TAXES
Income tax expense (benefit) is composed of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Currently Payable $ 12,760 $ 10,262 $ 10,187
Deferred 192 (1,012) 494
-------- -------- --------
$ 12,952 $ 9,250 $ 10,681
======== ======== ========
</TABLE>
The income tax provision included $155,000, $35,000 and $92,000 for the
years ended December 31, 1998, 1997 and 1996, respectively, resulting from
securities transactions.
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>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0% 35.0%
Less:
Non-Taxable Interest Income (5.5) (6.4) (6.2)
Charitable Contributions 0.0 0.0 (0.6)
Amortization of Goodwill 0.9 1.1 1.1
Merger-related Costs 0.4 0.0 0.0
Other Items, Net (0.8) (3.3) (1.0)
------ ------ ------
Effective Income Tax Rate 30.0% 26.4% 28.3%
====== ====== ======
</TABLE>
At December 31, 1998 and 1997, 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>
1998 1997
------- -------
<S> <C> <C>
Accelerated Depreciation $(1,348) $(1,369)
Provision for Possible Loan Losses 5,377 5,069
Unrealized Gain on Marketable Securities (1,581) (1,354)
Effects of Pension and Benefit Plans (66) 858
Difference in Tax and Book Basis of Securities (427) (966)
Difference in Tax and Book Basis of Loans (605) (579)
Write-down of Other Real Estate 48 53
Other 327 432
------- -------
$ 1,725 $ 2,144
======= =======
</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.
28
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Average balance during the year $65,280 $64,726
Average interest rate during the year 5.11% 4.94%
Maximum month-end balance during the year $89,448 $76,344
U.S. government securities pledged as collateral for the repurchase agreements:
Carrying Value $91,312 $84,823
Estimated Fair Value 92,025 85,649
</TABLE>
11. NOTES PAYABLE
A summary of notes payable as of December 31, 1998 and 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Promissory Note Bearing Interest at 1.20% Above the 30-Day LIBOR
(6.264% and 7.118% at December 31, 1998 and 1997), Principal Due 1999 $ 5,000 $ 5,000
Promissory Note Bearing Interest at 0.583% Above the 30-Day LIBOR
(5.647% and 5.788% at December 31, 1998 and 1997), Principal Due 2001 5,024 5,000
Promissory Note to Unaffiliated Bank Bearing Interest at 1.41%
Above the 30-Day LIBOR (6.475% and 7.118% at December 31, 1998
and 1997), $1,100,000 Due Annually 5,557 6,657
Other Installment Notes Payable Bearing Interest at Rates Varying From
5.390% to 7.470% and With Maturities Varying From 2000 to 2023 10,786 13,979
------- -------
$26,367 $30,636
======= =======
</TABLE>
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: 1999 -
$9,547,000; 2000 - $4,125,000; 2001 - $6,818,000; 2002 - $1,321,000; 2003 -
$1,326,000 and thereafter - $3,230,000.
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 is determined by various
actuarial factors. The Plan contains provisions for early retirements,
disability and death benefits. The following tables set forth the Change in
Benefit Obligation and Change in Plan Assets for the years ended December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31: 1998 1997
-------- --------
<S> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Year $ 14,581 $ 13,164
Service Cost 882 664
Interest Cost 1,053 926
Actuarial Losses 2,426 722
Benefit Paid (1,023) (895)
-------- --------
Benefit Obligation at End of Year $ 17,919 $ 14,581
======== ========
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year $ 16,330 $ 13,873
Actual Return on Plan Assets 1,554 2,448
Employer Contribution 1,096 904
Benefits Paid (1,023) (895)
-------- --------
Fair Value of Plan Assets at End of Year $ 17,957 $ 16,330
======== ========
Funded Status $ 38 $ 1,749
Unrecognized Net Actuarial Loss 3,620 1,555
Unrecognized Prior Service Cost (663) (851)
-------- --------
Prepaid Benefit Cost $ 2,995 $ 2,453
======== ========
</TABLE>
29
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Plan's net pension cost for 1998, 1997 and 1996 included the
following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service Cost $ 882 $ 664 $ 578
Interest Cost on Projected Benefit Obligation 1,053 926 915
Expected Return on Assets (1,194) (1,012) (981)
Net Amortization and Deferral 204 1,399 61
------- ------- -------
$ 945 $ 1,977 $ 573
======= ======= =======
Significant Assumptions:
Weighted Average Discount Rate 7.00% 7.25% 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 1998, 1997 and 1996, the Company's expenses totaled approximately
$1,244,000, $855,000 and $777,000, respectively.
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 plan 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 1998, 1997 and 1996 was $480,000, $353,000 and $569,000,
respectively.
The Company has a stock option plan under which options to purchase up
to 300,000 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, 1998 December 31, 1997 December 31, 1996
--------------------------- -------------------------- ----------------------------
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 109,744 $ 12.62 96,538 $ 12.13 28,332 $ 9.48
Granted 105,000 20.31 13,206 16.25 68,206 13.23
Exercised (1,250) 13.24 -0- -0- -0- -0-
Canceled (13,750) 18.34 -0- -0- -0- -0-
----------- ----------- -----------
Outstanding, end of year 199,744 $ 16.03 109,744 $ 12.62 96,538 $ 12.13
=========== =========== ===========
</TABLE>
Options to purchase 59,778 shares of common stock were exercisable at
an average exercise price of $11.83 at December 31, 1998.
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. If compensation cost had been
determined based on the fair value at grant date for awards in 1998 and 1997 in
accordance with SFAS No. 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Income - As reported $ 30,268 $ 25,772 $ 27,059
Net Income - Pro forma $ 29,956 $ 25,630 $ 26,994
Net Income per share - As reported $ 1.20 $ 1.02 $ 1.11
Net Income per share - Pro forma $ 1.18 $ 1.01 $ 1.10
</TABLE>
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Expected Life 10 years 10 years 10 years
Risk-free Interest Rate 5.80% 6.54% 6.49%
Expected Volatility 28.74% 30.00% 30.64%
Dividend Yield 2.50% 2.46% 2.10%
</TABLE>
The weighted average fair value of options granted during 1998 and 1997
was $12.42 and $11.79 per share, respectively. The pro forma effect on net
income for 1998 and 1997 is not representative of the pro forma effect on net
income in future years because pro forma compensation expense related to grants
made prior to 1997 is not included.
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.
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 1999. 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, 1998 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,
1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Commitments to Extend Credit $185,123 $102,053
Standby Letters of Credit 9,679 11,656
</TABLE>
The Company has a facilities management contract with a data processing firm
to provide computer equipment and the needed personnel for systems support. In
addition, certain branch facilities and warehouse space are leased under various
operating lease agreements. These contracts require approximate minimum annual
rentals as follows: 1999-$3,379,000; 2000-$3,397,000; 2001-$3,570,000;
2002-$3,639,000; 2003-$3,703,000 and thereafter $1,715,000.
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's results of
operations.
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 1999, the Company's subsidiary banks will have
available for payment of dividends, without regulatory approval, approximately
$4,690,000 of undistributed earnings plus the net income earned in 1999.
At December 31, 1998, the Company was required to maintain reserve
balances in cash and due from accounts of approximately $18,344,000.
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SUPPLEMENTARY DATA FOR CASH FLOWS
Income taxes paid by the Company during the years ended December 31,
1998, 1997 and 1996 amounted to $9,423,000, $8,673,000 and $9,335,000,
respectively. Interest paid on notes payable during the years ended December 31,
1998, 1997 and 1996 was $1,831,000, $2,377,000 and $2,482,000, respectively.
16. CAPITAL ACCOUNTS
On May 26, 1998, the Company declared a 2-for-1 stock split which was
effected in the form of a one hundred percent (100%) stock dividend. The
dividend was distributed on June 30, 1998 and increased the issued and
outstanding common stock of the Company from 12,647,000 to 25,294,000 shares. 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. 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, 1998, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are subject.
At December 31, 1998, 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.
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 Regulatory
Actual Minimum 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, 1998:
Total Capital (to Risk Weighted
Assets) $ 255,633 16.95% $ 120,669 8.00% N/A
First United Bancshares, Inc. $ 40,136 13.78% $ 23,305 8.00% $ 29,131 10.00%
City National Bank of Fort Smith
Tier 1 Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $ 241,999 16.04% $ 54,216 4.00% N/A
City National Bank of Fort Smith $ 39,392 13.52% $ 11,652 4.00% $ 17,479 6.00%
Tier 1 Capital (to Average Assets)
First United Bancshares, Inc. $ 241,999 10.08% $ 95,984 4.00% N/A
City National Bank of Fort Smith $ 39,392 8.23% $ 19,141 4.00% $ 23,926 5.00%
At December 31, 1997:
Total Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $ 234,549 17.30% $ 108,431 8.00% N/A
City National Bank of Fort Smith $ 40,126 13.57% $ 23,657 8.00% $ 29,571 10.00%
Tier 1 Capital (to Risk Weighted
Assets)
First United Bancshares, Inc. $ 220,389 16.26% $ 54,216 4.00% N/A
City National Bank of Fort Smith $ 36,462 12.33% $ 11,828 4.00% $ 67,111 6.00%
Tier 1 Capital (to Average Assets)
First United Bancshares, Inc. $ 220,389 9.59% $ 91,935 4.00% N/A
City National Bank of Fort Smith $ 36,462 8.35% $ 17,475 4.00% $ 21,843 5.00%
</TABLE>
32
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." Comprehensive income is the change in equity during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners.
In addition to net income, the Company has identified changes related
to other nonowner transactions in the Consolidated Statements of Changes in
Capital Accounts. Changes in other nonowner transactions consist entirely of
changes in unrealized holding gains and losses on securities available-for-sale.
In the calculation of comprehensive income, certain reclassification
adjustments are made to avoid double counting items that are displayed as part
of net income and other comprehensive income in that period or earlier periods.
The following table reflects the reclassification amounts and the related tax
effects of changes in unrealized holding gains and losses on securities
available-for-sale for the three years ended December 31, 1998, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------- -------------------------------- -------------------------------
Before Tax After Before Tax After Before Tax After
Tax (Expense) or Tax Tax (Expense) or Tax Tax (Expense) or Tax
Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount
-------------------------------- -------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net unrealized
holding gains
(losses) arising
during the period $ 1,202 $ (420) $ 782 $ 3,452 $ (1,208) $ 2,244 $ (1,666) $ 583 $ (1,083)
Reclassification
adjustment for
gains included
in net income (444) 155 (289) (99) 35 (64) (264) 92 (172)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net change in
unrealized gains
on securities $ 758 $ (265) $ 493 $ 3,353 $ (1,173) $ 2,180 $ (1,930) $ 675 $ (1,255)
</TABLE>
33
<PAGE> 36
NOTES TO 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,
-------------------
1998 1997
-------- --------
<S> <C> <C>
CONDENSED FINANCIAL POSITION:
Assets:
Cash $ 46,403 $ 31,983
Investment in Subsidiaries 216,356 210,229
Other Assets 7,190 12,639
-------- --------
Total Assets $269,949 $254,851
======== ========
Liabilities and Capital Accounts:
Notes Payable $ 10,557 $ 14,401
Other Liabilities 3,759 5,901
-------- --------
Total Liabilities 14,316 20,302
-------- --------
Total Capital 255,633 234,549
-------- --------
Total Liabilities and Capital $269,949 $254,851
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CONDENSED OPERATING RESULTS:
Dividend Income From Subsidiaries $31,505 $26,750 $14,550
Management Fees 588 428 427
Other Income 75 78 91
------- ------- -------
32,168 27,256 15,068
------- ------- -------
Interest Expense 810 1,204 1,063
Other Expense 6,311 5,046 3,443
------- ------- -------
7,121 6,250 4,506
------- ------- -------
Income Before Tax Benefit and Equity in
Undistributed Income of Subsidiaries 25,047 21,006 10,562
Income Tax Benefit 530 3,037 1,859
------- ------- -------
Income Before Equity in Undistributed
Income of Subsidiaries 25,577 24,043 12,421
Equity in Undistributed Income of
Subsidiaries 4,691 1,729 14,638
------- ------- -------
Net Income $30,268 $25,772 $27,059
======= ======= =======
</TABLE>
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS:
Cash Flows From Operating Activities:
Net Income $30,268 $25,772 $27,059
Depreciation 314 283 20
Undistributed Income (4,691) (1,729) (14,638)
Increase in Other Assets 6,691 (5,883) (2,626)
(Decrease) Increase in Other Liabilities (2,142) 3,505 (1,118)
------- ------- -------
30,440 21,948 8,697
Cash Flows From Investing Activities: ------- ------- -------
Purchase of Subsidiaries (1,000) -0- -0-
Purchase of Investment Securities -0- -0- (499)
Maturities of Investment Securities -0- -0- -0-
------- ------- -------
(1,000) -0- (499)
------- ------- -------
Cash Flows From Financing Activities:
Principal Repayments on Notes Payable (3,844) (1,295) (4,180)
Issuance of Notes Payable -0- 50 4,194
Treasury Stock Transactions -0- (11) 4
Payment of Dividends (11,176) (9,339) (7,073)
------- ------- -------
(15,020) (10,595) (7,055)
------- ------- -------
Net Increase in Cash 14,420 11,353 1,143
Cash at Beginning of Year 31,983 20,630 19,487
------- ------- -------
Cash at End of Year $46,403 $31,983 $20,630
======= ======= =======
Supplementary Data for Cash Flows:
Taxes Paid $ 9,423 $ 8,673 $ 9,335
Interest Paid on Notes Payable 1,831 2,377 2,482
</TABLE>
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 on the next page 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, 1998 and 1997 are on the next page (in thousands):
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CARRYING ESTIMATED Carrying Estimated
VALUE FAIR VALUE Value Fair Value
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Short-Term Investments $ 178,831 $ 178,831 $ 166,009 $ 166,009
Securities 910,745 913,276 901,906 904,248
Loans 1,353,161 1,349,977 1,213,338 1,210,384
LIABILITIES
Deposits $2,133,951 $2,135,992 $1,990,159 $1,990,762
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase 82,470 82,470 75,017 75,017
Notes Payable 26,367 26,367 30,636 30,636
</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.
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, 1998, the maximum
financing limitation is 9.5%. 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.
36
<PAGE> 39
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of First United Bancshares, Inc.:
We have audited the accompanying consolidated statements of condition of
First United Bancshares, Inc. (an Arkansas corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of income,
changes in capital accounts and cash flows for each of the years in the
three-year period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
1997 and 1996 financial statements of Citizens National Bancshares of Hope,
Inc., the 1996 financial statements of First Republic Bancshares, Inc. and the
1996 financial statements of Fredonia Bancshares, Inc., companies acquired
during 1998 and 1997 in transactions accounted for as a poolings-of-interests,
as discussed in Notes 1 and 3. Such statements are included in the consolidated
financial statements of First United and reflect total assets and total interest
income of 11 percent in 1997 and 31 percent of total interest income in 1996 of
the related consolidated totals. These statements were audited by other auditors
whose report has been furnished to us and our opinion, insofar as it relates to
amounts included for Citizens National Bancshares of Hope, Inc., First Republic
Bancshares, Inc. and Fredonia Bancshares, Inc., is based solely upon the report
of the other auditors.
We conducted our audits 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 the other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audit and the reports of the other auditors,
the 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998.
Arthur Andersen LLP
Jackson, Mississippi,
January 19, 1999.
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
The management of First United Bancshares, Inc. ("First United") is
responsible for the integrity and objectivity of the financial statements and
other financial information contained in this Annual Report. The financial
statements have been prepared in conformity with generally accepted accounting
principles. Financial information throughout this Annual Report is consistent
with that in the financial statements.
First United maintains a system of internal accounting controls which is
believed to provide, in all material respects, reasonable assurance that assets
are safeguarded against loss from unauthorized use or disposition; transactions
are properly authorized and recorded; and the financial records are reliable for
preparing financial statements and maintaining accountability for assets. All
systems of internal accounting controls are based on management's judgment that
the cost of controls should not exceed the benefits to be achieved. Management
believes First United's system provides the appropriate balance between costs of
controls and the related benefits.
In order to monitor compliance with this system of controls, First United
maintains an internal audit program. Internal audit reports are issued to
appropriate officers, and significant audit exceptions, if any, are reviewed
with management and the Audit Committee of the Board of Directors.
The financial statements in this Annual Report have been audited by First
United's independent public accountants, Arthur Andersen LLP, for the purpose of
determining that the financial statements are presented fairly. Their audit
included an evaluation of First United's system of internal controls for the
purpose of setting the scope of their auditing procedures.
37
<PAGE> 40
OFFICERS AND DIRECTORS
FIRST UNITED BANCSHARES, INC. OFFICERS AND BOARD OF DIRECTORS
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS BOARD OF DIRECTORS
<S> <C> <C>
James V. Kelley Larry Burrow Richard H. Mason
Chairman of the Board, Plant Manager, President,
President & Chief Executive Officer Partee Flooring Mill Gibraltar Energy Company
Robert L. Jones Claiborne P. Deming George Middlebrook, III
Acting Chief Financial Officer & President & Chief Executive Officer, Investments
Assistant Secretary Murphy Oil Corporation
R. Madison Murphy
OFFICERS Al Graves, Jr. Chairman of the Board,
Attorney Murphy Oil Corporation
Robert O. Boggess
Senior Vice President of Tommy Hillman Robert C. Nolan
IT/Operations President, Winrock Farms, Inc. Chairman,
Deltic Timber Corporation
Jim Barnes James V. Kelley
Vice President & Auditor Chairman of the Board, Cal Partee, Jr.
President & Chief Executive Officer, Oil Investments
Betty W. Scarborough First United Bancshares, Inc.
Vice President/Special Projects Carolyn Tennyson
Roy E. Ledbetter Timber Investments
Richard E. Ulmer President & Chief Executive Officer,
Vice President & Loan Review Officer Highland Industrial Park, Inc. John D. Trimble, Jr.
Managing Partner,
Cynthia C. Alphin Jack W. McNutt Trimble Properties
Assistant Vice President of Planning & Former President & Chief Executive Officer,
Assistant Secretary Murphy Oil Corporation
REGIONAL CHAIRMEN Michael F. Mahony
Attorney
John Robert Graves
South Arkansas
Jim Harwood
North and West Arkansas
Gordon Lewis
Texas and Louisiana
</TABLE>
38
<PAGE> 41
OFFICERS AND DIRECTORS
SUBSIDIARY BANKS' BOARD OF DIRECTORS
<TABLE>
<CAPTION>
FIRST NATIONAL BANK COMMERCIAL BANK CITY BANK & TRUST
OF EL DORADO, ARKANSAS AT ALMA, ARKANSAS SHREVEPORT, LOUISIANA
<S> <C> <C>
Claiborne P. Deming James A. Arnold II James C. Egan, Jr.
Barry Felton Leonarde L. Blaschke Jerry A. Fielder
James V. Kelley William M. "Dockey" Brasher III John C. Gehl
Larry Kinard Jim V. Fincher Gordon Lewis
Michael F. Mahony Jim Harwood R.A. Mackey
Richard H. Mason Paul L. Winborn J. Russell Reeves
R. Madison Murphy Richard H. Sale
Robert C. Nolan THE BANK OF NORTH ARKANSAS Richard K. Speairs, Jr., Ph.D.
Robert M. Reynolds MELBOURNE, ARKANSAS S.M. Trombetta
Dr. Henry B. Rogers
John H. Sample W. Wesley Arnold CITIZENS NATIONAL BANK
Stephen C. Smart, D.D.S. Brenda K. Barnes HOPE, ARKANSAS
Carolyn Tennyson Thomas C. Colegrove
Charles E. Thomas Harlin F. Hames Rodney H. Bobo
John D. Trimble, Jr. Jim Harwood John M. Cox
Dr. Srini Vasan Lloyd T. Jones George Frazier
James E. Miller Albert Graves
FIRST NATIONAL BANK Reed M. Perryman Al Graves, Jr.
OF MAGNOLIA, ARKANSAS John Robert Graves
FIRST UNITED BANK Jim Hart
Larry Burrow STUTTGART, ARKANSAS Henry Haynes
Kathy Dickson Louis C. Jordan
Tommy Fallin, Jr. Jack B. Coker, RPh James V. Kelley
John Robert Graves Tommy Hillman Hillman Koen
Robert L. Jones Jerry J. Hoskyn Mitchell LaGrone
Richard G. Murphy Harold Ives Ned Ray Purtle
Cal Partee, Jr. Steven M. Keith Dennis Ramsey
David F. Rankin James V. Kelley William R. Routon
Chris W. Weiser Robert M. Koch
Joe D. Woodward Ben A. Myers, P.D. PEOPLES BANK & LOAN COMPANY
Wanda Northcutt Hartz LEWISVILLE, ARKANSAS
CITY NATIONAL BANK Robert Petter, Sr.
OF FORT SMITH, ARKANSAS Randall Snider Phil Alford, Jr.
Dewey Snowden Charles Black
Thomas J. Barr John E. Stephens Richard Burton
Morris G. Boren Dr. Ralph H. Wilson O. M. Covington
Carolyn L. Branch John Robert Graves
George C. Fisher FIRSTBANK Dennis Ramsey
Jim Harwood TEXARKANA, TEXAS Wilma Willbanks
George R. Jacobs
James V. Kelley James M. Carlow FIRST REPUBLIC BANK
A. Samuel Koenig III Steve Conner MONROE, LOUISIANA
Emon A. Mahony, Jr. Lucille T. Cook
John R. Meyers Delton G. Gwinn C. S. Aycock, Jr.
J. R. Minish Joe Connor Hart John Hoychick, Jr.
Jim Nunnelee Gordon Lewis Gordon Lewis
Linda Schmidt M. L. Mayo Henry A. Logue
Charles Shuffield Amos McCulloch, Jr. Guy C. Pardue
Bobby W. Stephens H. J. Trammell David Thomason
Robert B. Westphal Graton E. White, Jr. Dallas Thomason
Steve C. Wiggs Terry B. Ware
MERCHANTS & PLANTERS
BANK, N.A. OF CAMDEN, FREDONIA STATE BANK FIRST UNITED TRUST
ARKANSAS NACOGDOCHES, TEXAS COMPANY, N.A.
Eugene Bramblett Roy Blake
John Robert Graves Hank Crouse Richard P. Clark, II
James R. Jordan J. R. Honea John Robert Graves
Roy E. Ledbetter James V. Kelley Tommy Hillman
Jim Neeley Gordon Lewis Robert M. Koch
Richard L. Robertson George Middlebrook, III R. Madison Murphy
Joe M. Rogers Arthur L. Speck, M.D.
Dan Stansel
Craig Stripling
Roger Van Horn
</TABLE>
39
<PAGE> 42
OFFICERS AND DIRECTORS
SUBSIDIARY BANKS
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS LOCATION TELEPHONE
- ------------------ -------- ---------
<S> <C> <C>
FIRST NATIONAL BANK OF EL DORADO
James V. Kelley, Chairman of the Board & Chief Executive Officer El Dorado, AR (870) 863-3181
FIRST NATIONAL BANK OF MAGNOLIA
Robert L. Jones, President & Chief Executive Officer Magnolia, AR (870) 234-1234
CITY NATIONAL BANK OF FORT SMITH
Jim Harwood, President & Chief Executive Officer Fort Smith, AR (501) 785-2811
MERCHANTS & PLANTERS BANK, N.A. OF CAMDEN
James R. Jordan, President & Chief Executive Officer Camden, AR (870) 836-8136
COMMERCIAL BANK AT ALMA
Jim V. Fincher, President & Chief Executive Officer Alma, AR (501) 632-2257
THE BANK OF NORTH ARKANSAS
Lloyd T. Jones, President & Chief Executive Officer Melbourne, AR (870) 368-4205
FIRST UNITED BANK
Robert M. Koch, President & Chief Executive Officer Stuttgart, AR (870) 673-3545
FIRSTBANK
Steve C. Wiggs, Chairman, President & Chief Executive Officer Texarkana, TX (903) 838-6500
FREDONIA STATE BANK
Gordon Lewis, Chairman & President Nacogdoches, TX (409) 564-6191
CITY BANK & TRUST
Jerry A. Fielder, President & Chief Executive Officer Shreveport, LA (318) 865-6555
CITIZENS NATIONAL BANK
John Robert Graves, Chief Executive Officer Hope, AR (870) 777-2313
PEOPLES BANK & LOAN COMPANY
Charles Black, President & Chief Executive Officer Lewisville, AR (870) 921-4244
FIRST REPUBLIC BANK
Henry A. Logue, Chairman, President & Chief Executive Officer Monroe, LA (318) 388-3990
FIRST UNITED TRUST COMPANY, N.A.
Richard P. Clark II, President & Chief Executive Officer El Dorado, AR (870) 863-3181
</TABLE>
40
<PAGE> 43
CORPORATE INFORMATION
ANNUAL MEETING
The annual meeting of stockholders will convene on
Tuesday, May 25, 1999, at 2:00 p.m. (CDT) in the Board of Directors
Room of the First National Bank,
Main and Washington Streets, El Dorado, Arkansas
CORPORATE HEADQUARTERS
Main and Washington Streets
El Dorado, Arkansas 71730
COMMON STOCK
NASDAQ Symbol: UNTD
Listed: NASDAQ System National Market List
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Jackson, Mississippi
FINANCIAL AND GENERAL INFORMATION
First United's Annual Report to the Securities
and Exchange Commission on Form 10-K is
available upon request. Additional copies
and other financial reports or information are
available without charge upon request by writing:
Cynthia C. Alphin, First United Bancshares, Inc.,
P. O. Box 751, El Dorado, Arkansas 71731-0751
STOCKHOLDER INFORMATION
Stockholders seeking any information concerning their shares or
dividends should contact the transfer agent, First United Trust
Company, N.A., as follows:
ATTN: First United Trust Company, N.A.,
P. O. Box 751, El Dorado, Arkansas 71731-0751,
Telephone (870) 863-3181, Extension 242.
NASDAQ MARKET MAKERS IN FIRST UNITED STOCK
J. C. Bradford & Company
Edward D. Jones & Company
Morgan Keegan & Company
Stephens Inc.
Stifel, Nicolaus & Company
41
<PAGE> 44
FIRST UNITED BANCSHARES, INC.
EL DORADO, ARKANSAS
AND ITS WHOLLY-OWNED SUBSIDIARIES
First National Bank of El Dorado, Arkansas
City National Bank of Fort Smith, Arkansas
First National Bank of Magnolia,Arkansas
Merchants and Planters Bank, N.A. of Camden, Arkansas
Commercial Bank at Alma, Arkansas
The Bank of North Arkansas, Melbourne, Arkansas
First United Bank, Stuttgart, Arkansas
FirstBank, Texarkana, Texas
Fredonia State Bank, Nacogdoches, Texas
City Bank & Trust, Shreveport, Louisiana
Citizens National Bank, Hope, Arkansas
Peoples Bank & Loan Company, Lewisville, Arkansas
First Republic Bank, Monroe, Louisiana
First United Trust Company, N.A.
<PAGE> 45
APPENDIX
TO THE
1998 ANNUAL REPORT TO STOCKHOLDERS
This Appendix is provided in accordance with Regulation S-T, Item 304.
Graphic and Image Material. It shall list all such graphic and image information
in the First United Bancshares, Inc. ("First United") 1998 Annual Report to
Stockholders ("Report") and is intended to provide a fair and accurate narrative
description of such information.
1. The Cover Page of the Report is titled "First United Bancshares,
Inc. 1998 Annual Report"
2. Page 3 of the Report contains a bar graph titled "Earnings Per
Share" which discloses First United's earnings per share (in dollars) of $0.87,
$0.96, $1.11, $1.02 and $1.20 for the years ended December 31, 1994, 1995,1996,
1997 and 1998, respectively.
3. Page 4 of the Report contains a double bar graph titled "Book
Value-Market Value at Year End (Dollars)" which discloses the book value of a
share of First United common stock to be $6.53, $7.86, $8.60, $9.27 and $10.11
for the years ended December 31, 1994, 1995,1996, 1997 and 1998, respectively.
The graph also discloses the market value of a share of First United common
stock to be $9.83, $13.83, $16.50, $21.00 and $17.75 for the years ended
December 31, 1994, 1995,1996, 1997 and 1998, respectively.
4. Page 4 of the Report contains a line graph titled "Interest Margin
Analysis" which discloses the "Break-Even Yield", "Net Interest Margin" and "Net
Interest Spread". The Break-Even Yield" is disclosed as 3.78%, 3.74%, and 3.66%,
the Net Interest Margin" is disclosed as 4.32%, 4.43%, and 4.34%, the "Net
Interest Spread" is disclosed as 3.52%, 3.60%, and 3.45%, for the years ended
December 31, 1996, 1997, and 1998, respectively.
5. Page 5 of the Report contains a bar graph titled "Loan Loss
Provision" which discloses the dollar amount (in thousands) that has been
allocated to the loan loss reserve account, which is disclosed as $526, $1,361,
$1,443, $5,166 and $3,230, for the years ended December 31, 1994, 1995, 1996,
1997, and 1998, respectively.
6. Page 6 of the Report contains a line graph titled "Non-Performing
Assets and Allowance for Loan Losses" which discloses (in thousands) the
"Non-Performing Assets" as $7,307, $8,608, $8,687, $9,623 and $12,056, the
"Non-Performing Loans" as, $5,855, $7,165, $7,514, $8,640 and $10,657, and the
"Allowance for Loan Losses" as $14,291, $15,259, $14,951, $17,694 and $17,302,
for the years ended December 31, 1994, 1995, 1996, 1997, and 1998, respectively.
7. Page 9 of the Report contains a graph titled "Average 1998 Deposit
Composition" which discloses the make-up of the deposits as 24.14% of "Savings
and Interest-Bearing Demand" deposits, 42.96% of "Other Time Deposits", 15.67%
of "Non-Interest Bearing Demand" deposits and 17.23% of "Time Deposits of
$100,000 or More".
8. Page 10 of the Report contains a bar graph titled "Stockholders
Equity at Year-End" which discloses the shareholders equity (in millions) as
approximately $152,975, $182,600, $210,099, $234,549 and $255,633, for the years
ended December 31, 1994, 1995, 1996, 1997, and 1998, respectively.
9. Page 11 of the Report contains a graph titled "1998 Risked Based
Capital Ratios" which discloses "Tier 1 Capital" and "Total Risk-Based Capital"
of First United as 16.04% and 17.19% respectively, and the regulatory
requirements of "Tier 1 Capital" and "Total Risked-Based Capital" as 4.00% and
8.00%, respectively.
<PAGE> 46
[AXLEY & RODE LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fredonia Bancshares, Inc.
Nacogdoches, Texas
We have audited the consolidated balance sheets of Fredonia Bancshares,
Inc. and Subsidiary at December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits 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 provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Fredonia Bancshares, Inc. and Subsidiary at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed more fully in Note 10, Fredonia Bancshares, Inc. has
adopted the accrual method of accounting for certain salary continuation
agreements. Previously the Bank accounted for these agreements using the cash
basis method of accounting.
AXLEY & RODE LLP
/s/ Axley & Rode LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Lufkin, Texas
February 20, 1997
<PAGE> 47
[FRAZER, MINCHEW, ROBINSON, GARDNER and LANGSTON LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
FIRST REPUBLIC BANCSHARES, INC.
AND SUBSIDIARIES
RAYVILLE, LOUISIANA
We have audited the accompanying consolidated balance sheets of First Republic
Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Republic Bancshares, Inc. and its Subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Frazer, Minchew, Robinson, Gardner and Langston, CPAs
---------------------------------------------------------
FRAZER, MINCHEW, ROBINSON, GARDNER AND LANGSTON, CPAS
FEBRUARY 14, 1997
<PAGE> 48
Independent Auditor's Report
Board of Directors
Citizens National Bancshares, Inc.
Hope, Arkansas
We have audited the accompanying consolidated balance sheets of
Citizens National Bancshares, Inc. as of December 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of Bancshares' management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Citizens National Bancshares, Inc. as of December 31, 1997, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Moore Stephens Frost
Certified Public Accountants
Little Rock, Arkansas
January 16, 1998
<PAGE> 1
EXHIBIT 21
FIRST UNITED BANCSHARES, INC.
Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
The First National Bank United States
of El Dorado, El Dorado
Arkansas
First United Trust Company, N.A. United States
El Dorado, Arkansas
City National Bank United States
of Fort Smith, Fort Smith
Arkansas
First National Bank United States
of Magnolia, Magnolia
Arkansas
Merchants and Planters Bank United States
N.A., Camden, Arkansas
Citizens National Bank of Hope United States
Hope, Arkansas
Commercial Bank at Alma Arkansas
Alma, Arkansas
The Bank of North Arkansas Arkansas
Melbourne, Arkansas
First United Bank Arkansas
Stuttgart, Arkansas
Peoples Bank & Loan Company Arkansas
Lewisville, Arkansas
City Bank & Trust of Shreveport Louisiana
Shreveport, Louisiana
First Republic Bank Louisiana
Rayville, Louisiana
FirstBank Texas
Texarkana, Texas
Fredonia State Bank Texas
Nacogdoches, Texas
</TABLE>
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated January 19, 1999 included in the First United Bancshares, Inc.
Form 10-K for the year ended December 31, 1998, into the Company's previously
filed Registration Statement on Form S-8 (File No. 033-56387).
ARTHUR ANDERSEN LLP
Jackson, Mississippi
March 29, 1999.
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of
our report dated February 20, 1997 included in the First United Bancshares,
Inc. Form 10-K for the year ended December 31, 1998, into the Company's
previously filed Registration Statement on Form S-8 (File No. 033-56387).
/s/ Axley & Rode LLP
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
March 24, 1999
Lufkin, Texas
<PAGE> 1
EXHIBIT 23(c)
CONSENT OF FRAZER, MINCHEW, ROBINSON, GARDNER AND LANGSTON, CPAs
As certified public accountants, we hereby consent to the
incorporation of our reports dated February 14, 1997 included in the First
United Bancshares, Inc. Form 10-K for the year ended December 31, 1998, and
into the Company's previously filed Statement on Form S-8 (File No. 033-56387).
/s/ Frazer, Minchew, Robinson, Gardner & Langston
FRAZER, MINCHEW, ROBINSON, GARDNER & LANGSTON, CPAS
Monroe, Louisiana
March 24, 1999
<PAGE> 1
EXHIBIT 23(d)
CONSENT OF MOORE STEPHENS FROST, INDEPENDENT ACCOUNTANTS
We consent to the incorporation of our report, dated January 16, 1998
included in the First United Bancshares, Inc.'s (the "Company") Form 10-K for
the year ended December 31, 1998.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 033-56387), pertaining to certain employee benefit plans
of the Company of the report included in this Form 10-K.
/s/ Moore Stephens Frost
Moore Stephens Frost
Little Rock, Arkansas
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
CONDITION AND STATEMENT OF INCOME.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 91,207
<INT-BEARING-DEPOSITS> 15,696
<FED-FUNDS-SOLD> 71,928
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 684,662
<INVESTMENTS-CARRYING> 226,083
<INVESTMENTS-MARKET> 228,614
<LOANS> 1,359,485
<ALLOWANCE> 17,302
<TOTAL-ASSETS> 2,516,457
<DEPOSITS> 2,133,951
<SHORT-TERM> 82,470
<LIABILITIES-OTHER> 18,036
<LONG-TERM> 26,367
0
0
<COMMON> 25,294
<OTHER-SE> 230,339
<TOTAL-LIABILITIES-AND-EQUITY> 2,516,457
<INTEREST-LOAN> 120,035
<INTEREST-INVEST> 51,846
<INTEREST-OTHER> 5,335
<INTEREST-TOTAL> 177,216
<INTEREST-DEPOSIT> 77,639
<INTEREST-EXPENSE> 82,806
<INTEREST-INCOME-NET> 94,410
<LOAN-LOSSES> 3,230
<SECURITIES-GAINS> 444
<EXPENSE-OTHER> 66,218
<INCOME-PRETAX> 43,220
<INCOME-PRE-EXTRAORDINARY> 43,220
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,268
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 8.00
<LOANS-NON> 6,777
<LOANS-PAST> 2,812
<LOANS-TROUBLED> 1,068
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,694
<CHARGE-OFFS> 5,670
<RECOVERIES> 2,048
<ALLOWANCE-CLOSE> 17,302
<ALLOWANCE-DOMESTIC> 17,302
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
