<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
------------------
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended:
March 31, 1999
Commission file number: 0-11916
FIRST UNITED BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Arkansas 71-0538646
(State of Incorporation) (I.R.S. Employer
Identification No.)
Main and Washington Streets
El Dorado, Arkansas 71730
(Address of principal executive offices) (Zip Code)
(870) 863-3181
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at May 1, 1999 was 25,294,296.
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<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
MARCH 31, 1998
INDEX
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition, March 31, 1999 and
December 31, 1998. 3
Consolidated Statements of Income for the Three Months Ended
March 31, 1999 and 1998. 4
Consolidated Statements of Cash Flow for the Three Months Ended
March 31, 1999 and 1998. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management`s Discussion and Analysis of Financial Condition and
Results of Operation. 7 - 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Change in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures
16
</TABLE>
2
<PAGE> 3
Part I. FIRST UNITED BANCSHARES, INC.
Item 1 CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
(In thousands, except per share data)
ASSETS
Cash and Due From Banks ........................................................ $ 85,956 $ 91,207
Short-Term Investments ........................................................
Federal Funds Sold and Securities Purchased
Under Agreement to Resell .................................................. 74,873 71,928
Other Short-Term Investments ................................................. 23,453 15,696
----------- -----------
Total Short-Term Investments ................................................... 98,326 87,624
Securities Available-for-Sale .................................................. 689,829 684,662
Investment Securities .......................................................... 212,254 226,083
Total Loans .................................................................... 1,352,135 1,359,485
Unearned Discount ............................................................ (5,588) (6,324)
Allowance for Loan Losses .................................................... (17,786) (17,302)
----------- -----------
Net Loans ................................................................... 1,328,761 1,335,859
Premises and Equipment ......................................................... 42,691 42,739
Goodwill ....................................................................... 10,259 10,674
Other Real Estate .............................................................. 1,324 1,399
Other Assets ................................................................... 36,116 36,210
----------- -----------
Total Assets ................................................................ $ 2,505,516 $ 2,516,457
=========== ===========
LIABILITIES
Deposits:
Demand
Savings and Interest-Bearing Demand .......................................... $ 328,126 $ 338,414
Time ......................................................................... 589,139 588,311
Total Deposits .............................................................. 1,214,497 1,207,226
----------- -----------
Federal Funds Purchased and Securities Sold Under .............................. 2,131,762 2,133,951
Agreements to Repurchase
Other Liabilities .............................................................. 72,377 82,470
Notes Payable .................................................................. 20,196 18,036
Total Liabilities ........................................................... 22,984 26,367
=========== ===========
2,247,319 2,260,824
----------- -----------
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 1999 and 1998;
none outstanding)
Common Stock (Par value of $1.00; 50,000 shares authorized; .................... -0- -0-
25,294 shares outstanding in 1999 and 1998)
Surplus ........................................................................ 25,294 25,294
Undivided Profits .............................................................. 26,610 26,610
Accumulated Other Comprehensive Income ......................................... 205,922 200,769
Total Capital Accounts ...................................................... 371 2,960
----------- -----------
Total Liabilities and Capital Accounts ...................................... 258,197 255,633
----------- -----------
$ 2,505,516 $ 2,516,457
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands, except per share data) 1999 1998
------- -------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ..................................................... $30,164 $28,506
Interest on Securities:
Taxable Securities ........................................................... 11,335 12,117
Nontaxable Securities ........................................................ 1,870 1,631
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ......................................................... 782 778
Interest on Deposits in Banks .................................................. 204 302
======= =======
TOTAL INTEREST INCOME ...................................................... 44,355 43,334
------- -------
INTEREST EXPENSE
Interest on Deposits ........................................................... 18,925 18,865
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ..................................................... 835 1,000
Interest on Notes Payable ...................................................... 347 348
------- -------
TOTAL INTEREST EXPENSE ..................................................... 20,107 20,213
------- -------
NET INTEREST INCOME ........................................................ 24,248 23,121
Provision for Possible Loan Losses ............................................. 688 317
======= =======
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................................................. 23,560 22,804
------- -------
OTHER INCOME
Service Charges on Deposit Accounts ............................................ 2,395 2,256
Trust Fee Income ............................................................... 619 526
Security Gains (Losses) ........................................................ 187 102
Other Operating Income ......................................................... 1,577 1,495
======= =======
TOTAL OTHER INCOME ......................................................... 4,778 4,379
------- -------
OTHER EXPENSE
Salaries ....................................................................... 6,970 6,494
Pension and Other Employee Benefits ............................................ 2,138 2,123
Net Occupancy Expense .......................................................... 1,267 1,224
Equipment Expense .............................................................. 1 069 978
Data Processing Expense ........................................................ 1,179 1,010
Other Operating Expenses ....................................................... 4,027 4,116
------- -------
TOTAL OTHER EXPENSE ........................................................ 16,650 15,945
------- -------
INCOME BEFORE INCOME TAXES ..................................................... 11,688 11,238
INCOME TAX EXPENSE ............................................................. 3,565 3,064
------- -------
NET INCOME ................................................................. $ 8,123 $ 8,174
======= =======
EARNINGS PER SHARE ............................................................. $ 0.32 $ 0.32
======= =======
BASIC .......................................................................... $ 0.32 $ 0.32
======= =======
DILUTED ........................................................................ $ 0.32 $ 0.32
======= =======
CASH DIVIDENDS PER SHARE ....................................................... $ 0.115 $ 0.10
======= =======
AVERAGE SHARES ISSUED AND OUTSTANDING .......................................... 25,294 25,294
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
--------- ---------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................................... $ 8,123 $ 8,174
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation ................................................. 1,026 996
Amortization of Goodwill ..................................... 321 313
Provision for Possible Loans Losses .......................... 688 317
Provision for Deferred Taxes ................................. 253 (78)
Gain on Sales of Securities .................................. (187) (102)
Accretion of Bond Discount, Net .............................. (439) (48)
(Increase) Decrease in Other Assets .......................... 169 995
Increase (Decrease) in Other Liabilities ..................... (614) (4,500)
--------- ---------
Net Cash Provided by Operating Activities ....................... 9,340 6,067
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities .............. 18,243 24,924
Proceeds from Maturities of Securities Available-for-Sale ...... 84,294 98,557
Proceeds from Sales of Securities Available-for-Sale ........... 18,524 1,748
Purchase of Investment Securities .............................. (6,854) (7,028)
Purchase of Available-for-Sale Securities ...................... (108,011) (72,693)
Increase (Decrease) in Federal Funds, Net ...................... (13,038) (31,807)
(Increase) Decrease in Other Short-Term Investments ............ (7,757) 3,859
(Increase) Decrease in Loans ................................... 6,610 (30,137)
Capital Additions .............................................. (978) (764)
========= =========
Net Cash Used in Investing Activities ........................... (8,967) (13,341)
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings and Interest-bearing
Demand Deposits ............................................ (9,460) 21,845
Increase (Decrease) in Time Deposits ............................ 7,271 10,745
Repayment of Notes Payable ..................................... (527) (81)
Dividends Paid ................................................. (2,908) (2,529)
Net Cash Provided by (Used in) Financing Activities ............. (5,624) 29,980
Net Increase (Decrease) in Cash and Cash Equivalents ............ (5,251) 22,706
Cash and Cash Equivalents, Beginning ............................ 91,207 83,291
--------- ---------
Cash and Cash Equivalents, Ending ............................... $ 85,956 $ 105,997
========= =========
</TABLE>
5
<PAGE> 6
FIRST UNITED BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of First United Bancshares, Inc.
("First United") include the accounts of the parent company and its wholly-owned
subsidiaries, First United Trust Company, N.A. (El Dorado, Arkansas), The First
National Bank of El Dorado (El Dorado, Arkansas), First National Bank of
Magnolia (Magnolia, Arkansas), Merchants and Planters Bank, N.A. of Camden
(Camden, Arkansas), City National Bank of Fort Smith (Fort Smith, Arkansas),
Commercial Bank at Alma (Alma, Arkansas), The Bank of North Arkansas (Melbourne,
Arkansas), FirstBank (Texarkana, Texas), First United Bank (Stuttgart,
Arkansas), Fredonia State Bank (Nacogdoches, Texas), City Bank & Trust of
Shreveport (Shreveport, Louisiana), The Citizens National Bank of Hope (Hope,
Arkansas), Peoples Bank & Loan Company (Lewisville, Arkansas), and First
Republic Bank (Rayville, Louisiana). All material intercompany transactions have
been eliminated.
The consolidated statements of condition as of March 31, 1999 and the
related consolidated statements of income for the three month period ended March
31, 1999 and 1998 and the consolidated statements of cash flows for the three
month period ended March 31, 1999 and 1998 are unaudited; in the opinion of
management, all adjustments necessary for a fair presentation of the financial
statements are included.
2. BUSINESS COMBINATIONS
On April 8, 1999, Peoples Bank & Loan Company was merged with and into
The Citizens National Bank of Hope. First United acquired both Peoples Bank &
Loan Company and The Citizens National Bank of Hope on March 30, 1998.
3. RESULTS OF OPERATIONS
The results for the three month period ended March 31, 1999 are not
necessarily indicative of the results for the entire year of 1999. This report
should be read in conjunction with First United's 1998 Annual Report to
Shareholders for a complete understanding of First United's accounting policies
and their effect on the financial statements as a whole.
4. CAPITAL ACCOUNTS
On May 26, 1998, First United declared a two-for-one stock split. The
additional shares were issued on June 30, 1998 to shareholders of record on June
1, 1998. All per share data and number of shares outstanding have been
retroactively restated to reflect the effect of this stock split.
Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding of 25,294,296 for 1999 and 1998. 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
34,000 in 1999 and 69,000 in 1998.
5. COMPREHENSIVE INCOME (LOSS)
In January 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The Company's comprehensive income, which includes net
income and the change
6
<PAGE> 7
in unrealized gain (loss) on securities available for sale, net of tax, was
$5.53 million and $8.28 million for the quarters ended March 31, 1999 and 1998,
respectfully.
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the three months ended March 31,
1999 and 1998 amounted to $202,000 and $167,000 respectively.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and review of First United Bancshares, Inc.
("First United") and its subsidiaries. The First National Bank of El Dorado
("El Dorado"), City National Bank of Fort Smith ("Ft. Smith"), First National
Bank of Magnolia ("Magnolia"), Merchants and Planters Bank, N.A. of Camden
("Camden"), Commercial Bank at Alma ("Alma"), The Bank of North Arkansas
("Melbourne"), FirstBank ("Texarkana"), First United Bank ("Stuttgart"), First
United Trust Company, N.A. ("FUTC"), Fredonia State Bank ("Nacogdoches"), City
Bank & Trust of Shreveport ("Shreveport"), The Citizens National Bank of Hope
("Hope"), Peoples Bank & Loan Company ("Lewisville"), and First Republic Bank
("Republic"), focuses on the results from operations which are not otherwise
apparent from the consolidated financial statements. Reference should be made
to these financial statements and the notes to the financial statements for an
understanding of this review and discussion.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1999 was $8.12 million,
or $.32 per share compared with $8.17 million or $.32 per share during the same
period in 1998. The annualized return on average assets from continuing
operations for the three months ended March 31, 1999 and 1998 was 1.32% and
1.41% respectively, while the annualized return on average equity was 13.02% and
14.23% respectively for the same periods.
NET INTEREST INCOME
Net interest income, the principal source of earnings, is the
difference between the income generated by earning assets and the total interest
cost of the funds obtained to carry them. Net interest income, as referred to in
this discussion, is on a fully tax-equivalent basis, which adjusts for the
tax-exempt status of income earned on certain loans and investments. The
reported interest income for the tax-free assets is increased by the amount of
tax savings less the nondeductible portion of interest expense incurred to
acquire the tax-free assets. Net interest income is affected by variations in
both interest rates and the volume of interest-earning assets and
interest-bearing liabilities.
On a tax equivalent basis, net interest income for the first three
months of 1999 was $25.34 million compared with $24.00 million in the first
three months of 1998. Net interest income also increased when compared with
1997. This increase in net interest income was primarily the result of higher
loan volumes. The net interest margin through March 31, 1999 was 4.40% compared
with 4.34% and 4.43% for the years ended December 31, 1998 and 1997,
respectively. First United expects no material change in the net interest margin
through the remainder of 1999.
First United has debt of approximately $22.98 million at March 31, 1999
and interest expense associated with this debt totaled $.35 million during the
first three months of 1999 compared with $.35 million during the same period in
1998. First United will make a principal payment of $1.10 million on its
installment note payable to an unaffiliated bank in November
7
<PAGE> 8
of this year. These borrowings contain financial covenants relating to the
issuance of additional debt and maintenance of minimum tangible net worth. First
United's $5.00 million note payable to an unaffiliated company matures in August
of 1999. Interest is payable quarterly on both notes.
Pursuant to the Interest Rate Control Amendment to the Constitution of
the State of Arkansas, "consumer loans and credit sales" have a maximum
limitation of 17% per annum and all "general loans" have a maximum limitation of
5% over the Federal Reserve Discount Rate in effect at the time the loan was
made. The Arkansas Supreme Court has determined that "consumer loans and credit
sales" are "general loans" and are subject to the limitation of 5% over the
Federal Reserve Discount Rate as well as a Maximum limitation of 17% per annum.
As a general rule, the Company and its subsidiary banks are required to comply
with the Arkansas usury laws on loans made within the State of Arkansas.
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
-------- ---- ----
<S> <C> <C> <C>
Yield on Earning Assets 7.88 8.00 8.17
Break-even Yield 3.48 3.66 3.74
Net Interest Margin 4.40 4.34 4.43
Net Interest Spread 3.57 3.45 3.60
</TABLE>
LOANS AND LEASES
First United's gross loans and leases totaled $1.35 billion at March
31, 1999 compared with $1.36 billion at December 31, 1998. The Company has no
foreign loans or leases and it is the policy of the Company to avoid out of
territory loans.
A sound credit policy combined with periodic and independent credit
reviews is the key factor of the credit risk management program. All affiliate
banks operate under written loan policies that help maintain a consistent
lending function and provide sound credit decisions. Credit decisions continue
to be based on the borrower's cash flow position and the value of the underlying
collateral, as well as other relevant factors. Each bank is responsible for
evaluating its loans to identify those credits beginning to show signs of
deterioration so that prompt corrective action may be taken. In addition, a loan
review staff operates independently of the affiliate banks. This review team
performs periodic examinations of each bank's loans and related documentation.
Results of these examinations are reviewed with the Chairman and Chief Executive
Officer, the management and board of the respective affiliate banks and the
Audit Committees.
The following table lists those loans and leases by type which are on
non-accrual status; loans by type 90 days or more past due and still accruing;
renegotiated loans by type and loans transferred to other real estate:
8
<PAGE> 9
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
(In thousands) Non-performing loans:
Non-accrual loans:
Commercial & Financial $ 2,719 $ 3,020 $ 1,570
Real Estate 4,551 3,236 2,010
Consumer 580 521 365
------- ------- -------
$ 7,850 $ 6,777 $ 3,945
Past due 90 days or more:
Commercial $ 1,123 $ 1,225 $ 1,235
Real Estate 1,013 1,293 2,034
Consumer 271 294 548
------- ------- -------
$ 2,407 $ 2,812 $ 3,817
------- ------- -------
Renegotiated Commercial
Loans: $ 831 $ 1,068 $ 878
------- ------- -------
Total non-performing Loans: $11,088 $10,657 $ 8,640
Other Real Estate, Net 1,542 1,399 983
Total non-performing
Assets: $12,630 $12,056 $ 9,623
======= ======= =======
Non-Performing Loans as a %
of Outstanding Loans .82% .78% .71%
Non-Performing Assets as a
% of Equity Capital 4.90% 4.72% 4.10%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of March
31, 1999.
Management remains committed to reducing the level of non-performing
assets and to minimize future risks by continuous review of the loan portfolio.
ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan losses represents management's evaluation of the
overall loan portfolio quality and loss experience. During management's periodic
review of the provision throughout each quarter, the amount to be provided is
determined by the level of net charge-offs, the size of the loan portfolio, the
non-performing assets, anticipated and current economic conditions and specific
reviews of performing and non-performing loans.
During the first three months of 1999 First United made provisions for
loan losses of $.69 million compared with $.32 million for the same period in
1998. Total non-performing loans increased $.43 million from $10.66 million at
December 31, 1998 to $11.09 million at March 31, 1999. Net charge-offs through
March 31, 1999 totaled $.20 million.
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
1999 1998 1997
-------- ----- -----
<S> <C> <C> <C>
Allowance as a percentage of total
loans and leases 1.32% 1.27% 1.45%
</TABLE>
9
<PAGE> 10
The allowance for loan losses as a percentage of non-performing loans
was approximately 160% at March 31, 1999 compared with 162% at December 31,
1998.
The allocation of the allowance for loan losses by major categories of
loans is as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
(In thousands)
Commercial & Financial $ 3,656 $ 3,916 $ 4,721
Real Estate 4,103 3,785 3,949
Consumer 1,956 2,316 2,534
Unallocated 8,071 7,285 6,490
------- ------- -------
Total $17,786 $17,302 $17,694
======= ======= =======
</TABLE>
NON-INTEREST INCOME
Management continues to emphasize the growth of non-interest income in
providing new revenue to the income stream. Future profitability depends upon
income derived from providing loan and deposit services, discount brokerage
fees, trust service income, mortgage service fees and service charges on deposit
accounts.
The table represented below is a comparison of the dollar and
percentage change for each component of non-interest income:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
1999 1998 $ %
------ ------ ------ ------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Service Charges on Deposit
Accounts $2,395 $2,256 $ 139 6.16%
Trust Income 619 526 93 17.68%
Security Gains (Losses) 187 102 85 83.33%
Other Income 1,577 1,495 82 5.48%
------ ------ ------ -----
Total Other Income $4,778 $4,379 $ 399 9.11%
====== ====== ====== =====
</TABLE>
Excluding security gains and losses, non-interest income increased
approximately $.31 million when comparing 1999 with 1998 results. First United
is focusing on non-interest income revenues and opportunities to increase fee
income.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(In thousands)
Market Value $689,829 $684,662 $664,482
Amortized Cost 689,296 680,107 660,599
-------- -------- --------
Difference $ 533 $ 4,555 $ 3,883
======== ======== ========
</TABLE>
10
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INVESTMENT SECURITIES
During the first three months of 1999, First United had security gains
of approximately $.19 million.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
(In thousands)
Market Value $214,417 $228,614 $239,766
Amortized Cost 212,254 226,083 237,424
-------- -------- --------
Difference $ 2,163 $ 2,531 $ 2,342
======== ======== ========
</TABLE>
At March 31, 1999, First United's securities portfolio classified as
Investment Securities was composed primarily of municipal and short-term fixed
rate CMO securities.
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of First United's
major objectives. Non-interest expenses include salaries, employee benefits,
occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Change
1999 1998 $ %
------- ------- ------- -----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $ 6,970 $ 6,494 $ 476 7.33%
Pension and Employee Benefits 2,138 2,123 15 .71%
Net Occupancy Expense 1,267 1,224 43 3.51%
Equipment Expense 1,069 978 91 9.30%
Data Processing Expense 1,179 1,010 169 16.73%
Other Operating Expense 4,027 4,116 (89) (2.16)%
------- ------- ------- -----
Total Non-Interest Expense $16,650 $15,945 $ 705 4.42%
======= ======= ======= =====
</TABLE>
INCOME TAXES
The effective tax rate of First United for the three month period ended
March 31, 1999 was 30.50% compared to 27.26% for the same period in 1998.
CAPITAL AND LIQUIDITY
The assessment of capital adequacy depends primarily on a number of
factors which include asset quality, liquidity, stability of earnings, changing
competitive forces, economic conditions in the various markets served and
strength of management. Management of capital focuses on achieving the rate of
return for shareholders while following guidelines set forth by bank regulators.
First United's equity capital totaled $258.20 million at March 31,
1999, compared to the December 31, 1998 level of $255.63 million. The growth and
retention of earnings continues to be First United's primary source of
additional capital.
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<PAGE> 12
Currently, First United does not have any plans for issuing subordinated notes
and First United has not issued any new common or preferred stock during the
past twelve months.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998 1997
-------- ----- -----
<S> <C> <C> <C>
Equity Capital to Total Assets 10.29% 10.05% 9.86%
Primary Capital to Total Assets 10.92% 10.66% 10.53%
</TABLE>
The table presented below is a comparison of First United's capital
position with regulatory requirement:
<TABLE>
<CAPTION>
March 31,
1999 Regulatory
-------- ----------
<S> <C> <C>
Total Capital/Total Assets
Primary Capital/Total Assets 10.92% 5.50%
Total Risk Based Capital 17.97% 8.00%
Tier 1 Capital 16.72% 4.00%
Leverage Ratio 9.92% 3.00%
</TABLE>
Note: Unrealized gains on securities available-for-sale have been excluded when
computing capital ratios.
Liquidity management is concerned with meeting the cash requirements of
customers, including the withdrawal of funds by depositors or drawing down of
approved lines of credit and commitments by borrowers. First United is aided
significantly in meeting its short term liquidity needs by its strong capital
position, its high rate of internal capital generation and its level of loan
loss reserves.
DIVIDEND POLICY
First United strives to maintain a balance between the retention of
earnings for the support of growth and expansion and a dividend payout that
meets the required return for investors. First United anticipates continuing its
policy of regular cash dividends, although there is no assurance as to future
increases in dividends because they are dependent upon future earnings, capital
requirements and economic conditions.
The following table sets forth the dividend payout ratio for the last
two years and for the three months ended March 31, 1999:
<TABLE>
<CAPTION>
March 31, Year Ended,
1999 1998 1997
-------- ----- -----
<S> <C> <C> <C>
Dividend payout ratio 35.80% 36.92% 38.28%
</TABLE>
12
<PAGE> 13
ASSET - LIABILITY MANAGEMENT
First United, like most financial institutions, provides for the
relative stability in profits and the control in interest rate risk through
asset-liability management. An important element of asset-liability management
is the analysis and examination of the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap." An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
that time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets expected to mature or reprice
within a time period and the amount of interest-bearing liabilities expected to
mature or reprice within that same time period. A gap is considered negative
when the amount of interest rate sensitive liabilities maturing within a
specific time frame exceeds the amount of interest rate sensitive assets
maturing within that same time frame. During a period of falling interest rates,
a negative gap tends to result in an increase in net interest income. Whereas in
a rising interest rate environment, an institution with a negative gap could
experience the opposite results.
First United continually monitors its asset-liability position in order
to maximize profits and minimize interest rate risk. Additionally, First United
can reduce the impact that changing interest rates have on earnings and adapt to
changes in the economic environment by closely monitoring its Statement of
Condition. There have been no material changes in First United's asset-liability
position since December 31, 1998. At March 31, 1999, 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.
FORWARD LOOKING STATEMENTS
This 10-Q contains forward looking statements based on current
expectations that involve a number of risks and uncertainties. The factors that
could cause actual results to differ materially from those we are projecting
include the following: general economic conditions; competitive factors and
pricing pressure; changes in product mix; changes in interest risks; and the
risk factors listed from time to time in the company's SEC reports, including
but not limited to the report on Form 10-Q for the quarter ended March 31, 1999.
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, and the testing of
the remainder of the banks was 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
13
<PAGE> 14
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 had 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> 15
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
Not Applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
Item 5. OTHER MATTERS
On March 22, 1999, John G. Copeland joined First United as
Senior Vice President and Chief Financial Officer. His responsibilities
will include long-range planning, mergers and acquisitions, corporate
accounting and shareholder relations. Mr. Copeland has twenty-four
years of experience in banking. In his most recent position, he was
Vice President of the Financial Division of Union Planters Corporation
in Memphis, Tennessee. Mr. Copeland received his bachelor's degree from
the University of Memphis, Memphis, Tennessee. He is a Certified Public
Accountant. In addition, Mr. Copeland is a member of the American
Institute of CPAs and the Tennessee Society of CPAs.
On April 8, 1999, Peoples Bank & Loan Company was merged with
and into The Citizens National Bank of Hope. First United acquired both
Peoples Bank & Loan Company and The Citizens National Bank of Hope on
March 30, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated
by reference to previously filed material.
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule
Reports on Form 8-K
-------------------
Not Applicable.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST UNITED BANCSHARES, INC.
BY /s/ James V. Kelley
-------------------------------------------------
James V. Kelley
Chairman, President and Chief
Executive Officer
BY /s/ John G. Copeland
-------------------------------------------------
John G. Copeland
Senior Vice President, Chief Financial Officer
and Principal Accounting Officer
Date: May 13, 1999
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 85,956
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 74,873
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 689,829
<INVESTMENTS-CARRYING> 212,254
<INVESTMENTS-MARKET> 214,417
<LOANS> 1,352,135
<ALLOWANCE> 17,786
<TOTAL-ASSETS> 2,505,516
<DEPOSITS> 2,131,762
<SHORT-TERM> 72,377
<LIABILITIES-OTHER> 20,196
<LONG-TERM> 22,984
0
0
<COMMON> 25,294
<OTHER-SE> 232,903
<TOTAL-LIABILITIES-AND-EQUITY> 2,505,516
<INTEREST-LOAN> 30,164
<INTEREST-INVEST> 13,205
<INTEREST-OTHER> 986
<INTEREST-TOTAL> 44,355
<INTEREST-DEPOSIT> 18,925
<INTEREST-EXPENSE> 20,107
<INTEREST-INCOME-NET> 24,248
<LOAN-LOSSES> 688
<SECURITIES-GAINS> 187
<EXPENSE-OTHER> 16,650
<INCOME-PRETAX> 11,688
<INCOME-PRE-EXTRAORDINARY> 11,688
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,123
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
<YIELD-ACTUAL> 7.88
<LOANS-NON> 7,850
<LOANS-PAST> 2,407
<LOANS-TROUBLED> 831
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,302
<CHARGE-OFFS> 549
<RECOVERIES> 345
<ALLOWANCE-CLOSE> 17,786
<ALLOWANCE-DOMESTIC> 17,786
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
