<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:
June 30, 2000
Commission file number: 0-11916
FIRST UNITED BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Arkansas 71-0538646
(State of Incorporation) (I.R.S. Employer
Identification No.)
Main and Washington Streets
El Dorado, Arkansas 71730
(Address of principal executive offices) (Zip Code)
(870) 863-3181
(Registrant's telephone number, including area code)
----------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of registrant's common stock, par value $1.00
per share, at August 1, 2000 was 25,297,444.
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<PAGE> 2
FIRST UNITED BANCSHARES, INC.
FORM 10-Q
JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Condition, June 30, 2000
and December 31, 1999. 3
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 2000 and 1999. 4
Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 2000 and 1999. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7-13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
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>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
(In thousands, except per share data)
ASSETS
Cash and Due From Banks .......................................... $ 93,961 $ 113,476
Short-Term Investments
Federal Funds Sold and Securities Purchased
Under Agreement to Resell .................................... 13,193 45,875
Other Short-Term Investments ................................... 5,541 5,384
----------- -----------
Total Short-Term Investments ..................................... 18,734 51,259
Securities Available-for-Sale .................................... 739,850 728,779
Investment Securities ............................................ 188,336 196,407
Total Loans ...................................................... 1,554,341 1,492,356
Unearned Discount .............................................. (3,024) (3,953)
Allowance for Loan Losses ...................................... (19,181) (18,675)
----------- -----------
Net Loans .................................................... 1,532,136 1,469,728
Premises and Equipment ........................................... 42,483 42,689
Goodwill ......................................................... 14,883 15,877
Other Real Estate ................................................ 2,959 3,418
Other Assets ..................................................... 46,027 44,414
----------- -----------
Total Assets ................................................. $ 2,679,369 $ 2,666,047
=========== ===========
LIABILITIES
Deposits:
Demand ......................................................... $ 353,542 $ 352,327
Savings and Interest-Bearing Demand ............................ 611,466 622,326
Time ........................................................... 1,245,742 1,276,978
----------- -----------
Total Deposits ............................................... 2,210,750 2,251,631
Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase ....................................... 151,736 106,951
Other Liabilities ................................................ 10,853 13,509
Notes Payable .................................................... 38,531 34,246
----------- -----------
Total Liabilities ............................................ 2,411,870 2,406,337
=========== ===========
CAPITAL ACCOUNTS
Preferred Stock (Par value of $1.00; 500 shares authorized in 2000
and 1999; none outstanding) .................................... -0- -0-
Common Stock (Par value of $1.00; 50,000 shares authorized;
25,297 and 25,296 shares issued and outstanding in 2000
and 1999, respectively) ....................................... 25,297 25,296
Surplus .......................................................... 26,665 26,636
Undivided Profits ................................................ 231,556 221,832
Accumulated Other Comprehensive Income ........................... (16,019) (14,054)
----------- -----------
Total Capital Accounts ....................................... 267,499 259,710
----------- -----------
Total Liabilities and Capital Accounts ....................... $ 2,679,369 $ 2,666,047
=========== ===========
</TABLE>
3
<PAGE> 4
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ........ $ 34,150 $ 30,241 $ 67,181 $ 60,405
Interest on Securities:
Taxable Securities .............. 12,795 11,556 25,194 22,891
Nontaxable Securities ........... 1,946 1,892 3,876 3,762
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell ............ 445 734 1,232 1,616
Interest on Deposits in Banks ..... 173 244 423 448
-------- -------- -------- --------
TOTAL INTEREST INCOME ......... 49,509 44,667 97,906 89,122
-------- -------- -------- --------
INTEREST EXPENSE
Interest on Deposits .............. 21,376 18,851 42,016 37,776
Interest on Federal Funds Purchased
and Securities Sold Under
Agreements to Repurchase ........ 2,161 996 3,873 1,831
Interest on Notes Payable ......... 228 346 446 693
-------- -------- -------- --------
TOTAL INTEREST EXPENSE ........ 23,765 20,193 46,335 40,300
-------- -------- --------
NET INTEREST INCOME ........... 25,744 24,474 51,571 48,822
Provision for Possible Loan Losses 263 487 1,565 1,275
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES ..... 25,481 23,987 50,006 47,547
-------- -------- -------- --------
OTHER INCOME
Service Charges on Deposit Accounts 2,985 2,630 5,780 5,025
Trust Fee Income .................. 660 645 1,310 1,264
Security Gains .................... (7) 26 153 213
Other Operating Income ............ 1,348 1,417 2,706 2,994
-------- -------- -------- --------
TOTAL OTHER INCOME ............ 4,986 4,718 9,949 9,496
-------- -------- --------
OTHER EXPENSE
Salaries .......................... 7,507 6,964 14,926 13,934
Pension and Other Employee Benefits 2,301 2,152 4,625 4,290
Net Occupancy Expense ............. 1,355 1,291 2,692 2,558
Equipment Expense ................. 1,098 1,109 2,186 2,178
Data Processing Expense ........... 1,000 1,120 2,060 2,299
Merger Related Expense ............ 793 0 793 0
Other Operating Expenses .......... 4,463 4,062 8,802 8,089
-------- -------- -------- --------
TOTAL OTHER EXPENSE ........... 18,517 16,698 36,084 33,348
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ........ 11,950 12,007 23,871 23,695
INCOME TAX EXPENSE ................ 3,887 3,625 7,317 7,190
-------- -------- -------- --------
NET INCOME .................... $ 8,063 $ 8,382 $ 16,554 $ 16,505
======== ======== ======== ========
EARNINGS PER SHARE:
BASIC ......................... $ 0.32 $ 0.33 $ 0.65 $ 0.65
======== ======== ======== ========
DILUTED ....................... $ 0.32 $ 0.33 $ 0.65 $ 0.65
======== ======== ======== ========
CASH DIVIDENDS PER SHARE .......... $ 0.145 $ 0.125 $ 0.27 $ 0.24
======== ======== ======== ========
AVERAGE SHARES ISSUED AND
OUTSTANDING ....................... 25,297 25,294 25,297 25,294
</TABLE>
4
<PAGE> 5
FIRST UNITED BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
--------- ---------
<S> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................... $ 16,554 $ 16,505
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation .......................................... 1,846 2,138
Amortization of Intangible Assets ..................... 994 653
Provision for Possible Loan Losses .................... 1,565 1,175
Provision for Deferred Taxes .......................... 274 0
Gain on Sales of Securities ........................... (342) (213)
Accretion of Bond Discount, Net ....................... (1,186) (752)
Increase in Other Assets .............................. (1,162) (3,662)
Increase (Decrease) in Other Liabilities .............. (2,656) 2,527
--------- ---------
Net Cash Provided by Operating Activities ................ 15,887 18,371
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities ....... 21,258 34,493
Proceeds from Maturities of Securities Available-for-Sale 69,768 459,997
Proceeds from Sales of Securities Available-for-Sale .... 7,664 25,033
Purchase of Investment Securities ....................... (15,187) (17,264)
Purchase of Available-for-Sale Securities ............... (87,176) (567,156)
Increase in Federal Funds, Net .......................... 77,467 65,121
Increase in Other Short-Term Investments ................ (157) (6,834)
Increase in Loans ....................................... (63,973) (15,485)
Capital Additions ....................................... (1,640) (1,773)
--------- ---------
Net Cash Provided by (Used in) Investing Activities ...... 8,024 (23,868)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Demand, Savings and Interest-bearing
Demand Deposits ..................................... (9,645) (26,382)
Increase (Decrease) in Time Deposits .................... (31,236) 16,219
Issuance (Repayment) of Notes Payable ................... 4,285 (736)
Dividends Paid .......................................... (6,830) 6,070
--------- ---------
Net Cash Provided by Financing Activities ................ (43,426) (4,829)
--------- ---------
Net Decrease in Cash and Cash Equivalents ................ (19,515) (10,326)
Cash and Cash Equivalents, Beginning ..................... 113,476 91,207
--------- ---------
Cash and Cash Equivalents, Ending ........................ $ 93,961 $ 80,881
========= =========
</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, Arkansas, First National Bank of Magnolia, Arkansas,
Merchants and Planters Bank, N.A. of Camden, Arkansas, City National Bank of
Fort Smith, Arkansas, The Bank of North Arkansas, Melbourne, Arkansas,
FirstBank, Texarkana, Texas, First United Bank, Stuttgart, Arkansas, Fredonia
State Bank, Nacogdoches, Texas, City Bank and Trust, Shreveport, Louisiana,
Citizens National Bank, Hope, Arkansas, and First Republic Bank, Rayville,
Louisiana. All material intercompany transactions have been eliminated.
The consolidated statements of condition as of June 30, 2000 and the
related consolidated statements of income for the three and six months period
ended June 30, 2000 and 1999 and the consolidated statements of cash flows for
the six month period ended June 30, 2000 and 1999 are unaudited. Certain
information, accounting policies and footnote disclosures normally included in
complete financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted in accordance with such
rules and regulations. It is therefore suggested that these consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and notes thereto included in First United's annual report
on Form 10-K for the year ended December 31, 1999.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial statements are included. Operating results for the
six months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the full year.
2. BUSINESS COMBINATIONS
On July 9, 1999, First United, through its wholly owned subsidiary
Fredonia State Bank, acquired from the Federal Deposit Insurance Corporation
substantially all of the assets and liabilities of East Texas National Bank, a
failed bank in Marshall, Texas. The acquisition included approximately
$100,000,000 in deposits and $75,000,000 in loans. In connection with the
transaction, First United recorded approximately $7,000,000 in core deposit
intangibles. The results of operations, which are not material, have been
included in the financial statements from the merger date.
3. RESULTS OF OPERATIONS
The results for the three and six months period ended June 30, 2000 are
not necessarily indicative of the results for the entire year of 2000. This
report should be read in conjunction with First United's 1999 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
Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding of 25,296,298 and 25,294,296 for the second
quarter of 2000 and 1999, respectively. 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 27,000 in 2000 and 58,000 in
1999.
5. COMPREHENSIVE INCOME (LOSS)
In January 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting comprehensive
income and its components. Comprehensive income is defined as all changes in the
equity of a business enterprise from transactions and other events and
circumstances, except those resulting from investments by owners and
distributions to owners. The Company's comprehensive income, which includes net
income and the change in unrealized gain(loss) on securities available for sale,
net of tax, was $7.10 million and $1.48 million for the three months ended June
30, 2000 and 1999, respectively, and $14.59 millions and $7.01 million for the
six months ended June 30, 2000 and 1999, respectively.
6
<PAGE> 7
6. SUPPLEMENTARY DATA FOR CASH FLOWS
Interest paid on notes payable during the six months ended June 30, 2000
and 1999 amounted to $162,000 and $328,000 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"),
The Bank of North Arkansas ("Melbourne"), FirstBank ("Texarkana"), First United
Bank ("Stuttgart"), First United Trust Company, N.A. ("FUTC"), Fredonia State
Bank ("Nacogdoches"), City Bank and Trust ("Shreveport"), Citizens National Bank
("Hope"), 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.
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 June 30, 2000.
Words such as "anticipate," "believe," "estimate," "expect," "intend" and
similar expressions, as they relate to First United or its management, identify
forward-looking statements. Forward-looking statements made by First United and
its management are based on estimates, projections, beliefs and assumptions of
management at the time of such statements and are not guarantees of future
performance. First United disclaims any obligation to update or revise any
forward-looking statement based on the occurrence of future events, the receipt
of new information, or otherwise.
RESULTS OF OPERATIONS
Net income before merger-related expenses was $8.86 million or $0.35 per
share for the three months ended June 30, 2000 as compared to $8.38 million or
$0.33 per share for the same period last year. Including merger-related
expenses, net income for the three months ended June 30, 2000 was $8.06 million
or $0.32 per share.
Net income before merger-related expenses was $17.35 million or $0.68 per
share for the six months ended June 30, 2000 as compared to $16.51 million or
$0.65 per share for the same period in 1999. Net income including merger-related
expenses for the six months ended June 30, 2000 was $16.55 million or $0.65 per
share.
The annualized return on average assets from continuing operations for
the six months ended June 30, 2000 and 1999 was 1.23% and 1.33% respectively,
while the annualized return on average equity was 12.02% and 13.01% 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 presented 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.
7
<PAGE> 8
On a tax equivalent basis, net interest income for the first six months
of 2000 was $54.00 million compared with $51.00 million in the first six months
of 1999. Net interest income also increased when compared with 1998. This
increase in net interest income was primarily the result of higher loan volumes.
The net interest margin through June 30, 2000 was 4.30% compared with 4.41% and
4.34% for the years ended December 31, 1999 and 1998, respectively. First United
expects no material change in the net interest margin through the remainder of
2000.
First United has debt of approximately $38.53 million at June 30, 2000
and interest expense associated with this debt totaled $0.45 million during the
first six months of 2000 compared with $0.69 million during the same period in
1999. First United will make a principal payment of $1.10 million on its
installment note payable to an unaffiliated bank in November of this year.
Interest is payable quarterly. These borrowings contain financial covenants
relating to the issuance of additional debt and maintenance of minimum tangible
net worth.
Pursuant to the Interest Rate Control Amendment to the Constitution of
the State of Arkansas, "consumer loans and credit sales" have a maximum
limitation of 17% per annum and all "general loans" have a maximum limitation of
5% over the Federal Reserve Discount Rate in effect at the time the loan was
made. The Arkansas Supreme Court has determined that "consumer loans and credit
sales" are "general loans" and are subject to the limitation of 5% over the
Federal Reserve Discount Rate as well as a maximum limitation of 17% per annum.
As a general rule, the Company and its subsidiary banks are required to comply
with the Arkansas usury laws on loans made within the State of Arkansas.
The following table is a comparison of the net interest margin:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Yield on Earning Assets 7.99 7.93 8.00
Break-even Yield 3.69 3.52 3.66
Net Interest Margin 4.30 4.41 4.34
Net Interest Spread 3.40 3.62 3.45
</TABLE>
LOANS
First United's loans totaled $1.55 billion at June 30, 2000 compared with
$1.49 billion at December 31, 1999. 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.
8
<PAGE> 9
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 and loans transferred to other real estate:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
(In thousands)
Non-performing loans:
Non-accrual loans:
Commercial & Financial $ 5,771 $ 4,607 $ 3,020
Real Estate 7,007 2,777 3,236
Consumer 869 818 521
------- ------- -------
$13,647 $ 8,202 $ 6,777
------- ------- -------
Past due 90 days or more -- -- --
and still accruing:
Commercial $ 2,775 $ 1,196 $ 1,225
Real Estate 1,064 1,281 1,293
Consumer 639 456 294
------- ------- -------
$ 4,478 $ 2,933 $ 2,812
------- ------- -------
Renegotiated Loans: $ 971 $ 1,034 $ 1,068
------- ------- -------
Total non-performing Loans: $19,096 $12,169 $10,657
Other Real Estate, Net 3,251 3,418 1,399
------- ------- -------
Total non-performing
Assets: $22,347 $15,587 $12,056
======= ======= =======
Non-Performing Loans as a %
of Outstanding Loans 1.23% 0.82% 0.78%
Non-Performing Assets as a
% of Equity Capital 8.35% 6.00% 4.72%
</TABLE>
All loans listed above as non-accrual, 90 days or more past due and
renegotiated were classified as either substandard, doubtful or loss as of June
30, 2000.
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 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,
non-performing assets, anticipated and current economic conditions and specific
reviews of performing and non-performing loans.
During the first six months of 2000, First United made provisions for
loan losses of $1.57 million compared with $1.28 million for the same period in
1999. Total non-performing loans increased $6.93 million from $12.17 million at
December 31, 1999 to $19.10 million at June 30, 2000. Net charge-offs through
June 30, 2000 totaled $1.06 million.
<TABLE>
<CAPTION>
June 30, Year Ended December 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Allowance as a percentage of total loans 1.23% 1.25% 1.27%
</TABLE>
9
<PAGE> 10
The allowance for loan losses as a percentage of non-performing loans
was approximately 100% at June 30, 2000 compared with 153% at December 31, 1999.
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
(In thousands)
Market Value $ 739,850 $ 728,779 $ 684,662
Amortized Cost 763,565 750,326 680,107
--------- --------- ---------
Difference $ (23,715) $ (21,547) $ 4,555
========= ========= =========
</TABLE>
INVESTMENT SECURITIES
During the first six months of 2000, First United had security gains of
approximately $0.15 million.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1998
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Market Value $ 181,920 $ 193,056 $ 228,614
Amortized Cost 188,336 196,407 226,083
--------- --------- ---------
Difference $ (6,416) $ (3,351) $ 2,531
========= ========= =========
</TABLE>
At June 30, 2000, First United's securities portfolio classified as
Investment Securities was composed primarily of municipal and short-term fixed
rate CMO securities.
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>
Six Months Ended
June 30, Change
(Dollars in Thousands) 2000 1999 $ %
------- ------- ------- -------
Service Charges on Deposit
<S> <C> <C> <C> <C>
Accounts $ 5,780 $ 5,025 $ 755 15.02 %
Trust Income 1,310 1,264 46 3.64 %
Security Gains (Losses) 153 213 (60) (28.17)%
Other Income 2,706 2,994 (288) (9.62)%
------- ------- ------- -------
Total Other Income $ 9,949 $ 9,496 $ 453 4.77 %
======= ======= ======= =======
</TABLE>
Excluding security gains and losses, non-interest income increased approximately
$0.51 million when comparing 2000 with 1999 results. First United is focusing on
non-interest income revenues and opportunities to increase fee income.
10
<PAGE> 11
NON-INTEREST EXPENSE
Control of non-interest expenses continues to be one of First United's
major objectives. Non-interest expenses include salaries, employee benefits,
occupancy costs, equipment and other operating expenses:
<TABLE>
<CAPTION>
Six Months Ended
June 30, Change
2000 1999 $ %
------- ------- ------- -------
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Salaries $14,926 $13,934 $ 992 7.12 %
Pension and Employee Benefits 4,625 4,290 335 7.81 %
Net Occupancy Expense 2,692 2,558 134 5.24 %
Equipment Expense 2,186 2,178 8 .37 %
Data Processing Expense 2,060 2,299 (239) (10.40)%
Merger-Related Expense 793 0 793 100.00 %
Other Operating Expense 8,802 8,089 713 8.81 %
------- ------- ------- -------
Total Non-Interest Expense $36,084 $33,348 $ 2,736 8.20 %
======= ======= ======= =======
</TABLE>
INCOME TAXES
The effective tax rate of First United for the six month period ended
June 30, 2000 was 30.65% compared to 30.34% for the same period in 1999.
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 a rate of
return for shareholders while following guidelines set forth by bank regulators.
First United's equity capital totaled $267.50 million at June 30, 2000,
compared to the December 31, 1999 level of $259.71 million. The growth and
retention of earnings continues to be First United's primary source of
additional capital. Currently, First United does not have any plans for issuing
subordinated notes and First United has not issued any new common or preferred
stock during the past twelve months.
The table presented below is a comparison of capital ratios:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999 1998
<S> <C> <C> <C>
Equity Capital to Total Assets 9.98% 9.74% 10.16%
Primary Capital to Total Assets 11.22% 10.89% 10.66%
</TABLE>
Note: Equity Capital to Total Assets includes unrealized losses on
available-for-sale securities.
11
<PAGE> 12
The table presented below is a comparison of First United's capital
position with regulatory capital requirements:
<TABLE>
<CAPTION>
June 30, Regulatory
2000 Requirements
<S> <C> <C>
Total Capital/Total Assets 11.22% 6.00%
Primary Capital/Total Assets 11.22% 5.50%
Total Risk Based Capital 17.11% 8.00%
Tier 1 Capital 15.97% 4.00%
Leverage Ratio 10.02% 3.00%
</TABLE>
Note: Unrealized losses 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 six months ended June 30, 2000:
<TABLE>
<CAPTION>
June 30, Year Ended,
2000 1999 1998
---- ----- ----
<S> <C> <C> <C>
Dividend payout ratio 41.26% 37.12% 36.92%
</TABLE>
ASSET - LIABILITY MANAGEMENT
First United, like most financial institutions, provides for the
relative stability in profits and the control in interest rate risk through
asset-liability management. An important element of asset-liability management
is the analysis and examination of the extent to which such assets and
liabilities are "interest rate sensitive" and by monitoring an institutions
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.
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<PAGE> 13
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, 1999.
RECENT PRONOUNCEMENTS
Recently, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an Amendment of FASB Statement No. 133." This
statement amends the effective date for SFAS No. 133 which establishes
accounting and reporting standards for derivative instruments and hedging
activities. The FASB concluded that it is appropriate to defer the effective
date of SFAS No. 133 one year, from fiscal years beginning after June 15, 1999,
to fiscal years beginning after June 15, 2000. The FASB continues to encourage
early application of SFAS No. 133. The adoption of this statement will not have
a material impact on the First United's consolidated financial statements.
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<PAGE> 14
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable
Item 2. CHANGES IN SECURITIES
On January 17, 2000, First United issued 1,536 shares of its
common stock as a result of a restricted stock option granted in
connection with First United's 1994 Equity Participation Plan which
increased the issued and outstanding common stock of First United from
25,295,908 to 25,297,444 shares. The issuance did not materially
modify, limit or qualify the rights of the holders of First United
common stock.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 23, 2000, First United held its annual stockholders
meeting to elect the Board of Directors who will serve until the next
annual meeting of the stockholders and to ratify the appointment of
Arthur Andersen LLP as independent auditors of First United until the
next annual meeting of stockholders. The fourteen (14) directors were
elected as proposed as well as the ratification of appointment of
Arthur Andersen, LLP.
The vote results in the election for directors were as
follows:
<TABLE>
<CAPTION>
AUTHORITY
NAME OF DIRECTOR FOR WITHHELD
<S> <C> <C>
E. Larry Burrow 20,380,029.600 821,197.600
Claiborne P. Deming 20,335,803.600 865,423.600
Al Graves, Jr. 20,862,527.600 338,699.600
Tommy Hillman 20,854,863.600 346,363.600
James V. Kelley 20,856,462.600 344,764.600
Michael F. Mahony 20,861,127.600 340,099.600
Richard H. Mason 20,797,381.600 403,845.600
Jack W. McNutt 20,862,027.600 339,199.600
George F. Middlebrook, III 20,863,527.600 337,699.600
R. Madison Murphy 20,862,359.600 338,867.600
Robert C. Nolan 20,859,876.600 341,350.600
Cal Partee, Jr. 20,859,243.600 341,983.600
Carolyn Tennyson 20,859,959.600 341,267.600
John D. Trimble, Jr. 20,862,127.600 339,099.600
</TABLE>
At the annual meeting, 21,110,547.5 shares were voted in favor of
ratification of Arthur Andersen LLP, 9,146.2 against, and 81,533.5
abstained from voting.
Item 5. OTHER INFORMATION
On April 6, 2000, First United and BancorpSouth, Inc., Tupelo,
Mississippi ("BancorpSouth") entered into an Agreement and Plan of
Merger whereby BancorpSouth would acquire one hundred percent (100%) of
the issued
14
<PAGE> 15
and outstanding shares of First United. Under the terms of the
Agreement, First United stockholders would receive 1.125 shares of
BancorpSouth common stock for each share of First United common stock.
In connection with the execution of the Agreement, First United and
BancorpSouth granted the other an option to purchase up to 19.9% of its
outstanding shares in certain circumstances. Consummation of the
Agreement and Plan of Merger is subject to the approval by the
appropriate bank regulatory authorities and both First United and
BancorpSouth stockholders.
BancorpSouth is a financial services company with $5.8 billion
in assets operating 167 banking and mortgage locations and 170 ATMs in
87 Mississippi, Tennessee and Alabama communities. BancorpSouth also
provides investment services through its subsidiary, BancorpSouth
Investment Services Inc. and insurance services through BancorpSouth
Insurance Services. BancorpSouth's common stock is traded on the New
York Stock Exchange under the symbol BXS.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed with this report or are incorporated
by references to previously filed materials.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------------------
<S> <C>
27 Financial Data Schedule.
99 Press Release of First United Bancshares, Inc., released
on April 17, 2000, filed by First United on its Form
8-K on April 18, 2000 as Exhibit 99.1 thereto and
incorporated herein by reference.
</TABLE>
REPORTS ON FORM 8-K
On April 18, 2000, First United filed a Current Report on Form
8-K under Items 5 and 7 regarding the Company's April 17, 2000 press
release regarding First United's proposed merger with and into
BancorpSouth, Inc., which is expected to close during the third quarter
of 2000. A copy of the press release was filed as Exhibit 99.1 thereto,
which is incorporated herein by reference. In connection with the
proposed merger, BancorpSouth, Inc. filed a registration statement on
Form S-4 with the Securities and Exchange Commission on June 14, 2000,
File No. 333-39326.
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<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
Chief Financial Officer and
Principal Accounting Officer
Date: August 10, 2000
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<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
27 Financial Data Schedule.
99 Press Release of First United Bancshares, Inc., released on April 17, 2000, filed
by First United on its Form 8-K on April 18, 2000 as Exhibit 99.1 thereto and
incorporated herein by reference.
</TABLE>
