FIRST UNITED BANCSHARES INC /AR/, 10-K, 2000-03-30

FIRST UNITED BANCSHARES INC /AR/
10-K, 2000-03-30
STATE COMMERCIAL BANKS

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DRAFT 3/24/00
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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, 1999

[ ] 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
-------

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, 2000, 25,297,444 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 $267,280,656. (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, 1999 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, 1999

CROSS REFERENCE SHEET AND INDEX

PART I.

<TABLE>
<CAPTION>
ITEM NO. LOCATION*
- -------- --------
<S> <C> <C>
Item 1. Business................................................... Page 4 of Form 10-K

Item 2. Properties................................................. Page 8 of Form 10-K

Item 3. Legal Proceedings.......................................... Page 8 of Form 10-K

Item 4. Submission of Matters to a Vote
of Security Holders........................................ Page 8 of Form 10-K

PART II.

Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................ Page 11 of the 1999
Annual Report
to Stockholders

Item 6. Selected Financial Data.................................... Page 17 of the 1999
Annual Report to
Stockholders

Item 7. Managements's Discussion and Analysis
of Financial Condition and Results of
Operations................................................. Pages 3 - 16 of the
1999 Annual Report
to Stockholders

Item 8. Financial Statements and Supplementary Data................ Pages 19 - 37 of the
1999 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, 1999

CROSS REFERENCE SHEET AND INDEX (CONTINUED)

<TABLE>
<CAPTION>
PART III.

ITEM NO. LOCATION*
- -------- --------

<S> <C> <C>
Item 10. Directors and Executive Officers of the Registrant ................ Page 39 of the 1999
Annual Report to
Stockholders

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 2000 Annual Meeting of Stockholders
filed with the Securities and Exchange Commission.

PART IV.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... Page 11
</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, 1999. The Registrant's 1999 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 1999 Annual Report to Stockholders and Definitive
Proxy Statement.

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FIRST UNITED BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1999

PART I

ITEM 1. BUSINESS.

DESCRIPTION OF BUSINESS

First United Bancshares, Inc. (First United) is a multi-bank holding
company organized under the laws of the state of Arkansas and registered under
the Bank Holding Company Act of 1956. First United is headquartered in El
Dorado, Arkansas and was 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), The Citizens
National Bank of Hope, Hope, Arkansas (CNBH), Peoples Bank & Loan Company,
Lewisville, Arkansas (PBLC), and First Republic Bank, Rayville, Louisiana (FRB).
CBA merged with and into CNBFS in 1999. PBLC merged with and into CNBH in 1999.
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. At December 31, 1999, the
Company had total consolidated assets of $2.666 billion, total consolidated
loans of $1.492 billion, and total consolidated deposits of $2.252 billion

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 and CBT continue to act as the fiduciary for all of
their 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.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, other periodic reports filed by First
United under the Securities Act of 1934, as amended, and any other written or
oral statements made by or on behalf of First United may contain forward-looking
statements based on current expectations that involve a number of risks and
uncertainties. Actual future performance, outcomes and results may differ
materially from those expressed in forward-looking statements made by First
United and its management due to certain risks, uncertainties and assumptions.
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 rates;
changes in legal and regulatory requirements; 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-K for the year ended December 31, 1999.

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.

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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. Competition is based upon
interest rates offered on deposit accounts, interest rates charged on loans,
fees and service charges, the quality and scope of the services rendered, the
convenience of banking facilities and, in the case of loans to commercial
borrowers, relative lending limits.

REGULATION

First United is a registered bank holding company pursuant to the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), and as such, is subject
to regulation and examination by the Federal Reserve Board ("Federal Reserve")
and is required to file with the Federal Reserve annual reports and other
information regarding the business operations of itself and its subsidiaries. In
addition, as a national chartered bank holding company, First United is also
registered with the Office of the Comptroller of the Currency ("OCC") and is
subject to the regulation, supervision, examination, and reporting requirements
of the OCC.

The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5.0% of the voting shares of the bank; (ii) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (iii) it may merge or consolidate with any other bank
holding company.

The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, and consideration of convenience and needs issues includes the
parties' performance under the Community Reinvestment Act of 1977 (the "CRA"),
both of which are discussed below.

The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that First United, and any other bank holding
company located in Arkansas may now acquire a bank located in any other state,
and any bank holding company located outside Arkansas may lawfully acquire any
Arkansas-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements and other
restrictions. The Interstate Banking Act also generally provided that, after
June 1, 1997, national and state-chartered banks may branch interstate through
acquisitions of banks in other states.

On November 12, 1999, the Gramm-Leach-Bliley Act commonly referred to
as the Financial Services Modernization Act of 1999 ("Financial Services
Modernization Act") was signed into law. Financial Services Modernization Act
provides sweeping revisions to the Glass-Stegall Act restrictions that
prohibited broad affiliations among the banking, securities and insurance
industries. Financial Services Modernization Act practically eliminates many of
the federal and state law barriers to affiliations among banks, securities
firms, insurance companies and other financial service providers and establishes
a statutory framework under which full affiliations can occur in the banking,
securities and insurance industries.

A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of First United being the agency
which traditionally regulates the activity in which First United wishes to
engage. For example, the U.S. Securities and Exchange Commission will regulate
bank securities transactions, and the various banking regulators will oversee
banking activities.

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The principal provisions of the Financial Services Modernization Act
permit a bank holding company, if it meets the standards for a "well-managed"
and "well-capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including securities and insurance underwriting, investment banking,
and merchant banking investing in commercial and industrial companies. First
United, if it satisfies the above criteria, can file a declaration of its status
as a "financial holding company" ("FHC") with the Federal Reserve, and
thereafter engage directly or through nonbank subsidiaries in the expanded range
of activities which the Financial Services Modernization Act identifies as
financial in nature. Further, a bank holding company, if it elects FHC status,
will be able to pursue additional activities which are incidental or
complementary in nature to a financial activity, or which the Federal Reserve
subsequently determines to be financial in nature. The Financial Services
Modernization Act also authorizes national and state banks, with appropriate
approval, to control or hold an interest in a "financial subsidiary" which may
engage in, among other things, the activities specified in the Financial
Services Modernization Act as being financial in nature. A financial subsidiary
is not permitted to underwrite insurance or annuities, engage in real estate
development or investment activities, or engage in merchant banking or insurance
portfolio investment activities. Further, any financial subsidiary created by a
national or state bank would generally be treated as an affiliate of such bank,
rather than as a subsidiary for purposes of affiliate transaction restrictions
of Sections 23A and 23B of the Federal Reserve Act.

It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
However, implementing regulations under the Financial Services Modernization Act
have not yet been promulgated and First United cannot predict the full impact of
the new legislation and has not yet determined if it will elect to become a FHC.
As long as First United has not elected to become a FHC, it will remain subject
to the current restrictions of the BHC Act.

A bank holding company which does not elect to become a FHC will
generally not be allowed to acquire control of any company which is not a bank
and to engage in any business other than the business of banking or managing and
controlling banks. However, these non-FHC bank holding companies will still be
able to engage in certain activities which have been identified by the Federal
Reserve to be so closely related to banking as to be a proper incident thereto
and thus permissible for bank holding companies ("Permissible Non-banking
Activities"). Effective April 21, 1997, the Federal Reserve revised and expanded
the list of Permissible Non-banking Activities, which includes the following
activities: extending credit and servicing loans; acting as investment or
financial advisor to any person, with certain limitations; leasing personal or
real property or acting as a broker with respect thereto; providing management
and employee benefits consulting advice and career counseling services to
non-affiliated banks and nonbank depository institutions; operating certain
nonbank depository institutions; performing certain trust company functions;
providing certain agency transactional services, including securities brokerage
services, riskless principal transactions, private placement services, and
acting as a futures commission merchant; providing data processing and data
transmission services; acting as an insurance agent or underwriter with respect
to limited types of insurance; performing real estate appraisals; arranging
commercial real estate equity financing; providing check-guaranty, collection
agency and credit bureau services; engaging in asset management, servicing and
collection activities; providing real estate settlement services; acquiring
certain debt which is in default; underwriting and dealing in obligations of the
United States, the states and their political subdivisions; engaging as a
principal in foreign exchange trading and dealing in precious metals; providing
other support services such as courier services and the printing and selling of
checks; and investing in programs designed to promote community welfare.

In determining whether an activity is so closely related to banking as
to be a Permissible Non-banking Activity, the Federal Reserve is required to
consider whether the performance of such activities by a bank holding company or
its subsidiaries can reasonably be expected to produce benefits to the public
such as greater convenience, increased competition and gains in efficiency, that
outweigh such possible adverse effects as undue concentration of resources,
decreased and unfair competition, conflicts of interest and unsound banking
practices. Generally, bank holding companies are required to obtain prior
approval of the Federal Reserve to engage in any activity not previously
approved by the Federal Reserve as a Permissible Non-banking Activity or to
modify in any material respect an activity for which Federal Reserve approval
has been obtained.

First United is also subject to the Arkansas Bank Holding Company Act
of 1983 ("ABHCA") which places certain restrictions on the acquisition of banks
by bank holding companies. Any acquisition by First United of more than 10%

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of any class of the outstanding capital stock of any bank located in Arkansas,
would require the Arkansas Bank Commissioner's approval. Further, no bank
holding company may acquire any bank if after such acquisition the holding
company would control, directly or indirectly, banks having 25% of the total
bank deposits (excluding deposits from other banks and public funds) in the
State of Arkansas.

First United's eleven 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 members of the Federal Deposit Insurance Corporation. As national banking
associations, FNBE, FNBM, MPBC, CNBFS, and CNBH are subject to the regulation
and supervision of the OCC and the FDIC, while the Banks that are
state-chartered banks and are not members of the Federal Reserve System are
subject to supervision and examination by the FDIC and the state banking
authorities of the states in which they are located. BNA and FUB 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. FUTC is also subject to regulation
by the OCC. The federal banking regulator for each of the Banks, as well as the
appropriate state banking authority for each of the Banks that is a state
chartered bank, regularly examines the operations of the Banks and is given
authority to approve or disapprove mergers, consolidations, the establishment of
branches, and similar corporate actions. The federal and state banking
regulators also have the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.

The Banks are subject to the provisions of the CRA. Under the terms of
the CRA, the Banks have a continuing and affirmative obligation consistent with
their safe and sound operation to help meet the credit needs of their entire
communities, including low- and moderate-income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires each appropriate federal bank
regulatory agency, in connection with its examination of a subsidiary depository
institution, to assess such institution's record in assessing and meeting the
credit needs of the community served by that institution, including low- and
moderate-income neighborhoods. The regulatory agency's assessment of the
institution's record is made available to the public. Further, such assessment
is required of any institution which has applied to: (i) charter a national
bank; (ii) obtain deposit insurance coverage for a newly chartered institution;
(iii) establish a new branch office that will accept deposits; (iv) relocate an
office; or (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of a
bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the records of each subsidiary
depository institution of the applicant bank holding company, and such records
may be the basis for denying the application. All of the Banks received at least
a "satisfactory" CRA rating in their most recent examinations.

In April 1995, the federal banking agencies adopted amendments revising
their CRA regulations, with a phase-in schedule applicable to various
provisions. Among other things, the amended CRA regulations, implemented on July
1, 1997, substitute for the prior process-based assessment factors a new
evaluation system that rates an institution based on its actual performance in
meeting community needs. In particular, the system focuses on three tests; (i) a
lending test, to evaluate the institution's record of making loans in its
service areas; (ii) an investment test, to evaluate the institution's record of
investing in community development projects; and (iii) a service test, to
evaluate the institution's delivery of services through its branches, ATM's and
other offices. The amended CRA regulations also clarify how an institution's CRA
performance will be considered in the application process.

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 13 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.

First United and the Banks are required to comply with the capital
adequacy standards established by the Federal Reserve in the case of First
United and the FDIC and the OCC in the case of the Banks. There are two basic
measures of

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capital adequacy for bank holding companies that have been promulgated by the
Federal Reserve: a risk-based measure and a leverage measure. All applicable
capital standards must be satisfied for a bank holding company to be considered
in compliance.

The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital ("Total Risk-Based
Capital") to risk-weighted assets (including certain off-balance-sheet items,
such as standby letters of credit) is 8.0%. At least half of the Total Capital
must be composed of common equity, undivided profits, minority interest in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves. The minimum guideline for Tier 1 Capital is 4.0%. At
December 31, 1999, First United's consolidated Tier 1 Capital and Total
Risk-Based Capital ratios were 15.81% and 16.95%, respectively.

EMPLOYEES

At December 31, 1999, First United and its subsidiaries had
approximately 1,050 full-time equivalent employees and considers its
relationship with its employees to be good.

YEAR 2000

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 eleven (11) 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-nine (39) communities throughout
Arkansas, Louisiana and Texas. A complete listing of the communities which are
served by First United's banking subsidiaries is set forth under the caption
"First United Locations" on page 42 of the Annual Report, which is included as
Exhibit 13 hereto. 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 and FBTX. 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.

No matters were submitted to a vote of First United's security holders
during the fourth quarter of the period ending December 31, 1999.

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NAMED EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>
<S> <C>
James V. Kelley, 50 . . . . . . . . . .Chairman, President and Chief Executive Officer of
First United since 1987; Chairman and Chief
Executive Officer of FNBE since 1985.

John G. Copeland, 47 . . . . . . . . . Senior Vice President, Chief Financial Officer and
Principal Accounting Officer of First United since
March, 1999.

Jim N. Harwood, 60 . . . . . . . . . . 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, 50 . . . . . . . . . . . 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, 58 . . . . . . . . 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.

First United's Common Stock is listed on the NASDAQ National Market
System under the symbol "UNTD." The other 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 captions "Financial Analysis,"
"Earnings Analysis," "Balance sheet Analysis," "Capital Adequacy and Resources,"
"Asset - Liability Management," and "Regulatory and Accounting Issues" on pages
3 - 16 of the Annual Report to Stockholders, which is included as Exhibit 13
hereto.

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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 - 37 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 contained under the
captions "Executive Officers," "Regional Chairmen" and "Board of Directors"on
page 39 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 1999 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
1999 fiscal year covered by this Annual Report on 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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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, 1999 as required by Item 8, are:

<TABLE>
<CAPTION>
Page(s) in 1999 Annual
Report to Stockholders
<S> <C>
Reports of Management and Independent Auditors ................................ Page 38
Consolidated Statements of Condition as of
December 31, 1999 and 1998 ............................................... Page 19
Consolidated Statement of Income
for the three years ended December 31, 1999, 1998 and 1997 ............... Page 20
Consolidated Statements of Changes in Capital Accounts
for the three years ended December 31, 1999, 1998 and 1997 ............... Page 21
Consolidated Statements of Cash Flows
for the three years ended December 31, 1999, 1998 and 1997 ............... Page 22
Notes to Consolidated Financial Statements-December 31, 1999 .................. Pages 23 - 37
</TABLE>

ITEM 14(a)(2) FINANCIAL STATEMENT SCHEDULES.

Not applicable.

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.

11
<PAGE> 12
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 20th day of
March, 1999.

FIRST UNITED BANCSHARES, INC.

By:/s/ JOHN G. COPELAND
-----------------------------------------
John G. Copeland, Senior Vice President,
Chief Financial Officer and Principal
Accounting Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes James V.
Kelley and/or John G. Copeland, 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 John G. Copeland 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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES V. KELLEY Chairman of the Board, President, and Chief March 20, 2000
- ---------------------------- Executive Officer
James V. Kelley

/s/ JOHN G. COPELAND Senior Vice President, Chief Financial March 20, 2000
- ---------------------------- Officer, and Principal Accounting
John G. Copeland Officer

/s/ E. LARRY BURROW Director March 20, 2000
- ----------------------------
E. Larry Burrow

Director March 20, 2000
- ----------------------------
Claiborne P. Deming
</TABLE>

<PAGE> 13
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ AL GRAVES, JR. Director March 20, 2000
- ----------------------------
Al Graves, Jr.

/s/ TOMMY HILLMAN Director March 20, 2000
- ----------------------------
Tommy Hillman

/s/ ROY E. LEDBETTER Director March 20, 2000
- ----------------------------
Roy E. Ledbetter

/s/ MICHAEL F. MAHONY Director March 20, 2000
- ----------------------------
Michael F. Mahony

/s/ RICHARD H. MASON Director March 20, 2000
- ----------------------------
Richard H. Mason

/s/ JACK W. MCNUTT Director March 20, 2000
- ----------------------------
Jack W. McNutt

/s/ GEORGE MIDDLEBROOK, III Director March 20, 2000
- ----------------------------
George Middlebrook, III

/s/ R. MADISON MURPHY Director March 20, 2000
- ----------------------------
R. Madison Murphy

/s/ ROBERT C. NOLAN Director March 20, 2000
- ----------------------------
Robert C. Nolan

/s/ CAL PARTEE, JR. Director March 20, 2000
- ----------------------------
Cal Partee, Jr.

/s/ CAROLYN TENNYSON Director March 20, 2000
- ----------------------------
Carolyn Tennyson

/s/ JOHN D. TRIMBLE, JR. Director March 20, 2000
- ----------------------------
John D. Trimble, Jr.
</TABLE>

<PAGE> 14
FIRST UNITED BANCSHARES, INC.
ANNUAL REPORT ON FORM 10-K
December 31, 1998

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
3(a) Amended and Restated Articles of Incorporation of First United Bancshares,
Inc. (previously filed as Exhibit 3(a) to the Annual Report on Form 10-K for
the year ended December 31, 1998) incorporated herein by reference.

3(b) Restated Bylaws of First United Bancshares, Inc. (previously 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 (previously filed as Exhibit
9 to the Registration Statement of Form S-4 of First United 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 First United'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 (previously filed as Exhibit (10(c) to the
Annual Report on Form 10-K for the year ended December 31, 1998)
incorporated herein by reference.

10(d) Executive Severance Agreement between First United Bancshares, Inc. and
Jim N. Harwood, dated July 27, 1998 (previously filed as Exhibit (10(d) to the
Annual Report on Form 10-K for the year ended December 31, 1998)
incorporated herein by reference.

10(e) Employment Agreement between Fredonia State Bank and Gordon Lewis,
dated effective September 2, 1997 (previously filed as Exhibit (10(e) to the
Annual Report on Form 10-K for the year ended December 31, 1998)
incorporated herein by reference.
</TABLE>

<PAGE> 15

<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
10(f) Executive Severance Agreement between First United Bancshares, Inc. and
John Robert Graves, dated July 27, 1998 (previously filed as Exhibit (10(f) to
the Annual Report on Form 10-K for the year ended December 31, 1998)
incorporated herein by reference.

10(g) Executive Severance Agreement between First United Bancshares, Inc. and
John G. Copeland, dated March 22, 1999.

10(h) Supplemental Executive Retirement Agreement between First United
Bancshares, Inc. and Jimmy N. Harwood dated December 31, 1993 (previously
filed as Exhibit 10(h) to the Annual Report on Form 10-K/A for the year ended
December 31, 1998) incorporated herein by reference.

10(i) First United Bancshares, Inc. 1999 Employees' Long-Term Incentive Plan
(previously filed as Exhibit 99 to First United's Registration Statement on
Form S-8, Registration No. 333-82075) incorporated herein by reference.

11 Statement of Computation of Per Share Earnings (see page 20 of the
Consolidated Financial Statements of First United Bancshares, Inc. contained
in the 1999 Annual Report to Stockholders which is included herein as
Exhibit 13).

13 First United Bancshares, Inc. 1999 Annual Report to Stockholders.

21 Subsidiaries of First United Bancshares, Inc.

23(a) Consent of Arthur Andersen LLP.

23(b) Consent of Moore Stephens Frost

24 Power of Attorney (see signature page).

27 Financial Data Schedule.
</TABLE>

<PAGE> 1
EXHIBIT 10(g)

EXECUTIVE SEVERANCE AGREEMENT

THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement"), made and entered
into on the 22nd day of March, 1999, by and between First United Bancshares,
Inc. (the "Company"), a corporation organized and existing under the laws of the
State of Arkansas, and John G. Copeland (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 months (24) 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
<PAGE> 2

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 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.

2.5 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 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.

2
<PAGE> 3

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.

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

3
<PAGE> 4

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.

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.

4
<PAGE> 5

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:

John G. Copeland
420 Wilson Place
Apartment C-2
El Dorado, Arkansas 71730

(b) If to the Company:

First United Bancshares, Inc.
Main and Washington Streets
El Dorado, Arkansas 71730
ATTN.: CEO

5
<PAGE> 6

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 G. Copeland

FIRST UNITED BANCSHARES, INC.:

By: /s/ Jim Kelley
-----------------------------------------
Name: James V. Kelley
---------------------------------------
Title: Chairman, of the Board, President and
Chief Executive Officer
--------------------------------------

<PAGE> 1
EXHIBIT 13

FIRST UNITED BANCSHARES, INC.

ANNUAL REPORT 1999

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<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..................................................................................19-37

Report of Independent Public Accountants...........................................................................38

Report of Management on Financial Statements.......................................................................38

Officers and Directors of First United and its Subsidiaries.....................................................39-40

Corporate Information..............................................................................................41

Locations..........................................................................................................42
</TABLE>

FINANCIAL HIGHLIGHTS

First United Bancshares, Inc.
(Dollars in Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
1999 1998 % Change
------------- ------------- --------
<S> <C> <C> <C>
INCOME DATA
Net Income $ 33,458 $ 30,268 10.54%
Net Interest Income 100,597 94,410 6.55%
PER COMMON SHARE DATA
Net Income $ 1.32 $ 1.20 10.00%
Book Value (End of Period) 10.27 10.11 1.58%
Tangible Book Value (End of Period) 10.20 9.57 6.58%
Market Value (End of Period) 13.38 17.75 (24.62%)
Cash Dividends .49 .45 8.89%
BALANCE SHEET DATA (YEAR END)
Total Securities(1) $ 925,186 $ 910,745 1.59%
Loans(2) 1,488,403 1,353,161 9.99%
Earning Assets 2,464,848 2,351,530 4.82%
Total Assets 2,666,047 2,516,457 5.94%
Deposits 2,251,631 2,133,951 5.51%
Stockholders' Equity 259,710 255,633 1.59%
KEY RATIOS
Return on Average Assets 1.32% 1.26%
Return on Average Equity 12.88% 12.64%
Net Interest Margin (FTE) 4.41% 4.34%
Allowance for Loan Losses to Loans(2) 1.25% 1.27%
Equity to Assets 9.74% 10.16%
Leverage Ratio 9.73% 9.66%
Primary Capital Ratio 10.89% 10.66%
</TABLE>

(1) Includes available-for-sale and investment securities.

(2) Net of unearned income.

<PAGE> 3

To Our Shareholders and Friends,

The year 1999 was another fine one for First United Bancshares as we
again set records in our operating results, expanded our market through
acquisition and sowed the seeds for significant new product offerings for our
customers.

Our earnings of $33,458,000 or $1.32 per share met our expectations and
amounted to a 10.0% increase over 1998 earnings. This was achieved by strong
loan growth of 10.0% and deposit growth of 5.5%. Our total assets at year-end
were $2,666,047,000, a 5.9% increase from year-end 1998.

In July, we purchased the assets of a failed bank in Marshall, Texas,
in the amount of approximately $100,000,000. Marshall is a fine community in an
area of East Texas that has been attractive to us for some time. We feel
fortunate to have the opportunity to offer our brand of community banking to its
citizens.

It is our goal to continue to bolster our growth through acquisitions.
During this year, we expect a determination upon whether "pooling of interests"
accounting for acquisitions, which we have used most frequently, will be
continued, or, as is expected, will come to an end. Although this will alter our
method of accounting for future acquisitions, it will not change our goal of
achieving shareholder enrichment through EPS-accretive acquisitions.

Also in July, we announced a joint venture with First Arkansas
Insurance, Arkansas' largest independent insurance agency, to form First Bankers
Insurance Services, an insurance company designed to offer a full array of
insurance products for our commercial and individual customers. Our goal is to
offer the same responsive, professional service in insurance products as we have
in our banking products and with very attractive pricing. Although, we are
purposely beginning in a very deliberate manner, our early results are very
encouraging.

Bank stocks again performed dismally in 1999 with pricing levels being
down to 1990 price/earnings and price/book levels. This despite very good profit
and growth results for the industry.

For our eighth consecutive year we raised our dividend rate. The
increase from 11 1/2(cent) to 12 1/2(cent) per quarter is evidence of not only
our earnings growth but also of our confidence in the future.

During the year we collapsed two of our bank charters and merged them
into existing banks. Peoples Bank & Loan Company in Lewisville, Arkansas became
part of Citizens National Bank of Hope, Arkansas in April. In the fourth
quarter, Commercial Bank of Alma, Arkansas was merged with City National Bank of
Fort Smith, Arkansas. We feel that such consolidations will afford our customers
a higher level of banking convenience and help us achieve a higher level of
efficiency without losing the community focus that has been a key to our
success.

First United's Year 2000 Readiness Project, begun in 1998, successfully
guided the Company through the critical date transition period at year-end 1999.
The hard work of our employees and their attention to detail enabled us to avoid
any processing problems or other adverse effects from the date change.

In our continuing efforts toward utilization of technology to improve
customer service, we have begun offering a full array of computer interactive
services which we feel will be well received by our customers and will deliver
an additional level of banking convenience.

The year 2000 brings many new challenges and opportunities. Rising
interest rates, declining interest margins and lower stock prices are very real
issues that must be dealt with in achieving the kind of results we have grown to
expect. Our intent is to continue to meet these challenges through new products,
new technology and a new sense of urgency, but with a very old style commitment
to the customers and communities that honor us with their support and patronage.

As always, your support of our efforts and recommendations of our
services to others is appreciated.

/s/ James V. Kelley
---------------------------------
James V. Kelley
Chairman, President &
Chief Executive Officer

<PAGE> 4

FINANCIAL ANALYSIS

OVERVIEW

The following financial review and analysis is intended to highlight the
significant factors affecting the 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 1999, First United increased its cash dividend for the eighth
consecutive year. The current annual dividend rate is $0.50 per share compared
to $0.46 in 1998 and $0.40 in 1997.

On July 9, 1999, First United through its subsidiary Fredonia State Bank
acquired substantially all of the assets and liabilities of East Texas National
Bank, a failed bank in Marshall, Texas. The acquisition included the assumption
of 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 have been included in the
financial statements from the acquisition date.

On March 30, 1998, First United merged with two institutions, First
Republic Bancshares, Inc., Rayville, La. 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 1999 resulted in net income of $33.5 million or $1.32 per
share compared to $30.3 million or $1.20 per share in 1998. A detailed
discussion of the components of net income is given throughout the Financial
Analysis.

[GRAPH]

Net income as a percentage of total average assets (ROA) was 1.32% in
1999 versus 1.26% in 1998. The return on stockholders' equity (ROE) was 12.88%
in 1999 versus 12.64% in 1998. These measures compare favorably with banks of
similar size nationwide.

Total assets at December 31, 1999 were $2.67 billion as compared to the
year-end 1998 balance of $2.52 billion. The book value of First United's common
stock increased 1.58% to $10.27 per share in 1999 from $10.11 per share in 1998.

FORWARD-LOOKING STATEMENTS

The financial analysis and other portions of the annual report, periodic
reports filed by First United under the Securities Act of 1934, as amended, and
any other written or oral statements made by or on behalf of First United may
contain forward-looking statements based on current expectations that involve a
number of risks and uncertainties. Actual future performance, outcomes and
results may differ materially from those expressed in forward-looking statements
made by First United and its management due to certain risks, uncertainties and
assumptions. 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 rates; changes in legal and regulatory requirements; and the risk
factors listed from time to time in First United's SEC reports.

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 statements based on the occurrence of future events, the
receipt of new information or otherwise.

<PAGE> 5

TABLE 1: CHANGES IN PER SHARE INCOME

[GRAPH]

<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Prior year income ................................... $ 1.20 $ 1.02 $ 1.11
Increase (decrease) attributable to:
Effect of immaterial pooling ...................... -0- -0- 0.03
Net interest income ............................... 0.24 0.15 0.25
Provision for loan losses ......................... -0- 0.08 (0.15)
Non-interest income ............................... 0.06 -0- 0.10
Non-interest expense .............................. (0.12) 0.10 (0.40)
Income taxes ...................................... (0.06) (0.15) 0.08
------- ------- -------
Current year income ................................. $ 1.32 $ 1.20 $ 1.02
======= ======= =======
</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, 1999 was $104.9 million, an increase of 6.93% over the year-end
1998 total of $98.1 million. Net interest income for the year ended December 31,
1997 was $94.1 million. The growth in net interest income for 1999 and 1998 was
the result of the effects of increased levels of earning assets.

TABLE 2: ANALYSIS OF NET INTEREST MARGIN

[GRAPH]

<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Yield on earning assets............................... 7.93% 8.00% 8.17%
Break-even yield...................................... 3.52% 3.66% 3.74%
Net interest margin................................... 4.41% 4.34% 4.43%
Net interest spread................................... 3.62% 3.45% 3.60%
</TABLE>

The net interest margin increased in 1999 when compared with the
previous year, from 4.34% in 1998 to 4.41% in 1999.

Earning assets increased from a level of $2.4 billion at December 31,
1998 to a level of $2.5 billion at year-end 1999. Short-term investments
decreased $36.4 million, securities increased $14.4 million and loans increased
$133 million. As a percentage of earning assets, short-term investments
decreased from 4% to 2%, total securities decreased from 39% to 38% and loans
increased from 57% to 60%. The relative level and mix of earning assets
reflected the effect of higher earnings being available in the investment
market.

Interest-bearing deposits increased $104 million during 1999. Total
interest-bearing deposits were $1.90 billion at December 31, 1999 compared with
$1.80 billion at year-end 1998. Non-interest-bearing demand deposits increased
$13.9 million or 4.11% during 1999. The increase is attributable to a general
increase in deposits on hand at First United's subsidiary banks.

<PAGE> 6

PROVISION FOR LOAN LOSSES

[GRAPH]

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. The provision for loan losses totaled $3.1 million in 1999 versus
$3.2 million in 1998 and $5.2 million in 1997.

NON-INTEREST INCOME

Total non-interest income was $19.7 million for 1999 compared with
$18.3 million in 1998 and $18.2 million in 1997. The increase in 1999 compared
to prior year levels is primarily the result of continued increases in fee
income earned on deposits and trust company accounts.

NON-INTEREST EXPENSE

Non-interest expense increased 4.4% or $2.9 million in 1999 over 1998
levels, and decreased 3.5% in 1998 over 1997 levels. The increase in 1999 is due
primarily to the acquisition of East Texas National Bank.

INCOME TAXES

Federal income taxes as a percentage of pre-tax income were 30.3% in
1999, 30.0% in 1998 and 26.4% in 1997. Additional information regarding income
taxes can be found in Note 8 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

(Dollars in Thousands)

<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, Financial and
Agricultural .............................. $ 341,111 $ 325,487 $ 293,430 $ 250,767 $ 226,945
Real Estate .................................. 928,188 830,394 724,706 618,414 546,984
Consumer ..................................... 218,931 202,520 200,803 183,343 167,252
Loans for Purchasing or Carrying Securities .. 189 276 237 116 6,835
Financing Leases ............................. 3,937 808 424 605 512
---------- ---------- ---------- ---------- ----------
Total Loans .................................. $1,492,356 $1,359,485 $1,219,600 $1,053,245 $ 948,528
---------- ---------- ---------- ---------- ----------
Non-Performing Assets ........................ $ 15,587 $ 12,056 $ 9,623 $ 8,687 $ 8,608
========== ========== ========== ========== ==========
</TABLE>

<PAGE> 7
TABLE 4: LOAN MATURITIES

<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31, 1999
-----------------------------------------------------
1 Year Over 1 through Over
or Less 5 years 5 years Total
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, Financial
& Agricultural ......... $ 189,328 $ 128,764 $ 23,019 $ 341,111
========== ============== ========== ==========
Variable Rate ............ $ 117,482
Pre-determined Rate ...... $ 223,629
</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, 1999 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. While non-performing loans totaled
$12.2 million, $10.7 and $8.6 million at December 31, 1999, 1998 and 1997,
respectively, the level of non-performing loans remained relatively stable at
0.8%, 0.8% and 0.7%, respectively.

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, 1999 totaled $8.2 million compared with $6.8
million at year ended 1998. 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 1999 and 1998
by approximately $0.3 and $0.2 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 $3.4 million at year ended 1999. This compares with $1.4
million at year ended 1998.

[GRAPH]

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 loan
losses is maintained to absorb probable 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.

<PAGE> 8

TABLE 5: SUMMARY OF LOAN LOSS EXPERIENCE

<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan
Losses at Beginning of Period ......... $ 17,302 $ 17,694 $ 14,951 $ 15,259 $ 14,291
--------- --------- --------- --------- ---------
Allowance Applicable to Loans of
Acquired Bank ........................ 1,000 -0- 426 1,215 1,627
--------- --------- --------- --------- ---------
Loans Charged-Off:
Commercial, Financial & Agricultural .. 2,045 3,011 1,446 1,017 1,561
Real Estate ........................... 610 615 1,075 921 551
Consumer .............................. 1,569 2,044 2,175 3,057 1,553
Other ................................. 28 -0- 2 -0- 7
--------- --------- --------- --------- ---------
Total Loans Charged-Off ................. 4,252 5,670 4,698 4,995 3,672
--------- --------- --------- --------- ---------
Recoveries of Loans Previously
Charged-Off:
Commercial, Financial & Agricultural . 529 986 998 720 897
Real Estate ........................... 157 257 210 250 176
Consumer .............................. 816 805 641 1,059 579
--------- --------- --------- --------- ---------
Total Recoveries ........................ 1,502 2,048 1,849 2,029 1,652
--------- --------- --------- --------- ---------
Net Loans Charged-Off ................... 2,750 3,622 2,849 2,966 2,020
--------- --------- --------- --------- ---------
Provision to Allowance .................. 3,123 3,230 5,166 1,443 1,361
--------- --------- --------- --------- ---------
Balance at End of Period ................ $ 18,675 $ 17,302 $ 17,694 $ 14,951 $ 15,259
========= ========= ========= ========= =========
Ratio of Net Charge-Offs to
Loans Outstanding ..................... .18% .27% .23% .28% .21%
</TABLE>

TABLE 6: ALLOCATION OF RESERVE BY CATEGORY

<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
-------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ------------------- -------------------- ------------------- ------------------
% LOANS % Loans % Loans % Loans % Loans
IN EACH in each in each in each in each
AMOUNT CATEGORY Amount Category Amount Category Amount Category Amount Category
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
Financial ....... $ 7,195 23% $ 3,916 24% $ 4,721 24% $ 4,451 24% $ 4,732 23%
Real Estate ....... 4,136 62% 3,785 61% 3,949 59% 2,804 59% 2,128 58%
Consumer .......... 2,645 15% 2,316 15% 2,534 17% 2,610 17% 2,387 18%
Unallocated ....... 4,699 0% 7,285 0% 6,490 0% 5,086 0% 6,012 1%
-------- -------- -------- -------- -------- -------- -------- ------ -------- -------
Total ............. $ 18,675 100% $ 17,302 100% $ 17,694 100% $ 14,951 100% $ 15,259 100%
-------- -------- -------- -------- -------- -------- -------- ------ -------- -------
Allowance as a
Percentage of
Total Loans ..... 1.25% 1.27% 1.45% 1.42% 1.61%
</TABLE>

Allowance for loan losses as a percentage of non-performing loans was
approximately 153%, 162% and 205% at December 31, 1999, 1998 and 1997,
respectively.

All non-performing assets of First United as of December 31, 1999 were
previously classified as substandard, doubtful or loss by First United or its
regulators. At December 31, 1999, First United's management has no loans about
which serious doubts exist as to collectibility other than those disclosed in
Table 7.

<PAGE> 9
TABLE 7: RISK ELEMENTS

<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
-------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Non-Performing Loans:
Non-Accrual Loans:
Commercial & Financial ........... $ 4,607 $ 3,020 $ 1,570 $ 1,382 $ 2,834
Real Estate ...................... 2,777 3,236 2,010 2,285 1,600
Consumer ......................... 818 521 365 389 284
--------- --------- --------- --------- ---------
Total Non-Accrual Loans .......... 8,202 6,777 3,945 4,056 4,718
--------- --------- --------- --------- ---------
Past Due 90 Days or More and Still
Accruing:
Commercial ....................... 1,196 1,225 1,235 787 404
Real Estate ...................... 1,281 1,293 2,034 1,089 282
Consumer ......................... 456 294 548 500 460
--------- --------- --------- --------- ---------
Total Past Due 90 Days or More
And Still Accruing ............. 2,933 2,812 3,817 2,376 1,146
--------- --------- --------- --------- ---------
Renegotiated Loans ................. 1,034 1,068 878 1,082 1,301
--------- --------- --------- --------- ---------
Total Non-Performing Loans ......... 12,169 10,657 8,640 7,514 7,165
Other Real Estate .................. 3,418 1,399 983 1,173 1,443
--------- --------- --------- --------- ---------
Total Non-Performing
Assets ......................... $ 15,587 $ 12,056 $ 9,623 $ 8,687 $ 8,608
========= ========= ========= ========= =========
Non-Performing Loans as a % of
Outstanding Loans ................ 0.82% 0.78% 0.71% 0.71% 0.76%
Non-Performing Assets as a % of
Equity Capital ................. 6.00% 4.72% 4.10% 4.13% 4.71%
</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 1999 was
approximately $38.6 million as compared to $24.3 million and $10.3 million in
1998 and 1997, respectively. See Notes 3 and 4 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,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
U.S. Treasury Securities and Other U.S. Government Agencies ....... $ 555,547 $ 518,064 $ 551,283
Obligations of States and Political Subdivisions .................. 160,770 160,573 142,260
Mortgage-Backed Securities ........................................ 197,060 231,480 187,622
Other Securities .................................................. 11,809 628 20,741
--------- --------- ---------
$ 925,186 $ 910,745 $ 901,906
========= ========= =========
</TABLE>

(1)Includes available-for-sale and investment securities.

<PAGE> 10

TABLE 9: SECURITIES MATURITY AND WEIGHTED AVERAGE YIELDS(1)

<TABLE>
<CAPTION>
Investment Securities
---------------------------------------------------------------------------------------------
Maturing
-------------------------------------------------------------------------
After One But After Five But Mortgage-
Within One Year Within Five Years Within Ten Years After Ten Years Backed Securities
---------------- ----------------- ---------------- ---------------- -----------------
(Dollars in Thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------- ------- ------- -------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
and Other U.S. Government
Agencies ........................ $ 7,031 6.40% $ 6,784 5.31% $ 0 0.00% $ 1,000 7.01% $ 0 0.00%
State & Political Subdivisions .... 24,238 7.14% 50,403 6.94% 42,218 7.31% 0 0.00% 0 0.00%
Mortgage-Backed Securities ........ 0 0.00% 0 0.00% 0 0.00% 0 0.00% 58,605 6.33%
Other ............................. 6,128 5.71% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
------- ------- ------- -------- ------- ------- ------- ------- ------- --------
Total ............................. $37,397 6.77% $57,187 6.74% $42,218 7.31% $ 1,000 7.01% $58,605 6.33%
======= ======= ======= ======= ======= ======= ======= ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
Available-for-Sale Securities
------------------------------
(Dollars in Thousands) Amount Yield
-------- -----
<S> <C> <C>
U. S. Treasury Securities and Other U.S. Government Agencies .............. $540,732 6.02%
State & Political Subdivision ............................................. 43,911 7.69%
Mortgage-Backed Securities ................................................ 138,455 6.50%
Other ..................................................................... 5,681 6.36%
-------- ----
Total $728,779 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

[GRAPH]

<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
-----------------------------------------------------------------------------
1999 1998 1997
----------------------- ----------------------- -----------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
Demand Deposits .................................. $ 328,539 0.00% $ 320,496 0.00% $ 314,404 0.00%
Savings Deposits and Interest-bearing Deposits ..... 585,535 2.73% 493,737 3.25% 553,379 2.98%
Deposits of $100 or more ........................... 384,154 5.04% 352,325 5.82% 327,022 5.92%
Other Time Deposits ................................ 845,905 4.98% 878,812 4.67% 751,544 5.03%
---------- ---------- ----------
Total ............................................ $2,144,133 $2,045,370 $1,946,349
========== ========== ==========
</TABLE>

<PAGE> 11

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
10.89% at December 31, 1999 compared with 10.66% in 1998 and 10.53% in 1997.
First United's stockholders' equity for the year ended December 31, 1999 totaled
$259.7 million compared with $255.6 million in 1998 and $234.5 million in 1997.
Retention of earnings will continue to be emphasized in order to provide a
strong capital base to support future growth.

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

[GRAPH]

<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31, 1999
-----------------
<S> <C>
Three Months or Less .............................................. $178,072
Over 3 Through 6 Months ........................................... 126,718
Over 6 Through 12 Months .......................................... 120,733
Over 12 Months .................................................... 51,404
--------

Total ............................................................. $476,927
========
</TABLE>

TABLE 12: SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
---------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31 .......................................... $106,951 $ 82,470 $ 75,017
Daily Average Amount Outstanding ................................ 88,922 65,280 64,726
Maximum Month-End Balance ....................................... 111,388 89,448 76,344
Daily Average Interest Rate ..................................... 4.61% 5.11% 4.94%
Weighted Average Interest Rate on Balance at December 31 ........ 5.21% 5.14% 4.96%
</TABLE>

TABLE 13: CAPITAL RATIOS

<TABLE>
<CAPTION>
December 31,
-------------------------------------------
Regulatory
1999 1998 1997 Requirements
------- ------- ------- ------------
<S> <C> <C> <C> <C>
Equity Capital to Assets ................... 9.74% 10.16% 9.96% N/A
Total Capital to Assets .................... 10.89% 10.66% 10.53% 6.00%
Primary Capital to Assets .................. 10.89% 10.66% 10.53% 5.50%
Leverage Ratio ............................. 9.73% 9.66% 9.41% 3.00%
Tier 1 Capital ............................. 15.81% 16.40% 16.26% 4.00%
Risk-Based Capital ......................... 16.95% 17.57% 17.51% 8.00%
Dividend Payout Ratio ...................... 37.12% 36.92% 38.28% N/A
</TABLE>

<PAGE> 12

TABLE 14: COMMON STOCK MARKET PRICE AND DIVIDENDS PER SHARE

[GRAPH]

<TABLE>
<CAPTION>
High Low Dividends
1999 Sale Sale Paid
- -------------- -------- ------- ---------
<S> <C> <C> <C>
FIRST QUARTER $ 20 1/8 $ 13 1/2 $.11 1/2
SECOND QUARTER 18 13/16 14 1/2 .12 1/2
THIRD QUARTER 18 7/16 14 .12 1/2
FOURTH QUARTER 17 5/8 13 3/8 .12 1/2

1998
- --------------
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 5/8 .11 1/2
Fourth Quarter 21 5/8 16 1/2 .11 1/2
</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 1999, First United increased its annual
cash dividend rate from $0.46 per share to $0.50 per share and during the second
quarter of 1998, First United increased its annual dividend from $0.40 to $0.46
per share. These increases result from higher sustainable earnings.

First United Common Stock is traded on the NASDAQ-NMS Stock Market
under the symbol "UNTD."

All NASDAQ 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 1999 and 1998 are listed in Table 14. Table 14 also lists dividends paid
by First United to its stockholders during each of those quarters.

On February 18, 2000, the Company had approximately 1,900 stockholders
of record.

<PAGE> 13

ASSET - LIABILITY MANAGEMENT

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.

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. At December 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.

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.

The interest rate sensitivity table on the following page 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, 1999.

12
<PAGE> 14

TABLE 15: INTEREST RATE SENSITIVITY OTHER THAN TRADING PORTFOLIO

<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
2000 2001 2002 2003 2004
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands)

LOANS
Fixed Rate ..................... $ 696,769 $165,129 $168,677 $ 40,835 $ 40,276
Average Interest Rate ........ 8.78% 8.95% 8.73% 8.47% 8.34%
Floating Rate .................. 209,206 18,700 21,501 21,862 31,728
Average Interest Rate ........ 8.93% 8.36% 8.45% 8.22% 8.07%

SECURITIES
Fixed Rate ..................... 167,478 59,213 86,073 123,507 130,953
Average Interest Rate ........ 5.23% 5.74% 6.24% 6.35% 6.53%
Floating Rate .................. 14,872 5,829 15,903 1,493 -0-
Average Interest Rate ........ 5.13% 5.06% 5.73% 6.34% -0-

OTHER EARNING ASSETS
Fixed Rate ...................... 51,259 -0- -0- -0- -0-
Average Interest Rate ......... 5.39% -0- -0- -0- -0-
Floating Rate ................... -0- -0- -0- -0- -0-
Average Interest Rate ......... -0- -0- -0- -0- -0-

TOTAL FINANCIAL ASSETS ............ $1,139,584 $248,871 $292,154 $187,697 $202,957
Average Interest Rate ......... 8.04% 7.85% 7.83% 7.66% 7.67%

DEPOSITS
Fixed Rate ...................... $1,054,042 $158,627 $ 29,122 $ 19,706 $ 8,021
Average Interest Rate ......... 4.94% 5.38% 5.56% 5.76% 5.47%
Floating Rate ................... 28,453 7,074 224 41 -0-
Average Interest Rate ......... 5.16% 5.09% 4.84% 5.75% -0-

OTHER INTEREST-BEARING LIABILITIES
Fixed Rate ..................... -0- -0- -0- -0- -0-
Average Interest Rate ........ -0- -0- -0- -0- -0-
Floating Rate .................. 106,951 -0- -0- -0- -0-
Average Interest Rate ........ 4.61% -0- -0- -0- -0-

LONG TERM DEBT
Fixed Rate ..................... -0- -0- -0- -0- -0-
Average Interest Rate ........ -0- -0- -0- -0- -0-
Floating Rate .................. 14,728 11,854 1,588 1,684 387
Average Interest Rate ........ 5.87% 6.55% 6.93% 6.91% 6.31%

TOTAL FINANCIAL LIABILITIES ...... $1,204,174 $177,555 $ 30,934 $ 21,431 $ 8,408
Average Interest Rate ........ 4.93% 5.45% 5.63% 5.85% 5.51%

December 31,
-------------------------------------
Current
Beyond Total Fair Value
-------- ---------- ----------
<S> <C> <C> <C>
LOANS
Fixed Rate ..................... $ 57,434 $1,169,120 $1,167,912
Average Interest Rate ........ 8.02% 8.60%
Floating Rate .................. 16,286 319,283 319,283
Average Interest Rate ........ 8.16% 8.69%

SECURITIES
Fixed Rate ..................... 182,951 750,175 736,121
Average Interest Rate ........ 6.14% 6.05%
Floating Rate .................. 136,914 175,011 175,011
Average Interest Rate ........ 6.73% 6.44%

OTHER EARNING ASSETS
Fixed Rate ..................... -0- 51,259 51,259
Average Interest Rate ........ -0- 5.39%
Floating Rate .................. -0- -0- -0-
Average Interest Rate ........ -0- -0-

TOTAL FINANCIAL ASSETS ........... $393,585 $2,464,848 $2,449,586
Average Interest Rate ........ 6.82% 7.62%

DEPOSITS
Fixed Rate ..................... $592,929 $1,862,447 $1,867,814
Average Interest Rate ........ 2.44% 4.20%
Floating Rate .................. 1,065 36,857 36,857
Average Interest Rate ........ 5.15% 5.14%

OTHER INTEREST-BEARING LIABILITIES
Fixed Rate ..................... -0- -0- -0-
Average Interest Rate ........ -0- -0-
Floating Rate .................. -0- 106,951 106,951
Average Interest Rate ........ -0- 4.61%

LONG-TERM DEBT
Fixed Rate ..................... -0- -0- -0-
Average Interest Rate ........ -0- -0-
Floating Rate .................. 4,005 34,246 34,246
Average Interest Rate ........ 6.37% 6.27%

TOTAL FINANCIAL LIABILITIES ...... $597,999 $2,040,501 $2,045,868
Average Interest Rate ........ 2.47% 4.28%
</TABLE>

13
<PAGE> 15

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.

Arkansas usury laws have historically been preempted by federal law
with respect to first residential real estate loans and certain loans guaranteed
by the Small Business Administration. Furthermore, the Gramm-Leach-Bliley Act
("GLBA") ostensibly preempted the application of the Arkansas Constitution's
usury limits to First United's bank subsidiaries effective November 12, 1999.
Because of the recent enactment of this usury preemption under the GLBA, the
absence of any judicial interpretation of the provision, and the current
competitive marketplace for loans, First United is unable to predict the impact
of this provision on its operations or whether its bank subsidiaries will seek
to make loans with interest rates in excess of the Arkansas usury limits.

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. During 1999, the FASB issued 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" which concluded
that it was appropriate to defer the effective date of SFAS No. 133 for one
year, from fiscal years beginning after June 15, 1999, to fiscal years beginning
after June 15, 2000. Management does not expect this standard to have a material
impact on First United's consolidated financial condition or results of
operations. Management intends to comply with this standard in 2001.

YEAR 2000 COMPLIANCE

The "Year 2000 Issue" arose due to the fact that many computer
systems and automated equipment components utilized 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. Left uncorrected,
these systems could have failed or produced erroneous results with the advent of
the twenty-first century.

In 1999, First United completed its "Year 2000 Readiness Project",
an action plan designed to ensure that all systems and computer applications
were Year 2000 ready. This plan included implementation of system upgrades,
testing of mission critical systems and the development of a contingency plan to
mitigate the risks associated with the unlikely failure of any mission critical
systems at critical Year 2000 dates. At this date, First United has successfully
moved through the critical transition period considered most likely to cause
systems problems or failures without any adverse effects and continues to
process Year 2000 transactions on our core application systems without problem.

Ultimately, any further potential impact of the Year 2000 Issue will
depend not only on the corrective actions First United has undertaken, but also
on the way in which the Issue is addressed by third parties with which First
United does business. The parties would include governmental agencies,
businesses and other entities who provide data to, or receive data from, First
United, or whose financial condition or operational capabilities are important
to First United as borrowers, vendors, customers or investment opportunities.
Although First United has experienced no significant problems with third party
transactions, the company will continue to monitor business relationships with
third parties to ensure that any Year 2000 Issues that might occur are properly
addressed.

First United estimates that the cumulative cost of the Year 2000
Readiness Project over the last two years has been approximately $2 million. The
cost estimates include personnel costs 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 has been capitalized according to normal
policy. Costs associated with personnel and out-of-pocket expenses have been
expensed in the period incurred.

14
<PAGE> 16

TABLE 16: SUMMARY OF AVERAGE BALANCE SHEETS, INTEREST RATES AND CHANGES IN NET
INTEREST INCOME (FTE)(1)

<TABLE>
<CAPTION>
1999 1998
-------------------------------------- -------------------------------
Average Average
Balance Interest Rate Balance Interest Rate
---------- ---------- ---- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)

ASSETS

INTEREST-EARNING ASSETS:
Loans (net of unearned income) ................. $1,389,105 $ 125,977 9.07% $1,296,393 $120,035 9.26%
Securities(2)
Taxable Securities ............................. 767,172 46,913 6.12% 716,667 44,934 6.27%
Non-taxable Securities ......................... 153,214 11,869 7.75% 144,035 10,634 7.38%
Money-Market Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to Resell
and Other Short-Term Investments ............. 67,354 3,633 5.39% 103,273 5,335 5.17%
---------- ---------- ---- ---------- -------- ----
Total Interest-Earning Assets .............. 2,376,845 188,392 7.93% 2,260,368 180,938 8.00%
---------- ---------- ---- ---------- -------- ----
NON-INTEREST-EARNING ASSETS:
Cash and Due From Banks ........................ 89,739 70,283
Premises and Equipment, Net .................... 42,478 42,785
Other Assets ................................... 52,084 43,897
Less Allowance for Loan Losses ................. (17,899) (17,728)
---------- ----------
Total ...................................... $2,543,247 $2,399,605
---------- ----------

LIABILITIES

INTEREST-BEARING LIABILITIES
Savings and Interest-Bearing Deposits .......... $ 585,535 $ 15,981 2.73% $ 493,737 $ 16,056 3.25%
Time Deposits of $100 or More .................. 384,154 19,375 5.04% 352,325 20,502 5.82%
Other Time Deposits ............................ 845,905 42,166 4.98% 878,812 41,081 4.67%
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase ............... 88,922 4,095 4.61% 65,280 3,336 5.11%
Notes Payable................................... 32,549 1,868 5.74% 27,844 1,831 6.58%
---------- ---------- ---- ---------- -------- ----
Total Interest-Bearing Liabilities ............... 1,937,065 83,485 4.31% 1,817,998 82,806 4.55%
---------- ---------- ---- ---------- -------- ----

NON-INTEREST-BEARING LIABILITIES:
Demand Deposits ................................ 328,539 320,496
Other Liabilities .............................. 17,897 21,658
Stockholders' Equity ........................... 259,746 239,453
---------- ----------
Total ........................................ $2,543,247 $2,399,605
---------- ----------
Net Interest-Earnings ........................ $ 104,907 $ 98,132
---------- --------
Net Interest Margin .......................... 4.41% 4.34%
---- ----
</TABLE>

(1) Marginal tax rate of 35%.
(2) Includes available-for-sale and investment securities.

15
<PAGE> 17
<TABLE>
<CAPTION>
1999 Compared to 1998 1997
---------------------------- ---------------------------
Total Due To Due To
Increase Change Change Average
(Decrease) In Volume In Rate Balance Interest Rate
---------- ------- ------- ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)

ASSETS

INTEREST-EARNING ASSETS:
Loans (net of unearned income) .......... $ 5,942 $ 8,584 $(2,642) $1,150,955 $108,790 9.45%
Securities(2)
Taxable Securities ...................... 1,979 3,167 (1,188) 786,831 50,739 6.45%
Non-taxable Securities .................. 1,235 678 557 128,138 9,788 7.64%
Money-Market Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to Resell
and Other Short-Term Investments ...... (1,702) (1,856) 154 57,006 4,105 7.20%
---------- ------- ------- ---------- -------- ----
Total Interest-Earning Assets ....... 7,454 10,573 (3,119) 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 ... $ (75) $ 2,985 $(3,060) $ 553,379 $ 16,492 2.98%
Time Deposits of $100 or More ........... (1,127) 1,852 (2,979) 327,022 19,361 5.92%
Other Time Deposits ..................... 1,085 (1,538) 2,623 751,544 37,802 5.03%
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ... 759 1,209 (450) 64,726 3,229 4.99%
Notes Payable ........................... 37 309 (272) 38,023 2,455 6.46%
---------- ------- ------- ---------- -------- ----
Total Interest-Bearing Liabilities ........ 679 4,817 (4,138) 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 ................. $ 6,775 $ 5,756 $ 1,019 $ 94,083
---------- ------- ------- --------
Net Interest Margin ................... 4.43%
----

<CAPTION>
1998 Compared to 1997
----------------------------------
Total Due To Due To
Increase Change Change
(Decrease) In Volume In Rate
--------- --------- -------
<S> <C> <C> <C>
(Dollars in Thousands)

ASSETS

INTEREST-EARNING ASSETS:
Loans (net of unearned income) .......... $11,245 $13,747 $(2,502)
Securities(2)
Taxable Securities ...................... (5,805) (4,526) (1,279)
Non-taxable Securities .................. 846 1,214 (368)
Money-Market Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to Resell
and Other Short-Term Investments ...... 1,230 3,332 (2,102)
------- ------- -------
Total Interest-Earning Assets ....... 7,516 13,767 (6,251)
------- ------- -------
NON-INTEREST-EARNING ASSETS:
Cash and Due From Banks .................
Premises and Equipment, Net .............
Other Assets ............................
Less Allowance for Loan Losses ..........

Total ...............................

LIABILITIES

INTEREST-BEARING LIABILITIES
Savings and Interest-Bearing Deposits ... $ (436) $(1,777) $ 1,341
Time Deposits of $100 or More ........... 1,141 1,498 (357)
Other Time Deposits ..................... 3,279 6,401 (3,122)
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ... 107 27 80
Notes Payable ........................... (624) (665) 41
------- ------- -------
Total Interest-Bearing Liabilities ........ 3,467 5,484 (2,017)
------- ------- -------

NON-INTEREST-BEARING LIABILITIES:
Demand Deposits .........................
Other Liabilities .......................
Stockholders' Equity ....................

Total

Net Interest-Earnings ................. $ 4,049 $ 8,283 $(4,234)
------- ------- -------
Net Interest Margin ...................
</TABLE>

16
<PAGE> 18

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Year Ended December 31,
(In Thousands, Except Per Share Data)
----------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Total Interest Income .................. $ 184,082 $ 177,216 $ 169,996 $ 154,452 $ 133,909
Net Interest Income .................... 100,597 94,410 90,657 80,645 70,580
Provision for Possible Loan Losses ..... 3,123 3,230 5,166 1,443 1,361
Net Income ............................. 33,458 30,268 25,772 27,059 22,527

PER SHARE DATA
Net Income ............................. $ 1.32 $ 1.20 $ 1.02 $ 1.11 $ 0.96
Cash Dividends Paid .................... 0.49 0.45 0.39 0.33 0.31

SELECTED BALANCE SHEET ITEMS
Year Ended Balances
Total Assets ........................... $2,666,047 $2,516,457 $2,355,255 $2,172,561 $1,935,896
Total Securities(1) .................... 925,186 910,745 901,906 888,565 784,512
Net Loans(2) ........................... 1,488,403 1,353,161 1,213,338 1,048,179 928,283
Total Deposits ......................... 2,251,631 2,133,951 1,990,159 1,859,854 1,645,444
Notes Payable .......................... 34,246 26,367 30,636 35,311 31,314
Capital Accounts ....................... 259,710 255,633 234,549 210,099 184,364
</TABLE>

(1) Includes available-for-sale and investment securities.
(2) Net of unearned discount.

17
<PAGE> 19

QUARTERLY RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
Quarter Ended
(Unaudited) (In Thousands, Except Per Share Data)
-------------------------------------------

March 31 June 30 Sept. 30 Dec. 31
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
Interest Income ........................ $44,355 $44,667 $47,251 $47,809
Interest Expense ....................... 20,107 20,193 21,396 21,789
Net Interest Income .................... 24,248 24,474 25,855 26,020
Provision for Possible Loan Losses ..... 688 487 686 1,262
Other Income ........................... 4,778 4,718 4,546 5,623
Other Expense .......................... 16,650 16,698 17,335 18,457
Income Tax Expense ..................... 3,565 3,625 3,788 3,563
------- ------- ------- -------
Net Income ............................. $ 8,123 $ 8,382 $ 8,592 $ 8,361
======= ======= ======= =======

Earnings Per Share ..................... $ 0.32 $ 0.33 $ 0.34 $ 0.33
======= ======= ======= =======

1998
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
======= ======= ======= =======
</TABLE>

18
<PAGE> 20

CONSOLIDATED STATEMENTS OF CONDITION

FIRST UNITED BANCSHARES, INC.
(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks .............................................. $ 113,476 $ 91,207
Short-Term Investments:
Federal Funds Sold and Securities
Purchased Under Agreement to Resell ......................... 45,875 71,928
Other Short-Term Investments.................................... 5,384 15,696
----------- -----------
Total Short-Term Investments ................................... 51,259 87,624
----------- -----------
Securities Available-for-Sale ........................................ 728,779 684,662
----------- -----------
Investment Securities (Fair Value of $193,056 and
$228,614 at December 31, 1999 and 1998, respectively) .......... 196,407 226,083
----------- -----------
Total Loans .......................................................... 1,492,356 1,359,485
Unearned Discount .............................................. (3,953) (6,324)
Allowance for Loan Losses ...................................... (18,675) (17,302)
----------- -----------
Net Loans ...................................................... 1,469,728 1,335,859
----------- -----------
Premises and Equipment ............................................... 42,689 42,739
----------- -----------
Intangible Assets .................................................... 15,877 10,674
----------- -----------
Other Assets ......................................................... 47,832 37,609
----------- -----------
Total Assets ................................................ $ 2,666,047 $ 2,516,457
=========== ===========

LIABILITIES
Deposits:
Demand ......................................................... $ 352,327 $ 338,414
Savings and Interest-Bearing Demand ............................ 622,326 588,311
Time ........................................................... 1,276,978 1,207,226
----------- -----------
Total Deposits .............................................. 2,251,631 2,133,951
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ............................ 106,951 82,470
Other Liabilities .................................................... 13,509 18,036
Notes Payable:
Unaffiliated Bank .................................................. 34,246 21,367
Affiliated Company ................................................. -0- 5,000
----------- -----------
Total Liabilities ........................................... 2,406,337 2,260,824
----------- -----------

Commitments and Contingencies

CAPITAL ACCOUNTS
Preferred Stock (Par Value of $1.00; 500 shares
authorized in 1999 and 1998; none outstanding) ................. -0- -0-
Common Stock (Par Value of $1.00; 50,000 shares
authorized; 25,296 and 25,294 shares issued and outstanding
1999 and 1998, respectively) ................................... 25,296 25,294
Surplus .............................................................. 26,636 26,610
Undivided Profits .................................................... 221,832 200,769
Accumulated Other Comprehensive Income ............................... (14,054) 2,960
----------- -----------
Total Capital Accounts ...................................... 259,710 255,633
----------- -----------
Total Liabilities and Capital Accounts ...................... $ 2,666,047 $ 2,516,457
=========== ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.

19
<PAGE> 21

CONSOLIDATED STATEMENTS OF INCOME

FIRST UNITED BANCSHARES, INC.
(In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans ................................. $125,977 $120,035 $108,790
Interest on Securities:
Taxable Securities .................................... 46,913 44,934 50,739
Non-taxable Securities ................................ 7,559 6,912 6,362
Interest on Federal Funds Sold and Securities
Purchased Under Agreements to Resell .................. 2,909 4,179 2,856
Interest on Deposits in Banks .............................. 724 1,156 1,249
-------- -------- --------
TOTAL INTEREST INCOME ............................. 184,082 177,216 169,996
-------- -------- --------

INTEREST EXPENSE
Interest on Deposits ....................................... 77,522 77,639 73,655
Interest on Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase ................... 4,095 3,336 3,229
Interest on Notes Payable .................................. 1,868 1,831 2,455
-------- -------- --------
TOTAL INTEREST EXPENSE ............................ 83,485 82,806 79,339
-------- -------- --------
NET INTEREST INCOME ............................... 100,597 94,410 90,657
Provision for Loan Losses .................................. 3,123 3,230 5,166
-------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES .................... 97,474 91,180 85,491
-------- -------- --------

OTHER INCOME
Service Charges on Deposit Accounts ........................ 11,210 9,358 9,787
Trust Income ............................................... 2,478 2,201 2,287
Security Gains ............................................. 241 444 99
Other Operating Income ..................................... 5,736 6,255 5,983
-------- -------- --------
TOTAL OTHER INCOME ................................ 19,665 18,258 18,156
-------- -------- --------

OTHER EXPENSE
Salaries ................................................... 28,546 26,966 26,255
Pension and Other Employee Benefits ........................ 8,752 8,078 9,562
Net Occupancy Expense ...................................... 5,320 5,218 5,831
Equipment Expense .......................................... 4,385 4,063 5,007
Data Processing Expense .................................... 4,300 4,497 3,127
Merger-related Costs ....................................... -0- 567 385
Other Operating
Expense .................................................... 17,837 16,829 18,458
-------- -------- --------

TOTAL OTHER EXPENSE ............................... 69,140 66,218 68,625
-------- -------- --------

INCOME BEFORE INCOME TAX EXPENSE ........................... 47,999 43,220 35,022
INCOME TAX EXPENSE ......................................... 14,541 12,952 9,250
-------- -------- --------
NET INCOME ................................................. $ 33,458 $ 30,268 $ 25,772
-------- -------- --------

EARNINGS PER SHARE:
Basic ................................................. $ 1.32 $ 1.20 $ 1.02
Diluted ............................................... $ 1.32 $ 1.20 $ 1.02
-------- -------- --------
CASH DIVIDENDS PER SHARE ................................... $ 0.49 $ 0.45 $ 0.39
-------- -------- --------
AVERAGE SHARES ISSUED AND OUTSTANDING ...................... 25,295 25,294 25,294
-------- -------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

20
<PAGE> 22
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS

<TABLE>
<CAPTION>
FIRST UNITED BANCSHARES, INC. Accumulated
(In Thousands) Common Stock Other
------------------- Undivided Treasury Comprehensive
Shares Amount Surplus Profits Stock Income Total
------- -------- -------- --------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>

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

Comprehensive Income
Net Income ................................ -0- -0- -0- 33,458 -0- -0- 33,458
Increase (Decrease) in Unrealized Gains ... -0- -0- -0- -0- -0- (17,014) (17,014)
---------
Comprehensive Income ................. 16,444
Tax Effect of Exercise of Stock Options ... 2 2 26 -0- -0- -0- 28
Dividends Paid ............................ -0- -0- -0- (12,395) -0- -0- (12,395)
------- -------- -------- --------- -------- -------- ---------

Balance, December 31, 1999 ..................... 25,296 $25,296 $26,636 $221,832 $ -0- $(14,054) $259,710
======= ======== ======== ========= ======== ======== =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

21
<PAGE> 23

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FIRST UNITED BANCSHARES, INC. Year Ended December 31,
-----------------------------------
(In Thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................... $ 33,458 $ 30,268 $ 25,772
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation ............................................. 3,978 4,128 4,750
Amortization of Goodwill ................................. 1,657 962 1,149
Provision for Loan Losses ................................ 3,123 3,230 5,166
Provision (Benefit) for Deferred Taxes ................... 155 192 (1,012)
(Gain) Loss on Sales of Securities ....................... (241) (444) (99)
Accretion of Bond Discount, Net .......................... (2,247) (2,412) (2,832)
Decrease (Increase) in Other Assets ...................... (10,223) 1,338 4,074
Increase (Decrease) in Other Liabilities ................. (7,383) (6,858) 6,933
--------- --------- ---------
Net Cash Provided by Operating Activities ..................... 22,277 30,404 43,901
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Investment Securities ........... 52,987 53,693 49,708
Proceeds from Maturities of Securities Available-for-Sale ... 792,866 251,061 294,057
Proceeds from Sales of Securities Available-for-Sale ........ 38,617 24,303 10,293
Purchase of Investment Securities ........................... (48,860) (42,352) (34,158)
Purchase of Available-for-Sale Securities ................... (888,927) (291,216) (351,159)
Increase (Decrease) in Federal Funds, Net ................... 50,534 (6,358) 28,283
(Increase) Decrease in Other Short-term Investments ......... 10,312 8,905 305
Increase in Loans ........................................... (136,992) (143,445) (157,250)
Capital Additions, Net ...................................... (3,928) (5,426) (3,233)
Proceeds for Acquisition of Subsidiary Bank ................. 17,363 -0- -0-
--------- --------- ---------
Net Cash used in Investing Activities ......................... (116,028) (150,835) (163,154)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Demand, Savings, and
Interest-bearing Demand Deposits ......................... 47,928 80,688 20,399
Increase in Time Deposits ................................... 69,752 63,104 111,558
Issuance (Repayment) of Notes Payable ....................... 10,735 (4,269) (4,675)
Dividends Paid .............................................. (12,395) (11,176) (9,866)
--------- --------- ---------
Net Cash Provided by Financing Activities..................... 116,020 128,347 117,416
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........... 22,269 7,916 (1,837)

Cash and Cash Equivalents, Beginning .......................... 91,207 83,291 85,128
--------- --------- ---------

Cash and Cash Equivalents, Ending ............................ $ 113,476 $ 91,207 $ 83,291
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements.

22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FIRST UNITED BANCSHARES, INC.

1. BUSINESS, BASIS OF FINANCIAL STATEMENT PRESENTATION,
ACCOUNTING POLICIES AND RECENT PRONOUNCEMENTS

BUSINESS:

First United Bancshares, Inc. (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 examination 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 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 expense 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.

LOANS:

Loans are stated at the amount of unpaid principal, reduced by unearned
income and an allowance for probable 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 loan losses is established through a provision for
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 probable 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.

23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 7. Maintenance, repairs and minor improvements are charged to operating
expenses. Gains or losses on dispositions are reflected currently in the
Statement of Income.

INTANGIBLE ASSETS:

Intangible assets include goodwill and core deposit intangibles.
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. Core deposit intangibles represent the premium paid for
deposits purchased and are amortized on a straight-line basis over ten years.
Accumulated amortization of intangible assets was $8,320,000 and $6,803,000 at
December 31, 1999 and 1998, 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 $109,000, $362,000 and $315,000 for the years ended December 31,
1999, 1998 and 1997, respectively.

PER SHARE DATA:

Basic EPS was computed by dividing net income by the weighted average
shares of common stock outstanding, 25,295,000 in 1999 and 25,294,000 in 1998
and 1997. 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 41,000 in 1999, 30,000 in 1998 and 66,000
in 1997.

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.

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.

RECENT PRONOUNCEMENTS:

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.
During 1999, the FASB issued 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" which concluded that
it was appropriate to defer the effective date of SFAS No. 133 for one year,
from fiscal years beginning after June 15, 1999, to fiscal years beginning after
June 15, 2000. Management does not expect this standard to have a material
impact on First United's consolidated financial condition or results of
operations. Management intends to comply with this standard in 2001.

24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

On March 30, 1998, the Company acquired 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 poolings-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.

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
("Fredonia") 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 for the periods prior to the acquisition have been restated to include
the results of Fredonia.

3. SECURITIES AVAILABLE-FOR-SALE

The carrying values and estimated fair values of securities
available-for-sale at December 31, 1999 and 1998 consisted of the following (in
thousands):

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
======== ====== ======== ========
</TABLE>

25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The amortized cost and estimated fair value of securities available-for-sale
at December 31, 1999, 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 .................. $322,985 $312,830
Due After One Year Through Five Years .... 216,848 211,084
Due After Five Years Through Ten Years ... 63,725 60,845
Due After Ten Years ...................... 6,008 5,566
Mortgage-Backed Securities ............... 140,760 138,454
-------- --------
$750,326 $728,779
======== ========
</TABLE>

Gross gains realized on these sales during 1999, 1998 and 1997 were
$241,000, $444,000 and $99,000, respectively.

4. INVESTMENT SECURITIES

The carrying values and estimated fair values of investments in debt
securities as of December 31, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1999
U.S. Treasury Securities and
Other U.S. Government Agencies ....................... $ 14,815 $ 11 $ 237 $ 14,589
Obligations of States and Political Subdivisions ..... 116,858 237 1,457 115,638
Mortgage-Backed Securities ........................... 58,606 56 1,961 56,701
Other ................................................ 6,128 0 0 6,128
-------- ------ -------- --------
$196,407 $ 304 $ 3,655 $193,056
======== ====== ======== ========
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
======== ====== ======== ========
</TABLE>

The amortized cost and estimated fair value of debt securities at December
31, 1999, 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 .................. $ 37,398 $ 37,346
Due After One Year Through Five Years .... 57,186 56,941
Due After Five Years Through Ten Years ... 42,218 41,126
Due After Ten Years ...................... 1,000 943
Mortgage-Backed Securities ............... 58,605 56,700
-------- --------
$196,407 $193,056
======== ========
</TABLE>

There were no sales of investment securities during 1999 and 1998.

Securities with a carrying value of $502,795,000 at December 31, 1999
were pledged to secure public deposits and for other purposes required by law.

26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. ALLOWANCE FOR LOAN LOSSES

The changes in the allowance for loan losses during 1999, 1998 and 1997
were as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at Beginning of Year ....... $ 17,302 $ 17,694 $ 14,951
Allowance Applicable to Loans of
Acquired Bank .................... 1,000 -0- 426
Provision Charged Against Income ... 3,123 3,230 5,166
Recoveries on Loans Charged-Off .... 1,502 2,048 1,849
Loans Charged-Off .................. (4,252) (5,670) (4,698)
---------- ---------- ----------
Balance at End of Year ............. $ 18,675 $ 17,302 $ 17,694
========== ========== ==========
</TABLE>

6. LOANS

Loans consist of the following categories (in thousands):

<TABLE>
<CAPTION>
TYPE 1999 1998
---------- --------------
<S> <C> <C>
Real Estate Loans
Residential Properties, Primarily Single
Family Residences ........................ $ 436,584 $ 407,075
Commercial Properties ....................... 491,604 423,319
Commercial and Industrial Loans, Other Than
Real Estate and Energy-Related .............. 330,002 314,120
Energy-Related Loans .......................... 11,109 11,367
Consumer Loans ................................ 218,931 202,520
Loans for Purchasing or Carrying Securities ... 189 276
Financing Leases .............................. 3,937 808
---------- --------------
$1,492,356 $ 1,359,485
========== ==============
</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, 1999 and 1998, officers, directors and related
parties had loans of approximately $30,713,000 and $31,853,000, respectively.
During the year ended December 31, 1999, loans made to these parties totaled
$22,232,000 and repayments totaled $20,624,000. Loans to former officers,
directors and related parties included in the 1998 amounts totaled $2,748,000.

A summary of non-performing assets as of December 31, 1999 and 1998 is as
follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Non-Accrual Loans ..................................... $ 8,202 $ 6,777
Past Due Loans (90 Days or more and still accruing) ... 2,933 2,812
Renegotiated Loans .................................... 1,034 1,068
------- -------
12,169 10,657
Other Real Estate ..................................... 3,418 1,399
------- -------
Total Non-Performing Assets ........................... $15,587 $12,056
======= =======
</TABLE>

The Company's non-accrual policy had the effect of reducing interest and
fees on loans in 1999, 1998 and 1997 by approximately $265,000, $227,000 and
$300,000, respectively. Substantially all payments on non-accrual loans were
applied to principal.

27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. PREMISES AND EQUIPMENT

Premises and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
Principal
Depreciation Estimated
Method Useful Life 1999 1998
------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Land ................................... $ 10,339 $ 8,866
Buildings and Leasehold Improvements ... Straight-line 5-40 years 46,301 41,512
Furniture, Fixtures and Equipment ...... Straight-line 3-10 years 33,449 30,641
--------- --------
90,089 81,019
Less: Accumulated Depreciation ......... (47,400) (38,280)
--------- --------
$ 42,689 $ 42,739
========= ========
</TABLE>

Depreciation included in other expense, net occupancy expense and
equipment expense was $3,978,000 in 1999, $4,128,000 in 1998 and $4,750,000 in
1997.

The Company leased land on which two branches are located and rented 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 the year
ended December 31, 1997. In June of 1998, the Company purchased the land and
parking lot for $283,000.

8. INCOME TAXES

Income tax expense (benefit) is composed of the following (in
thousands):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Currently Payable ... $ 14,386 $ 12,760 $ 10,262
Deferred ............ 155 192 (1,012)
-------- -------- --------
$ 14,541 $ 12,952 $ 9,250
======== ======== ========
</TABLE>

The income tax provision included $84,000, $155,000 and $35,000 for the
years ended December 31, 1999, 1998 and 1997, 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory Federal Income Tax Rate ... 35.0% 35.0% 35.0%
Less:
Non-Taxable Interest Income ....... (5.5) (5.5) (6.4)
Amortization of Goodwill .......... 1.2 0.9 1.1
Merger-related Costs .............. 0.0 0.4 0.0
Other Items, Net .................. (0.4) (0.8) (3.3)
---- ---- ----
Effective Income Tax Rate ........... 30.3% 30.0% 26.4%
---- ---- ----
</TABLE>

28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1999 and 1998, 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>
1999 1998
-------- --------
<S> <C> <C>
Accelerated Depreciation ........................ $ (1,294) $ (1,348)
Provision for Loan Losses ....................... 6,241 5,377
Unrealized Gain on Marketable Securities ........ 7,541 (1,581)
Effects of Pension and Benefit Plans ............ (566) (66)
Difference in Tax and Book Basis of Securities... (352) (427)
Difference in Tax and Book Basis of Loans ....... (741) (605)
Write-Down of Other Real Estate ................. 64 48
Other ........................................... (237) 327
-------- --------
$ 10,656 $ 1,725
======== ========
</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.

9. 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.

<TABLE>
<CAPTION>
1999 1998
----------- --------
<S> <C> <C>
Average balance during the year ........................ $ 88,922 $ 65,280
Average interest rate during the year .................. 4.61% 5.11%
Maximum month-end balance during the year .............. $ 111,388 $ 89,448
U.S. government securities pledged as collateral for the
repurchase agreements:
Carrying Value ......................................... $ 120,677 $ 91,312
Estimated Fair Value ................................... $ 117,167 $ 92,025
</TABLE>

10. NOTES PAYABLE

A summary of notes payable as of December 31, 1999 and 1998 is as
follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
------- -------
<C> <C> <C>
Promissory Note Bearing Interest at 1.20% Above the 30-Day LIBOR
(6.264% at December 31, 1998), Principal Due 1999 ............................. $ 0 $ 5,000
Promissory Note Bearing Interest at 0.583% Above the 30-Day LIBOR
(6.576% and 5.647% at December 31, 1999 and 1998), Principal Due 2001 ......... 5,000 5,000
Promissory Note to Unaffiliated Bank Bearing Interest at 1.41% Above the 30-Day
LIBOR (7.315% and 6.475% at December 31, 1999
And 1998), $1,100,000 Due Annually ............................................ 4,457 5,557
Other Installment Notes Payable Bearing Interest at Rates Varying From
5.17% to 8.50% and With Maturities Varying From 2000 to 2021 .................. 24,789 10,810
------- -------
$34,246 $26,367
======= =======
</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: 2000 -
$14,728,000; 2001 - $11,854,000; 2002 - $1,588,000; 2003 - $1,684,000; 2004 -
$387,000; and thereafter $4,005,000.

29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. 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,
1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
For the Years Ended December 31: 1999 1998
-------- --------
<S> <C> <C>
Change in Benefit Obligation
Benefit Obligation at Beginning of Year .......... $ 17,919 $ 14,581
Service Cost ..................................... 1,454 882
Interest Cost .................................... 1,278 1,053
Actuarial Losses ................................. 192 2,426
Benefit Paid ..................................... (1,402) (1,023)
-------- --------
Benefit Obligation at End of Year ................ $ 19,441 $ 17,919
-------- --------
Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year ... $ 17,957 $ 16,330
Actual Return on Plan Assets ..................... 9 1,554
Employer Contribution ............................ 1,362 1,096
Benefits Paid .................................... (1,402) (1,023)
-------- --------
Fair Value of Plan Assets at End of year ......... $ 17,926 $ 17,957
-------- --------
Funded Status .................................... $ (1,564) $ 38
Unrecognized Net Actuarial Loss .................. 4,973 3,620
Unrecognized Prior Service Cost .................. (475) (663)
-------- --------
Prepaid Benefit Cost ............................. $ 2,934 $ 2,995
======== ========
</TABLE>

The Plan's net pension cost for 1999, 1998 and 1997 included the following
components (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service Cost ....................................... $ 1,464 $ 882 $ 664
Interest Cost on Projected Benefit Obligation ...... 1,278 1,053 926
Expected Return on Assets .......................... (1,313) (1,194) (1,012)
Net Amortization and Deferral ...................... 1,309 204 1,399
------- ------- -------
$ 2,738 $ 945 $ 1,977
------- ------- -------
Significant Assumptions:
Weighted Average Discount Rate ..................... 6.75% 7.00% 7.25%
Estimated Future Pay Increases ..................... 3.50% 4.00% 4.00%
Expected Return on Assets .......................... 7.50% 7.50% 7.50%
</TABLE>

30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 1999, 1998 and 1997, the Company's expenses totaled approximately
$1,378,000, $1,017,000, and $842,000, respectively.

The Company offers qualified employees the opportunity to participate
in 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 does not exceed 5% of each employee's salary, and a discretionary amount
determined each year by the Company. The amount of expense recognized in 1999,
1998 and 1997 was $524,000, $492,000 and $353,000, respectively.

Last year, the Company adopted the 1999 Employees' Long-Term Incentive
Plan. This Plan is intended to replace the 1994 Equity Participation Plan except
that the outstanding grants and awards made under the 1994 Plan will remain in
effect until exercised or expired in accordance with their terms. Under the 1999
Plan, the number of shares of common stock which may be issued cannot exceed 4%
of the outstanding shares or 1,012,000 shares at December 31, 1999. 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, 1999 December 31, 1998 December 31, 1997
------------------------- ------------------------- ------------------------
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.. 199,744 $ 16.03 109,744 $ 12.62 96,538 $ 12.13
Granted ............ 71,000 17.84 105,000 20.31 13,206 16.25
Exercised .......... (1,612) 17.25 (1,250) 13.24 -0- -0-
Canceled ........... -0- -0- (13,750) 18.34 -0- -0-
--------- --------- ---------
Outstanding,
end of year ....... 269,132 $ 16.50 199,744 $ 16.03 109,744 $ 12.62
--------- --------- ---------
</TABLE>

Options to purchase 106,090 shares of common stock were exercisable at
an average exercise price of $14.65 at December 31, 1999.

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 1999 and 1998 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>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net Income - As reported ............... $ 33,458 $ 30,268 $ 25,772
Net Income - Pro forma ................. $ 33,035 $ 29,956 $ 25,630
Net Income per share - As reported ..... $ 1.32 $ 1.20 $ 1.02
Net Income per share - Pro forma ....... $ 1.30 $ 1.18 $ 1.01
</TABLE>

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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Expected Life ................ 10 Years 10 Years 10 Years
Risk-Free Interest Rate ...... 5.82% 5.80% 6.54%
Expected Volatility .......... 31.72% 28.74% 30.00%
Dividend Yield ............... 3.60% 2.50% 2.46%
</TABLE>

The weighted average fair value of options granted during 1999 and 1998
was $5.36 and $12.42 per share, respectively. The pro forma effect on net income
for 1999 and 1998 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 1998 is not included.

31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. 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 2000. 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, 1999 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, 1999 and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Commitments to Extend Credit...... $ 259,193 $ 185,123
Standby Letters of Credit......... 15,278 9,679
</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: 2000 -$3,892,000; 2001 - $3,984,000; 2002 -
$3,987,000; 2003 - $4,049,000; 2004 - $585,000; and thereafter $697,000.

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 financial
condition and results of operations.

13. 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 2000, the Company's subsidiary banks will have
available for payment of dividends, without regulatory approval, approximately
$17,456,000 of undistributed earnings plus the net income earned in 2000.

At December 31, 1999, the Company was required to maintain reserve
balances in cash and due from accounts of approximately $11,643,000.

14. SUPPLEMENTARY DATA FOR CASH FLOWS

Income taxes paid by the Company during the years ended December 31,
1999, 1998 and 1997 amounted to $12,822,000, $9,423,000 and $8,673,000,
respectively. Interest paid on notes payable during the years ended December 31,
1999, 1998 and 1997 was $1,868,000, $1,831,000 and $2,377,000, respectively.

In connection with the acquisition of East Texas National Bank in 1999,
the Company acquired assets and assumed liabilities as follows (in thousands):

<TABLE>
<S> <C>
Fair Value of Assets Acquired..................... $ 102,179
Core Deposit Intangible .......................... 7,000
Liabilities Assumed .............................. (109,179)
---------
Cash Paid ........................................ -0-
Cash Acquired .................................... 17,363
---------
Net Cash Received in Purchase .................... $ 17,363
=========
</TABLE>

32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. 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.
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, 1999, that the Company and its
subsidiaries meet all capital adequacy requirements to which they are subject.
At December 31, 1999, 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 Provisions to be
Regulatory Capital Required Capital Well Capitalized
--------------------- ------------------ ---------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- -------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1999:
Total Capital (to Risk Weighted Assets)
First United Bancshares, Inc. .......... $ 259,710 15.92% $130,509 8.00% N/A
City National Bank of Fort Smith ....... $ 48,375 12.17% $ 31,791 8.00% $ 39,738 10.00%
Tier 1 Capital (to Risk Weighted Assets)
First United Bancshares, Inc. .......... $257,887 15.81% $ 65,255 4.00% N/A
City National Bank of Fort Smith ....... $ 51,384 12.93% $ 15,895 4.00% $ 23,843 6.00%
Tier 1 Capital (to Average Assets)
First United Bancshares, Inc. .......... $257,887 10.14% $101,730 4.00% N/A
City National Bank of Fort Smith ....... $ 51,384 8.88% $ 23,152 4.00% $ 28,941 5.00%

At December 31, 1998
Total Capital (to Risk Weighted Assets)
First United Bancshares, Inc. .......... $255,633 17.33% $118,038 8.00% N/A
City National Bank of Fort Smith ....... $ 40,136 13.00% $ 24,700 8.00% $ 30,875 10.00%
Tier 1 Capital (to Risk Weighted Assets)
First United Bancshares, Inc. .......... $241,999 16.40% $ 59,019 4.00% N/A
City National Bank of Fort Smith ....... $ 39,392 12.76% $ 12,350 4.00% $ 18,525 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 8.39% $ 18,782 4.00% $ 23,477 5.00%
</TABLE>

33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 1999, 1998 and 1997
(in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ -------------------------- ----------------------------
Before Tax After Before Tax After Before Tax After
Tax (Expense) Tax Tax (Expense) Tax Tax (Expense) Tax
Amount or Benefit Amount Amount or Benefit Amount Amount or Benefit Amount
-------- ---------- -------- ------- ---------- ----- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net unrealized
holding gains
(losses) arising
during the
period ............. $(25,934) $9,077 $(16,857) $ 1,202 $(420) $ 782 $ 3,452 $(1,208) $ 2,244

Reclassification
Adjustment
for gains
included in
net income ......... (241) 84 (157) (444) 155 (289) (99) 35 (64)
-------- ------ -------- ------- ----- ----- ------- ------- -------

Net change in
unrealized gains
(losses)
on securities ...... $(26,175) 9,161 $(17,014) $ 758 $(265) $ 493 $ 3,353 $(1,173) $ 2,180
======== ====== ======== ======= ===== ===== ======= ======= =======
</TABLE>

16. 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,
----------------------
Condensed Financial Position: 1999 1998
--------- ---------
<S> <C> <C>
Assets:
Cash ........................................ $ 34,207 $ 46,403
Investment in Subsidiaries .................. 227,798 216,356
Other Assets ................................ 7,079 7,190
--------- ---------
Total Assets .............................. $ 269,084 $ 269,949
========= =========

Liabilities and Capital Accounts:
Notes Payable ............................... $ 4,457 $ 10,557
Other Liabilities ........................... 4,917 3,759
--------- ---------
Total Liabilities ......................... 9,374 14,316
--------- ---------
Total Capital ............................. 259,710 255,633
--------- ---------
Total Liabilities and Capital ............. $ 269,084 $ 269,949
========= =========
</TABLE>

34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Condensed Operating Results:
Dividend Income from Subsidiaries ............... $ 18,525 $ 31,505 $ 26,750
Management Fees ................................. 499 588 428
Other Income .................................... 80 75 78
--------- --------- --------
19,104 32,168 27,256
--------- --------- --------
Interest Expense ................................ 523 810 1,204
Other Expense ................................... 5,395 6,311 5,046
--------- --------- --------
5,918 7,121 6,250
--------- --------- --------
Income Before Tax Benefit and Equity in
Undistributed Income of Subsidiaries ........... 13,186 25,047 21,006
Income Tax Benefit .............................. 2,816 530 3,037
--------- --------- --------
Income before Equity in Undistributed
Income of Subsidiaries .......................... 16,002 25,577 24,043
Equity in Undistributed Income
Of Subsidiaries ................................ 17,456 4,691 1,729
--------- --------- --------
Net Income ...................................... $ 33,458 $ 30,268 $ 25,772
========= ========= ========
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
Condensed Statements of Cash Flows: 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ...................................... $ 33,458 $ 30,268 $ 25,772
Depreciation .................................... 342 314 283
Undistributed Income ............................ (17,456) (4,691) (1,202)
Increase in Other Assets ........................ (203) 6,691 (5,883)
(Decrease) Increase in Other Liabilities ........ 1,158 (2,142) 3,505
17,299 30,440 22,475
Cash Flows from Investing Activities:
Investment in Subsidiaries ...................... (11,000) (1,000) -0-
--------- --------- --------

Cash Flows from Financing Activities:
Principal Repayments on Notes Payable ........... (6,100) (3,844) (1,295)
Issuance of Notes Payable ....................... -0- -0- 50
Treasury Stock Transactions ..................... -0- -0- (11)
Payment of Dividends ............................ (12,395) (11,176) (9,866)
--------- --------- --------
(18,495) (15,020) (11,122)
--------- --------- --------
Net Increase in Cash ............................ (12,196) 14,420 11,353
Cash at Beginning of Year ....................... 46,403 31,983 20,630
--------- --------- --------
Cash at End of Year ............................. $ 34,207 $ 46,403 $ 31,983
========= ========= ========

Supplementary Data for Cash Flows:
Taxes Paid ...................................... $ 12,822 $ 9,423 $ 8,673
Interest Paid on Notes Payable .................. 1,868 1,831 2,377
</TABLE>

35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. 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 below 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, 1999
and 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Short-Term Investments ...... $ 164,735 $ 164,735 $ 178,831 $ 178,831
Securities ........................... 925,186 911,132 910,745 913,276
Loans ................................ 1,488,403 1,487,195 1,353,161 1,349,977
LIABILITIES
Deposits ............................. $2,251,631 $2,290,255 $2,133,951 $2,135,992
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase ...................... 106,951 106,951 82,470 82,470
Notes Payable ........................ 34,246 34,246 26,367 26,367
</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, 1999, the
maximum financing limitation is 10.0%. 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.

36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

37
<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, 1999 and 1998, 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, 1999. 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 financial statements of Citizens National Bancshares of Hope, Inc., a
company acquired during 1998 in a transaction accounted for as a
pooling-of-interests, as discussed in Note 2. 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 of the related consolidated
totals. These statements were audited by another auditor whose report has been
furnished to us and our opinion, insofar as it relates to amounts included for
Citizens National Bancshares of Hope, Inc., is based solely upon the report of
the other auditor.

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 other auditor provides a reasonable
basis for our opinion.

In our opinion, based upon our audit and the report of the other
auditor, 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1999.

Arthur Andersen LLP

Jackson, Mississippi,
January 18, 2000

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.

38
<PAGE> 40

FIRST UNITED BANCSHARES, INC. OFFICERS
AND BOARD OF DIRECTORS

EXECUTIVE OFFICERS

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

John G. Copeland Claiborne P. Deming George Middlebrook, III
Senior Vice President, Chief Financial President & Chief Executive Officer, Investments
Officer & 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
Richard E. Ulmer First United Bancshares, Inc.
Vice President & Loan Review Officer Carolyn Tennyson
Roy E. Ledbetter Timber Investments
Cynthia C. Alphin President & Chief Executive Officer,
Assistant Vice President of Planning & Highland Industrial Park, Inc. John D. Trimble, Jr.
Assistant Secretary Managing Partner,
Jack W. McNutt Trimble Properties
REGIONAL CHAIRMEN Former President &
Chief Executive Officer,
John Robert Graves Murphy Oil Corporation
South Arkansas
Michael F. Mahony
Jim Harwood Attorney
North and West Arkansas

Gordon Lewis
Texas and Louisiana
</TABLE>

39
<PAGE> 41

SUBSIDIARY BANKS' BOARD OF DIRECTORS

<TABLE>
<CAPTION>
<S> <C> <C>
FIRST NATIONAL BANK MERCHANTS & PLANTERS FREDONIA STATE BANK
OF EL DORADO, ARKANSAS BANK, N.A. OF CAMDEN, NACOGDOCHES, TEXAS
Claiborne P. Deming ARKANSAS Hank Crouse
Barry Felton Eugene Bramblett J. R. Honea
James V. Kelley John Robert Graves Gordon Lewis
Larry Kinard James R. Jordan George Middlebrook, III
Michael F. Mahony Roy E. Ledbetter Arthur L. Speck, M.D.
Richard H. Mason Jim Neeley Dan Stansel
R. Madison Murphy Richard L. Robertson Craig Stripling
Robert C. Nolan Joe M. Rogers Roger Van Horn
Robert M. Reynolds
Dr. Henry B. Rogers THE BANK OF CITY BANK & TRUST
John H. Sample NORTH ARKANSAS SHREVEPORT, LOUISIANA
Stephen C. Smart, D.D.S. MELBOURNE, ARKANSAS James C. Egan, Jr.
Carolyn Tennyson W. Wesley Arnold Jerry A. Fielder
Charles E. Thomas Brenda K. Barnes John C. Gehl
John D. Trimble, Jr. Thomas C. Colegrove William R. Hargrove
Dr. Srini Vasan Harlin F. Hames Gordon Lewis
Jim Harwood R. A. Mackey
FIRST NATIONAL BANK Lloyd T. Jones J. Russell Reeves
OF MAGNOLIA, ARKANSAS James E. Miller Richard H. Sale
Larry Burrow Reed M. Perryman Richard K. Speairs, Jr., Ph.D.
Kathy Dickson S. M. Trombetta
Tommy Fallin, Jr. FIRST UNITED BANK
John Robert Graves STUTTGART, ARKANSAS CITIZENS NATIONAL BANK
Robert L. Jones Jack B. Coker, RPh HOPE, ARKANSAS
Richard G. Murphy Tommy Hillman Rodney H. Bobo
Cal Partee, Jr. Jerry J. Hoskyn John M. Cox
David F. Rankin Steven M. Keith George Frazier
Chris W. Weiser James V. Kelley Albert Graves
Joe D. Woodward Robert M. Koch Al Graves, Jr.
Ben A. Myers, P.D. John Robert Graves
CITY NATIONAL BANK Wanda Northcutt Hartz Jim Hart
OF FORT SMITH, ARKANSAS Robert Petter, Sr. Henry Haynes
Thomas J. Barr Randall Snider Louis C. Jordan
Morris G. Boren John E. Stephens James V. Kelley
Carolyn L. Branch Dr. Ralph H. Wilson Hillman Koen
Charles Dyer Mitchell LaGrone
Jim V. Fincher FIRSTBANK Ned Ray Purtle
George C. Fisher TEXARKANA, TEXAS Dennis Ramsey
Jim Harwood James M. Carlow William R. Routon
James V. Kelley Steve Conner
A. Samuel Koenig, III Lucille T. Cook FIRST REPUBLIC BANK
John R. Meyers Delton B. Gwinn MONROE, LOUISIANA
J. R. Minish Joe Connor Hart C. S. Aycock, Jr.
Jim Nunnelee Gordon Lewis John Hoychick, Jr.
Jerry Orler M. L. Mayo Gordon Lewis
Linda Schmidt Amos McCulloch, Jr. Henry A. Logue
Charles Shuffield H. J. Trammell Guy C. Pardue
Bobby W. Stephens Graton E. White, Jr. Terry B. Ware
Steve C. Wiggs
FIRST UNITED TRUST
COMPANY, N.A.
Richard P. Clark, II
John Robert Graves
Tommy Hillman
Robert M. Koch
R. Madison Murphy
</TABLE>

40
<PAGE> 42

ANNUAL MEETING
The annual meeting of Stockholders will convene on Tuesday, May 23, 2000, 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
John G. Copeland, First United Bancshares, Inc.,
P.O. Box 751, El Dorado, Arkansas 71731-0751
or e-mail [email protected].

STOCKHOLDER INFORMATION
Stockholders seeking any information concerning their shares or
dividends should contact the transfer agent:
First United Trust Company, N.A.
P.O. Box 751, El Dorado, Arkansas 71731-0751,
Telephone (870) 863-3181, extension, 241
or e-mail [email protected].

NASDAQ MARKET MAKERS IN FIRST UNITED STOCK
J.C. Bradford & Company
Edward Jones & Company
Morgan Keegan & Company
Stephens Inc.
Stifel, Nicolaus & Company

41
<PAGE> 43

FIRST UNITED LOCATIONS

<TABLE>
<CAPTION>
LEGEND
Banks
<S> <C> <C>
1. Alma, Arkansas / City National Bank of Fort Smith
2. Alto, Texas / Fredonia State Bank
3. Brinkley, Arkansas / First United Bank
4. Calico Rock, Arkansas / The Bank of North Arkansas
5. Camden, Arkansas / Merchants and Planters Bank, N.A.
6. Carlisle, Arkansas / First United Bank
7. Chidester, Arkansas / Merchants and Planters Bank, N.A.
8. Dyer, Arkansas / City National Bank of Fort Smith [Watermark of State Outlines of
9. East Camden, Arkansas / Merchants and Planters Bank, N.A. Arkansas, Louisiana and Texas
10. El Dorado, Arkansas / First National Bank of El Dorado with the number of the locations
11. Fort Smith, Arkansas / City National Bank of Fort Smith of the banks in the left column
12. Garrison, Texas / Fredonia State Bank pinpointed in the State's location]
13. Greenwood, Arkansas / City National Bank of Fort Smith
14. Harelton, Texas / Fredonia State Bank
15. Hazen, Arkansas / First United Bank
16. Hooks, Texas / FirstBank
17. Hope, Arkansas / Citizens National Bank of Hope
18. Horseshoe Bend, Arkansas / The Bank of North Arkansas
19. Humnoke, Arkansas / First United Bank
20. Humphrey, Arkansas / First United Bank
21. Lewisville, Arkansas / Citizens National Bank of Hope
22. Magnolia, Arkansas / First National Bank of Magnolia
23. Marshall, Texas / Fredonia State Bank
24. Maud, Texas / FirstBank
25. Melbourne, Arkansas / The Bank of North Arkansas
26. Monroe, Louisiana / First Republic Bank
27. Mountainburg, Arkansas / City National Bank of Fort Smith
28. Nacogdoches, Texas / Fredonia State Bank
29. New Boston, Texas / FirstBank
30. Rayville, Louisiana / First Republic Bank
31. Redwater, Texas / FirstBank
32. Ruston Louisiana / First Republic Bank
33. Shreveport, Louisiana / City Bank & Trust
34. Stuttgart, Arkansas / First United Bank
35. Taylor, Arkansas / First National Bank of Magnolia
36. Texarkana, Arkansas / Citizens National Bank of Hope
37. Texarkana, Texas / FirstBank
38. Van Buren, Arkansas / City National Bank of Fort Smith
39. West Monroe, Louisiana / First Republic Bank

OTHER HOLDINGS

40. Lewisville, Arkansas / First Bankers Insurance Services
41. Little Rock, Arkansas / First United Data Center

</TABLE>
42
<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
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
First Republic Bank, Monroe, Louisiana
First United Trust Company, N.A.

<PAGE> 45

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> 46

APPENDIX

TO THE
1999 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") 1999 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. Annual Report 1999"

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 $0.96,
$1.11, $1.02, $1.20 and $1.32 for the years ended December 31, 1995, 1996,1997,
1998 and 1999, 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 $7.86, $8.60, $9.27, $10.11 and $10.27
for the years ended December 31, 1995, 1996,1997, 1998 and 1999, respectively.
The graph also discloses the market value of a share of First United common
stock to be $13.83, $16.50, $21.00, $17.75 and $13.83 for the years ended
December 31, 1995, 1996,1997, 1998 and 1999, 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". "Break-Even Yield" is disclosed as 3.74%, 3.66%, and 3.52%,
the Net Interest Margin" is disclosed as 4.43%, 4.34%, and 4.41%, the "Net
Interest Spread" is disclosed as 3.60%, 3.45%, and 3.62%, for the years ended
December 31, 1997, 1998, and 1999, 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 $1,361,
$1,443, $5,166, $3,230 and $3,123, for the years ended December 31, 1995, 1996,
1997, 1998, and 1999, 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 $8,608, $8,687, $9,623, $12,056 and $15,587, the
"Non- Performing Loans" as, $7,165, $7,514, $8,640, $10,657 and $12,169, and the
"Allowance for Loan Losses" as $15,259, $14,951, $17,694, $17,302 and $18,675,
for the years ended December 31, 1995, 1996, 1997, 1998, and 1999, respectively.

7. Page 9 of the Report contains a graph titled "Average Deposit
Composition" which discloses the make-up of the deposits as 27.31% of "Savings
and Interest-Bearing Demand" deposits, 39.45% of "Other Time Deposits", 15.32%
of "Non-Interest Bearing Demand" deposits and 17.92% 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 $182,600, $210,099, $234,549, $255,633 and $259,710, for the years
ended December 31, 1995, 1996, 1997, 1998, and 1999, respectively.

9. Page 11 of the Report contains a graph titled "1999 Risked Based
Capital Ratios" which discloses "Tier 1 Capital" and "Total Risk-Based Capital"
of First United as 15.81% and 16.95% respectively, and the regulatory
requirements of "Tier 1 Capital" and "Total Risk-Based Capital" as 4.00% and
8.00%, respectively.

10. Page 42 of the Report contains a watermark of the state outlines of
Arkansas, Louisiana and Texas with the number of the locations of the banks
listed on the left pinpointed in the respective state's location.

<PAGE> 1
EXHIBIT 21

FIRST UNITED BANCSHARES, INC.
Subsidiaries

<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------

<S> <C>
The First National Bank of El Dorado United States
El Dorado, Arkansas

First United Trust Company, N.A. United States
El Dorado, Arkansas

City National Bank of Fort Smith United States
Fort Smith, Arkansas

First National Bank of Magnolia United States
Magnolia, Arkansas

Merchants and Planters Bank, N.A. United States
Camden, Arkansas

The Citizens National Bank of Hope United States
Hope, Arkansas

The Bank of North Arkansas Arkansas
Melbourne, Arkansas

First United Bank Arkansas
Stuttgart, Arkansas

First United of Texas, Inc. Arkansas
El Dorado, Arkansas

City Bank & Trust of Shreveport Louisiana
Shreveport, Louisiana

Eagle Premium Assistance Corporation Louisiana
Rayville, Louisiana

First Republic Agricultural Credit Corporation Louisiana
Rayville, 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 18, 2000 included in the First United Bancshares, Inc. Form
10-K for the year ended December 31, 1999, into the Company's previously filed
Registration Statement on Form S-8 (File Nos. 033-56387 and 333-82075).

ARTHUR ANDERSEN LLP

Jackson, Mississippi
March 24, 2000.

<PAGE> 1

EXHIBIT 23(b)

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, 1999.

We also consent to the incorporation by reference in the Registration
Statement (Form S-8 Nos. 033-56387 and 333- 82075), 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 29, 2000

<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 113,476
<INT-BEARING-DEPOSITS> 1,899,304
<FED-FUNDS-SOLD> 45,875
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 728,779
<INVESTMENTS-CARRYING> 196,407
<INVESTMENTS-MARKET> 193,056
<LOANS> 1,492,356
<ALLOWANCE> 18,675
<TOTAL-ASSETS> 2,666,047
<DEPOSITS> 2,251,631
<SHORT-TERM> 106,951
<LIABILITIES-OTHER> 13,509
<LONG-TERM> 34,246
0
0
<COMMON> 25,296
<OTHER-SE> 234,414
<TOTAL-LIABILITIES-AND-EQUITY> 2,666,047
<INTEREST-LOAN> 125,977
<INTEREST-INVEST> 54,472
<INTEREST-OTHER> 3,633
<INTEREST-TOTAL> 184,082
<INTEREST-DEPOSIT> 77,522
<INTEREST-EXPENSE> 83,485
<INTEREST-INCOME-NET> 100,597
<LOAN-LOSSES> 3,123
<SECURITIES-GAINS> 241
<EXPENSE-OTHER> 69,140
<INCOME-PRETAX> 47,999
<INCOME-PRE-EXTRAORDINARY> 47,999
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,458
<EPS-BASIC> 1.32
<EPS-DILUTED> 1.32
<YIELD-ACTUAL> 4.41
<LOANS-NON> 8,202
<LOANS-PAST> 2,933
<LOANS-TROUBLED> 1,034
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 17,302
<CHARGE-OFFS> 4,252
<RECOVERIES> 1,502
<ALLOWANCE-CLOSE> 18,675
<ALLOWANCE-DOMESTIC> 18,675
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,699

</TABLE>