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FORM 10-Q
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
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QUARTERLY REPORT OF A BANK PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
FIRST NATIONAL BANCSHARES, INC.
(exact name of company as specified in its charter)
STATE OF FLORIDA 06-1522028
(Jurisdiction of Organization) I.R.S. Employer
Identification
5817 MANATEE AVENUE WEST, BRADENTON, FLORIDA 34209
(Address of principal office) (Zip Code)
Registrant's telephone number, including area code: (813) 794-6969
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 of the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Common stock, par value $.10 per share 1,577,869
- -------------------------------------- ----------------------------------
(class) Outstanding as of November 9, 1999
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FIRST NATIONAL BANCSHARES, INC.
Index to Form 10-Q
For the quarter Ended September 30, 1999
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
September 30, 1999 and December 31, 1998 2
Condensed Consolidated Statements
of Income for the nine months ended
September 30, 1999 and 1998 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 1999 and September 30, 1998 5
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults under Senior Securities 11
Item 4. Submission of Matters to a vote of Security Holders 11
Item 5. Other Information. 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL BANCSHARES, INC.
Balance Sheet
Assets (000's)
September 30 December 31
------------ -----------
1999 1998
---- ----
(Unaudited) **
Cash and Due from Banks 3,749 4,526
Interest Bearing Bank Balances 532 5,878
Federal Funds Sold 0 950
Investment Securities, 42,632 41,332
Unrecognized securities gains (1,193) 65
Loans 117,584 100,360
Less allowance for credit losses (1,175) (1,070)
Deferred Loan Fees (earned) (54) (11)
Premises and Equip, Net 4,458 4,697
Accrued Interest Rec. 874 871
Other Assets 629 425
Deferred Income Tax Charges 668 195
Other R.E. and other assets owned 109 0
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Total Assets $ 168,813 $ 158,218
--------- ---------
** Condensed from audited financial statements and consolidated accounting
applied to reflect the merger effective January 1, 1999.
2
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Liabilities and Stockholders' Equity
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<CAPTION>
September 30 December 31
1999 1998
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Liabilities
Deposits
Demand, non-interest bearing 22,919 16,673
Demand int. bearing 17,488 17,518
Time (CD's, MM's, &
Savings Accounts) 105,596 102,699
--------- --------
TOTAL DEPOSITS 146,003 136,887
--------- --------
Repurchase Agreements 2,912 2,083
Capital Lease Obligation 515 543
Accrued Interest Payable 823 1,067
Accounts Payable and other Liabilities 669 628
Fed Funds Purchased and other
Short Term Borrowings 5,700 5,000
--------- --------
TOTAL LIABILITIES 156,621 146,208
--------- --------
Stockholders' Equity:
Common stock, par value $.10 per share;
Authorized xx shares;
Issued and outstanding 1,502,956 shares 157 3,757
Capital Surplus 14,055 4,910
Unrecognized securities gains (744) 40
Retained Earnings (1,277) 3,303
--------- --------
Net stockholder's equity 12,192 12,010
--------- --------
Total Liab. & stkhldr's equity $ 168,813 $158,208
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FIRST NATIONAL BANCSHARES, INC.
STATEMENT OF INCOME
FOR THE PERIOD JANUARY 1 THROUGH SEPTEMBER 30 (000'S)
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3 months ended 9 months ended
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9/30/99 9/30/98 9/30/99 9/30/98
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Interest Income:
Loans (excluding fees) 2,272 2,052 6,423 5,683
Loan Fees 48 32 82 80
Investment securities:
Taxable 545 610 1,710 1,969
Exempt from Federal Taxes 82 19 217 65
Federal funds sold 0 20 21 75
Interest Bearing Bank Balances 7 11 184 97
------ ------ ------ ------
Total Interest Income 2,954 2,744 8,647 7,969
Interest expense 1,403 1,453 4,212 4,242
------ ------ ------ ------
Net Interest Income 1,551 1,291 4,435 3,727
------
Provision for credit loss 102 70 167 148
------ ------ ------ ------
Net Interest Income After
Provision for Losses 1,449 1,221 4,268 3,579
Other operating income:
Service charges on accounts 118 93 316 251
Investment sec. gains 1 7 36 7
Trust Fees 119 76 325 228
Other Income 150 65 395 198
------ ------ ------ ------
Total Other Operating Income 388 242 1,072 683
Other operating expenses:
Salaries and employee benefits 694 526 1,975 1,541
Occupancy expense of bank premises 127 122 383 347
Equipment expense 106 108 313 286
Other expenses 387 353 1,194 1,113
------ ------ ------ ------
Total Other operating exp. 1,297 1,109 3,865 3,287
------ ------ ------ ------
Profit Before Tax 550 354 1,556 975
Estimated State and Federal
Income Taxes 209 127 586 333
------ ------ ------ ------
Profit After Tax $ 341 $ 226 $ 970 $ 641
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STATEMENTS OF CASH FLOWS
(000'S)
NINE MONTHS ENDED SEPTEMBER 30
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1999 1998
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OPERATING ACTIVITIES
Net Income 970 641
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation & leasehold amortization 307 302
Allowance for loan losses net of charge offs 105 157
Deferred income taxes 30 27
Decrease in accrued interest receivable (2) 190
Increase (decrease) in accrued interest payable (243) 140
Increase in accounts payable and other liabilities 6 107
Decrease (increase) in other assets (135) (480)
-------- --------
Net cash provided by operating activities 1,038 1,129
INVESTING ACTIVITIES
Purchase of securities, net of proceeds from sales,
maturities and FASB 115 adjustments (1,300) 7,019
Loans originated, net of principal collections (17,333) (14,754)
Capital expenditures (90) (82)
Proceeds from sale of other real estate owned 0 6
Increase (decrease) in overnight funds purchased 700 0
Decrease (increase) in overnight funds sold 6,296 (1,074)
-------- --------
Net cash provided (used) by investing activities (11,727) (8,885)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
accounts, money market and savings accounts 6,215 2,513
Net increase (decrease) - certificates of deposit 2,901 6,570
Increase (decrease) in securities sold under
agreements to repurchase 828 (386)
Dividends paid (4) (6)
Proceeds from issuance of common stock 0 21
Retirement of common stock 0 0
Principal payments under capital lease obligation (28) (25)
-------- --------
Net cash (used) provided by financing activities 9,912 8,732
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Net increase in cash and due from banks (777) 976
Cash and due from banks at beginning of year 4,526 3,036
-------- --------
Cash and due from banks at end of quarter $ 3,749 $ 4,012
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SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Loans transferred to other real estate owned $ 109 $ 14
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NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF FINANCIAL REPORTING
The accompanying unaudited condensed financial statements have been prepared in
accordance with instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all normal and
recurring adjustments necessary for fair presentation of such financial
statements have been included. For further information, refer to the
consolidated financial statements and the notes thereto included in the Bank's
annual report on Form 10-K for the year ended December 31, 1998.
Results for the nine month period ended September 30, 1999, may not necessarily
be indicative of those to be expected for the entire year.
Certain amounts in the 1998 financial statements have been reclassified and
combined to conform to the 1999 statements and to reflect the merger that
occurred on January 1, 1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Overview.
The Bank commenced operations on July 18, 1986. The Bank's activities
since inception have consisted of accepting deposits, originating a variety of
loans. The Bank's first branch was opened on Anna Maria Island (5 miles west of
the main office) in October, 1994. The second branch was opened in May of 1996
on State Road 64 (5 miles east of the main office). In January of 1997, the
bank opened its third branch on State Road 70 (8 miles southeast of the main
office). In December of 1997, the bank acquired a site at University Blvd. and
Lakewood Ranch Blvd. for a future branch. The bank has also contracted to
purchase a branch location at the corner of US 301 and Old Tampa Road in
Ellenton. The Bank expects to close on the purchase of the site in the fourth
quarter of 1999 and commence construction of the building in the second quarter
of 2000. The branch will open in the fourth quarter of 2000. The bank also
opened a Trust Department in March of 1995, a mortgage brokerage subsidiary in
July of 1998, and an annuity and mutual fund sales subsidiary in November of
1998. The Bank, as a local independent bank, follows a philosophy of developing
its equity and deposit base and focusing its lending activities within its
community. The Bank's underlying lending policy has been and is anticipated to
continue being directed toward better-than-normal credit risks.
On January 1, 1999 the Bank was merged into First National Bancshares,
Inc., a Florida corporation (the Holding Company). The Holding Company was
formed specifically for the purpose of having the Bank merged into it. At the
time of the merger, the Holding Company had assets of $128,000 and a net worth
of ($55,000). The Holding Company is now a one bank holding company with no
other subsidiaries than the Bank. Therefore, there are no significant
adjustments from the financial information of the Bank to the consolidated
financial information for the Holding Company. The Bank's December 31, 1998
financial information has been combined with the Holding Company in this 10-Q
as if the merger that took place on January 1, 1999 had already occurred.
The following discussion and analysis is based on the Bank's financial
condition and results of operations for the period from January 1, 1999 through
September 30, 1999. This discussion and analysis should be read in conjunction
with the financial statement summaries of the Bank, included elsewhere in this
quarterly report.
Results of Operations.
Earnings in the first three quarters of 1999 were up $329,000 or 51%
compared to earnings in the same period last year mainly as a result of net
interest income being up by $708,000. This increased revenue largely carried
through to the bottom line net of income taxes and increased operating expenses
due to growth. The Bank's contribution of $167,000 to loan loss reserve was
$19,000 higher than last year due exclusively to a growth in the loan
portfolio.
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The increase in operating expenses this year was due to largely to
increased salaries as a result of the bank's growth over the last year and the
creation of a mortgage origination subsidiary, an investment sales division,
and expansion of the trust department.
Net Interest Income. The major component of the Bank's earning capacity is net
interest income, which represents the difference or spread between interest
income on earning assets and interest bearing liabilities, primarily deposits.
The spread is considered positive when rate-sensitive assets exceed
rate-sensitive liabilities, and negative when rate-sensitive liabilities exceed
rate sensitive assets. Net interest income is also affected by changes in
interest rates earned and paid, and by changes in the volume of
interest-earning assets and interest-bearing liabilities. To the extent
possible, the Bank follows a strategy intended to insulate the Bank's interest
rate spread from adverse changes in interest rates by maintaining spreads
through the adjustability of its earning assets and interest-bearing
liabilities. On September 30, 1999, the Bank's loan portfolio had a high ratio
of repriceability within one year.
The Bank's rapid growth in its loan portfolio continued from last year and into
this year and has significantly increased net interest income. However, many
loans are mortgages made on an adjustable rate basis, and due to competition
were initially made at below normal spreads. This negatively impacts the Bank's
net interest rate spread in the first adjustment period of the loan. The bank's
rapid loan growth has made this portion of the loan portfolio significant and
net interest income is expected to continue to improve as these loans mature
past their first adjustment date. Net interest income for nine months in 1999
was $4,435,000 compared to $3,727,000 in 1998.
Interest Earning Assets. Real estate related loans at September 30, 1999,
accounted for a majority of the bank's loan portfolio. Most of the mortgages
are variable rate loans and are adjustable. Thus, volatile interest rates can
result in the real estate loans lagging market conditions. In 1996 and 1997,
rates were stabile allowing the portfolio to keep pace with market rates.
However, in 1998, rates declined significantly and in 1999 have moved back up
modestly. The bank believes that has been an advantage to the bank because it
has pursued three and five year adjustable loans over the last several years
and the Bank's deposit costs repriced more quickly than its loans.
The Bank's investment portfolio is concentrated primarily in U.S.
Government agencies and corporations. About 25% of the Bank's investment
portfolio re-prices in one year. The Bank's Available-for-Sale portfolio has a
market value of about $1,175,000 below book value due to the recent increase in
bond rates.
Non-interest Earning Assets. Non-interest earning assets accounted for 6.2% of
total assets on September 30, 1999, and primarily consisted of cash and due
from banks, capitalized lease, equipment and branches, and accrued interest
receivable.
Funding Sources. The primary source of funds for the Bank's lending and
investment activities
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is deposits. At September 30, 1999 the Bank's total deposits were $146.0
million plus $2.9 million in repurchase agreements. The Bank's deposits are
highly concentrated in interest-bearing accounts, which is typical for the
Bank's market area but in 1999 has successfully supported it grown largely with
demand deposits while actually shrinking its CD deposits, thus significantly
impacting its cost of funds . The Bank has increased its DDA accounts to 14% of
deposits (up from 12% a year ago). NOW account deposits are 12% of deposits, up
from 10%. CD's now comprise 48% of deposits, down from 54% a year ago. Despite
the continued high concentration of certificates of deposit, the Bank does not
anticipate the maturity of such certificates to affect the Bank's liquidity, as
management believes that the high concentration was primarily due to customer
relationships and not higher than market rates. The Bank is not in the practice
of paying above market rates on deposits.
Non-interest Income. The Bank's non-interest income for the nine month period
ended September 30, 1999 and was $1,072,000 including $325,000 from its Trust
Department. This is up from $683,000 in 1998. Periodic security transactions
generate investment gains or losses and are primarily a result of tax
management considerations and liquidity requirements. The bank has $36,000 in
security gains in 1999. The other significant items of non-interest income are
service charges on deposit accounts (up by $65,000 over 1998) and investment
sales commissions which were $122,000 in 1999 compared to none in 1998.
Non-interest Expense. The Bank's non-interest expense for the nine month period
ended September 30, 1999 was $3,865,000 including $1,975,000 of salaries and
employee benefits. The Bank's occupancy and equipment expenses for the period
ended September 30, 1999 were $696,000. Non-interest expense was up from
$3,287,000 in 1998. The increase in expense is primarily due to the Bank's
growth and new services.
Allowance for Credit Losses. The allowance for credit losses is established
through a provision for credit losses charged to expenses. Loans are charged
against the allowance for credit losses when management believes that the
collectability of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb losses inherent in existing
loans and commitments to extend credit based on evaluations of the
collectability and prior loan loss experience of loans and commitments to
extend credit. 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 borrowers' ability to pay.
An allowance for loan loss expense of $167,000 was charged to
operating expenses for the nine month period ended September 30, 1999. The Bank
had $67,000 in charge offs during this period and $5,400 in recoveries. The
balance of the loan loss reserve expense was to cover the growth of the loan
portfolio. The Bank has a total of $1,175,000 reserved for future loan losses.
Loans on which the accrual of interest has been discontinued are
designated as non-
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accrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or when a
loan becomes contractually past due by 90 days or more with respect to interest
or principal. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current period
interest income. Income on such loans is then recognized only to the extent
that cash is received and the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when in the judgment of
management, the loans are estimated to be fully collectible as to both
principal and interest. The bank had no non-accrual loans as September 30,
1999. Where appropriate, the Bank makes specific reserves for future losses on
non-performing loans.
The bank also had one property in its Other Real Estate Owned category
at September 30,1999. At the time of transfer to this category, the Bank wrote
down the balance to a value it believed it could reasonably recover on the sale
of the property. In October, 1999, the Bank entered into a contract to sell the
property and recover the remaining balance on the property.
Capital Resources. In the normal course of business, the capital position of
the Bank is reviewed by management and regulatory authorities. The Comptroller
has specified guidelines for purposes of evaluating a bank's capital adequacy.
Currently, banks must maintain a minimum primary capital ratio of
capital-to-assets of 4%. Primary capital includes the Bank's stockholders'
equity, subordinated debt, and the allowance for credit losses. At September
30, 1999, the Bank's primary capital ratio was approximately 7.55%. In 1991,
the Comptroller began evaluating banks' capital on a risk basis i.e. more
capital will be required for commercial loans than for residential real estate
loan and even less will be required for government bonds. The Comptroller will
require a minimum of an 8% capital ratio under this risk based method.
Currently the Bank has a risk based capital ratio in excess of 12.3%.
Liquidity. Management of the Bank continually evaluates its liquidity position.
Management believes that the Bank's investment portfolio provides adequate
liquidity to meet the Bank's needs, because about 25% of its investment
portfolio consists of investment securities due or repriceable within one year.
As noted in "Funding Sources" above, management believes that the high
concentration of time deposits is primarily due to customer relationships and
not to higher-than-market rates and, thus, do not present any unusual liquidity
risk. In addition, the bank has established borrowing lines with correspondent
banks, and with the Federal Home Loan Bank to cover liquidity needs.
Impact of Inflation and Changing Prices. Unlike most industrial companies,
virtually all of the Bank's assets and liabilities are monetary in nature. As a
result, interest rates have a more significant impact on the Bank's performance
than do the effects of inflation. Interest rates do not necessarily move in the
same direction or with the same magnitude as the prices of goods and services,
since such prices are affected by inflation. In the current interest rate
environment, liquidity and the maturity structure of a financial institution's
assets and liabilities are also critical to the maintenance of acceptable
performance levels.
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Part II. Other Information
Item 1: Legal Proceedings Against the Bank - In the third quarter of 1999, a
former employee of the bank filed a sexual harassment and a sexual
discrimination suit in Federal Court against the Bank. The suit is for an
unspecified dollar amount. The complaint was previously filed with the Equal
Employment Opportunity Council by the former employee. The EEOC found no merit
in the claim and elected not to pursue the claim. The Bank believes the suit is
without merit or substance and correspondingly has not established a reserve
against any potential loss.
Item 2: Changes in Securities - None
Item 3: Defaults under Senior Securities - None
Item 4: Submission of Matters to a vote of Security Holders - None
Item 5: Other Information - None
Item 6: Exhibits
a) Plan of acquisition, reorganization, arrangement,
liquidation, or succession.
None
b) Articles of incorporation and by-laws.
None/no charges
c) Instruments defining the rights of securities holders,
including indentures.
None
d) Published report regarding matters submitted to vote of
security holders.
None
e) Exhibit 27-Financial Data Schedule (for SEC use only)
FIRST NATIONAL BANCSHARES, INC.
/s/ Glen W. Fausset
----------------------------------------
Glen W. Fausset
President and Director
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,749
<INT-BEARING-DEPOSITS> 532
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 37,939
<INVESTMENTS-CARRYING> 3,500
<INVESTMENTS-MARKET> 0
<LOANS> 117,584
<ALLOWANCE> 1,175
<TOTAL-ASSETS> 168,813
<DEPOSITS> 146,003
<SHORT-TERM> 3,612
<LIABILITIES-OTHER> 1,492
<LONG-TERM> 5,515
0
0
<COMMON> 14,212
<OTHER-SE> (2,012)
<TOTAL-LIABILITIES-AND-EQUITY> 168,813
<INTEREST-LOAN> 6,505
<INTEREST-INVEST> 1,927
<INTEREST-OTHER> 205
<INTEREST-TOTAL> 8,647
<INTEREST-DEPOSIT> 3,777
<INTEREST-EXPENSE> 4,212
<INTEREST-INCOME-NET> 4,435
<LOAN-LOSSES> 65
<SECURITIES-GAINS> 167
<EXPENSE-OTHER> 3,865
<INCOME-PRETAX> 1,556
<INCOME-PRE-EXTRAORDINARY> 970
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 970
<EPS-BASIC> .61
<EPS-DILUTED> .60
<YIELD-ACTUAL> 7.42
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,070
<CHARGE-OFFS> 67
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,175
<ALLOWANCE-DOMESTIC> 1,175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,175
</TABLE>
