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FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
FIRST NATIONAL BANCSHARES, INC.
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(exact name of registrant as specified in its charter)
FLORIDA 06-1522028
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(Jurisdiction of Organization) I.R.S. Employer
Identification No.
5817 MANATEE AVENUE WEST, BRADENTON, FLORIDA 34209
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(Address of principal office) (Zip Code)
Registrant's telephone number, including area code: (941) 794-6969
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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 each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.10 per share 1,656,910 shares
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(class) Outstanding as of November 1, 2000
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FIRST NATIONAL BANCSHARES, INC.
Index to Form 10-Q
For the quarter Ended September 30, 2000
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
September 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements
of Income for the nine months ended
September 30, 2000 and 1999 3
Condensed Consolidated Statements of
Cash Flows for the nine months ended
September 30, 2000 and September 30, 1999 4
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults under Senior Securities 12
Item 4. Submission of Matters to a vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
Exhibit Index 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST NATIONAL BANCSHARES, INC.
Consolidated Balance Sheet
Assets (000's)
September 30 December 31
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2000 1999
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(Unaudited) **
Cash and Due from Banks 4,854 6,578
Interest Bearing Bank Balances 1,095 395
Federal Funds Sold 0 0
Investment Securities, 39,549 42,100
Unrecognized securities gains (1,117) (1,251)
Loans 135,656 122,007
Less allowance for credit losses (1,357) (1,254)
Deferred Loan Fees (earned) (44) (46)
Premises and Equip, Net 4,796 4,856
Accrued Interest Rec 1,054 964
Other Assets 1,676 586
Deferred Income Tax Charges 777 838
Other R.E. and other assets owned 105 29
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Total Assets $ 187,044 $ 175,802
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** Condensed from audited financial statements
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Liabilities and Stockholders' Equity
September 30 December 31
2000 1999
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Liabilities
Deposits
Demand, non-interest bearing 21,382 20,528
Demand int. bearing 18,212 19,088
Time (CD's, MM's, &
Savings Accounts) 119,460 112,568
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TOTAL DEPOSITS 159,054 152,184
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Repurchase Agreements 4,683 3,532
Capital Lease Obligation 473 505
Accrued Interest Payable 1,254 1,051
Accounts Payable and other Liabilities 552 455
Fed Funds Purchased and other
Short Term Borrowings 7,200 5,500
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TOTAL LIABILITIES 173,215 163,227
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Stockholders' Equity:
Common stock, par value $.10 per share;
Authorized 2,500,000 shares;
Issued and outstanding 1,656,940 shares 166 158
Capital Surplus 9,662 9,670
Unrecognized securities gains (697) (793)
Retained Earnings 4,698 3,540
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Net stockholder's equity 13,829 12,575
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Total Liab. & stkhldr's equity $ 187,044 $ 175,802
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FIRST NATIONAL BANCSHARES, INC.
STATEMENT OF INCOME
FOR THE PERIOD JANUARY 1 THROUGH SEPTEMBER 30 (000'S)
9 months ended
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September 30 December 31
2000 1999
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Interest Income:
Loans (excluding fees) 8,292 6,423
Loan Fees 130 82
Investment securities:
Taxable 1,412 1,710
Exempt from Federal Taxes 275 217
Federal funds sold 0 21
Interest Bearing Bank Balances 129 184
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Total Interest Income 10,238 8,647
Interest expense 5,325 4,212
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Net Interest Income 4,913 4,435
Provision for credit loss 119 167
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Net Interest Income After
Provision for Losses 4,794 4,268
Other operating income:
Service charges on accounts 302 316
Investment sec. gains 0 36
Trust Fees 392 325
Other Income 499 395
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Total Other Operating Income 1,193 1,072
Other operating expenses:
Salaries and employee benefits 2,257 1,975
Occupancy expense of bank premises 432 383
Equipment expense 335 313
Other expenses 1,247 1,194
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Total Other operating exp 4,271 3,865
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Profit Before Tax 1,715 1,556
Estimated State and Federal
Income Taxes 557 586
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Profit After Tax $ 1,158 $ 970
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STATEMENTS OF CASH FLOWS
(000'S)
NINE MONTHS ENDED SEPTEMBER 30
2000 1999
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OPERATING ACTIVITIES
Net Income 1,158 970
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation & leasehold amortization 324 307
Allowance for loan losses net of charge offs 103 105
Deferred income taxes (137) 30
Decrease in accrued interest receivable (91) (2)
Increase (decrease) in accrued interest payable 203 (243)
Increase in accounts payable and other liabilities 181 6
Decrease (increase) in other assets (1,134) (135)
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Net cash provided by operating activities 607 1,038
INVESTING ACTIVITIES
Purchase of securities, net of proceeds from sales,
maturities and FASB 115 adjustments 2,572 (1,300)
Loans originated, net of principal collections (13,648) (17,333)
Capital expenditures (293) (90)
Proceeds from sale of other real estate owned 0 0
Increase (decrease) in overnight funds purchased 1,700 700
Decrease (increase) in overnight funds sold (699) 6,296
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Net cash provided (used) by investing activities (10,368) (11,727)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
accounts, money market and savings accounts 7,504 6,215
Net increase (decrease) - certificates of deposit (634) 2,901
Increase (decrease) in securities sold under
agreements to repurchase 1,151 828
Dividends paid (5) (4)
Proceeds from issuance of common stock 75 0
Retirement of common stock 0 0
Principal payments under capital lease obligation (32) (28)
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Net cash (used) provided by financing activities 8,059 9,912
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Net increase in cash and due from banks (1,702) (777)
Cash and due from banks at beginning of year 6,549 4,526
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Cash and due from banks at end of quarter $ 3,749 $ 3,749
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SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Loans transferred to other real estate owned $ 0 $ 109
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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, 1999.
Results for the nine month period ended September 30, 2000, may not necessarily
be indicative of those to be expected for the entire year.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview.
The First National Bank of Manatee (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 year, 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 intends to open its fourth branch in November of 2000 at the
corner of US 301 and Old Tampa Road in Ellenton (Manatee County). The bank also
opened a Trust Department in March of 1995. 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 following discussion and analysis is based on the Holding
Company's financial condition and results of operations for the period from
January 1, 2000 through September 30, 2000. This discussion and analysis should
be read in conjunction with the financial statement summaries of the Holding
Company, included elsewhere in this quarterly report.
Results of Operations.
Earnings in the first three quarters of 2000 were up $132,000 or 13%
compared to earnings in the same period last year This was a direct result of
net interest income increasing by $526,000. This increased net interest income
was offset by a $406,000 increase in overhead which was softened by a $121,000
increase in other operating revenues. The Bank's contribution of $119,000 to
loan loss reserve was $48,000 lower than last year and was the result of more
modest loan volume. The increase in operating expenses from last year was due
mostly to increased salary expenses as a result of increased staffing to
support growth.
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
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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, 2000, the Bank's loan portfolio had a reasonable
ratio of repriceability within one year.
The Bank had good growth in its loan portfolio outstandings and this
has significantly increased net interest income. Net interest income for nine
months in 2000 was $4,913,000 compared to $4,435,000 in 1999.
Interest Earning Assets. Real estate related loans at September 30,
2000, accounted for a majority of the bank's loan portfolio. Most of the
mortgages are variable rate loans and are adjustable each one to five years.
Thus, volatile interest rates can result in the real estate loans lagging
market conditions. In early 1999, rates were stabile allowing the portfolio to
keep pace with market rates. In the second quarter of 1999, rates began to rise
modestly and accelerated later in the year and continued into 2000. This has
caused temporary fluctuations in the bank's net interest income until its
balance sheet reprices to the new market rates.
The Bank's investment portfolio is concentrated primarily in U.S.
Government agencies and corporations. About 12% of the Bank's investment
portfolio re-prices in one year. Due to rising interest rates, the Bank's
Available-for-Sale portfolio has a market value of about $1,117,000 below book
value.
Non-interest Earning Assets. Non-interest earning assets accounted for 7% of
total assets on September 30, 2000, and primarily consisted of cash and due
from banks, capitalized lease, equipment and branches, deferred taxes, and
accrued interest receivable.
Funding Sources. The primary source of funds for the Bank's lending and
investment activities is deposits. At September 30, 2000 the Bank's total
deposits were $159 million plus $4.7 million in repurchase agreements. The
Bank's deposits are highly concentrated in interest-bearing accounts, which is
typical for the Bank's market area. The Bank has 11.5% of its deposits in NOW
Accounts and 75% of its deposits in Savings, MMA's and CD deposits. Despite the
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, 2000 was $1,193 including $392,000 from its Trust
Department. Periodic security transactions generate investment gains or losses
and are primarily a result of tax management considerations and liquidity
requirements. The bank has had no security gains in 2000. The other significant
items of
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non-interest income represented service charges on deposit accounts,
annuity/mutual fund sales, and merchant credit card account income.
Non-interest Expense. The Bank's non-interest expense for the nine month period
ended September 30, 2000 was $4,271,000 including $2,257,000 of salaries and
employee benefits. The Bank's occupancy and equipment expenses for the period
ended September 30, 2000 were $767,000. Non-interest expense was up from
$3,865,000 in 1999. The increase in expense is primarily due to the Bank's
increased staff to support the bank's growth and the bank's expanded efforts in
departments generating other operating income.
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 $119,000 was charged to
operating expenses for the nine month period ended September 30, 2000. The Bank
had net charge offs during this period of $16,000. The Bank has a total of
$1,357,000 reserved for future loan losses.
Loans on which the accrual of interest has been discontinued are
designated as non-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 unless it is adequately secured. 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 one
non-accrual real estate loan at September 30, 2000 totaling $1,102,000. Where
appropriate, the Bank makes specific reserves for future losses on
non-performing loans. The Bank has set up no specific reserve on this loan
because it estimates that the collateral is adequate to satisfy the debt.
The bank also has no other real estate owned at September 30,1999.
Capital Resources. In the normal course of business, the capital position of
the Bank is reviewed by management and regulatory authorities. The Comptroller
of the Currency has specified guidelines for purposes of evaluating a bank's
capital adequacy. Currently, banks must maintain a
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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, 2000, the Bank's primary capital ratio was
approximately 7.6%. 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 11.4%.
Liquidity. Management of the Bank continually evaluates its liquidity position.
Management believes that the Bank's investment portfolio, when combined with
interest bearing bank balances and Fed Funds sold, provides adequate liquidity
to meet the Bank's needs. 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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QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Bank periodically performs asset/liability analysis to assess the
Bank's sensitivity to changing market conditions.
The primary functions of asset/liability management is to assure
adequate liquidity and maintain an appropriate balance between
interest-sensitive earning assets and interest-bearing liabilities. Liquidity
management involves the ability to meet the cash flow requirements of customers
who may be either depositors wanting to withdraw funds or borrowers needing
assurance that sufficient funds will be available to meet their credit needs.
Interest rate sensitivity management seeks to avoid fluctuating net interest
margins and to enhance consistent growth of net interest income through periods
of changing interest rates.
Marketable investment securities, particularly those of shorter
maturities, are a principal source of asset liquidity. Securities maturing or
expected to be called within one year or less amounted to $2,400,000 at
September 30, 2000 representing 6% of the investment securities portfolio.
Federal funds and lines of credit with other banks also provide the
bank with sources of funds for meeting its liquidity needs. At year-end, the
bank had lines of credit established with other banking institutions totaling
$23,500,000.
Brokered deposits are deposit instruments, such as certificates of
deposit, bank investment contracts and certain municipal investment contracts
that are issued through brokers who then offer and/or sell these deposit
instruments to one or more investors. The Bank does not currently purchase or
sell brokered deposits.
Maturities of time certificates of deposit and other time deposits of
$100,000 or more, outstanding at September 30, 2000, are summarized as follows:
Time Deposits
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(thousands of dollars)
3 months or less $ 3,041
Over 3 through 12 months 12,455
Over 12 months 7,763
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Total $23,259
Interest rate sensitivity varies with different types of interest
earning assets and interest-bearing liabilities. Overnight federal funds on
which rates change daily and loans which are tied to the prime rate differ
considerably from long-term investment securities and fixed-rate loans.
Similarly, time deposits over $100,000 and money market accounts are much more
interest rate sensitive than savings accounts. The shorter term interest rate
sensitivities are key to measuring the interest sensitivity gap, or excess
interest-sensitive earning assets over interest-bearing liabilities.
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The following table shows the interest sensitivity gaps for four
different time intervals as of June 30, 2000. For the first year,
interest-sensitive assets exceed liabilities by $17,655,000. For the next two
years, liabilities reprice more rapidly than assets lowering the bank's asset
sensitive position to an essentially balanced position for the three year
period. The excess of interest-bearing liabilities over interest-earning assets
for the one-to-three year period is primarily related to the longer maturities
of CD's and NOW and MMA accounts that are regarded as much less rate sensitive.
As of June 30
(thousands of dollars)
0-90 91-365 1-3 Over 3
Days Days Years Years
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Interest-sensitive assets $56,273 $61,535 $ 25,921 $28,926
Interest-sensitive liabilities 55,847 44,306 47,000 3,368
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Interest sensitivity gap 426 17,229 (21,079) 25,558
Cumulative gap $ 426 $17,655 ($ 3,424) $22,134
The primary interest sensitive assets and liabilities in the one-year
maturity range are loans and time deposits. Trying to minimize this gap while
maintaining earnings is a continual challenge in a changing interest rate
environment and one of the objectives of the Bank's asset/liability management
strategy.
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Part II. Other Information
Item 1: Legal Proceedings Against the Bank - None.
Item 2: Changes in Securities and Use of Proceeds - 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 and Reports on Form 8-K
Exhibits
a) Plan of acquisition, reorganization, arrangement,
liquidation, or succession.
None
b) Articles of incorporation and by-laws.
1) A copy of the Amended and Restated Articles of
Incorporation of the Registrant is included as
Exhibit 3.A to the Registration Statement.
2) A copy of the Bylaws of the Registrant is included
as Exhibit 3.B to this Registration Statement.
c) Instruments defining the rights of securities holders,
including indentures.
None
d) Published report regarding matters submitted to vote of
security holders.
None
27 Financial Data Schedule (for SEC only)
Reports on Form 8-K - None
FIRST NATIONAL BANCSHARES, INC.
/s/ Glen W. Fausset
November 13,2000 -----------------------------------
Glen W. Fausset
President and Director
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