UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 2-76198
FIRST NATIONAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Organized in Louisiana 72-0807084
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
7910 Main Street, Houma, Louisiana 70360
(Address of principal executive offices - Zip Code)
(504) 868-1660
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter 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 _____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding
Common Stock ($2.50 par value) 2,017,600 shares
FIRST NATIONAL BANKSHARES, INC.
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995
Consolidated Statements of Income - Three and nine month periods ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows for nine months ended September 30,
1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
09-30-96 12-31-95*
ASSETS
Cash and due from financial institutions -
Non Interest Bearing $ 8,383 $ 10,484
Interest-bearing deposits with financial
institution 3,200 11,055
Securities held-to-maturity (market value of
$10,202 and $10,325 at September 30, 1996 and
December 31, 1995, respectively) 10,874 10,651
Securities available-for-sale at market value
(amortized cost of $65,335 and $66,883 at
September 30, 1996 and December 31, 1995,
respectively) 64,349 66,615
Loans 121,212 109,976
Less: Allowance for possible loan losses (1,951) (2,142)
Net Loans 119,261 107,834
Premises and equipment 5,195 5,340
Other real estate and foreclosed assets, net 956 992
Other assets 6,414 7,518
TOTAL ASSETS $218,632 $220,489
LIABILITIES
Deposits:
Non interest-bearing deposits $ 31,914 $ 30,685
Interest-bearing deposits 160,481 170,155
Total deposits 192,395 200,840
Federal funds purchased & securities sold
under repurchase agreements 1,947 1,497
Other short term borrowings 5,000 0
Accrued interest, taxes and other liabilities 1,159 1,028
Dividends payable 141 121
TOTAL LIABILITIES 200,642 203,486
SHAREHOLDERS' EQUITY
Common stock 5,044 5,044
Par value ................................$2.50
Number of shares authorized .........10,000,000
Number of shares outstanding ........ 2,017,600
Additional paid in capital 16,454 16,454
Accumulated deficit (2,069) (3,413)
Net unrealized losses on securities
available-for-sale (1,439) (1,082)
TOTAL SHAREHOLDERS' EQUITY 17,990 17,003
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $218,632 $220,489
*The Balance Sheet at December 31, 1995 has been taken from
the audited Balance Sheet at that date.
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
(In thousands, except per share data) 09-30-96 09-30-95 09-30-96 09-30-95
INTEREST INCOME
Interest on deposits with
financial institutions $ 24 $ 94 $ 248 $ 305
Interest on securities:
U.S. government securities 703 1,097 2,545 3,355
Mortgage-backed securities 429 86 829 275
State and municipal securities 15 15 45 44
Other securities 10 52 74 153
Interest and fees on loans 2,576 2,615 7,547 7,328
Interest on funds sold 0 0 35 49
Total interest income 3,757 3,959 11,323 11,509
INTEREST EXPENSE
Interest on deposits 1,568 1,581 4,786 4,395
Interest on funds purchased 23 20 54 51
Interest on other short term
borrowings 29 0 29 0
Total interest expense 1,620 1,601 4,869 4,446
Net interest income 2,137 2,358 6,454 7,063
Provision for possible loan losses 75 0 100 0
Net interest income after
provision for possible loan losses 2,062 2,358 6,354 7,063
NON-INTEREST INCOME
Service charges on deposit accounts 290 255 802 749
Other commissions and fees 176 95 374 246
Other operating income 10 15 54 99
Securities gains (losses) 0 0 4 (3)
Trust services income 106 98 322 286
Total non-interest income 582 463 1,556 1,377
NON-INTEREST EXPENSE
Salaries 633 886 1,856 2,346
Employee benefits 152 141 441 522
Net occupancy expense 177 177 523 492
Equipment expense 151 155 454 480
Expense associated with OREO
and problem loans 12 (7) 125 76
Other operating expense 621 566 1,841 1,989
Total non-interest expense 1,746 1,918 5,240 5,905
Income before income taxes 898 903 2,670 2,535
Income taxes 298 304 902 852
Net income $ 600 $ 599 $1,768 $1,683
Per share data (based on the weighted
average shares outstanding,
2,017,600, during the periods:)
Net income $.30 $.30 $.88 $.83
Cash dividends declared $.07 $.05 $.21 $.10
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
(In Thousands) 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,768 $ 1,683
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 448 277
Provision for loan losses 100 0
Provision for losses on other real estate 0 1
Deferred income taxes 843 822
Realized (gains) losses on securities (4) 3
(Gains) losses on sale of property 3 (128)
(Increase) decrease in accrued interest receivable (415) 200
Increase in accrued interest payable 28 121
(Increase) decrease in other assets 811 (1,448)
Increase in other liabilities 150 272
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,732 1,803
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale 37,065 0
Proceeds from maturities and calls of securities -
Held-to-maturity 0 2,937
Available-for-sale 17,656 8,426
Purchase of securities -
Available-for-sale (53,236) (17,029)
Loans purchased (2,547) 0
Loans sold 1,005 0
Net increase in loans (10,307) (15,581)
Proceeds from sale of premises, equipment &
foreclosed property 354 376
Purchases of premises and equipment (279) (122)
NET CASH (USED) INVESTING ACTIVITIES (10,289) (20,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits 1,229 1,665
Net decrease in interest bearing deposits
other than certificates of deposits (11,260) (2,629)
Increase in certificates of deposits 1,586 11,468
Increase (decrease) in short-term borrowings 5,450 (1,733)
Dividends paid (404) (303)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (3,399) 8,468
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (9,956) (10,722)
Cash and cash equivalents at beginning of period 21,539 22,955
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,583 $ 8,750
CASH INTEREST EXPENSE PAID $ 4,840 $ 4,325
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
September 30, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: First National Bankshares, Inc. (the Company) is a bank
holding company whose principal subsidiary is the First National
Bank of Houma (First National). The Company and First National
have entered into an Agreement and Plan of Merger with Whitney
Holding Corporation and Whitney National Bank (collectively,
"the Whitney") dated October 11, 1996 (the "Merger Agreement")
pursuant to which both the Company and First National have
agreed, upon the terms and subject to the conditions set forth
in the Merger Agreement, to be acquired by the Whitney.
NOTE 2: The accompanying unaudited interim financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures required by generally accepted accounting
principles for complete financial statements have been omitted.
It is suggested that these interim statements be read in
conjunction with the financial statements and notes thereto
included in the 1995 Annual Report on Form 10-K of First
National Bankshares, Inc.
In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary for a fair
presentation of the information shown have been included.
The foregoing nine months interim results of 1996 are not
necessarily indicative of the results of operations expected for
the full year 1996.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION AND OVERVIEW
First National Bankshares, Inc. (the Company) is a bank holding
company based in Houma, Louisiana operating a single active
wholly-owned subsidiary, First National Bank of Houma (First
National or the Bank). The Company is also the sole owner of an
inactive subsidiary, First Export Corporation. The Company's
business strategy is to provide quality, tailored financial
products and services to retail and commercial customers in the
southern parishes of Louisiana.
The Company and First National have entered into an Agreement
and Plan of Merger with Whitney Holding Corporation ("Whitney
Holding") and Whitney National Bank (collectively, "the
Whitney") dated October 11, 1996 (the "Merger Agreement")
pursuant to which both the Company and First National have
agreed, upon the terms and subject to the conditions set forth
in the Merger Agreement, to be acquired by the Whitney (the
"Merger"). The value of the transaction is $41 million. In the
Merger, each share of Common Stock, par value $2.50 per share,
of the Company outstanding immediately prior to the effective
time of the Merger will be converted into approximately $20.32
per share in Whitney Holding common stock, subject to certain
adjustments. Whitney Holding common stock is quoted on the
NASDAQ-NMS, and the corporation is subject to the informational
requirements of the Exchange Act and, in accordance therewith,
files reports, proxy statements and other information with the
Securities and Exchange Commission. The Merger is subject to
numerous conditions precedent, including without limitation
approval of the Company shareholders, and the Merger Agreement
may be terminated under certain circumstances. Although the
Company's Board of Directors is expected to recommend that the
Company shareholders approve the Merger, there can be no
assurance the Merger will be approved or consummated. A special
meeting of the shareholders of the Company to vote upon the
Merger is expected to be scheduled for the first quarter of 1997
(the "Special Meeting"), and attention is directed to the Proxy
Statement - Prospectus that is expected to be filed with the
Securities and Exchange Commission and delivered to the Company
shareholders in advance of the Special Meeting for a complete
description of the Merger, the Merger Agreement, the Special
Meeting, and other matters related thereto.
The following discussion and analysis of operations for the
nine month period and quarter ending September 30, 1996
highlight the changes in financial position and results of
operations of the Company. The financial position and results
of operations for the periods indicated were primarily
attributable to the Bank which comprises the substantial
majority of the assets and liabilities of the Company.
Management's discussion should be read in conjunction with the
consolidated financial statements and accompanying notes
included in this quarterly report.
In late 1995, the Company discovered an error in the
calculation of a reduction in the latter part of 1994 of the
valuation allowance against the Company's deferred income tax
asset. To correct the error, the Company restated its financial
statements for the periods ended December 31, 1994, March 31,
1995, June 30, 1995, and September 30, 1995 and filed with the
Securities and Exchange Commission an amended Annual Report on
Form 10-K/A and amended Quarterly Reports on Form 10-Q/A for
those periods to reflect the restated financial statements. For
a discussion of the impact of the restatement and for restated
financial statements for those periods, refer to the amended
periodic filings for those periods.
RESULTS OF OPERATIONS
Net Interest Income
The Company's primary source of revenue is net interest income
which is the difference between interest income received on
interest-earning assets and the interest expense paid on
interest-bearing liabilities. Net interest income after
provision for possible loan losses was $6,354,000 in the first
nine months of 1996, a 10.0 percent decrease over the same
period in 1995. For the three month period ended September 30,
1996, net interest income after the provision for possible loan
losses was $2,062,000, a 12.6 percent decrease over the same
period in 1995. Net interest income was affected by changes in
the amount and mix of interest-earning assets and
interest-bearing liabilities referred to as "volume change." It
was also affected by changes in yields on interest-earning
assets and rates paid on interest-bearing deposits and
short-term borrowings referred to as "rate change." The decline
in net interest income for both the three and nine month period
ended September 30, 1996 from the net interest income of the
same periods in 1995 was mainly attributable to increased
competition for the Bank's market from larger financial and
nonfinancial institutions.
Noninterest Income and Noninterest Expense
Noninterest income increased $179,000 or 13.0 percent in the
first nine months of 1996 and $119,000 or 25.7 percent in the
third quarter of 1996 as compared to the same periods in 1995.
These increases reflect increased service charges on deposit
accounts, fees for trust services, commissions, exchange and
other fees.
Noninterest expense decreased $665,000 or 11.3 percent and
$172,000 or 9.0 percent in the first nine months and third
quarter, respectively, when compared to the same periods in
1995. The decrease was primarily attributable to a reduction in
personnel costs, the result of an organizational restructuring
process started in 1995, increased deferred personnel and other
costs associated with the lending process, and a reduction in
Federal Deposit Insurance Corporation (FDIC) insurance premiums,
a result of a decision by the FDIC in 1995 to reduce premiums
for all well capitalized insured financial institutions.
Net Income
Consolidated income before income taxes of $2,670,000 for the
first nine months of 1996 increased $135,000, or 5.3 percent as
compared to the same period in 1995 and decreased $5,000 or 0.6
percent to $898,000 for the third quarter as compared to the
same period in 1995. Consolidated net income increased $85,000
or 5.1 percent to $1,768,000 for the same nine month period and
$1,000 or 0.2 percent to $600,000 for the three month period,
respectively.
The total provision for income taxes for the nine month period
ended September 30, 1996 was $902,000 as compared to $852,000
for the nine month period ended September 30, 1995 and remained
relatively constant as a percent of income before income taxes.
BALANCE SHEET ANALYSIS
Loan Portfolio
The Company offers a wide variety of lending products to both
commercial and consumer customers located within its target
market. The Company also purchases loans from other financial
institutions both within and outside of the target market area
to enhance earning-asset yields and diversify the total loan
portfolio. Interest rates charged for loans made by the Company
vary with the degree of risk, the size and maturity of loans,
the borrower's depository relationships with the Company and
prevailing market interest rates. During the first nine months
of 1996, loans increased $11,236,000 or 10.2 percent from
year-end 1995.
Credit Risk Management and Asset Quality
Nonperforming assets decreased $1,238,000 or 26.4 percent to
$3,447,000 at September 30, 1996 as compared to December 31,
1995. The decrease was primarily attributable to reimbursement
by a U.S. Government agency of their guaranteed portion of these
loans. Shown below is a schedule of the Company's nonperforming
assets (in thousands):
09-30-96 12-31-95
Loans:
90 days or more past due, but still
accruing interest $ 347 $ 66
Renegotiated loans still accruing 428 479
Nonaccruing 1,716 3,148
Total nonperforming loans 2,491 3,693
Other real estate and foreclosed
property (net of reserves) 956 992
Total nonperforming assets $3,447 $4,685
In addition to the nonperforming loans, the Company has
identified certain loans which, although currently performing,
have credit weaknesses such that doubt exists as to the
borrower's future ability to comply with existing terms and
conditions. At September 30, 1996 these loans totaled
approximately $605,000. This represents an increase of $169,000
or 38.8 percent from the $436,000 balance on December 31, 1995.
Allowance for Possible Loan Losses
Based on information available at September 30, 1996,
management believes the allowance for possible loan losses of
$1,951,000, which comprised 1.6 percent of total loans, is
adequate as an allowance against possible future loan losses.
At September 30, 1996, the allowance for possible loan losses
decreased $191,000 from the $2,142,000 recorded at December 31,
1995. This decrease was, in part, due to the net charge off of
$219,000 of loans deemed uncollectible.
During the third quarter of 1996, the Company recorded a
$75,000 provision for possible loan losses. The provision was
deemed appropriate by management due to the increasing volume of
loans recorded by the Bank. The amount of provision for
possible loan losses is dependent on a variety of factors,
including size of the loan portfolio, actual or expected loan
losses and recoveries of prior losses.
Investment Securities
At September 30, 1996, investment securities totaled
$75,223,000, a $2,043,000 or 2.6 percent decrease over the
$77,266,000 recorded at December 31, 1995. Securities
classified available-for-sale decreased $2,266,000 or 3.4
percent while securities classified as held-to-maturity showed
no significant change in carrying value. The decrease in
securities primarily resulted from increased demand for
liquidity to fund loan growth. Available-for-sale securities
are recorded at market value with variances between market value
and amortized cost recognized as an adjustment to shareholders'
equity on an after-tax basis. Held-to-maturity securities are
recorded at book value. However, due to the transfer of
securities between available-for-sale and held-to-maturity which
occurred in 1994, certain unrealized losses (net of applicable
income taxes) attributable to the held-to-maturity portfolio
have been recorded in shareholders' equity as well. Net
unrealized losses in securities at September 30, 1996 increased
$357,000 as compared to December 31, 1995.
Deposits
The Company primarily attracts deposits from local businesses
and professionals, or governmental bodies, and through retail
certificates of deposit, savings and checking accounts.
Maintaining steady and growing levels of deposits is an
important objective to the Company as part of an overall
management program to obtain funding sources for earning assets
and maintain adequate levels of liquidity. The Company did not
have any brokered accounts during the first three quarters of
1996 and 1995. The Company has no foreign deposits.
Total deposits decreased $8,445,000 or 4.2 percent to
$192,395,000 as of September 30, 1996, from $200,840,000 at
December 31, 1995. Non interest bearing deposits increased
$1,229,000, or 4.0 percent, as of September 30, 1996 from
year-end 1995. Interest bearing deposits declined $9,674,000 or
5.7 percent for the same period. These expected decreases were
primarily the result of lower public fund deposits following the
year-end 1995 property tax collections which were distributed
shortly thereafter to various government agencies in early
January 1996 and seasonal fluctuations in each deposit category.
Capital
Shareholders' equity increased $987,000 to $17,990,000 at
September 30, 1996 from December 31, 1995, due to earnings for
the period of $1,768,000 less $424,000 in dividends declared and
a $357,000 adjustment due to the after income tax effects of
unrealized losses on investment securities.
The Company and First National are subject to the regulatory
risk-based capital guidelines. The applicable risk-based
capital ratios are as follows:
Regulatory
First National Bankshares, Inc. 09-30-96 12-31-95 Minimums
Tier 1 Capital/Risk Weighted
Assets Ratio 14.27% 14.14% 4.00%
Total Capital/Risk Weighted
Assets Ratio 15.52% 15.39% 8.00%
Leverage Ratio 8.48% 8.04% 3.00%
Regulatory
First National Bank of Houma 09-30-96 12-31-95 Minimums
Tier 1 Capital/Risk Weighted
Assets Ratio 14.17% 14.02% 4.00%
Total Capital/Risk Weighted
Assets Ratio 15.42% 15.27% 8.00%
Leverage Ratio 8.42% 7.98% 3.00%
In January of 1996, the Company paid a $.06 per common share
dividend previously declared in December of 1995. In February
of 1996, the Company declared a $.07 per common share dividend
paid in April of 1996. In May of 1996 the Company declared an
additional dividend of $.07 per common share payable in July of
1996. In August of 1996, the Company declared a dividend of
$.07 per common share payable in October of 1996.
LIQUIDITY AND ASSET LIABILITY MANAGEMENT
The Company has identified approximately $64,000,000 in
securities which it classified as Available-for-Sale under the
provisions of SFAS 115 "Accounting for Certain Investments in
Debt and Equity Securities" which are carried in the
consolidated balance sheets at net realizable value. In
management's opinion, the combination of these investment
securities, in conjunction with other liquid assets and arranged
borrowing lines with financial institutions, is adequate to meet
all potential funding needs of the Company. At September 30,
1996, the Bank borrowed $5,000,000 in partially secured short
term funds from the Federal Home Loan Bank to meet these
temporary needs.
The Company recognizes the potential impact on earnings given
changes in market interest rate conditions. This interest
sensitivity is monitored closely by management. A schedule of
the Company's interest sensitivity/GAP analysis follows:
INTEREST SENSITIVITY/GAP ANALYSIS
(in thousands)
September 30, 1996 INTEREST RATE SENSITIVITY PERIOD
0-3 4-12 1-5 Over
Months Months Years 5 Years TOTAL
ASSETS:
Loans $ 22,261 $ 6,727 $51,387 $40,837 $121,212
Investments 34,918 22,217 8,681 9,407 75,223
Other 3,200 0 0 0 3,200
Total assets $ 60,379 $ 28,944 $60,068 $50,244 $199,635
FUNDING SOURCES:
Interest-bearing
deposits $ 98,879 $ 37,282 $21,980 $ 2,340 $160,481
Short-term funds 6,947 0 0 0 6,947
Total funding sources $105,826 $ 37,282 $21,980 $ 2,340 $167,428
REPRICING/MATURITY GAP:
Period $(45,447) $ (8,338) $ 38,088 $47,904
Cumulative $(45,447) $(53,785) $(15,697) $32,207
Period gap/
total assets (22.8%) (4.2%) 19.1% 24.0%
Cumulative gap/
total assets (22.8%) (26.9%) (7.9%) 16.1%
Amounts stated include both fixed and variable rate instruments
in the balance sheet. Variable rate instruments are included in
the next period in which they are subject to change in rate.
The principal portion of scheduled payments on fixed rate
instruments are included in the periods in which they become due
or mature.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST NATIONAL BANKSHARES, INC.
(Registrant Company)
DATE: November 13, 1996 BY /s/ Jerome H. Mire
JEROME H. MIRE
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
DATE: November 13, 1996 BY /s/ James K. Kendrick
JAMES K. KENDRICK
CHIEF FINANCIAL OFFICER AND
COMPTROLLER
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