United States
Securities and Exchange Commission
Washington, D. C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File Number:
June 30, 1999 0-15204
National Bankshares, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1375874
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 South Main Street
P.O. Box 90002
Blacksburg, Virginia 24062-9002
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (540)552-2011
-------------
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 at July 30, 1999
- ------------------------------- ---------------------------------
Common Stock, $2.50 Par Value 3,516,977
(This report contains 31 pages) <PAGE>
National Bankshares, Inc. and Subsidiaries
Form 10-Q
Index
Page
----
Part I Financial Information
- --------------------------------
Item 1 - Financial Statements
Consolidated Balance Sheets, June 30, 1999
and December 31, 1998 4-5
Consolidated Statements of Income and
Comprehensive Income, Three Months Ended
June 30, 1999 and 1998 6-7
Consolidated Statements of Income and
Comprehensive Income, Six Months Ended
June 30, 1999 and 1998 8-9
Consolidated Statements of Changes in
Stockholders' Equity, Six Months Ended
June 30, 1999 and 1998 10
Consolidated Statements of Cash Flows,
Six Months Ended June 30, 1999 and 1998 11-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-27
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 28-29
Part II Other Information
- ----------------------------
Items 1 - 3 - Legal Proceedings; Changes in
Securities; Defaults Upon Senior Securities 30
Item 4 - Submission of Matters to a Vote of
Security Holders 30
Item 5 - Other Information 30
Item 6 - Exhibits and Reports on Form 8 - K 30
Signatures 31
- ----------
-2-<PAGE>
National Bankshares, Inc. and Subsidiaries
Part I
Financial Information
Item 1. Financial Statements
The consolidated financial statements of National Bankshares, Inc.
(Bankshares) and its wholly-owned subsidiaries, The National Bank of Blacksburg
(NBB) and Bank of Tazewell County (BTC), (the Company), conform to generally
accepted accounting principles and to general practices within the banking
industry. The accompanying interim period consolidated financial statements
are unaudited; however, in the opinion of management, all adjustments
consisting of normal recurring adjustments which are necessary for a fair
presentation of the consolidated financial statements have been included. The
results of operations for the six months ended June 30, 1999 are not
necessarily indicative of results of operations for the full year or any other
interim period. The interim period consolidated financial statements and
financial information included herein should be read in conjunction with the
notes to consolidated financial statements included in the Company's 1998
Annual Report to Stockholders and additional information supplied in the 1998
Form 10-K.
-3-<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(Unaudited)
June 30, December 31,
($000's, except share and per share data) 1999 1998
========= ============
Assets
Cash and due from banks $ 12,232 14,421
Interest-bearing deposits --- 7,027
Federal funds sold 1 5,090
Securities available for sale 120,734 136,078
Securities held to maturity (fair value
$25,919 in 1999 and $31,151 in 1998) 25,790 30,676
Mortgage loans held for sale 305 2,180
Loans:
Real estate construction loans 16,461 12,827
Real estate mortgage loans 51,982 48,724
Commercial and industrial loans 136,698 110,509
Loans to individuals 70,176 69,493
-------- -------
Total loans 275,317 241,553
Less unearned income and deferred fees (2,047) (2,296)
-------- -------
Loans, net of unearned income and
deferred fees 273,270 239,257
Less allowance for loan losses (2,884) (2,679)
-------- -------
Loans, net 270,386 236,578
-------- -------
Bank premises and equipment, net 7,629 6,657
Accrued interest receivable 3,866 3,777
Other real estate owned, net 645 628
Other assets 3,774 2,054
-------- -------
Total assets $445,362 445,166
======== =======
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits $ 53,669 55,479
Interest-bearing demand deposits 86,900 84,319
Savings deposits 47,229 46,387
Time deposits 195,195 196,511
-------- -------
Total deposits 382,993 382,696
-------- -------
Other borrowed funds 8,598 214
Accrued interest payable 649 647
Other liabilities 1,060 926
-------- -------
Total liabilities 393,300 384,483
-------- -------
Common stock subject to ESOP put option 2,182 2,180
-------- -------
-4- (Continued)<PAGE>
Stockholders' equity:
Preferred stock of no par value.
Authorized 5,000,000 shares; none issued
and outstanding --- ---
Common stock of $2.50 par value. Authorized
5,000,000 shares; issued and outstanding
3,516,977 shares in 1999 and 3,792,833 in
1998 8,792 9,482
Retained earnings 45,218 50,182
Accumulated other comprehensive income (1,948) 1,019
Common stock subject to ESOP put option (2,182) (2,180)
-------- -------
Total stockholders' equity 49,880 58,503
Commitments and contingent liabilities
-------- -------
Total liabilities and
stockholders' equity $445,362 445,166
======== =======
-5-<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
Three Months Ended June 30, 1999 and 1998
(Unaudited)
June 30, June 30,
($000's, except per share data) 1999 1998
========= =========
Interest Income
Interest and fees on loans $ 5,840 5,443
Interest on interest-bearing deposits 54 163
Interest on federal funds sold 26 109
Interest on securities - taxable 1,729 1,765
Interest on securities - nontaxable 521 443
-------- --------
Total interest income 8,170 7,923
-------- --------
Interest Expense
Interest on time deposits of $100,000 or more 580 592
Interest on other deposits 2,810 2,863
Interest on borrowed funds 2 3
-------- --------
Total interest expense 3,392 3,458
-------- --------
Net interest income 4,778 4,465
Provision for loan losses 237 73
-------- --------
Net interest income after provision
for loan losses 4,541 4,392
-------- --------
Noninterest Income
Service charges on deposit accounts 347 308
Other service charges and fees 65 46
Credit card fees 214 180
Trust income 210 177
Other income 16 43
Realized securities gains, net 4 72
-------- --------
Total noninterest income 856 826
-------- --------
Noninterest Expense
Salaries and employee benefits 1,507 1,459
Occupancy and furniture and fixtures 270 245
Data processing and ATM 216 210
FDIC assessment 8 6
Credit card processing 186 163
Goodwill amortization 10 10
Net costs of other real estate owned 3 ---
Other operating expense 746 757
-------- --------
Total noninterest expense 2,946 2,850
-------- --------
Income before income tax expense 2,451 2,368
Income tax expense 651 666
-------- --------
Net income 1,800 1,702
-6- (Continued)<PAGE>
Other comprehensive income, net of taxes:
Unrealized gains (losses) on securities
available for sale (1,067) (10)
-------- --------
Comprehensive Income $ 733 1,692
======== --------
Net income per share $ 0.50 0.45
======== ========
-7-<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
Six Months Ended June 30, 1999 and 1998
(Unaudited)
June 30, June 30,
($000's, except per share data) 1999 1998
========= =========
Interest Income
Interest and fees on loans $ 11,375 10,597
Interest on interest-bearing deposits 55 337
Interest on federal funds sold 107 178
Interest on securities - taxable 3,606 3,514
Interest on securities - nontaxable 1,116 868
-------- --------
Total interest income 16,259 15,494
-------- --------
Interest Expense
Interest on time deposits of $100,000 or more 1,246 1,188
Interest on other deposits 5,578 5,560
Interest on borrowed funds 4 6
-------- --------
Total interest expense 6,828 6,754
-------- --------
Net interest income 9,431 8,740
Provision for loan losses 469 94
-------- --------
Net interest income after provision
for loan losses 8,962 8,646
-------- --------
Noninterest Income
Service charges on deposit accounts 608 583
Other service charges and fees 113 99
Credit card fees 377 318
Trust income 441 353
Other income 59 54
Realized securities gains, net 24 85
-------- --------
Total noninterest income 1,622 1,492
-------- --------
Noninterest Expense
Salaries and employee benefits 3,066 2,858
Occupancy and furniture and fixtures 527 491
Data processing and ATM 415 406
FDIC assessment 24 15
Credit card processing 342 291
Goodwill amortization 19 17
Net costs of other real estate owned 6 26
Other operating expense 1,473 1,442
-------- --------
Total noninterest expense 5,872 5,546
-------- --------
Income before income tax expense 4,712 4,592
Income tax expense 1,233 1,282
-------- --------
Net income 3,479 3,310
-8- (Continued)<PAGE>
Other comprehensive income, net of taxes:
Unrealized gains (losses) on securities
available for sale (2,967) 77
-------- --------
Comprehensive Income $ 512 3,387
======== --------
Net income per share $ 0.94 0.87
======== ========
-9-<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1999 and 1998
(Unaudited)
Common
Stock
Accumulated Subject
Other To ESOP
($000's, except for per Common Retained Comprehensive Put
share data) Stock Earnings Income Option Total
====== ========= ============= ====== =====
Balances, December 31,
1997 $9,482 46,191 194 (1,838) 54,029
Net income --- 3,310 --- --- 3,310
Unrealized gains
(losses) on securities
available for sale,
net of tax --- --- 77 --- 77
Dividend ($.36 per
share) --- (1,365) --- --- (1,365)
Change in common stock
subject to ESOP put
option --- --- --- (357) (357)
------ ------ ----- ------ ------
Balances, June 30, 1998 $9,482 48,136 271 (2,195) 55,694
====== ====== ===== ====== ======
Balances, December 31,
1998 $9,482 50,182 1,019 (2,180) 58,503
Net income --- 3,479 --- --- 3,479
Unrealized gains
(losses) on securities
available for sale,
net of tax (1) --- --- (2,967) --- (2,967)
Dividend ($.39 per
share) --- (1,372) --- --- (1,372)
Stock tender offer (2) (690) (7,071) --- --- (7,761)
Change in common stock
subject to ESOP put
option --- --- --- (2) (2)
------ ------ ----- ------ ------
Balances, June 30, 1999 $8,792 45,218 (1,948) (2,182) 49,880
====== ====== ===== ====== ======
(1) Net unrealized holding loss for year $(4,448) plus reclassification
adjustment of $(47) unrealized gain for quarter and less income tax
benefit of $1,528.
(2) Represents the repurchase of 275,856 shares at $28.00 per share and
related expenses.
-10-<PAGE>
National Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998
(Unaudited)
June 30, June 30,
($000's) 1999 1998
========= =========
Cash Flows from Operating Activities
Net Income $ 3,479 3,310
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 469 94
Depreciation of bank premises and equipment 431 383
Amortization of intangibles 76 68
Amortization of premiums and accretion of
discounts, net 241 28
Gains on sales and calls of securities
available for sale, net (24) ---
Gains on calls of securities held to
maturity, net (2) (85)
Gains on other real estate owned --- (19)
(Increase) decrease in:
Mortgage loans held for sale 1,875 (459)
Accrued interest receivable (89) (177)
Other assets (268) (477)
Increase in:
Accrued interest payable 2 32
Other liabilities 134 325
------- -------
Net cash provided by operating
activities 6,324 3,023
------- -------
Cash Flows from Investing Activities
Net (increase) decrease in federal funds sold 5,089 (3,120)
Net (increase) decrease in interest-bearing
deposits 7,027 (6,180)
Proceeds from calls and maturities of securities
available for sale 21,376 14,936
Proceeds from sales of securities available for
sale 1,218 ---
Proceeds from calls and maturities of securities
held to maturity 4,870 23,775
Purchases of securities available for sale (11,944) (37,747)
Purchases of loan participations (4,688) (2,910)
Collections of loan participations 7,209 3,853
Net increase in loans made to customers (36,855) (15,159)
Proceeds from disposal of other real estate owned --- 194
Recoveries on loans charged off 40 205
Bank premises and equipment expenditures (1,408) (553)
Proceeds from disposal of fixed assets 5 ---
------- -------
Net cash used in investing
activities (8,061) (22,706)
------- -------
-11- (Continued)<PAGE>
Cash Flows from Financing Activities
Deposits assumed, net of premium paid --- 7,025
Net increase (decrease) in time deposits (1,316) 5,541
Net increase in other deposits 1,613 7,401
Net increase (decrease) in other borrowed funds 8,384 (7)
Dividend paid (1,372) (1,365)
Repurchase of common stock (7,761) ---
------- -------
Net cash provided by (used in)
financing activities (452) 18,595
------- -------
Net decrease in cash and due from banks (2,189) (1,088)
Cash and due from banks at beginning of period 14,421 12,435
------- -------
Cash and due from banks at end of period $12,232 11,347
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 6,826 6,722
======= =======
Cash paid for income taxes $ 1,410 1,233
======= =======
Loans charged to the allowance for loan losses $ 304 193
======= =======
Loans transferred to other real estate owned $ 17 40
======= =======
-12-<PAGE>
National Bankshares, Inc. and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of this discussion is to provide information about the
financial condition and results of operations of National Bankshares, Inc. and
its wholly-owned subsidiaries (the Company), which are not otherwise apparent
from the consolidated financial statements and other information included in
this report. Reference should be made to the financial statements and other
information included in this report as well as the 1998 Annual Report and Form
10-K for an understanding of the following discussion and analysis.
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Results of Operations - for the six months ended June 30, 1999
- ----------------------------------------------------------------
Net income for the six months ended June 30, 1999 was $3,479,000 which
represents an increase of $169,000 or 5.11% over the first six months of 1998.
The return on average assets for the six months ended June 30, 1999 was 1.58%
and 1.63% as of June 30, 1998. The return on average equity was 11.84% for the
period ended June 30, 1999 and 11.75% as of June 30, 1998.
Earnings per share for the period ending June 30, 1999 was $0.94 per share,
an increase of $0.07 per share over the same period in 1998.
The following table provides selected consolidated data.
June 30, December 31,
($000's, except per share and 1999 1998 1998 1997
percent data) ====== ====== ============ ============
Interest income $16,259 15,494 31,828 29,797
Interest expense 6,828 6,754 13,928 13,106
Net interest income 9,431 8,740 17,900 16,691
Provision for loan losses 469 94 624 435
Noninterest income 1,622 1,492 3,174 2,834
Noninterest expense 5,872 5,546 11,061 10,031
Income taxes 1,233 1,282 2,591 2,499
Net income $ 3,479 3,310 6,798 6,560
Return on average assets 1.58% 1.63% 1.61% 1.66%
Return on average equity (1) 11.84% 11.75% 11.66% 12.21%
Basic net income per share $ .94 .87 1.79 1.73
Book value per share (1) $ 14.80 15.26 16.00 14.73
(1) Includes amount related to common stock subject to ESOP put option excluded
from stockholders' equity on the Consolidated Balance Sheets.
-13-<PAGE>
Net Interest Income
- -------------------
Net interest income at the end of the first six months of 1999 was
$9,431,000, an increase of $691,000 or 7.91% over the same period in 1998.
The net interest margin is one of the primary ratios used by banks to
measure net interest income. The net interest margin is composed of the yield
on earning assets on a fully tax equivalent basis less the cost to fund earning
assets. The funding cost factors in interest bearing deposits as well as
capital and demand deposits. The following table sets forth the Company's net
interest margin for the period specified.
June 30, December 31,
1999 1998 1998 1997
--------- --------- ------------ ------------
Yield on earning assets 8.10% 8.35% 8.25% 8.24%
Cost to fund earning assets 3.26% 3.52% 3.50% 3.50%
-------- ------- ------- -------
Net interest margin 4.84% 4.83% 4.75% 4.74%
======== ======= ======= =======
A second measure of net interest income is the net interest spread. The
ratio consists of the yield on earning assets on a fully tax equivalent basis
less the cost of interest bearing liabilities. It does not reflect the benefit
received from "free funds" provided by demand deposits and capital. The
following table sets forth the company's net interest spread for the periods
shown.
June 30, December 31,
1999 1998 1998 1997
--------- --------- ------------ ------------
Yield on earning assets 8.10% 8.35% 8.25% 8.24%
Cost of interest-bearing
liabilities 4.18% 4.50% 4.48% 4.43%
-------- ------- ------- -------
Net interest spread 3.92% 3.85% 3.77% 3.81%
======== ======= ======= =======
As can be seen by the table shown above, the yield on earning assets for
the six months ended June 30, 1999 has declined by fifteen basis points from the
year-ended 1998. The cost to fund earning assets declined by twenty-four basis
points. These elements combined to produce a nine basis point improvement in
the net interest margin.
Provision and Allowance for Loan Losses
- ---------------------------------------
The adequacy of the allowance for loan losses is based on management's
judgement and analysis of current and historical loss experience, risk
characteristics of the loan portfolio, concentrations of credit and asset
quality, as well as other internal and external factors such as general economic
conditions.
An internal credit review department performs pre-credit analyses of large
credits and also conducts credit review activities that provide management with
an early warning of asset quality deterioration. Changing trends in the loan
-14-<PAGE>
mix are also evaluated in determining the adequacy of the allowance for loan
losses. Loan loss and other industry indications related to asset quality are
presented in the following table.
For the periods ended
June 30, December 31,
1999 1998 1998 1997
($000's, except for % data) ========= ========== ========== ==========
Balance at beginning of period $ 2,679 2,438 2,438 2,575
Provision for loan losses 469 94 624 435
Loans charged off (304) (193) (638) (679)
Recoveries 40 205 255 107
-------- -------- --------- ---------
Balance at the end of period $ 2,884 2,544 2,679 2,438
======== ======== ========= =========
Ratio of allowance for loan
losses to end of period loans,
net of unearned income and
deferred fees 1.06% 1.10% 1.12% 1.12%
======== ======== ========= =========
Ratio of net charge-offs
(recoveries) to average loans,
net of unearned income and
deferred fees(1) .21% (.01)% .17% .23%
======== ======== ========= =========
Ratio of allowance for loan
losses to nonperforming
loans(2) 1,802.50% 6,204.88% 9,567.86% 2,802.30%
======== ======== ========= =========
(1) Net charge-offs are on an annualized basis.
(2) The Company defines nonperforming loans as total nonaccrual and
restructured loans. Loans 90 days past due and still accruing are
excluded.
June 30, December 31,
($000's, except for % data) 1999 1998 1998 1997
======== ======== ======== ========
Nonperforming Assets
Nonaccrual loans $ 160 42 28 87
Restructured loans --- --- --- ---
------ ------ ------ ------
Total nonperforming loans 160 42 28 87
Foreclosed property 645 286 628 421
------ ------ ------ ------
Total nonperforming assets $ 805 328 656 508
====== ====== ====== ======
Ratio of nonperforming assets to
loans, net of unearned income and
deferred fees, plus other real
estate owned .29% .14% .27% .23%
====== ====== ====== ======
-15-<PAGE>
Accruing Loans Past Due 90 Days or More
---------------------------------------
Past due 90 days or more and
still accruing $2,484 962 550 672
====== ====== ====== ======
Ratio of loans past due 90 days or
more to loans, net of unearned
income and deferred fees .91% .42% .23% .31%
====== ====== ====== ======
Impaired Loans
--------------
Total impaired loans $ 265 572 373 177
====== ====== ====== ======
Impaired loans with a
valuation allowance 145 284 145 53
Valuation allowance (145) (52) (145) (53)
------ ------ ------ ------
Impaired loans net of allowance $ --- 232 --- ---
====== ====== ====== ======
Impaired loans with no
valuation allowance $ 120 288 228 124
====== ====== ====== ======
Average recorded investment
in impaired loans $ 302 279 387 458
====== ====== ====== ======
Income recognized on impaired
loans $ 7 26 32 23
====== ====== ====== ======
Amount of income recognized
on a cash basis $ --- --- --- 12
====== ====== ====== ======
As can be seen by the preceding table, the provision for loan losses was
$469,000 for the period ending June 30, 1999, up $375,000 over the same period
the prior year. The ratio of the allowance for loan losses to loans net of
unearned income declined by four basis points. The net charge-offs ratio at
period-end was .21%.
It should be noted that loans past due 90 days or more have increased when
compared to prior period data. As mentioned in the Company's 1998 Form 10-K,
the Company has two additional credits totaling approximately $1.7 million which
are experiencing collection problems. These loans are 90 days or more past
due at June 30, 1999. Management believes, at present, that these credits can
be recovered without loss. At June 30, 1999 both loans were on an accrual
basis.
Overall, it is expected that provisions for loan loss expense will be
higher in 1999. Such expense will be required by strong loan growth and the
need to maintain an adequate overall reserve. Further additions could be made
necessary by unforeseen losses and/or a change in the circumstances surrounding
the two credits mentioned above.
-16-<PAGE>
Noninterest Income
- ------------------
Noninterest income is an important source of the company's income. This
category is comprised of service charges on deposit accounts, other service
charges and fees, credit card fees, trust income and other income. Net
securities gains and losses are also included in this category.
Noninterest income for the period ended June 30, 1999 was $1,622,000, an
increase of $130,000 or 8.71% over the same period in 1998.
Service charges on deposit accounts were $608,000 at June 30, 1999, an
increase of $25,000 or 4.29% from the same period in 1998. This was primarily
due to an increase in the volume of return checks and overdraft fees and
enhanced collection efforts.
Other service charges increased by $14,000 when June 30, 1999 and 1998 are
compared.
Credit card fees increased by $59,000 or 18.55% when the first six months
of 1999 and 1998 are compared. Continued growth in volume was the primary cause
of this increase.
Trust income increased by 24.93% when compared to the first six months of
1998. Trust income is dependent on market conditions as well as the types of
accounts being handled at any given point in time. The level of estate
business, for example, cannot be predicted with any degree of preciseness.
Other income, which is comprised of various miscellaneous types of income,
increased by $5,000 for the first six months of 1999. Included in other income
in 1999 was approximately $12,000 which represented a recovery of principal for
a bond charged-off in prior year.
Net securities gains and losses decreased $61,000 when 1999 and 1998 are
compared. The income in this category reflects gains and losses on securities
called prior to maturity.
Noninterest Expense
- -------------------
Noninterest expenses for the first six months of 1999 were $5,872,000, an
increase of $326,000 or 5.88% over the first six months of 1998.
Salaries and fringe benefits were $3,066,000 at the end of the first six
months of 1999. This represents an increase of $208,000 or 7.28% over the first
six months of 1998. A portion of this increase was due to the acquisition of
the Galax branch. This facility was acquired in the second quarter of 1998.
Accordingly, 1998 data contains only a small amount of salaries expense
associated with the acquisition. The remainder of the increase was due to
normal merit increases and other personnel related costs.
Occupancy expenses increased by $36,000 or 7.33% when the first six months
of 1999 and 1998 are compared. Acquisition of the previously mentioned Galax
Branch contributed to this increase.
Data processing expense increased by $9,000 or 2.22%.
-17-<PAGE>
Credit card expense increased by $51,000 or 17.53% in the first six months
of 1999. Increases in overall volume also contributed to this increase.
Included in the category was approximately $4,000 in expense related to the
reissuance of debit cards. The next scheduled reissuance will be in four years.
Other expenses at June 30, 1999 were $1,473,000, which represents an
increase of $31,000 or 2.15% over the same period in 1998. Other expenses
include various types of costs. Examples of expense accounts included are
telephone, franchise taxes, stationary and supplies, market expense,
correspondent charges and numerous others. Some expenses included in this area
represent accrued expense for anticipated expenditures, while others are on a
cash or pay as incurred basis. Some categories are within management's ability
to control while others can only be controlled to a degree.
Balance Sheet
- -------------
The following table sets forth selected consolidated balance sheet data.
June 30, December 31,
1999 1998 1998 1997
========= ========= ============ ============
($000's)
Selected Period-End Data
- ------------------------
Loans, net $270,386 228,429 236,578 214,552
Total Securities 146,524 149,188 166,754 149,974
Total Assets 445,362 425,480 445,166 402,907
Total Deposits 382,993 365,068 382,696 344,867
Stockholders' Equity 49,880 55,694 58,503 54,029
Selected Daily Averages Data
- ----------------------------
Loans, net $250,981 220,437 225,613 204,540
Total securities 160,418 146,456 152,432 157,179
Interest-earning assets 421,317 386,664 398,340 374,478
Total assets 444,256 408,837 420,988 395,932
Total deposits 382,576 349,106 359,970 339,439
Interest-bearing liabilities 328,696 302,392 310,634 295,565
Stockholders' equity 57,093 54,821 58,282 53,712
Total average assets at June 30, 1999 were $444,256,000, an increase of
$35,419,000 or 8.66% from June 30, 1998. A portion of this increase was due
to the acquisition of the Galax branch in the second quarter of 1998. The
Company also continues to experience satisfactory growth in deposits from
nonacquisition related sources.
-18-<PAGE>
A comparison of the loan portfolio at June 30, 1999 and 1998 indicates that
construction and commercial loans have experienced the greatest increase
followed by real estate and loans to individuals which have grown only slightly
as part of total loans.
The following table sets forth selected balance sheet caption as a
percentage of total assets at the dates shown.
June 30, December 31,
1999 1998 1998 1997
========= ========= ============ ============
Assets
- ------
Interest bearing-deposits --- 3.74% 1.58% 2.41%
Federal funds sold --- 1.74% 1.14% 1.07%
Securities available for sale 27.11% 20.80% 30.57% 16.28%
Securities held to maturity 5.79% 14.26% 6.89% 20.95%
Mortgage loans held for sale .07% .20% .49% .10%
Real estate construction
loans 3.70% 2.73% 2.88% 2.11%
Real estate mortgage loans 11.67% 10.89% 10.95% 10.66%
Commercial and industrial
loans 30.69% 24.91% 24.82% 25.16%
Loans to individuals 15.76% 16.35% 15.61% 16.54%
Liabilities
- -----------
Noninterest-bearing demand
deposits 12.05% 11.84% 12.46% 11.19%
Interest-bearing demand
deposits 19.51% 19.11% 18.94% 19.33%
Savings deposits 10.60% 11.26% 10.42% 11.61%
Time deposit 43.83% 43.59% 44.14% 43.47%
Other borrowed funds 1.93% .11% .05% .12%
At present the Company is relying on short-term borrowings for liquidity.
It is anticipated that this condition will be resolved through securities
portfolio maturities and/or calls. While the procurement of additional deposits
remains an option, increased interest expense would likely result, as interest
rates would have to increase to attract new deposits.
-19-<PAGE>
As shown by the above table, management has shifted a substantial portion
of its investment portfolio to the available for sale category. A portion of
this shift was accomplished through calls, maturities of bonds and their
subsequent reinvestment. In the fourth quarter of 1998, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and hedging Activities". The statement allowed, upon adoption, the
transfer of securities from the held to maturity classification to the available
for sale without calling into question management's intent to hold its remaining
securities until maturity. The Company used this opportunity to transfer
approximately $20,516,000 in securities to held for sale category.
The overall mix of loan and deposits has remained roughly the same.
Liquidity
- ---------
Liquidity is the ability to provide sufficient cash levels to meet
financial commitments and to fund loan demand and deposit withdrawals. Net cash
provided by operating activities was $6,324,000 for the six months ended June
30, 1999. Net cash used in investing activities was $8,061,000 with the
majority of that cash invested in securities and loans. Net cash used in
financing activities was $452,000. Net cash decreased $2,189,000 from December
31, 1998.
During the first half of 1999 the Company repurchased 275,856 of its common
shares at $28.00 per share. Cash used for the purchase and related expenses was
$7,761,000.
The Company actively manages its liquidity position through its investing
activities. In addition, securities with a remaining maturity of less than one
year totaled $28,573,000. Liquidity is also managed through the management of
deposit liabilities, in particular, volatile funds such as time deposits over
$100,000. The amount of such deposits is largely dependent on the rate of
interest offered. The Company had approximately $35,758,000 in such deposits
due within twelve months. Other types of deposits such as interest-bearing
demand, savings and time deposits less than $100,000 are less volatile and less
rate dependent historically.
Short-term liquidity needs can also be satisfied by way of credit
facilities established with correspondent banks, the Federal Home Loan Bank and
Federal Reserve. Longer term borrowings, if necessary, can be obtained through
the Federal Home Loan Bank.
NBB is in process of constructing a new building which is expected to be
completed in the third quarter. This facility will provide additional office
space to replace existing leased properties and also add a branch facility.
This project is not expected to have a material impact on the Company's
liquidity.
The Year 2000 also has liquidity implications. Management is fully aware
of customer apprehension associated with the Year 2000 date change.
Accordingly, it is management's plan to provide for additional liquidity as part
of its contingency planning processes. Please refer to the above information
related to the establishment of credit facilities and the Year 2000 discussion
which follows for the steps the Company is taking to allay unwarranted customer
concerns.
-20-<PAGE>
Management is not aware of any other trend, commitment or events that will
result in or that are reasonably likely to result in a decrease in liquidity
that would be adverse and to a degree that operations would be materially
impaired.
Capital Resources
- -----------------
Total stockholders' equity decreased $8,623,000 or 14.74% from December 31,
1998. During the first six months of 1999, retained earnings decreased by
$4,964,000. Retained earnings experienced this net decrease due to the payment
of a dividend ($1,372,000), the repurchase of 275,856 shares of common stock
($7,071,000) offset by earnings of $3,479,000. Accumulated comprehensive income
decreased stockholders' equity by $2,967,000. This category is comprised solely
of changes in the net unrealized gains (losses) on securities available for
sale. Common stock subject to put option increased by $2,000. The common stock
subject to put option is affected by the current market price of the Company's
common stock as well as the number of shares outstanding.
The following table sets forth the various ratios by which bank capital is
measured. The Company and its subsidiaries continue to be well capitalized.
June 30, December 31,
1999 1998 1998 1997
========= ========= ========== ============
Consolidated Capital Ratios
---------------------------
Total capital (to risk
weighted assets) 18.7% 22.6% 22.4% 23.3%
Tier 1 Capital (to risk
weighted assets) 17.8% 21.6% 21.5% 22.3%
Tier 1 capital (to average
assets, leverage ratio) 11.9% 13.6% 13.4% 13.7%
Tender Offer
- ------------
On March 15, 1999, the Company announced a stock tender offer. The Company
sought to repurchase 200,000 shares, but reserved the right to purchase an
additional two percent of its outstanding shares of common stock. The tender
off closed on April 30, 1999. The offer resulted in the repurchase of 275,856
shares. The Company's Form 13E-4 filed March 15, 1999, amended 13E-4 filed
March 31, 1999 and the Final Amendment filed May 24, 1999 are incorporated
herein.
Selected Affiliate Bank Data
- ----------------------------
The following table sets forth selected data for NBB and BTC:
-21-<PAGE>
June 30, 1999
--------------
(000's, except for % data) NBB BTC
--- ---
Assets $269,957 172,946
Deposits 237,901 145,130
Shareholders Equity 25,670 23,918
Net Income 2,351 1,099
Return on Average Assets 1.78% 1.26%
Return on Average Equity 15.96% 8.20%
Tier 1 Capital Rates 12.90% 25.10%
Total Risk Based Capital
Rates 13.80% 26.00%
Tier 1 Leverage Ratio 9.50% 14.20%
Year 2000
- ---------
The Company recognizes the risks and challenges presented by the impact of
the century date change on information processing and other microchip controlled
systems. The Year 2000 ("Y2K") involves several issues for financial
institutions. The Company's own internal information processing and microchip
controlled systems, as well as those of its major service vendors, must be Y2K
compliant. Banks face credit, earnings and liquidity risk should commercial
loan customers or large depositors suffer significant business disruptions as a
result of the impact of computer failures in their own operations or in those of
their suppliers or customers. Banks could encounter temporary funding shortages
if customers withdraw unusually large sums of cash because they are unduly
concerned about the effects of Y2K. And, although management believes the level
of counterpart trading risk is low, there could be a temporary or permanent
effect on the investment portfolio resulting from the negative impact of Y2K on
the underlying entities.
Both of the Company's bank subsidiaries have established Y2K project
management teams that have developed Y2K plans with assessment, testing, and
remediation phases. The internal audit department is conducting Y2K audits, and
both banks are subject to the guidelines promulgated by the Federal Financial
Institutions Examination Counsel (FFIEC) and to regular Year 2000 compliance
examinations by their respective federal regulators.
The assessment phase outlined in both NBB's and BTC's Y2K plans has been
completed. The banks have identified all internal mission critical information
technology and microchip controlled systems. Outside vendors that provide
mission critical service to the institutions have also been identified.
Because of their importance to daily business operations, substantial
attention has been focused on the banks' customer information processing
hardware and software. In 1997, in the normal course of business, NBB purchased
a new Unisys host computer and peripherals and installed the latest version of
its Information Technology, Inc. (ITI) software. In the last quarter of 1998,
BTC converted from its previous in-house information processing system. BTC is
now processed using NBB's hardware and software. The NBB system has been
tested, including century date rollover and other critical dates, and validation
of the ITI application is complete.
-22-<PAGE>
Each bank has identified as mission critical independent information
technology systems in their Trust Departments. NBB has successfully completed
proxy testing of its external service provider, and BTC has successfully tested
its internal system. Microchip controlled bank security systems are also
mission critical. Testing of these systems at both banks determined that minor
renovations were necessary at three offices. Those renovations are now
complete.
The Federal Reserve Bank of Richmond has provided comprehensive procedures
and instructions for interface testing. During the first quarter of 1999, NBB
and BTC successfully tested all utilized services, including wire transfer,
automated clearing house and savings bonds.
Both NBB and BTC deal with outside vendors that provide mission critical
support for bank card processing and ATM servicing. The banks are monitoring
these vendors' progress to assure their Y2K readiness. The vendors regularly
provide status reports and testing criteria. In the first quarter of 1999, both
BTC and NBB converted to a new ATM servicer. Testing of that application was
successfully concluded.
Each bank has developed and implemented programs to assess the level of Y2K
risk among large loan customers. NBB's Credit Review department performs a
precredit analysis of all new large loans made by both banks. An assessment of
the potential effects of the Year 2000 on the credit-worthiness of borrowers is
a part of this analysis. BTC is asking new commercial borrowers to sign an
agreement to insure compliance with minimum standards with regard to Y2K issues.
That bank is also following up with these borrowers to insure that promised
deadlines are met. Both NBB and BTC have also completed assessments of Year
2000 preparedness among existing large commercial loan customers.
The banks have ongoing initiatives designed to educate customers about Y2K
issues and to allay any unwarranted concerns about the safety and soundness of
the institutions. Leaflets discussing the topic were sent to all customers, and
the banks have posted information on their Web sites. NBB held a public forum
directed at small businesses and has established a toll free information
hotline. Employee training and awareness campaigns have been completed.
Additional employee training and public education efforts are planned throughout
the rest of 1999.
Contingency plans have been drafted by NBB and BTC to 1) identify
alternatives if mission critical applications do not meet the banks' readiness
plan, and 2) develop a course of action to assure business continuity in the
event there are system failures on critical dates. Both institutions are
providing their Boards of Directors with regular reports on Y2K initiatives and
preparedness, and both Boards have approved bank contingency plans.
At this time, National Bankshares, Inc. believes that in the most likely
worst-case scenarios, Y2K will not have a material effect on the Company's
operations, liquidity or financial condition. Although contingency plans
address multiple alternative scenarios, the Company believes it is impossible
for any business to address the potentially unlimited number of possible
circumstances relating to Y2K issues. Even though it is highly unlikely,
National Bankshares recognizes that if its Y2K assessment, remediation or
contingency plans prove to be inadequate, this could have a material impact on
its operations and therefore result in a material adverse effect on the
Company's results of operations and financial condition.
-23-<PAGE>
The Company's recently completed upgrade of internal processing systems
does enhance Y2K preparedness. However, the major goals of the upgrade were to
provide a shared information processing system for affiliates and to provide
additional processing capacity and the ability to use the most advanced version
of software available. The costs of the upgrade were substantial, but the total
of costs of the upgrade directly related to the Y2K component was not material.
Results of Operations for the Three Months Ended June 30, 1999
- --------------------------------------------------------------
Net Income for the second quarter of 1999 was $1,800,000 which represents
an increase of $98,000 or 5.76% over the second quarter of 1998.
The return on average assets for the quarter-ended June 30, 1999 and June
30, 1998 was 1.61% and 1.64%, respectively. The return on average equity for
the second quarter of 1999 was 12.62% and 11.94% for the second quarter of 1998.
Earnings per share for the second quarter of 1999 was $0.50 an increase of
$0.05 over the second quarter in 1998.
The following table sets forth selected quarterly consolidated data.
For the Quarter-Ended
---------------------
($000's, except per
share of percent and per June 30, June 30, Percent %
share data) 1999 1998 $ Difference Difference
-------- -------- ------------ ----------
Interest income $ 8,170 7,923 247 3.12%
Interest expense 3,392 3,458 (66) (1.91%)
Net interest income 4,778 4,465 313 7.01%
Provision for loan loss 237 73 164 224.66%
Noninterest income 856 826 30 3.63%
Noninterest expense 2,946 2,850 96 3.37%
Income taxes 651 666 15 2.25%
Net income 1,800 1,702 98 5.76%
Return on average assets $ 1.61 1.64% --- ---
Return on average equity 12.62% 11.94% --- ---
Basic net income per share $ .50 .45 --- ---
Net Interest Income
- -------------------
Net interest income for the second quarter of 1999 was $4,778,000 an
increase of $313,000 over the second quarter of 1998. The principal cause of
this net increase was loan volume.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the second quarter was $237,000 compared
to $73,000 in 1999. As previously mentioned, it is expected that bad debts
expense will continue to increase in 1999 due to loan growth and losses.
-24-<PAGE>
Noninterest Income
- ------------------
Noninterest income for the second quarter of 1999 was $856,000, an increase
of $30,000 or 3.63% over the same period last year. While most categories
experienced increases, securities gains and losses declined substantially. Such
gains and losses are dependent primarily on securities with call features. The
security of these calls are dependent on the rate environment at the time.
Noninterest Expense
- -------------------
Noninterest expense for the quarter ended June 30, 1999 were $2,946,000, an
increase of $96,000 or 3.37% over the same period in 1998. The largest increase
was in the salaries and employee benefits area.
Balance Sheet
- -------------
The following table sets forth selected consolidated quarterly averages.
Quarterly Averages for the
Second Quarter of
--------------------------
(In 000's) 1999 1998
---- ----
Loans, net $260,743 225,666
Total securities 153,227 148,596
Total assets 447,683 416,415
Total deposits 385,610 356,440
Stockholders' equity 57,361 57,107
Total average quarterly assets for the three months ended June 30, 1999
were $447,683,000 an increase of $31,268,000 or 7.51% over the second quarter of
1998. Total deposits increased $29,170,000 or 8.18% when the two periods are
compared. As can be seen by the table above the majority of the growth was in
lending activities. The securities portfolio increased slightly.
-25-<PAGE>
Banking Terms
Basis Point - a deposits in other Net Interest Margin -
measure-ment unit banks. net taxable-equivalent
defined as one interest income divided
hundredth of one Earnings Per Share- by average earning
percent; it usually Basic - net income, assets.
refers to an interest reduced by dividends on
rate. preferred stock, Nonperforming Assets -
divided by the weighted the sum of loans on
Book Value Per Share - average number of which interest income
the value of a share of common shares is not being accrued,
common stock determined outstanding in the restructured loans on
b y d i v i d i n g period. which the interest
shareholders' equity at rates or terms of
the end of a period, Equity Capital/Share- repayment have been
excluding preferred holders' Equity - a materially revised and
stock, by the number of balance sheet amount real estate that has
common shares that represents the been acquired through
outstanding at the end total investment in the foreclosure.
of the same period. corporation by holders
of common and preferred Rate-Sensitive Assets/
Core Deposits - demand stock; it includes Liabilities - earning
deposits, savings amounts added through assets and interest-
accounts, interest the retention of bearing liabilities
checking accounts, earnings. that can be repriced or
insured money market replaced at a different
a c c o u n t s a n d Interest-Bearing interest rate, within a
certificates of deposit Liabil-ities - deposits specific period, due to
under $100,000. This and borrowed funds on rate changes or
is a more stable source which the corporation maturity.
of funds than funds pays interest; includes
purchased on the basis interest checking Return on Average
of rate only. accounts, money market Assets (ROA) - net
accounts, certificates income as a percentage
Cost of Funds - of deposit, short-term of average total
interest on deposits borrowings and long- assets. It is a key
and borrowed funds term debt. profitability ratio
divided by the average that indicates how
balance of such funds. Leverage Capital effectively a bank has
Ratio - the total of used its total
Comprehensive Income - Tier 1 capital less resources.
net income plus the certain intangible
change in unrealized assets such as Return on Average
gains and losses, net goodwill, divided by Equity (ROE) - net
of tax, plus certain quarterly average income as a percentage
reclassification assets. A key of total average
adjustments on regulatory capital shareholders' equity.
securities available requirement with the Provides a measure of
for sale for the minimum amount allowed how productively a
period. of 4%. bank's equity has been
employed.
Earning Assets - loans Net Interest Income -
(net of unearned the difference between Risk-Based Assets - a
income), investment income from earning regulatory method of
securities, money assets and interest classifying assets
market investments and paid on deposits and based on their
interest-bearing borrowed funds. potential risk of loss,
-26-<PAGE>
used in calculating mixes of taxable and
various capital ratios. tax-exempt assets.
Assets are classified
in one of four Tier 1 Risk-Based Capi-
categories based tal Ratio - common
primarily on credit shareholders' equity
risk and are adjusted less certain intangible
to reflect the relative assets, such as
riskiness of that goodwill, divided by
category. risk-based assets.
Current regulatory
Securities Available minimum requires that
for Sale - securities at least a 4% ratio be
that will be held for maintained.
indefinite periods of
time and that may be Total Risk-Based
sold as part of the Capital Ratio - total
bank's asset/liability capital divided by
strategy. These risk-based assets.
securities are recorded Total capital consists
at their current market of common shareholders'
value rather than at equity, the allowance
their historical for loan losses,
amortized cost. certain components of
nonpermanent preferred
Securities Held to stock and subordinated
Maturity - securities debt less certain
that the bank has the intangible assets, such
ability and the intent as goodwill. Current
to hold to maturity. regulatory minimum
These securities are requires that at least
recorded at their an 8% ratio be
original cost, adjusted maintained.
for amortization of
premium or discount Yield on Earning Assets
accretion. - total taxable-
equivalent interest
Spread or Interest-Rate income dividend by the
Differential - the average balance of
difference between the earnings assets.
average interest rates
received on earning
assets and the average
interest rates paid for
interest-bearing
liabilities.
Taxable-Equivalent In-
come - income that has
been adjusted by
increasing tax-exempt
interest income to an
equivalent pretax
amount of taxable
income. This
adjustment allows
corporations to compare
the effective pretax
yields on different
-27-<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Derivatives
The Company is not a party to derivative financial instruments with off-
balance sheet risks such as futures, forwards, swaps and options. The Company
is a party to financial instruments with off-balance sheet risks such as
commitments to extend credit, standby letters of credit, and recourse
obligations in the normal course of business to meet the financing needs of its
customers. Management does not plan any future involvement in high risk
derivative products. The Company has investments in mortgage-backed securities,
collateralized mortgage obligations, structured notes and other similar
instruments which are included in securities available for sale and securities
held to maturity. The fair value of these investments at June 30, 1999
approximated $6,592,000.
Interest Rate Sensitivity
The Company's securities and loans and its deposits are subject to interest
rate risk. The Company's profitability in the near term may temporarily be
affected, either positively by a falling interest rate scenario or negatively by
a period of rising rates. The table below sets forth, as of June 30, 1999, the
distribution of repricing opportunities of the Company's interest-earning assets
and interest-bearing liabilities, the interest rate sensitivity gap (i.e.,
interest rate sensitive assets less interest rate sensitive liabilities), and
the cumulative interest rate sensitivity gap. The table sets forth the time
periods during which interest-earning assets and interest-bearing liabilities
will mature or may reprice in accordance with their contracted terms.
The method of analysis presented in the following table has certain
inherent shortcomings. For example, although certain assets and liabilities may
have similar maturities or periods of repricing, they may react in different
degrees and at different times to changes in market interest rates. In
addition, loan prepayments and early withdrawals of certificates of deposit
could cause the interest sensitivities to vary from those which appear on the
table. The classification of securities as held to maturity or available for
sale also effects rate sensitivity. Available for sale securities which may be
sold can be used to adjust the Company's interest rate sensitivity position.
Finally, call features in the investment portfolio can have a considerable
effect. Since the call decision is dependent on interest rate levels at a
future point in time, the ultimate effect on interest rate sensitivity cannot be
precisely determined. A substantial number of bonds in the investment portfolio
contain these features.
(In $000's, except
for ratios) <3 Months 6 Months 12 Months 1-5 Years >5 Years
========= ======== ========= ========= ========
Interest-earning
assets $ 62,525 23,710 41,558 150,939 141,368
Interest-bearing
liabilities 189,224 33,109 74,394 41,195 ---
--------- -------- -------- -------- --------
Gap (126,699) (9,399) (32,836) 109,744 141,368
========= ======== ======== ======== ========
Cumulative gap $(126,699) (136,098) (168,934) (59,190) 82,178
========= ======== ======== ======== ========
Cumulative gap ratio .33 .39 .43 .82 1.24
========= ======== ======== ======== ========
-28-<PAGE>
The Company also uses simulation analysis to forecast its balance sheet and
monitor interest rate sensitivity. One test used by the Company is shock
analysis, which measures the effect of a hypothetical, immediate and parallel
shift in interest rates. The following table shows the results of a rate shock
of 100, 200, and 300 basis points and the effects on net income and return on
average assets and return on average equity at June 30, 1999.
($000's, except for percent data)
Return on Return on
Rate Shift Net Income Average Equity Average Assets
========== ========== ============== ==============
300 $5,067 8.81% 1.06%
200 5,939 10.48% 1.27%
100 6,805 12.10% 1.48%
(-)100 8,986 16.07% 2.02%
(-)200 9,842 17.52% 2.23%
(-)300 9,963 17.73% 2.25%
Simulation analysis allows the Company to test asset and liability
management strategies under rising and falling rate conditions. As a part of
simulation process, certain estimates and assumptions must be made dealing with,
but not limited to, asset growth, the mix of assets and liabilities, rate
environment, and local and national economic conditions. Asset growth and the
mix of assets can to a degree be influenced by management. Other areas such as
the rate environment and economic factors cannot be controlled. For this reason
actual results may vary materially from any particular forecast or shock
analysis.
This shortcoming is offset to a degree by the periodic re-forecasting of
the balance sheet to reflect current trends and economic conditions. Shock
analysis must also be updated periodically as a part of the asset and liability
management process.
-29-<PAGE>
National Bankshares, Inc. and Subsidiaries
Part II
Other Information
Items 1-3. Legal Proceedings; Changes in Securities; Defaults Upon Senior
Securities
None for the three months ended
June 30, 1999.
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
(a) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K filed during the three months ended June
30, 1999:
-- Tender offer results as of May 3, 1999
-- Tender offer results as of May 24, 1999
The aforementioned Form 8-K's are incorporated by reference.
-30-<PAGE>
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.
National Bankshares, Inc.
(Registrant)
Date: August 3, 1999 /s/James G. Rakes
-------------- -------------------------------------
James G. Rakes, Chairman
President and Chief Executive Officer
Date: August 2, 1999 /s/J. Robert Buchanan
-------------- -------------------------------------
J. Robert Buchanan, Treasurer
(principal financial officer)
-31-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE OF FINANCIAL INFORMATION IS EXTRACTED FROM THE JUNE 30,1999
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,232
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 120,734
<INVESTMENTS-CARRYING> 25,790
<INVESTMENTS-MARKET> 25,919
<LOANS> 273,270
<ALLOWANCE> 2,884
<TOTAL-ASSETS> 445,362
<DEPOSITS> 382,993
<SHORT-TERM> 8,598
<LIABILITIES-OTHER> 3,891
<LONG-TERM> 0
0
0
<COMMON> 8,792
<OTHER-SE> 41,088
<TOTAL-LIABILITIES-AND-EQUITY> 445,362
<INTEREST-LOAN> 11,375
<INTEREST-INVEST> 4,722
<INTEREST-OTHER> 162
<INTEREST-TOTAL> 16,259
<INTEREST-DEPOSIT> 6,824
<INTEREST-EXPENSE> 6,828
<INTEREST-INCOME-NET> 9,431
<LOAN-LOSSES> 469
<SECURITIES-GAINS> 24
<EXPENSE-OTHER> 5,872
<INCOME-PRETAX> 4,712
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,479
<EPS-BASIC> .94
<EPS-DILUTED> .94
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
