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 the quarterly period ended June 30, 1995
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: 33-14252
FIRST NATIONAL BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 62-1306172
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One Cedar Street, Ronceverte, West Virginia 24970
(Address of principal executive offices) (Zip Code)
(304) 647-4500
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) ofthe 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 No
The number of shares outstanding of the issuer's classes of common stock
as of June 30, 1995:
Common Stock, $5 par value -- 192,500 shares
THIS REPORT CONTAINS 21 PAGES
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 1995
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1995 and December 31, 1994 3
Consolidated Statements of Income -
Three Months Ended June 30, 1995 and 1994 and
Six Months Ended June 30, 1995 and 1994 4
Consolidated Statements of Shareholders' Equity -
Three Months Ended June 30, 1995 and 1994 and
Six Months Ended June 30, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 6-7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
ASSETS (Unaudited) *
<S> <C> <C>
Cash and due from banks $ 2,682 $ 3,721
Federal funds sold 400 1,720
Securities available for sale (Note 2) 19,487 23,281
Securities held to maturity (estimated market value
$8,169 and $7,158, respectively) (Note 2) 8,211 7,521
Loans, net (Notes 3 and 4) 40,966 38,766
Bank premises and equipment 1,091 1,035
Accrued interest receivable 716 796
Other assets 636 898
Total assets $ 74,189 $ 77,738
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 9,001 $ 9,209
Interest bearing 56,413 60,477
Total deposits 65,414 69,686
Other liabilities 767 741
Total liabilities 66,181 70,427
Commitments and Contingencies
Shareholders' equity
Common stock, $5.00 par value, authorized
500,000 shares, issued 192,500 shares 963 963
Surplus 1,000 1,000
Retained earnings 6,096 5,873
Net Unrealized gain (loss) on securities (51) (525)
Total shareholders' equity 8,008 7,311
Total liabilities and shareholders'
equity $ 74,189 $ 77,738
<FN>
* - The December 31, 1994 consolidated balance sheet has been extracted
from audited financial data.
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 981 $ 909 $ 1,886 $ 1,881
Interest and dividends on securities:
Taxable 356 415 724 771
Tax-exempt 61 53 123 115
Interest on Federal funds sold 23 16 60 33
Total interest income 1,421 1,393 2,793 2,800
Interest Expense
Interest on deposits 514 517 1,022 1,060
Net interest income 907 876 1,771 1,740
Provision for loan losses 0 25 0 123
Net interest income after provision
for loan losses 907 851 1,771 1,617
Other income
Service fees 48 52 95 100
Insurance commissions 7 5 10 11
Securities gains - - - -
Other income 56 29 100 46
111 86 205 157
Other expense
Salaries and employee benefits 349 361 697 724
Net occupancy expense 44 55 100 98
Equipment rental, depreciation and
maintenance 54 53 89 103
Other operating expenses 281 311 627 592
728 780 1,513 1,517
Income before income taxes 290 157 463 257
Income tax expense 78 24 124 50
Net income $ 212 $ 133 $ 339 $ 207
Earnings per common share (Note 5) $ 1.10 $ .69 $ 1.76 $ 1.08
Dividends per common share $ .30 $ .30 $ .60 $ .30
<FN>
See Notes to Consolidated Financial Statements<PAGE>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Balance, beginning of period $ 7,648 $ 7,850 $ 7,311 $ 7,737
Net income 212 133 339 207
Cash dividends declared (57) (57) (116) (57)
Net unrealized (loss) on securities
available for sale upon adoption of
SFAS No. 115 205 - 474 311
Change in net unrealized (loss) on
securities available for sale 0 (236) - (508)
Balance, end of period $ 8,008 $ 7,690 $ 8,008 $ 7,690
<FN>
See Notes to Consolidated Financial Statements<PAGE>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 339 $ 207
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 67 68
Provision for loan losses 0 123
Deferred income tax (benefit) 0 (4)
Amortization of security premiums (accretion) of
security discounts, net (15) 30
Decrease accrued interest receivable 80 6
Decrease in other assets 11 (328)
Increase in other liabilities 45 101
Net cash provided by operating activities 527 203
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 0 1,000
Proceeds from maturities and calls of securities held
to maturity 1,298 366
Proceeds from maturities and calls of securities
available for sale 4,500 3,000
Principal payments received on securities held to
maturity 0 45
Purchases of securities held to maturity (1,954) (747)
Purchases of securities available for sale 0 (6,436)
Principal collected on (loans made to)
customers, net (2,200) 4,583
Purchases of bank premises and equipment (123) (66)
Proceeds from sale of other real estate 0 47
Net cash provided by investing activities 1,521 1,792
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts (2,695) (685)
Proceeds from sales of (payments for matured)
time deposits, net (1,577) (1,005)
Dividends paid (135) (57)
Net cash (used in) financing activities (4,407) (1,747)
Increase (decrease) in cash and cash equivalents (2,359) 248
Cash and cash equivalents:
Beginning 5,441 4,410
Ending $ 3,082 $4,658
<FN>
(Continued)<PAGE>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 1,017 $ 1,056
Income taxes $ 141 $ 178
<FN>
See Notes to Consolidated Financial Statements<PAGE>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accounting and reporting policies of First National Bankshares
Corporation and Subsidiary (the "Company) conform to generally accepted
accounting principles and to general policies within the financial
services industry. The consolidated statements include the accounts of
the Company and its wholly-owned subsidiary, The First National Bank in
Ronceverte. All significant intercompany balances and transactions
have been eliminated. The information contained in the consolidated
financial statements is unaudited except where indicated. In the
opinion of management, all adjustments for a fair presentation of the
results of the interim periods have been made. All such adjustments
were of a normal, recurring nature. The results of operations for the
six months ended June 30, 1995 are not necessarily indicative of the
results to be expected for the full year. The consolidated financial
statements and notes included herein should be read in conjunction
with the Company's 1994 audited financial statements and Form 10-K.
Note 2. Securities
The amortized cost, unrealized gains, unrealized losses and estimated
fair values of securities at June 30, 1995 and December 31, 1994 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury
Securities $ 1,991 $ 5 $ 0 $ 1,996
U.S.Government Agencies
and corporations 1,001 7 0 1,008
Corporate Debt Securities 500 0 17 483
Total Taxable 3,492 12 17 3,487
Tax Exempt:
State & political
subdivisions 4,719 0 37 4,682
Total securities held
to maturity $ 8,211 $ 12 $ 54 $ 8,169<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale:
Taxable:
U.S. Treasury Securities $ 2,965 $ 0 $ 12 $ 2,953
U.S.Government Agencies
and corporations 16,546 0 71 16,475
Federal Reserve Bank Stock 57 0 0 57
Total Taxable 19,568 0 83 19,485
Tax Exempt:
Federal Reserve Bank Stock 2 0 0 2
Total securities held
to maturity $ 19,570 $ 0 $ 83 $ 19,487
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities $ 1,000 $ 0 $ 21 $ 979
U.S.Government Agencies
and corporations 1,002 0 29 973
Corporate Debt Securities 500 0 51 449
Total Taxable 2,502 0 101 2,401
Tax Exempt:
State & political
subdivisions 5,019 8 270 4,757
Total securities held
to maturity $ 7,521 $ 8 $ 371 $ 7,158
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities $ 3,961 $ 2 $ 145 $ 3,818
U.S.Government Agencies
and corporations 20,069 3 668 19,404
Federal Reserve Bank Stock 57 0 0 57
Total Taxable 24,087 5 813 23,279
Tax Exempt:
Federal Reserve Bank Stock 2 0 0 2
Total securities held
to maturity $ 24,089 $ 5 $ 813 $ 23,281
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Held to Maturity Available for Sale
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due within 1 year $1,191 $1,194 $5,502 $5,500
Due after 1 but within 5 years 3,726 3,713 14,009 13,928
Due after 5 but within 10 years 3,294 3,262 0 0
Due after 10 years 0 0 59 59
$8,211 $8,169 $ 19,570 $ 19,487
</TABLE>
The proceeds from sales and calls and maturities of securities, including
principal payments received on mortgage-backed securities and the related
gross gains and losses realized for the six month periods ended June 30,
1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Proceeds From Gross Realized
Calls and Principal
Sales Maturities Payments Gains Losses
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1995
Securities held to maturity $ 998 $ 300 $ - $ - $ -
Securities available for sale 4,500 - - -
$ 998 $ 4,800 $ - $ - $ -
Six months ended June 30, 1994:
Securities held to maturity $ - $ 366 $ 45 $ - $ -
Securities available for sale 1,000 3,000 - - -
$1,000 $3,366 $ 45 $ - $ -
</TABLE>
Note 3. Loans
Total loans as of June 30, 1995 and December 31, 1994 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $ 3,215 $ 2,855
Real estate - construction 1,197 660
Real estate - mortgage 29,097 28,200
Installment loans to individuals 7,605 7,774
Other 841 387
Total loans 41,955 39,876
Less unearned income 253 257
Total loans net of unearned income 41,702 39,619
Less allowance for loan losses 736 853
Loans, net $ 40,966 $ 38,766
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Loan Losses
Analyses of the allowance for loan losses are presented below
(in thousands) for the six month periods ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Balance, beginning of period $ 853 $ 1,001
Loans charged off (163) (372)
Recoveries 46 107
Net losses (117) (265)
Provision for loan losses 0 123
Balance, end of period $ 736 $ 859
</TABLE>
Note 5. Earnings Per Share
Earnings per common share are computed based on the weighted-average
shares outstanding. For the six month periods ended June 30, 1995
and 1994, the weighted-average common shares outstanding was 192,500.
The weighted average common shares outstanding for the three month
periods then ended was also 192,500.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis focused on significant changes
in the financial condition and results of operations of First National
Bankshares Corporation (the "Company" or "Bankshares"), and its subsidiary,
The First National Bank in Ronceverte. This discussion and analysis should
be read in conjunction with the consolidated financial statements and notes
accompanying this analysis.
EARNINGS SUMMARY
The Company reported net income of $212,000 for the three months ended
June 30, 1995 compared to $133,000 for the quarter ended June 30, 1994,
representing a 59% increase. Similarly, for the six month period ended
June 30, 1995, Bankshares' net income of $339,000 increased 64% from
the $207,000 reported for the same period of 1994. The increases in
quarterly and year-to-date earnings were primarily attributable to
decreased interest expense, decreased provision for loan losses, and
increased non-interest income. See NON-INTEREST INCOME and PROVISION
FOR LOAN LOSSES sections which follow for further discussion of these items.
Earning per common share were $1.10 for the quarter ended June 30, 1995
compared to the $0.69 reported for the second quarter of 1994. For the
six month period ended June 30, 1995, earnings per common share totalled
$1.76 compared with $1.08 for the same period of 1994. An analysis of the
contribution of each major component of the statement of income to earnings
per share is presented in the following chart both for the three month and
for the six month periods ended June 30, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 7.38 $ 7.24 $ 0.14 $ 14.51 $ 14.55 $ (0.04)
Interest expense 2.67 2.69 (0.02) 5.31 5.51 (0.20)
Net interest income 4.71 4.55 0.16 9.20 9.04 0.16
Provision for loan losses 0.00 0.13 (0.13) 0.00 0.64 (0.64)
Net interest income after
provision for loan losses 4.71 4.42 0.29 9.20 8.40 0.80
Non-interest income 0.58 0.45 0.13 1.07 0.82 0.25
Non-interest expense 3.79 4.05 (0.26) 7.87 7.88 (0.01)
Income before income
taxes 1.50 0.82 0.68 2.40 1.34 1.06
Income tax expense 0.41 0.12 0.29 0.64 0.26 0.38
Net income $ 1.09 $ 0.70 $ 0.39 $ 1.76 $ 1.08 $ 0.68
</TABLE>
Bankshares' annualized return on average assets (ROA) for the second quarter
of 1995 was 1.13% compared to 0.66% for the second quarter of 1994. This
compares with ROA of 0.89% and 0.51% for the six month periods ended
June 30, 1995 and 1994, respectively. Annualized return on average
shareholders' equity (ROE) was 10.68% for the second quarter of 1995
compared to 6.84% in the second quarter of 1994, while year-to-date ROE was
8.64% and 5.27% at June 30, 1995 and 1994, respectively.
NET INTEREST INCOME
The most significant component of Bankshares' net earnings is net interest
income, which represents the excess of interest income earned on earning
assets over the interest expense paid for sources of funds. Net interest
income is affected by changes in volume resulting from growth and alteration
of the balance sheet's composition, as well as by fluctuations in market
interest rates and maturities of sources and uses of funds.<PAGE>
For purposes of this discussion, net interest income is presented on a
fully tax-equivalent basis to enhance the comparability of the performance
of tax-exempt to fully taxable earning assets. For the periods ended
June 30, 1995 and 1994, the tax-equivalent adjustment was $63,000 and
$59,000, respectively.
Bankshares' net interest income on a fully tax-equivalent basis totalled
$1,834,000 for the six month period ended June 30, 1995 compared to
$1,799,000 for the same period of 1994, representing an increase of $35,000
or 1.9%. The Company's net yield on interest earning assets increased to
5.1% in 1994 from 4.7% in 1994.
The increase in the yield on earning assets is due to the general increase
in market interest rates since June 30, 1994, and to the investing of funds
previously invested in securities into higher yielding loans. The cost of
interest bearing liabilities remained ralatively stable, with 1995's cost
being 3.5% versus the previous year's 3.3%. Further analysis of
Bankshares' yields on interest earning assets and interest earning liabilities
and changes in its net interest income are presented in TABLE I and TABLE II.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
The provision for loan losses represents charges to earnings necessary to
maintain an adequate allowance for potential future loan losses.
Management's determination of the appropriate level of the allowance is based
on an ongoing analysis of credit quality and loss potential in the loan
portfolio, actual loan loss experience relative to the size and
characteristics of the loan portfolio, change in the composition and risk
characteristics of the loan portfolio and the anticipated influence of
national and local economic conditions. The adequacy of the allowance for
loan losses is reviewed quarterly and adjustments are made as considered
necessary.
The provision for loan losses totalled $0 for the second quarter of 1994, a
decrease of $25,000 or 100% from that recorded in the second quarter of 1994.
For the six month period ended June 30, 1995, the provision for loan losses
was also $0, a decline of $123,000 compared to same period ended June 30,
1994. These reductions were primarily the result of management's general
strengthening of the Company's loan underwriting standards and a reduction
in the level of past due loans.
The allowance for loan losses was $736,000 at June 30, 1995 compared to
$859,000 at December 31, 1994. Expressed as a percentage of loans
(net of unearned income), the allowance for loan losses was 1.76% at June
30, 1995 compared to 2.15% at December 31, 1994. Loans charged-off, net
of recoveries of previously charged-off loans, totalled $117,000 and
$265,000 for the periods ended June 30, 1995 and 1994, respectively.
See Note 4 of the notes to the consolidated financial statements for an
analysis of the activity in the Company's allowance for loan losses for
the six month periods ended June 30, 1995 and 1994.
Non-accrual loans declined 32.5% to $627,000 as of June 30, 1995, compared
to June 30, 1994. Bankshares places into non-accrual status those loans
which the full collection of principal and interest are unlikely or which
are past due 90 or more days, unless the loans are adequately secured and
in the process of collection. The decrease in the level of non-accrual
loans is attributed to the charge-off of several credits deemed uncollectible
and the Company's enhanced loan collection policies and procedures.<PAGE>
<TABLE>
<CAPTION>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1994
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 40,802 $ 1,886 9.2% $ 43,288 $ 1,881 8.7%
Securities:
Taxable 24,009 724 6.0 27,117 771 5.7
Tax-exempt 5,026 186 7.4 4,363 174 7.9
Total securities 29,035 910 6.3 31,480 945 6.0
Federal funds sold 2,093 60 5.7 1,927 33 3.4
Total interest earning
assets 71,930 2,856 7.9 76,695 2,859 7.5
NON-INTEREST EARNING ASSETS
Cash and due
from banks 1,983 3,052
Bank premises and
equipment 1,104 1,103
Other assets 1,334 1,219
Allowance for
loan losses (736) (1,000)
Total assets $ 75,615 $ 81,069
INTEREST BEARING LIABILITIES
Demand deposits $ 13,148 178 2.7 $ 12,040 165 2.7
Savings deposits 20,749 349 3.4 25,445 401 3.2
Time deposits 24,213 495 4.1 26,419 494 3.7
Total interest
bearing liabilities 58,110 1,022 3.5 63,904 1,060 3.3
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 9,121 8,943
Other liabilities 665 371
Shareholders'
equity 7,719 7,851
Total liabilities
and shareholders'
equity $ 75,615 $ 81,069
NET INTEREST
EARNINGS $ 1,834 $ 1,799
NET YIELD ON INTEREST EARNING
ASSETS 5.1% 4.7%
<FN>
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 1995
and 1994.<PAGE>
</TABLE>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994 vs. June 30, 1993
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ (111) $ 116 $ 5
Securities:
Taxable (92) 45 (47)
Tax-exempt (2) 25 (13) 12
Total securities (67) 32 (35)
Federal funds sold 3 24 27
Total interest earning assets (175) 172 (3)
INTEREST BEARING LIABILITIES
Demand deposits 15 (2) 13
Savings deposits (78) 26 (52)
Time deposits (43) 44 1
Total interest bearing liabilities (106) 68 (38)
NET INTEREST EARNINGS $ (69) $ 104 $ 35
<FN>
(1) - The change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) - Calculated on a fully tax-equivalent basis using the rate of 34%.
<PAGE>
</TABLE>
A summary of the Company's past due loans and nonperforming assets is provided
in the following table.
SUMMARY OF PAST DUE LOANS AND NONPERFORMING ASSETS
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994 1994
<S> <C> <C> <C>
Loans past due 90 or more days
still accruing interest $ 0 $ 0 $ 0
Nonperforming assets:
Nonaccruing loans $ 627 $ 929 $ 933
Other real estate owned 23 0 0
$ 650 $ 929 $ 933
</TABLE>
NON-INTEREST INCOME
Non-interest income includes revenues for all sources other than interest
income and yield related loan fees. For the six month period ended June 30,
1995, Non-interest income totalled 205,000, representing an increase of
$48,000, or 31% from the $157,000 recorded during the same period of 1994.
As a percentage of average assets, non-interest income was 0.27% and 0.19%
for the six month periods ended June 30, 1995 and 1994, respectively.
While service fees decreased 5.9% to $95,000 from $100,000, other income
increased to $100,000 from 1994's level of $46,000. This increase is due
primarily to increased trust income of $66,000 during the first six months
of 1995, versus $4M during the first half of 1994.
NON-INTEREST EXPENSE
Non-interest expense comprises overhead costs which are not related to
interest expense or to losses from loans or securities. As of June 30,
1995, the Company's non-interest expense totalled $1,513,000, representing
a decrease of $4,000 over total non-interest expense incurred for the six
months ended June 30, 1994. Expressed as a percentage of average assets,
non-interest expense increased to 2.0% at June 30, 1995, from 1.9% at June
30, 1994.
Salaries and employee benefits are Bankshares' largest non-interest cost,
representing approximately 46% and 48% of total non-interest expense at
June 30, 1995 and 1994, respectively. Salaries and employee benefits
decreased $27,000, or 4% at June 30, 1995 compared to June 30, 1994.
This decrease is primarily due to attrition and the elimination of several
positions since June 30, 1994. As a partial offset to these eliminations,
the Bank hired a new Credit Administration Officer in March of 1995.
Currently, management believes that the Bank is adequately staffed.
Other non-interest expense also increased noticeably for the six months ended
June 30, 1995 compared to the same period of 1994. This increase is primarily
due to the expenses incurred in connection with the settlement of certain
litigation.
INCOME TAXES
Bankshares' income tax expense, which includes both Federal and State income
taxes, totalled $124,000 for the six month period ended June 30, 1995,
reflecting a $74,000 increase when compared to the same period of 1994,
principally due to an increased level of taxable earnings. Income tax expense
equalled 27% and 19% of income before taxes at June 30, 1995 and 1994,
respectively. For financial reporting purposes, income tax expense does
not equal the Federal statutory income tax rate of 34% when applied to pre-tax
income, primarily because of State income taxes and tax-exempt interest income
included in income before income taxes.
FINANCIAL CONDITION
Bankshares' total assets were $74,189,000 at June 30, 1995, compared to
$77,338,000 at December 31, 1994, representing a 4% decrease. This
decrease is due largely to a planned runoff of deposits with resulting
decreases in loans and securities.
The Bank's total securities portfolio decreased by $3,104,000 or 11% from
December 31, 1994. This decline reflects the decline in deposits discussed
below. A summary of the Company's securities portfolio (both held-to-
maturity and available-for-sale) is included as Note 2 to the consolidated
financial statements.
Loans, net of unearned income, increased by $2,083,000 or 5% during the first
half of 1995. A summary of the Bank's loans by category is included as Note 3
to the consolidated financial statements. This increase represents a
concentrated effort to grow loans and management believes that loan growth
will continue throughout 1995 due to competitive loan pricing and marketing
strategies.
Total deposits decreased to $65,414,000 as of June 30, 1995, from
$69,686,000 at December 31, 1994. This reduction was centered in the
interest-bearing deposit accounts. This decrease likely resulted from a
lowering ofnterest rates on certificates of deposit and locat competitive
conditions.
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity reflects Bankshares' ability to ensure the availability of adequate
funds to meet loan commitments and deposit withdrawals, as well as provide for
other Company transactional requirements. Liquidity is provided primarily
by funds invested in cash and due from banks and Federal funds sold, which
totalled $3,082,000 at June 30, 1995 versus $5,441,000 at December 31, 1994.
The Company's liquidity position is monitored continuously to ensure that
day-to-day as well as anticipated funding needs are met.
Further enhancing the Company's liquidity is the availability as of June 30,
1995 of $1,191,000 in securities maturing within one year. Also, Bankshares
has classified in accordance with SFAS No. 115 securities with an estimated
fair value totalling $19,487,000 as available for sale in response to an
unforeseen need for liquidity.
Management is not aware of any trends, commitments, events or uncertainties
that have resulted in or are reasonably likely to result in a material change
to the Company's liquidity.
Interest rate risk represents the volatility in earnings and market values of
interest earning assets and liabilities resulting from changes in market
rates. The Company seeks to minimize interest rate risk through asset/
liability management. Bankshares' principal asset/liability management
strategy is gap management. Gap is the measure of the difference between the
volume of repricing interest earning assets and interest bearing liabilities
during given time periods. When the volume of repricing interest earning
assets exceeds the volume of repricing interest bearing liabilities, the gap
is positive -- a condition which usually is favorable during a rising rate
environment. The opposite case, a negative gap, generally is favorable during
a falling rate environment. When the interest rate sensitivity gap is near
zero, the impact of interest rate risk is limited, for at this point changes
in net interest income are minimal regardless of whether interest rates are
rising or falling. An analysis of the Company's current gap position is
presented in TABLE III.<PAGE>
<TABLE>
<CAPTION>
TABLE III
INTEREST RATE SENSITIVITY GAPS
June 30, 1995
(In thousands of dollars)
Repricing (1)
Within 6 6 to 12 After
Months Months 12 Months Total
<S> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans, net of unearned income $ 20,349 $ 1,979 $ 18,638 $ 40,966
Securities 3,191 3,500 21,007 27,698
Federal funds sold 400 - - 400
Total interest earning assets 23,940 5,479 39,645 69,064
INTEREST BEARING LIABILITIES
Demand deposits 12,901 - - 12,901
Savings deposits 20,010 - - 20,010
Time deposits 14,048 3,387 6,067 23,502
Total interest bearing
liabilities 46,959 3,387 6,067 56,413
Contractual interest
sensitivity gap (23,019) 2,092 33,578 12,651
Adjustment (2) 32,911 (32,911) - -
Adjusted interest
sensitivity gap $ 9,892 $(30,819) $ 33,578 $ 12,651
Cumulative adjusted interest
sensitivity gap $ 9,892 $(20,927) $ 12,651
Cumulative adjusted gap ratio 1.70 0.58 1.22
<FN>
(1) - Repricing on a contractual basis unless otherwise noted.
(2) - Adjustment to approximate the actual repricing of interest bearing demand
deposits and savings accounts based upon historical experience.
</TABLE>
On a contractual repricing basis, the Company is negatively gapped by
($23,019,000) over the less than six month time frame. Included within this
time period are $32,911,000 in interest bearing demand deposits and savings
accounts which on a contractual basis are immediately repriceable. However,
based on historical experience, the repricing of these deposit balances tends
to lag, at a minimum, six months behind changes in market interest rates.
For this reason, TABLE III reflects an adjustment to compensate for the time
lag in the repricing of these deposits. After this adjustment, the table
reflects a positive gap in the less than six month time frame of $9,892,000.
The Company seeks to maintain its adjusted interest sensitivity gap within the
less than six month category to a relatively small balance, positive or
negative, regardless of anticipated upward or down movements in interest rates
in an effort to limit the effects of interest rate risk on Company net interest
income.
CAPITAL RESOURCES
Maintenance of a strong capital position is a continuing goal of Bankshares'
management. Through management of its capital resources, the Company seeks to
provide an attractive financial return to its shareholders while retaining
sufficient capital to support future growth.
Total shareholders' equity at June 30, 1995 was $8,008,000 compared to
$7,311,000 at December 31, 1994, representing an increase of $697,000. This
increase is primarily attributable to the $474,000 decrease in the net
unrealized loss recorded on securities classified as available for sale
(See FINANCIAL CONDITION section for further discussion). Total
shareholders' equity expressed as a percentage of total assets increased from
10% at December 31, 1994 to 11% at June 30, 1995. Cash dividends totalling
$116,000, or $0.60 per share were declared during the first half of 1995
versus dividends of $57,000, or $0.30 per share, during the first half of
1994. These payout levels represented 34% and 28% of the company's year-to
-date earnings for June 30, 1995 and 1994, respectively.
As a Bank Holding Company, Bankshares is subject to the Federal Reserve
Board's risk-based capital guidelines. Such guidelines provide for relative
weighting of both on and off-balance sheet items (such as loan commitments and
standby letters of credit) based on their perceived degree of risk. At
June 30, 1995, the Company continues to exceed each of the regulatory risk-
based capital requirements as shown in the following table:
<TABLE>
RISK-BASED CAPITAL RATIOS
June 30, 1994
Minimum
Actual Requirement
<S> <C> <C>
Tier 1 risk-based capital ratio 19.7% 4.0%
Total risk-based capital ratio 20.9% 8.0%
Leverage ratio 10.7% 4.0%
</TABLE>
Improved operating results and a consistent dividend program, coupled with an
effective management of credit and interest rate risk will be the key elements
towards the Company continuing to maintain its present strong capital position
in the future.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of First National Bankshares
Corporation was held on April 27, 1995. At this meeting, the following
individuals were elected to serve as Company directors for a three year
term expiring in 1998:
<TABLE>
Number of Votes Cast
For Against Abstaining
<S> <C> <C> <C>
William R. Satterfield, Jr. 144,962 - -
William D. Goodwin 144,962 - -
Dr. Lucie T. Refsland 144,962
L. Thomas Bulla 144,962 - -
</TABLE>
Also at this meeting, the accounting firm of Arnett & Foster of
Charleston, WV was unanimously approved by the shareholders as the
Company's accounting firm.
No other matters were voted upon by the shareholders at this meeting.
Item 6. Exhibits and Reports on Form 8-K
a. There are no exhibits included in this filing.
b. The Company did not file any Form 8-K, Current Reports during the
quarter ended June 30, 1995.
<PAGE>
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 CORPORATION
By /S/ L. Thomas Bulla
L. Thomas Bulla
President and Chief Executive Officer
By /S/ Darrell Echols
Darrell Echols, Vice President
Date: August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 2,682
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,487
<INVESTMENTS-CARRYING> 8,211
<INVESTMENTS-MARKET> 8,169
<LOANS> 40,966
<ALLOWANCE> 2,443
<TOTAL-ASSETS> 74,189
<DEPOSITS> 65,414
<SHORT-TERM> 0
<LIABILITIES-OTHER> 767
<LONG-TERM> 0
<COMMON> 963
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 74,189
<INTEREST-LOAN> 981
<INTEREST-INVEST> 417
<INTEREST-OTHER> 23
<INTEREST-TOTAL> 1,421
<INTEREST-DEPOSIT> 514
<INTEREST-EXPENSE> 514
<INTEREST-INCOME-NET> 907
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 728
<INCOME-PRETAX> 78
<INCOME-PRE-EXTRAORDINARY> 78
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.1
<LOANS-NON> 627
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 853
<CHARGE-OFFS> 163
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 736
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
