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 March 31, 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 si
nce last report)
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. X Yes No
The number of shares outstanding of the issuer's classes of common
stock as of March 16, 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 March 31, 1995
INDEX
Page
PART I.FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Balance Sheets - March 31, 1995
and December 31, 1994 3
Consolidated Statements of Income -
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 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 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
ASSETS (Unaudited) *
<S> <C> <C>
Cash and due from banks $1,959 $3,721
Federal funds sold 2,296 1,720
Securities available for sale
(Note 2) 19,162 23,281
Securities held to maturity (estimated
fair value $ 9,319 and $ 7,158,
respectively) (Note 2) 9,488 7,521
Loans, net (Notes 3 and 4) 39,789 38,766
Bank premises and equipment 1,071 1,035
Accrued interest receivable 556 796
Other assets 971 898
Total assets $75,292 $77,738
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non interest bearing $9,201 $9,209
Interest bearing 57,655 60,477
Total deposits 66,856 69,686
Other liabilities 788 741
Total liabilities 67,644 70,427
Commitments and Contingencies
Shareholders' equity
Common stock, $5.00 par value,
authorized 500,000 shares,
issued 192,500 shares 963 963
Capital surplus 1,000 1,000
Retained earnings 5,942 5,873
Net unrealized (loss) on securities (257) (525)
Total shareholders' equity 7,648 7,311
Total liabilities and
shareholders' equity $75,292 $77,738
<FN>
* - The December 31, 1994 consolidated balance sheet has been
extracted from audited financial data.
See Notes to Consolidated Financial Statements
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Interest Income
Interest and fees on loans $905 $972
Interest and dividends on securities:
Taxable 368 356
Tax-exempt 62 62
Interest on Federal funds sold 37 17
Total interest income 1,372 1,407
Interest expense on deposits 508 543
Net interest income 864 864
Provision for loan losses - 98
Net interest income after provision
for loan losses 864 766
Other income
Service fees 47 48
Insurance commissions 3 7
Securities gains - 1
Other income 44 16
Total other income 94 72
Other expense
Salaries and employee benefits 348 363
Net occupancy expense 56 43
Equipment rental, depreciation
and maintenance 35 50
Other 346 281
Total other expenses 785 737
Income before income taxes 173 101
Income tax expense 46 26
Net income $127 $75
Earnings per common share (Note 5) $.66 $.39
Dividends declared per common share $.30 $-
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Balance, beginning of period $7,311 $7,487
Net income 127 75
Cash dividends declared (58) -
Net unrealized gain on securities
available for sale upon adoption of
SFAS No. 115 - 311
Change in net unrealized (gain) on
securities available for sale 268 (273)
Balance, end of period $7,648 $7,600
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $127 $75
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation 34 34
Provision for loan losses - 98
Securities (gains) - (1)
Amortization of security premiums
(accretion) of security discounts, net (3) 17
Decrease in accrued interest receivable 240 273
(Increase) in other assets (197) (189)
Increase in other liabilities 66 57
Net cash provided by operating activities 267 364
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of
securities held to maturity - 266
Proceeds from maturities and calls of
securities available for sale 4,500 2,000
Principal payments received on securities
held to maturity - 20
Purchases of securities held to maturity (1,953) (247)
Purchases of securities available for sale - (3,495)
Principal collected on (loans made to)
customers, net (1,023) 3,584
Purchases of bank premises and equipment (70) (56)
Net cash provided by (used in)
investing activities 1,454 2,072
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW and savings accounts (1,483) (166)
Proceeds from sales of (payments for matured)
time deposits, net (1,347) (581)
Dividends paid (77) -
Net cash provided by (used in)
financing activities (2,907) (747)
Increase (decrease) in cash and
cash equivalents (1,186) 1,689
Cash and cash equivalents:
Beginning 5,441 4,410
Ending $4,255 $6,099
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $503 $546
Income taxes $- $29
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Dividends declared and unpaid $58 $-
<FN>
See Notes to Consolidated Financial Statements
</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 adjust-
ments 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 three months ended
March 31, 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.
The amortized cost, unrealized gains, unrealized losses and
estimated fair values of securities at March 31, 1995 and
December 31, 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury securities $2,968 $- $6 $2,962
U.S. Government agencies
and corporations 1,001 - 12 989
Corporate debt securities 500 - 36 464
Total taxable 4,469 - 54 4,415
Tax exempt:
State and political
subdivisions 5,019 - 115 4,904
Total $9,488 $- $169 $9,319
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury securities $1,000 $- $21 $979
U.S. Government agencies
and corporations 1,002 - 29 973
Corporate debt securities 500 - 51 449
Total taxable 2,502 - 101 2,401
Tax exempt:
State and political
subdivisions 5,019 8 270 4,757
Total $7,521 $8 $371 $7,158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
Taxable:
U.S. Treasury securities $2,962 $- $77 $2,885
U.S. Government agencies
and corporations 16,557 - 339 16,218
Federal Reserve Bank stock 57 - - 57
Total taxable 19,576 - 416 19,160
Tax exempt:
Federal Reserve Bank stock 2 - - 2
Total $19,578 $- $416 $19,162
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 - - 57
Total taxable 24,087 5 813 23,279
Tax exempt:
Federal Reserve Bank stock 2 - - 2
Total $24,089 $5 $813 $23,281
The maturities, amortized cost and estimated fair values of the Company's
securities at March 31, 1995 are summarized as follows (in thousands):
Held to Maturity Available for Sale
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
Due within 1 year $2,468 $2,472 $4,503 $4,472
Due after 1 but within 5 years 3,726 3,648 15,016 14,631
Due after 5 but within 10 years 3,294 3,199 - -
Due after 10 years - - 59 59
Total $9,488 $9,319 $19,578 $19,162
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 three month periods
ended March 31, 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>
Three months ended March 31, 1995:
Securities held to maturity $- $- $- $- $-
Securities available for sale - 4,500 - - -
Total $- $4,500 $- $- $-
Three months ended March 31, 1994:
Securities held to maturity $- $266 $20 $- $-
Securities available for sale - 2,000 - - -
Total $- $2,266 $20 $- $-
</TABLE>
Note 3. Loans
Total loans as of March 31, 1995 and December 31, 1994 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $3,183 $2,855
Real estate - construction 951 660
Real estate - mortgage 28,394 28,200
Installment loans to individuals 7,635 7,774
Other 639 387
Total loans 40,802 39,876
Less unearned income 252 257
Total loans net of unearned income 40,550 39,619
Less allowance for loan losses 761 853
Loans, net $39,789 $38,766
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Loan Losses and New Accounting Pronouncement
Analyses of the allowance for loan losses are presented below
(in thousands) for the three month periods ended March 31, 1995 and
1994:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
<S> <C> <C>
Balance, beginning of period $853 $1,001
Loans charged off (117) (112)
Recoveries 25 18
Net losses (92) (94)
Provision for loan losses 0 98
Balance, end of period $761 $1,005
</TABLE>
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (SFAS No. 114). Under SFAS No. 114, certain impaired loans
are required to be reported at the present value of expected future
cash flows discounted using the loan's original effective interest
rate or, alternatively, at the loan's observable market price or at
the fair value of the loan's collateral if the loan is collateral
dependent. The adoption of SFAS No. 114 did not materially impact the
Company's financial condition or results of operations.
Note 5. Earnings Per Share
Earnings per common share are computed based on the weighted-average
shares outstanding. For the three month periods ended March 31, 1995
and 1994, the weighted-average common shares outstanding was 192,500.
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 $127,000 for the three months ended
March 31, 1995 compared to $75,000 for the quarter ended March 31,
1994, representing a 69.3% increase. The increase in earnings for the
first quarter of 1995 was primarily attributable to no provision for
loan losses being recorded compared to the $98,000 provision recorded
for the first quarter of 1994, and due to a $22,000 (30.6%) increase
in other income. These earnings improvements were partially offset
by a $48,000 increase in noninterest expenses. See PROVISION FOR LOAN
LOSSES and NONINTEREST EXPENSE sections which follow for further
discussion.
Earning per common share were $.66 for the quarter ended March 31,
1995 compared to the $.39 reported for the first quarter 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
for the three month periods ended March 31, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Increase
1995 1994 (Decrease)
<S> <C> <C> <C>
Interest income $7.13 $7.31 $(.18)
Interest expense 2.64 2.82 (.18)
Net interest income 4.49 4.49 -
Provision for loan losses - .51 (.51)
Net interest income after
provision for loan losses 4.49 3.98 .51
Noninterest income .49 .37 .12
Noninterest expense 4.08 3.82 .26
Income before income taxes .90 .53 .37
Income tax expense .24 .14 .10
Net income $.66 $.39 $.27
</TABLE>
Bankshares' annualized return on average assets (ROA) for the first
quarter of 1995 was .67% compared to .37% for the first quarter of
1994. Annualized return on average shareholders' equity (ROE) was
6.8% for the first quarter of 1995 compared to 3.8% in the first
quarter of 1994.
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.
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
period ended March 31, 1995 and 1994, the tax-equivalent adjustment
was $32,000 and $32,000, respectively.
Bankshares' net interest income on a fully tax-equivalent basis
totalled $896,000 for the three month period ended March 31, 1995
unchanged from $896,000 recorded during the same period of 1994.
The Company's net yield on interest earning assets for the three month
period ended March 31, 1995 was 4.96% compared to 4.66% for the same
period in 1994, reflecting an increase of 29 basis points in the yield
on earning assets (7.48% to 7.77%) which was offset by an increase of
only 8 basis points in the cost of interest bearing liabilities
(3.38% to 3.46%).
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 Company recognized no provision for loan losses for the first
quarter of 1995, compared to the $98,000 provision recorded in the
first quarter of 1994. This reduction primarily reflects the result
of management's general strengthening of the Company's loan under-
writing standards, a reduction in the level of past due and nonper-
forming loans and a decline in the total balance of outstanding loans.
The allowance for loan losses was $761,000 at March 31, 1995, compared
to $1,005,000 at March 31, 1994. The balance at March 31, 1994
includes an amount previously reserved for a specific loan of $201,000
which was charged off in the second quarter of 1994. Expressed as a
percentage of loans (net of unearned income), the allowance for loan
losses was 1.88% at March 31, 1995 compared to 2.16% at March 31,
1994. Loans charged off, net of recoveries of previously charged off
loans, totalled $92,000 and $94,000 for the periods ended March 31,
1995 and 1994, respectively. See Note 4 of the notes to the consol-
idated financial statements for an analysis of the activity in the
Company's allowance for loan losses for the three month periods ended
March 31, 1995 and 1994.
Nonaccrual loans declined 50.5% to $569,000 as of March 31, 1995, com-
pared to March 31, 1994. Bankshares places into nonaccrual 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 nonaccrual loans is attributed to the Company's enhanced
loan collection policies and procedures implemented during 1994.
<TABLE>
<CAPTION>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
Three Months Ended Three Months Ended
March 31, 1995 March 31, 1994
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $39,527 $905 9.16% $44,731 $972 8.69%
Securities:
Taxable 24,923 368 5.91 25,889 356 5.50
Tax-exempt 5,019 94 7.49 4,141 94 9.08
Total securities 29,942 462 6.17 30,030 450 5.99
Federal funds sold 2,853 37 5.19 2,203 17 3.09
Total interest
earning assets 72,322 1,404 7.77 76,964 1,439 7.48
NONINTEREST EARNING ASSETS
Cash & due from banks 2,032 3,220
Bank premises & equip 1,127 1,098
Other assets 1,496 1,190
Allowance for
loan losses (835) (988)
Total assets $76,142 $81,484
INTEREST BEARING LIABILITIES
Demand deposits $11,507 75 2.61 $11,930 85 2.85
Savings deposits 23,209 190 3.27 25,606 207 3.23
Time deposits 23,962 243 4.06 26,785 251 3.75
Total interest
bearing liabilities 58,678 508 3.46 64,321 543 3.38
NONINTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 9,079 8,815
Other liabilities 885 422
Shareholders' equity 7,500 7,926
Total liabilities
and shareholders'
equity $76,142 $81,484
NET INTEREST
EARNINGS $896 $896
NET YIELD ON INTEREST EARNING
ASSETS 4.96% 4.66%
<FN>
(1) Calculated on a fully tax-equivalent basis using the rate of 34% for 1995
and 1994.
</TABLE>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended
March 30, 1995 vs. March 30, 1994
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $(117) $50 $(67)
Securities:
Taxable (14) 26 12
Tax-exempt (2) 18 (18) 0
Total securities 4 8 12
Federal funds sold 6 14 20
Total interest earning assets (107) 72 (35)
INTEREST EARNING LIABILITIES
Demand deposits (3) (7) (10)
Savings deposits (20) 3 (17)
Time deposits (28) 20 (8)
Total interest earning liabilities (51) 16 (35)
NET INTEREST EARNINGS $(56) $56 $0
<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%.
</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>
March 31, December 31,
1995 1994 1994
<S> <C> <C> <C>
Loans past due 90 or more days
still accruing interest $- $- $-
Nonperforming assets:
Nonaccruing loans $569 $1,149 $933
Other real estate owned - 48 -
Total $569 $1,197 $933
</TABLE>
NONINTEREST INCOME
Noninterest income includes revenues from all sources other than
interest income and yield related loan fees. For the three month
period ended March 31, 1995, noninterest income totalled $ 94,000,
representing an increase of $22,000, or 30.6% from the $72,000 recorded
during the same period of 1994. This increase is attributable
primarily to trust fees recognized in the first quarter of 1995
totalling $31,000 compared to $2,000 in the first quarter of 1994. As
a percentage of average assets, annualized noninterest income was .49%
and .35% for the three month periods ended March 31, 1995 and 1994,
respectively.
Bankshares intends to continue to strive in the future to enhance its
overall profitability by identifying new opportunities for earning
additional noninterest income.
NONINTEREST EXPENSE
Noninterest expense comprises overhead costs which are not related to
interest expense or to losses from loans or securities. As of
March 31, 1995, the Company's noninterest expense totalled $785,000,
representing an increase of $48,000, or 6.51% over total noninterest
expense incurred for the three months ended March 31, 1994. Expressed
as a percentage of average assets, annualized noninterest expense
increased to 4.12% at March 31, 1995, from 3.62% at March 31, 1994.
The most significant contributing factor to the rise in noninterest
expense was increased other operating expenses. During the first three
months of 1995, Bankshares recorded $65,000 or 23.1% more in other
operating expenses compared to the same period 1994, primarily as
result of 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 $46,000 for the three month period ended
March 31, 1995, reflecting a $20,000 increase when compared to the same
period of 1994 principally due to a increased level of taxable earnings
in 1995. Income tax expense equalled 26.6% and 25.7% of income before
taxes at March 31, 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 pretax income,
primarily because of State income taxes and tax-exempt interest income
included in income before income taxes.
FINANCIAL CONDITION
Bankshares' total assets were $75,292,000 at March 31, 1995, compared
to $77,738,000 at December 31, 1994, representing a 3.1% decrease.
The Company's total securities portfolio decreased by $2,152,000, or
7.0% from December 31, 1994 to March 31, 1995. This decline reflects
the decline in deposits discussed below. A summary of the Company's
securities held to maturity and securities available for sale
portfolios by type of security as of March 31, 1995 and December 31,
1994 is presented in Note 2 of the notes to the consolidated
financial statements.
Loans, net of unearned income increased $931,000, or 2.3% during the
first three months of 1995. A summary of Company loans as of
March 31, 1995 and December 31, 1994 by category is included elsewhere
herein as Note 3 of the notes to the consolidated financial statements.
Management believes that recent declines in loan balances have stab-
ilized and anticipates some moderate loan growth throughout the
remainder of 1995 in response to competitive loan pricing and marketing
strategies currently being implemented.
Total deposits decreased to $66,856,000, or 4.1% at March 31, 1995,
from $69,686,000 at December 31, 1994. This reduction was primarily
the result of a $1,347,000, or 5.4% decline in the balance of cert-
ificates of deposit and a $1,477,000, or 4.2% decline in the balance of
savings accounts which likely resulted from a lowering of the interest
rate paid on these deposits to bring the Company's rate more in line
with that paid by other institutions in its market area. Noninterest
bearing deposits have remained relatively stable in comparison to their
respective balance at March 31, 1995 and December 31, 1994.
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 measured $4,255,000 at March 31,
1995 or 21.8% less than the $5,441,000 total 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
March 31, 1995 of $7,000,000 in securities maturing within one year.
Also, Bankshares has classified in accordance with SFAS No. 115
securities with an estimated fair value totalling $19,162,000 as
available for sale in response to an unforeseen need for liquidity.
Management is not aware of any trends, commitments, events or uncer-
tainties 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.
<TABLE>
<CAPTION>
TABLE III
INTEREST RATE SENSITIVITY GAPS
March 31, 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 $15,358 $9,971 $15,221 $40,550
Securities 4,400 2,100 22,150 28,650
Federal funds sold 2,296 - - 2,296
Total interest earning assets 22,054 12,071 37,371 71,496
INTEREST BEARING LIABILITIES
Demand deposits 11,543 - - 11,543
Savings deposits 22,379 - - 22,379
Time deposits 13,918 4,231 5,584 23,733
Total interest
bearing liabilities 47,840 4,231 5,584 57,655
Contractual interest
sensitivity gap (25,786) 7,840 31,787 13,841
Adjustment (2) 33,922 (33,922) - -
Adjusted interest
sensitivity gap $8,136 $(26,082) $31,787 $13,841
Cumulative adjusted
interest sensitivity gap $8,136 $(17,946) $13,841
<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
$25,786,000 over the less than six month time frame. Included within
this time period are $33,922,000 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 $8,136,000. 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 anti-
cipated 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 share-
holders while retaining sufficient capital to support future growth.
Total shareholders' equity at March 31, 1995 was $7,648,000 compared to
$7,311,000 at December 31, 1994, representing an increase of $337,000,
which is attributable to net retained earnings and to a $268,000
reduction in the net unrealized loss on securities classified as
available for sale. Total shareholders' equity expressed as a percentage
of total assets increased from 9.4% at December 31, 1994 to 10.2% at
March 31, 1995. Cash dividends totalling $57,750, or $.30 per share were
declared during the first quarter of 1995, representing 46% of the
Company's year-to-date earnings for 1995.
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 March 31 1995, the Company continues to exceed each
of the regulatory risk-based capital requirements as shown in the fol-
lowing table:
<TABLE>
RISK-BASED CAPITAL RATIOS
March 31, 1995
Minimum
Actual Requirement
<S> <C> <C>
Tier 1 risk-based capital ratio 21.19% 4.0%
Total risk-based capital ratio 19.93% 8.0%
Leverage ratio 10.37% 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 toward the Company continuing to maintain its present
strong capital position in the future.
PART II. OTHER INFORMATION
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 March 31, 1995.
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/ Keith E.Morgan
Keith E. Morgan,
Secretary and Treasurer
(Chief Financial and Accounting Officer)
Date: May 09, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 1,959
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,296
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,162
<INVESTMENTS-CARRYING> 9,488
<INVESTMENTS-MARKET> 9,319
<LOANS> 40,550
<ALLOWANCE> 761
<TOTAL-ASSETS> 75,292
<DEPOSITS> 66,856
<SHORT-TERM> 0
<LIABILITIES-OTHER> 788
<LONG-TERM> 0
<COMMON> 963
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 75,292
<INTEREST-LOAN> 905
<INTEREST-INVEST> 430
<INTEREST-OTHER> 37
<INTEREST-TOTAL> 1372
<INTEREST-DEPOSIT> 508
<INTEREST-EXPENSE> 508
<INTEREST-INCOME-NET> 864
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 785
<INCOME-PRETAX> 173
<INCOME-PRE-EXTRAORDINARY> 173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-PRIMARY> .66
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.96
<LOANS-NON> 569
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 853
<CHARGE-OFFS> 117
<RECOVERIES> 25
<ALLOWANCE-CLOSE> 761
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
