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 September 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) 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 No
The number of shares outstanding of the issuer's classes of common stock as of
September 30, 1995:
Common Stock, $5 par value -- 192,500 shares
THIS REPORT CONTAINS 22 PAGES<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 1995
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995 and December 31,
1994 3
Consolidated Statements of Income -
Three Months Ended September 30, 1995 and 1994 and
Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Shareholders' Equity -
Three Months Ended September 30, 1995 and 1994 and
Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995 and 1994 6-7
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
<S> <C) <C>
Cash and due from banks $ 2,224 $ 3,721
Federal funds sold 1,108 1,720
Securities available for sale (Note 2) 17,524 23,281
Securities held to maturity (estimated
fair value $7,149 and $7,158, respectively)
(Note 2) 7,119 7,521
Loans, net (Notes 3 and 4) 44,490 38,766
Bank premises and equipment 1,039 1,035
Accrued interest receivable 597 796
Other assets 594 898
Total assets $ 74,695 $ 77,738
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 9,052 $ 9,209
Interest bearing 56,549 60,477
Total deposits 65,601 69,686
Other liabilities 914 741
Total liabilities 66,515 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 6,241 5,873
Net unrealized gain (loss) on securities (24) (525)
Total shareholders' equity 8,180 7,311
Total liabilities and shareholders'
equity $ 74,695 $ 77,738
<FN>
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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 1,031 $ 904 $ 2,917 $ 2,785
Interest and dividends on
securities:
Taxable 327 405 1,051 1,176
Tax-exempt 57 59 180 174
Interest on Federal funds sold 13 34 73 67
Total interest income 1,428 1,402 4,221 4,202
Interest Expense
Interest on deposits 540 516 1,562 1,576
Net interest income 888 886 2,659 2,626
Provision for loan losses 0 0 0 123
Net interest income after
provision for loan losses 888 886 2,659 2,503
Other income
Service fees 44 53 139 153
Insurance commissions 8 6 18 17
Securities gains 0 0 0 0
Other income 56 19 156 65
108 78 313 235
Other expense
Salaries and employee benefits 354 347 1,051 1,071
Net occupancy expense 45 42 145 140
Equipment rental, depreciation
and maintenance 81 54 170 157
Other operating expenses 220 356 847 948
700 799 2,213 2,316
Income before income taxes 296 165 759 422
Income tax expense 92 18 216 68
Net income $ 204 $ 147 $ 543 $ 354
Earnings per common share
(Note 5) $ 1.06 $ 0.76 $ 2.83 $ 1.84
Dividends per common share $ 0.30 $ 0.30 $ 0.90 $ 0.60
<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 Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Balance, beginning of period $ 8,008 $ 7,690 $ 7,311 $ 7,737
Net income 204 147 543 354
Cash dividends declared (58) (57) (174) (115)
Net unrealized (loss) on
securities available for
sale upon adoption of
SFAS No. 115 - - - 311
Change in net unrealized (loss)
on securities available
for sale 26 (102) 500 (609)
Balance, end of period $ 8,180 $ 7,678 $ 8,180 $ 7,678
<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>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 543 $ 354
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 113 102
Provision for loan losses - 123
Deferred income tax (benefit) - (4)
Amortization of security premiums
(accretion) of security discounts, net (15) 43
Decrease accrued interest receivable 199 218
Decrease (Increase) in other assets 36 (366)
Increase in other liabilities 191 190
Net cash provided by operating activities 1,067 660
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities
available for sale - 1,000
Proceeds from maturities and calls
of securities held to maturity 2,398 516
Proceeds from maturities and calls
of securities available for sale 6,500 5,000
Principal payments received on securities
held to maturity - 57
Purchases of securities held to maturity (1,954) (2,869)
Purchases of securities available for sale - (6,436)
Principal collected on (loans made to)
customers, net (5,724) 5,275
Purchases of bank premises and equipment (117) (85)
Proceeds from sale of other real estate - 47
Net cash provided by investing activities 1,103 2,505
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits,
NOW and savings accounts (2,189) (1,793)
Proceeds from sales of (payments for matured)
time deposits, net (1,897) (1,276)
Dividends paid (193) (58)
Net cash (used in) financing activities (4,279) (3,127)
Increase (decrease) in cash and cash
equivalents (2,109) 38
Cash and cash equivalents:
Beginning 5,441 4,410
Ending $ 3,332 $ 4,448
<FN>
(Continued)<PAGE>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 1,552 $ 1,547
Income taxes $ 126 $ 252
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Dividends Payable $ 57 $ 57
<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 nine months ended September 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 September 30, 1995 and December 31, 1994
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury securities $ 1,000 $ 4 $ - $ 1,004
U.S.Government agencies
and corporations 1,001 13 - 1,014
Corporate debt securities 500 - 14 486
Total Taxable 2,501 17 14 2,504
Tax Exempt:
State & political
subdivisions 4,618 27 - 4,645
Total securities held
to maturity $ 7,119 $ 44 $ 14 $ 7,149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<PAGE>
September 30, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale:
Taxable:
U.S. Treasury securities $ 2,967 $ - $ 7 $ 2,960
U.S.Government agencies
and corporations 14,536 - 31 14,505
Federal Reserve Bank stock 57 - - 57
Total Taxable 17,560 - 38 17,522
Tax Exempt:
Federal Reserve Bank Stock 2 - - 2
Total securities available
for sale $ 17,562 $ - $ 38 $ 17,524
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
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 & 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 - - 57
Total Taxable 24,087 5 813 23,279
Tax Exempt:
Federal Reserve Bank Stock 2 - - 2
Total securities available
for sale $ 24,089 $ 5 $ 813 $ 23,281
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the
Company's securities at September 30, 1995 are summarized as follows
(in thousands):
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 $ 1,100 $ 1,104 $ 6,891 $ 6,887
Due after 1 but within
5 years 2,726 2,724 10,612 10,578
Due after 5 but within
10 years 3,293 3,321 - -
Due after 10 years - - 59 59
$ 7,119 $ 7,149 $ 17,562 $ 17,524
</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 nine month periods ended September 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>
Nine months ended Sept. 30, 1995
Securities held to maturity $ - $ 2,398 $ - $ - $ -
Securities available for sale - 6,500 - - -
$ - $ 8,898 $ - $ - $ -
Nine months ended Sept. 30, 1994:
Securities held to maturity $ - $ 516 $ 57 $ - $ -
Securities available for sale 1,000 5,000 - - -
$ 1,000 $ 5,516 $ 57 $ - $ -
</TABLE>
NOTE 3. LOANS
Total loans as of September 30, 1995 and December 31, 1994 are summarized
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $ 3,626 $ 2,855
Real estate - construction 1,605 660
Real estate - mortgage 31,733 28,200
Installment loans to individuals 6,952 7,774
Other 1,536 387
Total loans 45,452 39,876
Less unearned income (231) (257)
Total loans net of unearned income 45,221 39,619
Less allowance for loan losses (731) (853)
Loans, net $ 44,490 $ 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 nine month periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Balance, beginning of period $ 853 $ 776
Loans charged off (190) (252)
Recoveries 68 39
Net losses (122) (213)
Provision for loan losses 0 300
Balance, end of period $ 731 $ 863
</TABLE>
Effective January 1, 1995, the Company adopted Statements of Financial
Accounting Standards Nos. 114 and 118 (SFAS Nos. 114 and 118) "Accounting
by Creditors for Impairment of a Loan" and "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures,"
respectively. Under SFAS Nos. 114 and 118, a loan is impaired when, based
on current information and events, it is probable that the Company will
be unable to collect all amounts due according to the contractual
terms of its loan agreement. Impaired loans, other than certain groups
of smaller-balance homogeneous loans that are collectively evaluated for
impairment, 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 method selected to measure impairment is made on a loan-by-loan
basis, unless foreclosure is deemed to be probable in which case the fair
value of the collateral method is used. The implementation of the
requirements of SFAS Nos. 114 and 118 did not have a significant
impact on the accompanying financial statements.
For purposes of SFAS Nos. 114 & 118, the Company considers groups of
smaller balance, homogeneous loans to include: mortgage loans secured by
residential property, other than those which significantly exceed the
bank's typical residential mortgage loan amount (currently those in
excess of $100,000); "other" loans, which include small balance,
overdraft protection lines; and installment loans to individuals,
exclusive of those loans in excess of $50,000.
The Company's total recorded investment in impaired loans at September
30, 1995 approximated $552,140, for which the related recorded allowance
for credit losses determined in accordance with SFAS Nos. 114 and 118
approximated $172,386. The Company's average investment in such loans
approximated $622,006 for the nine month period ended September 30, 1995.
All impaired loans at September 30, 1995, were collateral dependent,
and accordingly, the fair value of the loan's collateral was used to
measure the impairment of each.
Interest is accrued daily on impaired loans unless the loan is placed on
non-accrual status. Impaired loans are placed on non-accrual status
when the payments of principal and interest are in default for a
period of 90 days, unless the loan is both well secured and in the
process of collection. Interest on non-accrual loans is recognized
primarily using the cost-recovery method.
For the nine month period ended September 30, 1995, the Company
recognized approximately $5,588 in interest income on impaired loans.
Using a cash-basis method of accounting, the Company would have
recognized approximately $5,383 in interest on such loans.
NOTE 5. EARNINGS PER SHARE
Earnings per common share are computed based on the weighted-average
shares outstanding. For the nine month periods ended September 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 $204,000 for the three months ended
September 30, 1995 compared to $147,000 for the quarter ended September
30, 1994, representing a 39% increase. Similarly, for the nine month
period ended September 30, 1995, Bankshares' net income of $543,000 increased
53% from the $354,000 reported for the same period of 1994. The increases
in quarterly and year-to-date earnings were primarily attributable to
decreased provision for loan losses, and increased non-interest income and
decreased non-interest expense. See NON-INTEREST INCOME, NON-INTEREST EXPENSE
and PROVISION FOR LOAN LOSSES sections which follow for further discussion
of these items.
Earning per common share were $1.06 for the quarter ended September 30, 1995
compared to the $0.76 reported for the third quarter of 1994. For the nine
month period ended September 30, 1995, earnings per common share totalled
$2.83 compared with $1.84 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 nine month periods ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 7.42 $ 7.28 $ 0.14 $ 21.93 $ 21.83 $ 0.10
Interest expense 2.81 2.68 0.13 8.11 8.19 (0.08)
Net interest income 4.61 4.60 0.01 13.82 13.64 0.18
Provision for loan losses 0.00 0.00 0.00 0.00 0.64 (0.64)
Net interest income after
provision for loan losses 4.61 4.60 0.01 13.82 13.00 0.82
Non-interest income 0.56 0.41 0.15 1.63 1.22 0.41
Non-interest expense 3.63 4.15 (0.52) 11.50 12.03 (0.53)
Income before income taxes 1.54 0.86 0.68 3.95 2.19 1.76
Income tax expense 0.48 0.10 0.38 1.12 0.35 0.77
Net income $ 1.06 $ 0.76 $ 0.30 $ 2.83 $ 1.84 $ 0.99
</TABLE>
Bankshares' annualized return on average assets (ROA) for the third quarter of
1995 was 1.08% compared to 0.72% for the third quarter of 1994. This compares
with ROA of 0.96% and 0.58% for the nine month periods ended September 30,
1995 and 1994, respectively. Annualized return on average shareholders'
equity (ROE) was 10.48% for the third quarter of 1995 compared to 7.51% in the
third quarter of 1994, while year-to-date ROE was 9.29% and 6.03% at
September 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 September
30, 1995 and 1994, the tax-equivalent adjustment was $93,000 and $90,000,
respectively.
Bankshares' net interest income on a fully tax-equivalent basis totalled
$2,751,000 for the nine month period ended September 30, 1995 compared to
$2,716,000 for the same period of 1994, representing an increase of $35,000
or 1.3%. The Company's net yield on interest earning assets increased to 5.1%
in 1995 from 4.7% in 1994.
The increase in the yield on earning assets is due primarily to the general
increase in market interest rates since September 30, 1994, and to the
investing of funds previously invested in securities into higher yielding
loans. The cost of interest bearing liabilities increased slightly, with
1995's cost being 3.6% versus the previous year's 3.3% due to third quarter
increases in rates paid on time deposits. Further analysis of Bankshares'
yields on interest earning assets and cost of 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 third quarter of 1995, the
same as that recorded in the third quarter of 1994. For the nine month period
ended September 30, 1995, the provision for loan losses was also $0, a
decline of $123,000 compared to same period ended September 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 $731,000 at September 30, 1995 compared to
$853,000 at December 31, 1994. Expressed as a percentage of loans (net of
unearned income), the allowance for loan losses was 1.62% at September 30,
1995 compared to 2.15% at December 31, 1994. Loans charged-off, net of
recoveries of previously charged-off loans, totalled $122,000 and $213,000
for the periods ended September 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 nine month periods
ended September 30, 1995 and 1994.
Non-accrual loans declined 30.9% to $645,000 as of September 30, 1995,
compared to September 30, 1994's level of $934,000. 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)
Nine Months Ended Nine Months Ended
September 30, 1995 September 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 $ 41,599 $2,917 9.35% $ 42,513 $ 2,785 8.73%
Securities:
Taxable 23,469 1,050 5.97% 27,153 1,176 5.77%
Tax-exempt 4,874 273 7.46% 4,439 264 7.93%
Total securities 28,343 1,323 6.22% 31,592 1,440 6.08%
Federal funds sold 1,595 73 6.10% 2,309 67 3.87%
Total interest earning
assets 71,537 4,313 8.04% 76,414 4,292 7.49%
NON-INTEREST EARNING ASSETS
Cash and due from banks 2,191 2,998
Bank premises and equipment 1,089 1,098
Other assets 1,155 1,308
Allowance for loan losses (735) (953)
Total assets $ 75,237 $ 80,865
INTEREST BEARING LIABILITIES
Demand deposits $ 13,443 $ 268 2.66% $ 12,144 $ 247 2.71%
Savings deposits 20,259 527 3.47% 25,201 592 3.13%
Time deposits 23,620 767 4.33% 26,256 737 3.74%
Total interest bearing
liabilities 57,322 1,562 3.63% 63,601 1,576 3.30%
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 9,194 9,080
Other liabilities 934 357
Shareholders' equity 7,787 7,827
Total liabilities and
shareholders' equity $ 75,237 $ 80,865
NET INTEREST
EARNINGS $ 2,751 $ 2,716
NET YIELD ON INTEREST EARNING ASSETS 5.13% 4.74%
(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>
Nine Months Ended
Sept. 30, 1995 vs. Sept. 30, 1994
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ (61) $ 193 $ 132
Securities:
Taxable (164) 38 (126)
Tax-exempt (2) 25 (16) 9
Total securities (139) 22 (117)
Federal funds sold (25) 31 6
Total interest earning assets (225) 246 21
INTEREST BEARING LIABILITIES
Demand deposits 26 (5) 21
Savings deposits (124) 59 (65)
Time deposits (79) 109 30
Total interest bearing liabilities (177) 163 (14)
NET INTEREST EARNINGS $ (48) $ 83 $ 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%.
</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>
September 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 $ 645 $ 934 $ 933
Other real estate owned 23 0 0
$ 668 $ 934 $ 933
</TABLE>
NON-INTEREST INCOME
Non-interest income includes revenues for all sources other than interest
income and yield related loan fees. For the nine month period ended September
30, 1995, non-interest income totalled $313,000, representing an increase
of $78,000, or 33% from the $235,000 recorded during the same period of 1994.
As a percentage of average assets, non-interest income was 0.42% and 0.29% for
the nine month periods ended September 30, 1995 and 1994, respectively. While
service fees decreased 9.2% to $139,000 from $153,000, other income increased
to $156,000 from 1994's level of $65,000. This increase is due primarily to
increased trust income of $104,000 during the first nine months of 1995,
versus $7,000 during the first nine months 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 September 30,
1995, the Company's non-interest expense totalled $2,213,000, representing a
decrease of $103,000 over total non-interest expense incurred for the nine
months ended September 30, 1994. Expressed as a percentage of average assets,
non-interest expense increased to 2.9% at September 30, 1995, from 2.8% at
September 30, 1994.
Salaries and employee benefits are Bankshares' largest non-interest cost,
representing approximately 47.4%and 46.2% of total non-interest expense at
September 30, 1995 and 1994, respectively. Salaries and employee benefits
decreased $20,000, or 2% at September 30, 1995 compared to September 30,
1994. This decrease is primarily due to attrition and the elimination of
several positions since September 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.
A large portion of the decrease in non-interest expenses can be attributed
to the reassassment of the Bank's monthly FDIC insurance premium paid on
deposit accounts. This reassessment was was retroactive to July 1, which
allowed the Company to receive a refund of the premiums paid in excess of the
reassesed amount plus accrued interest. The premium dropped from a level of
$13,100 per month to a current level of $2,100 per month. Premium rates are
not expected to increase again.
INCOME TAXES
Bankshares' income tax expense, which includes both Federal and State income
taxes, totalled $216,000 for the nine month period ended September 30, 1995,
reflecting a $148,000 increase when compared to the same period of 1994,
principally due to an increased level of taxable earnings. Income tax expense
equalled 28.5% and 16.1% of income before taxes at September 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 $74,695,000 at September 30, 1995, compared to
$77,738,000 at December 31, 1994, representing a 3.9% decrease. This decrease
is due largely to an overall decrease in deposits and a corresponding decrease
in the securities portfolio. Securities also decreased as assets were shifted
into higher-yielding loans.
The Bank's total securities portfolio decreased by $6,159,000 or 19.9% from
December 31, 1994. This decline reflects the decline in deposits mentioned
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 $5,724,000 or 14.8% during the
first nine months 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 increase loans and management believes
that loan growth will continue throughout 1995 due to competitive loan pricing
and marketing strategies.
Total deposits decreased to $65,601,000 as of September 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 of
interest rates on certificates of deposit and local competitive conditions.
The deposit attrition ceased during the third quarter and has no impact on the
Company's liquidity position.
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 $3,332,000 at September 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 September
30, 1995 of $7,626,000 in securities maturing within one year. Also,
Bankshares has classified in accordance with SFAS No. 115 securities with an
estimated fair value totalling $17,524,000 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
September 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 $ 20,492 $ 5,118 $ 18,880 $ 44,490
Securities 2,603 5,384 16,656 24,643
Federal funds sold 1,108 - - 1,108
Total interest earning assets 24,203 10,502 35,536 70,241
INTEREST BEARING LIABILITIES
Demand deposits 13,093 - - 13,093
Savings deposits 20,271 - - 20,271
Time deposits 10,543 2,198 10,444 23,185
Total interest bearing
liabilities 43,907 2,198 10,444 56,549
Contractual interest
sensitivity gap $(19,704) $ 8,304 $ 25,092 $ 13,692
Adjustment (2) 33,364 (33,364) - -
Adjusted interest
sensitivity gap $ 13,660 $ (25,060) $ 25,092 $ 13,692
Cumulative adjusted
interest sensitivity gap $ 13,660 $ (11,400) $ 13,692
Cumulative adjusted gap ratio 2.30 0.75 1.24
<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
($19,704,000) over the less than six month time frame. Included within this
time period are $33,364,000 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 $13,660,000.
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 September 30, 1995 was $8,180,000 compared to
$7,311,000 at December 31, 1994, representing an increase of $869,000.
This increase is primarily attributable to the $501,000 decrease in the
net unrealized loss recorded on securities classified as available for sale
(See FINANCIAL CONDITION section for further discussion) as well as improved
earnings during 1995. Total shareholders' equity expressed as a percentage
of total assets increased from 10% at December 31, 1994 to 11% at September
30, 1995. Cash dividends totalling $173,000, or $0.90 per share were declared
during the first nine months of 1995 versus dividends of $116,000, or $0.60
per share, during the first nine of 1994. These payout levels represented 32%
and 33% of the company's year-to-date earnings for September 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
September 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
September 30, 1994
Minimum
Actual Requirement
<S> <C> <C>
Tier 1 risk-based capital ratio 19.21% 4.0%
Total risk-based capital ratio 20.46% 8.0%
Leverage ratio 10.91% 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 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 September 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/ Keith E. Morgan
Keith E. Morgan
Secretary and Treasurer
Date:
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 2,224
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,108
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,524
<INVESTMENTS-CARRYING> 7,119
<INVESTMENTS-MARKET> 7,149
<LOANS> 44,490
<ALLOWANCE> 2,230
<TOTAL-ASSETS> 74,695
<DEPOSITS> 65,601
<SHORT-TERM> 0
<LIABILITIES-OTHER> 914
<LONG-TERM> 0
<COMMON> 963
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 74,695
<INTEREST-LOAN> 1,031
<INTEREST-INVEST> 384
<INTEREST-OTHER> 13
<INTEREST-TOTAL> 1,428
<INTEREST-DEPOSIT> 540
<INTEREST-EXPENSE> 540
<INTEREST-INCOME-NET> 888
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 220
<INCOME-PRETAX> 92
<INCOME-PRE-EXTRAORDINARY> 92
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 204
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.13
<LOANS-NON> 645
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 853
<CHARGE-OFFS> 190
<RECOVERIES> 68
<ALLOWANCE-CLOSE> 731
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
