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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 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
June 30, 1996:
Common Stock, $5 par value -- 192,500 shares
THIS REPORT CONTAINS 21 PAGES<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 1996
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Shareholders' Equity -
Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 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
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
ASSETS (Unaudited) Audited
<S> <C> <C>
Cash and due from banks $ 2,709 $ 2,721
Federal funds sold 606 893
Securities held to maturity (estimated market value
$19,117 and $13,609, respectively) (Note 2) 19,184 13,514
Securities available for sale (Note 2) 6,287 10,501
Loans, net (Notes 3 and 4) 47,342 45,773
Bank premises and equipment 1,538 999
Accrued interest receivable 632 707
Other assets 586 347
Total assets $ 78,884 $ 75,455
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 8,971 $ 8,691
Interest bearing 60,171 57,475
Total deposits 69,142 66,166
Repurchase Agreements 149 0
Other liabilities 945 873
Total liabilities 70,236 67,039
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 6,687 6,410
Net Unrealized gain (loss) on securities (2) 43
Total shareholders' equity 8,648 8,416
Total liabilities and shareholders'
equity $ 78,884 $75,455
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $1,145 $ 981 $2,260 $ 1,886
Interest and dividends on securities:
Taxable 290 356 556 724
Tax-exempt 53 61 107 123
Interest on Federal funds sold 46 23 88 60
Total interest income 1,534 1,421 3,011 2,793
Interest Expense
Interest on deposits 587 514 1,158 1,022
Interest on Repurchase Agreements 1 0 1 0
Total Interest Expense 588 514 1,159 1,022
Net interest income 946 907 1,852 1,771
Provision for loan losses 0 0 0 0
Net interest income after provision
for loan losses 946 907 1,852 1,771
Other income
Service fees 60 48 98 95
Insurance commissions 6 7 11 10
Securities gains 0 0 1 0
Other income 46 56 96 100
112 111 206 205
Other expense
Salaries and employee benefits 394 349 755 697
Net occupancy expense 46 44 95 100
Equipment rental, depreciation
and maintenance 57 54 113 89
Other operating expenses 266 281 529 627
763 728 1,492 1,513
Income before income taxes 295 290 565 463
Income tax expense 80 78 162 124
Net income $ 214 $ 212 $ 403 $ 339
Earnings per common share (Note 5) $ 1.11 $ 1.10 $ 2.09 $1.76
Dividends per common share $ 0.33 $ 0.30 $ 0.66 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Balance, beginning of period $8,510 $ 7,648 $ 8,416 $ 7,311
Net income 214 212 403 339
Cash dividends declared (63) (57) (126) (116)
Net unrealized (loss) on securities
available for sale upon adoption of
SFAS No. 115 - - - 474
Change in net unrealized (loss) on
securities available for sale (13) 205 (45) 0
Balance, end of period $8,648 $ 8,008 $ 8,648 $ 8,008
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 403 $339
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 75 67
Provision for loan losses 0 0
Amortization of security premiums (accretion) of
security discounts, net 11 (15)
(Increase) Decrease accrued interest receivable 75 80
(Increase) Decrease in other assets (223) 11
Increase (Decrease) in other liabilities 66 45
Net cash provided by operating activities 407 527
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 0 0
Proceeds from maturities and calls of securities held
to maturity 1,272 1,298
Proceeds from maturities and calls of securities
available for sale 4,141 4,500
Principal payments received on securities held to
maturity 0 0
Purchases of securities held to maturity (6,941) (1,954)
Purchases of securities available for sale 0 0
Principal collected on (loans made to) customers, net (1,569) (2,200)
Purchases of bank premises and equipment (614) (123)
Net cash provided by investing activities (3,711) 1,521
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts 2,316 (2,695)
Proceeds from sales of (payments for matured)
time deposits, net 660 (1,577)
Net increase (decrease) in Repurchase Agreements 149 0
Dividends paid (120) (135)
Net cash (used in) financing activities 3,005 (4,407)
Increase (decrease) in cash and cash equivalents (299) (2,359)
Cash and cash equivalents:
Beginning 3,614 5,441
Ending $ 3,315 $3,082
(Continued)<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $1,175 $ 1,017
Income taxes $ 211 $ 141
See Notes to Consolidated Financial Statements<PAGE>
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, First National Bank.
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, 1996 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
1995 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, 1996 and December 31, 1995 are
summarized as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury Securities $ 8,942 $ 4 $ 6 $ 8,940
U.S. Government Agencies
and corporations 5,226 7 50 5,183
Corporate Debt Securities 500 0 12 488
Total Taxable 14,668 11 68 14,611
Tax Exempt:
State & political subdivisions 4,516 33 43 4,506
Total securities held
to maturity $ 19,184 $ 44 $ 111 $ 19,117<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities $ 974 $ 0 $ 3 $ 971
U.S. Government Agencies
and corporations 5,014 6 6 5,014
Federal Home Loan Bank Stock 243 0 0 243
Federal Reserve Bank Stock 57 0 0 57
Total Taxable 6,288 6 9 6,285
Tax Exempt:
Federal Reserve Bank Stock 2 0 0 2
Total securities held to
maturity $ 6,290 $ 6 $ 9 $ 6,287
December 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities $ 3,001 $ 12 $ 0 $ 3,013
U.S. Government Agencies
and corporations 5,496 33 9 5,520
Corporate Debt Securities 500 0 6 494
Total Taxable 8,997 45 15 9,027
Tax Exempt:
State & political
subdivisions 4,517 74 9 4,582
Total securities held
to maturity $ 13,514 $ 119 $ 24 $ 13,609
December 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities $ 969 $ 25 $ 0 $ 994
U.S. Government Agencies
and corporations 9,171 52 7 9,216
Federal Home Loan Bank Stock 232 0 0 232
Federal Reserve Bank Stock 57 0 0 57
Total Taxable 10,429 77 7 10,499
Tax Exempt:
Federal Reserve Bank Stock 2 0 0 2
Total securities held
to maturity $ 10,431 $ 77 $ 7 $ 10,501
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the Company's
securities at June 30, 1996 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 $9,561 $9,556 $4,514 $4,517
Due after 1 but within 5 yrs 6,332 6,278 1,474 1,468
Due after 5 but within 10 yrs 3,291 3,283 0 0
Due after 10 years 0 0 302 302
$ 19,184 $ 19,117 $6,290 $6,287
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,
1996 and 1995 are as follows (in thousands):
Proceeds From Gross Realized
Calls and Principal
Sales Maturities Payments Gains Losses
Six months ended June 30, 1996
Securities held to maturity $ 0 $1,272 $ 0 $ 0 $ 0 0
Securities available for sale 0 4,141 0 0 0 0
$ 0 $5,413 $ 0 $ 0 $ 0
Six months ended June 30, 1995:
Securities held
to maturity $998 $ 300 $ 0 $ 0 $ 0
Securities available
for sale 0 4,500 0 0 0
$998 $4,800 $ 0 $ 0 $ 0
Note 3. Loans
Total loans as of June 30, 1996 and December 31, 1995 are summarized as
follows (in thousands):
June 30, December 31,
1996 1995
Commercial, financial and agricultural $13,270 $ 13,135
Real estate - construction 1,171 2,020
Real estate - mortgage 22,675 23,430
Installment loans to individuals 7,134 6,522
Other 3,974 1,571
Total loans 48,224 46,678
Less unearned income (291) (262)
Total loans net of unearned income 47,933 46,416
Less allowance for loan losses (591) (643)
Loans, net $47,342 $ 45,773
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, 1996 and 1995:
Six Months Ended
June 30,
1996 1995
Balance, beginning of period $ 643 $ 853
Loans charged off (160) (163)
Recoveries 108 46
Net losses (52) (117)
Provision for loan losses 0 0
Balance, end of period $ 591 $ 736
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, 1996 and
1995, 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"), and its subsidiary, First National Bank. 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 $214,000 for the three months ended June 30,
1996 compared to $212,000 for the quarter ended June 30, 1995, representing a
0.9% increase. For the six month period ended June 30, 1996, The Company s net
income of $403,000 increased 18.9% from the $339,000 reported for the same
period of 1995. The increases in quarterly and year-to-date earnings were
primarily attributable to decreased non-interest expense, and increased interest
income, as further discussed in the analysis below.
Earning per common share were $1.11 for the quarter ended June 30, 1996 compared
to the $1.10 reported for the second quarter of 1995. For the six month
period ended June 30, 1996, earnings per common share totaled $2.09 compared
with $1.76 for the same period of 1995. 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, 1996 and 1995.
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Increase Increase
1996 1995 (Decrease) 1996 0 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 7.97 $ 7.38 $ 0.59 $15.64 $14.51 $ 1.13
Interest expense 3.05 2.66 0.39 6.02 5.31 0.71
Net interest income 4.92 4.72 0.20 9.62 9.20 0.42
Provision for loan losses 0.00 0.00 0.00 0.00 0.00 0.00
Net interest income after
provision for loan losses 4.92 4.72 0.20 9.62 9.20 0.42
Non-interest income 0.58 0.58 0.00 1.07 1.07 0.00
Non-interest expense 3.97 3.79 0.18 7.76 7.87 (0.11)
Income before income taxes 1.53 1.51 0.02 2.93 2.40 0.53
Income tax expense 0.42 0.41 0.01 0.84 0.64 0.20
Net income $ 1.11 $ 1.10 $ 0.01 $ 2.09 $ 1.76 $ 0.33
The Company s annualized return on average assets (ROA) for the second quarter
of 1996 was 1.10% compared to 1.13% for the second quarter of 1995. This
compares with ROA of 1.04% and 0.89% for the six month periods ended June 30,
1996 and 1995, respectively. Annualized return on average shareholders' equity
(ROE) was 10.00% for the second quarter of 1996 compared to 10.68% in the second
quarter of 1995, while year-to-date ROE was 9.42% and 8.64% as of June 30, 1996
and 1995, respectively.
NET INTEREST INCOME
The most significant component of The Company s 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 periods ended June 30, 1996 and 1995, the tax-equivalent adjustment
was $54,000 and $63,000, respectively.
The Company s net interest income on a fully tax-equivalent basis totaled
$1,906,000 for the six month period ended June 30, 1996 compared to
$1,834,000 for the same period of 1995, representing an increase of $72,000
or 3.9%. The Company's net yield on interest earning assets increased to 5.17%
in 1996 from 5.10% in 1995. The increase in the net yield on earning assets is
due to a 50 basis point increase in loan rates compared to the first half
of 1995. The cost of interest bearing liabilities increased to 3.92% versus the
previous year's 3.52%, and was primarily due to increased rates paid on time
deposits, specifically a 7-month CD promotion offered by the bank at 6.00%.
Further analysis of The Company s 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 totaled $0 for the second quarter of 1996, the
same as that recorded in the second quarter of 1995. For the six month
period ended June 30, 1996, the provision for loan losses was also $0, which
was the same as the provision during the first half of 1995. This elimination
was primarily the result of management's strengthening of the Company's loan
underwriting standards and continued reduction in the level of past due loans.
The Bank s loan portfolio has improved dramatically, with the majority of loan
growth being in high-quality commercial loans. Due to this improvement in
overall loan quality, the drastic reduction in past due loans, and a dramatic
decrease in non-accrual loans, management feels that the current reserve is
adequate. The allowance for loan losses was $591,000 at June 30, 1996 compared
to $643,000 at December 31, 1995. Expressed as a percentage of loans (net of
unearned income), the allowance for loan losses was 1.25% at June 30, 1996
compared to 1.40% at December 31, 1995. Loans charged-off, net of recoveries of
previously charged-off loans, totaled $52,000 and $117,000 for the periods ended
June 30, 1996 and 1995, 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,
1996 and 1995. Non-accrual loans declined 58.2% to $262,000 as of June 30, 1996,
compared to $627,000 at June 30, 1995. The Company 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.
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1996 June 30, 1995
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 46,388 $2,260 9.74% $ 40,802 $ 1,886 9.24%
Securities:
Taxable 19,445 556 5.72 24,009 724 6.03
Tax-exempt 4,517 161 7.13 5,026 186 7.40
Total securities 23,962 717 5.98 29,035 910 6.27
Federal funds sold 3,352 88 5.25 2,093 60 5.763
Total interest earning
assets 73,702 3,065 8.32 71,930 2,856 7.94
NON-INTEREST EARNING ASSETS
Cash and due from banks 2,223 1,983
Bank premises and equip. 1,188 1,104
Other assets 1,156 1,334
Allowance for loan losses (609) (736)
Total assets $77,660 $ 75,615
INTEREST BEARING LIABILITIES
Demand deposits $13,014 $ 173 2.66 $13,148 $ 178 2.71
Savings deposits 19,958 349 3.50 20,749 349 3.36
Time deposits 26,033 636 4.88 24,213 495 4.09
Repurchase Agreements 45 1 3.72 0 0 0.00
Total interest
bearing liabilities 59,050 1,159 3.92 58,110 1,022 3.52
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits $ 8,984 $ 9,121
Other liabilities 1,069 665
Shareholders' equity 8,557 7,719
Total liabilities and
shareholders' equity $ 77,660 $75,615
NET INTEREST
EARNINGS $1,906 $1,834
NET YIELD ON INTEREST EARNING
ASSETS 5.17% 5.10%
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 1996
and 1995.<PAGE>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996 vs. June 30, 1995
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 259 $ 5 $ 264
Securities:
Taxable (132) (35) (167)
Tax-exempt (2) (18) (6) (24)
Total securities (150) (41) (191)
Federal funds sold 34 (5) (29)
Total interest earning assets 143 (41) (102)
INTEREST BEARING LIABILITIES
Demand deposits (2) (3) (5)
Savings deposits (14) 14 0
Time deposits 0 1 1
Total interest bearing liabilities (16) 12 (4)
NET INTEREST EARNINGS $ 159 $ (53) $ 106
(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>
A summary of the Company's past due loans and non-performing assets is provided
in the following table.
SUMMARY OF PAST DUE LOANS AND NON-PERFORMING ASSETS
(in thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995 1995
Loans past due 90 or more days
still accruing interest $ 0 $ 0 $ 0
Non-performing assets:
Non-accruing loans $ 262 $ 627 $ 375
Other real estate owned 24 23 10
$ 286 $ 650 $ 385
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, 1996,
non-interest income totaled $206,000, representing an increase of $1,000 from
the $205,000 recorded during the same period of 1995. As a percentage of
average assets, non-interest income was 0.26% and 0.27% for the six month
periods ended June 30, 1996 and 1995, respectively. While service fees
increased 3.15% to $98,000 from $95,000, other income decreased to $96,000 from
1995's level of $100,000. This decrease is due primarily to the loss of
non-recurring trust income that was realized during the first half 1995.
Partially offsetting this loss of trust income was the increase in fees
generated by the Company's participation in the Private Business Manager
program, a method by which the Bank purchases a customer receivables at
a discount and receives payment. The Company has participated in this program
since April of 1995, but significant fee income was not realized until the first
quarter of 1996. Total fees recognized from this program during the first
half of 1996 were $37,000.
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, 1996, the
Company's non-interest expense totaled $1,492,000, representing a decrease
of $21,000 over total non-interest expense incurred for the six months ended
June 30, 1995. Expressed as a percentage of average assets, non-interest
expense remained relatively stable at 1.9% at June 30, 1996, versus 2.0% at
June 30, 1995.
Salaries and employee benefits are The Company s largest non-interest cost,
representing approximately 51% and 46% of total non-interest expense at June 30,
1996 and 1995, respectively. Salaries and employee benefits increased $58,000,
or 8.3% as of June 30, 1996 compared to June 30, 1995. This increase is due to
the addition of four new employees for the Company s new Charleston branch
location, as well as normal merit increases for certain members of the existing
staff.
Other non-interest expense also decreased noticeably for the six months ended
June 30, 1996 compared to the same period of 1995. 1996's decrease is partially
due to the elimination of non-recurring expenses incurred in connection with the
settlement of certain litigation during early 1995.
INCOME TAXES
The Company s income tax expense, which includes both Federal and State income
taxes, totaled $162,000 for the six month period ended June 30, 1996, reflecting
a $38,000 increase when compared to the same period of 1995, principally due to
an increased level of taxable earnings. Income tax expense equaled 28.7% and
26.8% of income before taxes at June 30, 1996 and 1995, respectively. For
financial reporting purposes, income tax expense does not equal the Federal
statutory income tax rate of 34.0% 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
The Company s total assets were $78,884,000 at June 30, 1996, compared to
$75,455,000 at December 31, 1995, representing a 4.5% increase. This increase
is due largely to increased time deposits and the corresponding increase in
assets further discussed below. Time deposits increased to $26,370,000 as of
June 30, 1996 versus $23,502,000 as of June 30, 1995.
The Bank's total securities portfolio increased by $1,456,000 or 6.1% from
December 31, 1995. This increase is related to the increase 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 $1,517,000 or 3.3% during the first
half of 1996. 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 1996 due to competitive loan pricing and the Bank s branch
expansion into the larger Charleston, WV, market.
Fixed assets increased dramatically during the first six months of 1996 to
$1,538,000 from $999,000 at year end 1995. This increase is due to several
factors including: the remodeling of the Bank s main office in Ronceverte, WV,
which was damaged by flood waters in January of 1996; the Bank s branch
expansion into the Charleston, WV, market; and the planned relocation of the
Bank s Lewisburg, WV, branch from the current facility which is leased on a
month-to-month basis, to a Bank-owned location. Insurance proceeds are
expected to fully cover all flood costs. As of June 30, 1996, the Bank had
construction-in-progress of approximately $577,000, of which $357,000 is
expected to be placed on a depreciating basis during the third quarter of 1996.
Total deposits increased to $69,142,000 as of June 30, 1996, from $66,166,000 at
December 31, 1995. This increase was centered in the interest-bearing deposit
accounts, primarily time deposits. This increase resulted from an increase in
interest rates on certificates of deposit and other local competitive
conditions.
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity reflects The Company s 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
totaled $3,315,000 at June 30, 1996 versus $3,614,000 at December 31, 1995.
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,
1996 of $14,705,000 in securities maturing within one year. Also, The Company
has classified additional securities with an estimated fair value totaling
$1,770,000 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. The Company s 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 III
INTEREST RATE SENSITIVITY GAPS
June 30, 1996
(In thousands of dollars)
Repricing (1)
0 to 3 3 to 6 6 to 12 After
Months Months Months 12 Months Total
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans, net of unearned income $17,595 $ 4,771 $ 5,195 $ 19,781 $ 47,342
Securities 6,997 4,828 2,235 11,411 25,471
Federal funds sold 606 0 0 0 606
Total interest earning
assets 25,198 9,599 7,430 31,192 73,419
INTEREST BEARING LIABILITIES
Demand deposits 13,370 0 0 0 13,370
Savings deposits 20,431 0 0 0 20,431
Time deposits 7,896 5,238 5,418 7,818 26,370
Total interest bearing
liabilities 41,697 5,238 5,418 7,818 60,171
Contractual interest
sensitivity gap (16,499) 4,361 2,012 23,374 13,248
Adjustment (2) 33,801 0 (33,801) 0 0
Adjusted interest
sensitivity gap $ 17,302 $ 4,361 $ (31,789) $ 23,374 $ 13,248
Cumulative adjusted
interest sensitivity gap $17,302 $ 21,663 $ (10,126) $ 13,248
Cumulative adjusted gap ratio 3.19 1.83 0.81 1.22
Cumulative adjusted gap as a percentage
of Total Earning Assets 23.57% 29.51% (13.79)% 18.04%
<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.
On a contractual repricing basis, the Company is negatively gapped by
($16,499,000) over the less than three month time frame. Included within
this time period are $33,801,000 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 three month time frame of $17,302,000.
Included in this figure are approximately $7,000,000 in U.S. Treasury Bills that
were invested short-term to insure adequate liquidity for anticipated loan
growth in the Charleston market.
CAPITAL RESOURCES
Maintenance of a strong capital position is a continuing goal of The Company s
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, 1996 was $8,653,000 compared to
$8,415,000 at December 31, 1995, representing an increase of $238,000, or 2.8%.
This increase is attributable to the Company s improved profits and the
corresponding increase in retained earnings. Total shareholders' equity
expressed as a percentage of total assets decreased from 11.2% at December 31,
1995 to 10.9% at June 30, 1996, due to the increased asset level. Cash
dividends totaling $126,000, or $0.66 per share were declared during the first
half of 1996 versus dividends of $116,000, or $0.60 per share, during the first
half of 1995. These payout levels represented 31% and 34% of the company's
year-to-date earnings for June 30, 1996 and 1995, respectively.
As a Bank Holding Company, The Company 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, 1996
the Company continues to exceed each of the regulatory risk-based capital
requirements as shown in the following table:
RISK-BASED CAPITAL RATIOS
June 30, 1996
</TABLE>
<TABLE>
<CAPTION>
Minimum
Actual Requirement
<S> <C> <C>
Tier 1 risk-based capital ratio 22.1% 4.0%
Total risk-based capital ratio 23.3% 8.0%
Leverage ratio 10.9% 3.0%
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.
BRANCH MATTERS
The Bank received approval from the Office of the Comptroller of the Currency in
January, 1996, to open a branch facility in Charleston, West Virginia. In late
June, 1996, the Bank occupied its leased space at Laidley Tower, a high-
rise office building in downtown Charleston, and commenced with pre-opening
activities. The Branch officially opened for business on July 15, 1996. The
new Branch is staffed with six employees, four of which are newly hired
positions.
The Bank has historically leased its branch banking facility on Route 219 North
in Lewisburg, West Virginia, from two Company Directors. The lease term began
April 1, 1986, and ran for a period of 10 years, expiring in March of 1996.
In January of 1996, Bank Management and the Board of Directors opted to
renegotiate the lease in an attempt to reduce the annual cost to the Bank, as
well as to evaluate other branch options. Negotiations did not result in a
mutually satisfactory agreement, and the Board of Directors voted not to renew
the existing lease, but to commence with the purchase of land and the
construction of a new branch location. The old lease is to be continued on a
month-to-month basis under current terms until a new location is constructed.
The Company is commencing with the construction of a new facility on Route 219
North, approximately 1 mile north of the current location. On May 3, 1996, the
Company exercised an option to purchase approximately 2 acres of land on Route
219, North at a contract price of $190,000. A bid for the construction of the
building has been accepted, with the total construction costs of this project,
excluding the land purchase, currently estimated at $352,000, excluding
landscaping costs. Upon completion, total operating costs for the new facility,
including depreciation expense, are expected to be less than those of the
existing location.
STOCK OPTION PLAN
On March 26, 1996, the Board of Directors approved an incentive stock option
plan to provide a method whereby key employees of the Company and its
subsidiaries who are responsible for the management, growth, and protection
of the business, and who are making substantial contributions to the success and
profitability of the business, may be encouraged to acquire a stock ownership in
the Company, thus creating a proprietary interest in the business and
providing them with greater incentive to continue in the service of and to
promote the interest of the Company and its stockholders. The incentive
stock option plan was approved by the shareholders on April 25, 1996.
Accordingly, the Company will from time to time during the effective period of
the plan, grant to the employees selected in the manner provided in the plan
options to purchase shares of the common stock of the Company subject to certain
conditions specified in the plan. The maximum number of shares eligible under
this plan is 5.0% of the current outstanding common shares, or 9,625 shares of
the Company's common stock. No options have yet been granted.
<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 June 30, 1996.
<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 & Treasurer
By /S/ Jack D. Whitt
Jack D. Whitt
Chief Financial Officer, First National Bank
(Principal Financial and
Accounting Officer)
Date: 07/30/96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,709
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 606
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,184
<INVESTMENTS-CARRYING> 6,287
<INVESTMENTS-MARKET> 19,117
<LOANS> 47,342
<ALLOWANCE> 2,756
<TOTAL-ASSETS> 78,884
<DEPOSITS> 69,142
<SHORT-TERM> 0
<LIABILITIES-OTHER> 945
<LONG-TERM> 0
<COMMON> 963
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 78,884
<INTEREST-LOAN> 1,145
<INTEREST-INVEST> 343
<INTEREST-OTHER> 46
<INTEREST-TOTAL> 1,534
<INTEREST-DEPOSIT> 587
<INTEREST-EXPENSE> 587
<INTEREST-INCOME-NET> 946
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 266
<INCOME-PRETAX> 80
<INCOME-PRE-EXTRAORDINARY> 80
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.17
<LOANS-NON> 262
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 643
<CHARGE-OFFS> 160
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 591
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
