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, 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
tobe 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
March 31, 1996:
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 March 31, 1996
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 and December 31, 1995 3
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 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 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
ASSETS (Unaudited) (Unaudited)
<S> <C> <C>
Cash and due from banks $ 2,142 $ 2,721
Federal funds sold 6,116 893
Securities available for sale (Note 2) 8,952 10,501
Securities held to maturity (estimated market value
$12,244 and $13,609, respectively) (Note 2) 12,243 13,514
Loans, net (Notes 3 and 4) 45,591 45,773
Bank premises and equipment 1,133 999
Accrued interest receivable 547 707
Other assets 545 347
Total assets $ 77,269 $ 75,455
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing $ 8,359 $ 8,691
Interest bearing 59,434 57,475
Total deposits 67,793 66,166
Other liabilities 966 873
Total liabilities 68,759 67,039
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 6,537 6,410
Net Unrealized gain (loss) on securities 10 43
Total shareholders' equity 8,510 8,416
Total liabilities and shareholders'
equity $ 77,269 $ 75,455
<FN>
See Notes to Condensed Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Interest Income
Interest and fees on loans $1,115 $ 905
Interest and dividends on securities:
Taxable 266 368
Tax-exempt 54 62
Interest on Federal funds sold 42 37
Total interest income 1,477 1,372
Interest Expense
Interest on deposits 571 508
Net interest income 906 864
Provision for loan losses 0 0
Net interest income after provision
for loan losses 906 864
Other income
Service fees 49 47
Insurance commissions 5 3
Securities gains 1 0
Other income 39 44
94 94
Other expense
Salaries and employee benefits 361 348
Net occupancy expense 49 56
Equipment rental, depreciation and maintenance 56 35
Other operating expenses 263 346
729 785
Income before income taxes 271 173
Income tax expense 82 46
Net income $ 189 $ 127
Earnings per common share (Note 5) $ 0.99 $ 0.66
Dividends per common share $ 0.33 $ 0.30
<FN>
See Notes to Condensed Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Balance, beginning of period $ 8,416 $ 7,311
Net income 189 127
Cash dividends declared (63) (58)
Change in net unrealized (loss) on
securities available for sale (32) 268
Balance, end of period $ 8,510 $ 7,648
<FN>
See Notes to Condensed Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 189 $127
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 38 34
Provision for loan losses 0 0
Amortization of security premiums (accretion) of
security discounts, net 3 (3)
(Increase) Decrease accrued interest receivable 160 240
(Increase) Decrease in other assets (176) (197)
Increase (Decrease) in other liabilities 89 66
Net cash provided by operating activities 303 267
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held
to maturity 1,272 0
Proceeds from maturities and calls of securities
available for sale 1,500 4,500
Principal payments received on securities held to
maturity 0 0
Purchases of securities held to maturity 0 (1,953)
Purchases of securities available for sale (10) 0
Principal collected on (loans made to) customers, net 182 (1,023)
Purchases of bank premises and equipment (172) (70)
Proceeds from sale of other real estate 0 0
Net cash provided by investing activities 2,772 1,454
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts 1,327 (1,483)
Proceeds from sales of (payments for matured)
time deposits, net 300 (1,347)
Dividends paid (58) (77)
Net cash (used in) financing activities 1,569 (2,907)
Increase (decrease) in cash and cash equivalents 4,644 (1,186)
Cash and cash equivalents:
Beginning $ 3,614 $ 5,441
0 Ending $ 8,258 $ 4,255
(Continued)<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 503 $ 503
Income taxes $ 131 $ 0
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends declared and unpaid $ 63 $ 58
See Notes to Condensed Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED 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 preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. 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 three months ended March 31, 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 March 31, 1996 and December 31, 1995 are
summarized as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
March 31, 1996
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury Securities $ 2,001 $ 3 $ 3 $ 2,001
U.S. Government Agencies
and corporations 5,226 13 26 5,213
Corporate Debt Securities 500 0 10 490
Total Taxable 7,727 16 39 7,704
Tax Exempt:
State & political
subdivisions 4,516 49 25 4,540
Total securities held
to maturity $ 12,243 $ 65 $ 64 $ 12,244<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale:
Taxable:
U.S. Treasury Securities $ 972 $ 3 $ - $ 975
U.S. Government Agencies
and corporations 7,664 19 7 7,676
Federal Reserve Bank Stock 57 - - 57
Federal Home Loan Bank Stock 242 - - 242
Total Taxable 8,935 22 7 8,950
Tax Exempt:
Federal Reserve Bank Stock 2 - - 2
Total securities held to
maturity $ 8,937 $ 22 $ 7 $ 8,952
December 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities $ 3,001 $ 12 $ - $ 3,013
U.S. Government Agencies
and corporations 5,496 33 9 5,520
Corporate Debt Securities 500 - 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 $ - $ 994
U.S. Government Agencies
and corporations 9,171 52 7 9,216
Federal Home Loan Bank
Stock 232 - - 232
Federal Reserve Bank Stock 57 - - 57
Total Taxable 10,429 77 7 10,499
Tax Exempt:
Federal Reserve Bank Stock 2 - - 2
Total securities held
to maturity $ 10,431 $ 77 $ 7 $ 10,501
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the Company's
securities at March 31, 1996 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 $2,385 $2,381 $5,525 $5,530
Due after 1 but within 5 years 6,567 6,549 3,111 3,121
Due after 5 but within 10 years 3,291 3,314 0 0
Due after 10 years 0 0 301 301
$ 12,243 $ 12,244 $8,937 $8,952
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,
1996 and 1995 are as follows (in thousands):
</TABLE>
<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, 1996
Securities held to maturity $ - $1,272 $ - $ - $ -
Securities available for sale - 1,500 - - -
$ - $2,772 $ - $ - $ -
Three months ended March 31, 1995:
Securities held to maturity $ - $ - $ - $ - $ -
Securities available for sale - 4,500 - - -
$ - $4,500 $ - $ - $ -
Note 3. Loans
Total loans as of March 31, 1996 and December 31, 1995 are summarized as
follows (in thousands):
March 31, December 31,
1996 1995
Commercial, financial and agricultural $13,015 $ 13,135
Real estate - construction 1,640 2,020
Real estate - mortgage 23,705 23,430
Installment loans to individuals 6,435 6,522
Other 1,591 1,571
Total loans 46,386 46,678
Less unearned income (189) (262)
Total loans net of unearned income 46,197 46,416
Less allowance for loan losses (606) (643)
Loans, net $45,591 $ 45,773
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Loan Losses
Analyses of the allowance for loan losses are presented below (in
thousands) for the three month periods ended March 31, 1996 and 1995:
</TABLE>
<TABLE>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Balance, beginning of period $ 643 $ 853
Loans charged off (61) (117)
Recoveries 24 25
Net losses (37) ( 92)
Provision for loan losses 0 0
Balance, end of period $ 606 $ 761
<FN>
Note 5. Commitments and Contingencies
In January of 1996, the Company received permission from its regulatory
authority to open a branch in Charleston, West Virginia. This branch is
to be located in Laidley Towers, a 16-story high-rise office building in
downtown Charleston.
As part of this branch expansion, the Company entered into a 10-year non-
cancelable lease agreement with the building owners calling for monthly
rental payments in the amount of $8,497.50. The total cost of
rennovation and buildout of the space is expected to approximate the
buildout allowance from the Lessor, with only minimal leasehold
improvement expenditures anticipated by the Company. Major components
of this lease, dated March 11, 1996, between Laidley Developers Limited
Partnership and First National Bank include:
Leased Premises - The amount of leased space is defined as 4,532 square
feet of Rentable Area.
Term - The term of the lease shall commence in May, 1996, or upon
substantial completion of space rennovations and shall expire 120 months
thereafter.
Extension of Term - The lessee shall have the option to extend this lease
for two (2) consecutive periods of sixty (60) months each subject to the
same terms and conditions of the original lease. Base rent will be at
the market rate for comparable space in the Building prevailing at the
time of such renewal, but shall not be less than $22.50 per square foot.
Base Rent Amount - The monthly lease amount shall be $8,497.50 payable in
advance on the first day of each month. The Lessee also agrees to pay to
the Lessor, as additional rent, any operating expense differential in
excess of the allowed $6.50 per square foot of rentable area (this
equates to a $29,458.00 annual operating expense allowance). "Operating
expense" is defined as any expense incurred by Lessor for any calendar
year in connection with the operation, management, servicing, maintenance
and repair of the Building as determined in accordance with generally
accepted accounting principles, property taxes, insurance and any tax
imposed upon gross receipt of rents, but shall not include: depreciation
provision, interest on indebtedness, income taxes, dividends or other
expenses not directly related to the operations of the Building.
Utilities and Service - Lessor shall provide:
a) Normal air conditioning and heating during all normal business
hours.
b) Hot and cold water, twenty-four hours a day at those points of
supply provided for general use by other tenants in the Building.
c) Janitorial service in and about the Building and the Leased Premises
five days per week, including periodic window washing.
d) Passenger elevator service
e) Building directory in main lobby with name and address of tenant.
f) Electrical service available 24-hours a day.
g) Access to loading dock during all Normal Business Hours.
h) Security to the Building during weekends and after Normal Business
Hours during the week. However, lessor is not liable to lessee for
theft or burglary or for damages done by unauthorized persons in the
Building.
Maintenance and Repairs - Lessor shall be required to make only those
repairs and maintenance required for normal maintenance operations and
such additional maintenance as may be necessary because of damage by
persons other than the Lessee. The Lessee will, at its own cost and
expense, repair or replace any damage done to the Building done by the
Lessee or Lessee's agents, employees, invitees or visitors.
Assignment or Sublease - Lessee does not have the right to assign or
sublease the leased premises without prior written consent of Lessor.
Future Minimum Rental Payments - Future minimum lease payments are
estimated as follows:
</TABLE>
<TABLE>
Year Ending
December 31, Amount
<C> <C>
1996 $ 59,482.50
1997 101,970.00
1998 101,970.00
1999 101,970.00
2000 101,970.00
2001 101,970.00
2002 101,970.00
2003 101,970.00
2004 101,970.00
2005 101,970.00
2006 42,487.50
Total $1,019,700.00
Note 6. Earnings Per Share
Earnings per common share are computed based on the weighted-average
shares outstanding. For the three month periods ended March 31, 1996
and 1995, the weighted-average common shares outstanding was 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, 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 $189,000 for the three months ended March 31,
1996 compared to $127,000 for the quarter ended March 31, 1995, representing a
49% increase. The increase in quarterly earnings was primarily attributable to
increased net interest income and decreased non-interest expense, net of
applicable income taxes. See NET INTEREST INCOME, NON-INTEREST EXPENSE AND
INCOME TAXES sections which follow for further discussion of these items.
Earning per common share were $0.99 for the quarter ended March 31, 1996
compared to the $0.66 reported for the first quarter 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 for the three month
periods ended March 31, 1996 and 1995.
</TABLE>
<TABLE>
Three Months Ended
March 31,
Increase
1996 1995 (Decrease)
<S> <C> <C> <C>
Interest income $ 7.67 $ 7.13 $ 0.54
Interest expense 2.96 2.64 0.32
Net interest income 4.71 4.49 0.22
Provision for loan losses 0.00 0.00 0.00
Net interest income after
provision for loan losses 4.71 4.49 0.22
Non-interest income 0.49 0.49 0.00
Non-interest expense 3.79 4.08 (0.29)
Income before income taxes 1.41 0.90 0.51
Income tax expense 0.42 0.24 0.18
Net income $ 0.99 $ 0.66 $0.33
<FN>
The Company's annualized return on average assets (ROA) for the first quarter of
1996 was 0.99% compared to 0.67% for the first quarter of 1995. Annualized
return on average shareholders' equity (ROE) was 8.87% for the first quarter of
1996 compared to 6.77% in the first quarter of 1995.
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 tofully taxable earning assets. For the periods ended March 31, 1996
and 1995, thetax-equivalent adjustment was $29,000 and $32,000, respectively.
The Company's net interest income on a fully tax-equivalent basis totalled
$934,000 for the three month period ended March 31, 1996 compared to $896,000
for the same period of 1995, representing an increase of $38,000 or 4.2%.
The Company's net annualized yield on interest earning assets increased slightly
to 5.2% for the three months ended March 31, 1996, from 5.0% for the same period
of 1995.
The increase in the yield on earning assets is primarily due to the allocation
of funds previously invested in securities into higher yielding loans.
During the first quarter of 1996, loans yielded an average of 9.7% while
securities' tax equivalent yield was 6.1%. The cost of interest bearing
liabilities increased slightly, with 1996's annualized cost being 3.9% versus
the previous year's 3.5%. This increase is due to slightly higher interest rates
paid on time deposits during 1996 versus 1995's levels. These higher rates are
a direct result of a certificate of deposit promotion during late 1995, which
offered slightly higher rates that the Company's typical CD rates. It was the
Company's intention to test its ability to increase its deposit base by offering
this one-week promotion. Substantially all of the resulting certificates of
deposit will mature in July of 1996. Further analysis of The Company's yields
on interest earning assets and interest earning liabilities and changes in its
net interest income are presented on the following pages 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 first quarter of 1996, the
same level that was recorded during the first quarter of 1995. The lack of a
provision in these quarters was primarily the result of management's general
strengthening of the Company's loan underwriting standards, as well as a
reduction in the level of past due loans.
The allowance for loan losses was $606,000 at March 31, 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 1.33% at March 31, 1996
compared to 1.40% at December 31, 1995. Loans charged-off, net of recoveries of
previously charged-off loans, totalled $37,000 and $92,000 for the three months
ended March 31, 1996 and 1995, respectively. See Note 4 of the notes to the
condensed consolidated financial statements for an analysis of the activity in
the Company's allowance for loan losses for the three month periods ended March
31, 1996 and 1995.
Non-accrual loans declined 31.6% to $389,000 as of March 31, 1996, compared to
$569,000 as of March 31, 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.<PAGE>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
</TABLE>
<TABLE>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $46,137 $1,115 9.7% $ 39,527 $ 905 9.2%
Securities:
Taxable 18,247 266 5.8 24,923 368 5.9
Tax-exempt 4,517 82 7.3 5,019 94 7.5
Total securities 22,764 348 6.1 29,942 462 6.2
Federal funds sold 3,343 42 5.0 2,853 37 5.2
Total interest earning
assets 72,244 1,505 8.3 72,322 1,404 7.8
NON-INTEREST EARNING ASSETS
Cash and due from bank 2,155 2,032
Bank premises and
equipment 1,028 1,127
Other assets 1,217 1,496
Allowance for llosses (624) (835)
Total assets $76,020 $ 76,142
INTEREST BEARING LIABILITIES
Demand deposits $12,575 84 2.7 $ 11,507 75 2.6
Savings deposits 19,439 172 3.6 23,209 190 3.3
Time deposits 25,772 315 4.9 23,962 243 4.1
Total interest
bearing liabilities 57,786 571 3.9 58,678 508 3.5
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 8,640 9,079
Other liabilities 1,070 885
Shareholders' equity 8,524 7,500
Total liabilities and
shareholders' equity $76,020 $ 76,142
NET INTEREST
EARNINGS $ 934 $ 896
NET YIELD ON INTEREST EARNING
ASSETS 5.2% 5.0%
<FN>
(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>
Three Months Ended
March 31, 1996 vs. March 31, 1995
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 158 $ 52 $ 210
Securities:
Taxable (97) (5) (102)
Tax-exempt (2) (9) (3) (12)
Total securities (106) (8) (114)
Federal funds sold 6 (1) 5
Total interest earning assets 58 43 101
INTEREST BEARING LIABILITIES
Demand deposits 7 2 9
Savings deposits (33) 15 (18)
Time deposits 19 53 72
Total interest bearing liabilities (7) 70 63
NET INTEREST EARNINGS $ 65 $ (27) $ 38
<FN>
(1) - The change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) - Calculated on a fully tax-equivalent basis using the rate of 34%.
<PAGE>
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 NONPERFORMING ASSETS
(in thousands of dollars)
</TABLE>
<TABLE>
March 31, December 31,
1996 1995 1995
<S> <C> <C> <C>
Loans past due 90 or more days
still accruing interest $ 0 0 $ 0
Nonperforming assets:
Nonaccruing loans $ 389 $ 569 $ 375
Other real estate owned 5 0 10
$ 394 $ 569 $ 385
NON-INTEREST INCOME
Non-interest income includes revenues for all sources other than interest income
and yield related loan fees. For the three month period ended March 31, 1996,
non-interest income totalled $94,000, the same level that was recorded during
the first quarter of 1995. Stated as a percentage of average assets,
non-interest income was 0.12% for both the first quarter of 1996 and 1995. A
slight decrease in trust income was offset by a 4.2% increase in general service
fees and a 66% increase in insurance commissions from $3,000 to $5,000.
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 March 31, 1996, the
Company's non-interest expense totalled $729,000, representing a decrease of
$56,000 over the non-interest expense incurred in the first quarter of 1995.
Expressed as a percentage of average assets, non-interest expense decreased to
0.96% at March 31, 1996, from 1.03% at March 31, 1995.
Salaries and employee benefits are The Company's largest non-interest cost,
representing approximately 49% and 44% of total non-interest expense at
March 31, 1996 and 1995, respectively. Salaries and employee benefits increased
$13,000, or 3.7% as of March 31, 1996 compared to March 31, 1995. This increase
is primarily due to general merit and promotion-related pay increases.
Equipment rental, depreciation and maintenance expense increased by 60% to
$56,000 from $35,000. This is largely due to general repair and maintenance
tasks undertaken by the Company due to a severe flood which impacted the Bank
in January of 1996. Other operating expenses declined by $83,000, or 24%, during
the first quarter of 1996. This decrease in other expenses was due to a
general decrease in FDIC insurance premiums (which was recognized industry-
wide), and a one-time legal settlement during the first quarter of 1995 which
was a one-time, non-recurring expense.
INCOME TAXES
The Company's income tax expense, which includes both Federal and State income
taxes, totalled $82,000 for the three month period ended March 31, 1996,
reflecting a $36,000 increase when compared to the same period of 1995,
principally due to an increased level of taxable earnings. Income tax expense
equalled 30% and 27% of income before taxes at March 31, 1996 and 1995,
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
The Company's total assets were $77,269,000 at March 31, 1996, compared to
$75,455,000 at December 31, 1995, representing an increase of $1,814,000 or
2.4%. This increase is due largely to increase interest-bearing demand deposits
and the corresponding increase in Fed Funds sold, which may be of a temporary
nature. The Bank's core deposits, however, have remained relatively stable.
The Bank's total securities portfolio decreased by $2,820,000 or 12% from
December 31, 1995. This decline is due to typical maturities and calls, as well
as amortization of premiums paid. A summary of the Company's securities
portfolio (both held-to-maturity and available-for-sale) is included as Note 2
to the condensed consolidated financial statements.
Loans, net of unearned income, remained relatively stable during the first
quarter of 1996, decreasing only $182,000, or 0.3% from the year-end 1995 level.
A summary of the Bank's loans by category is included as Note 3 to the
condensed consolidated financial statements.
Total deposits increased to $67,793,000 as of March 31, 1996, from $66,166,000
at December 31, 1995. As stated above, this increase was centered in
interest-bearing deposit accounts.
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 totalled
$8,258,000 at March 31, 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 future funding needs are met.
Further enhancing the Company's liquidity is the availability as of March 31,
1996 of $7,911,000 in securities maturing within one year. Also, The Company
has classified in accordance with SFAS No. 115 securities with an estimated fair
value totalling $8,952,000 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.<PAGE>
TABLE III
INTEREST RATE SENSITIVITY GAPS
March 31, 1996
(In thousands of dollars)
</TABLE>
<TABLE>
REPRICING (1)
Within 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 $ 16,190 $ 3,416 $ 6,553 $ 19,432 $ 45,591
Securities 1,000 4,000 1,385 14,810 21,195
Federal funds sold 6,116 - - - 6,116
Total interest
earning assets 23,306 7,416 7,938 34,242 72,902
INTEREST BEARING LIABILITIES
Demand deposits 13,462 - - - 13,462
Savings deposits 19,962 - - - 19,962
Time deposits 7,746 6,885 4,166 7,213 26,010
Total interest
bearing liabilities 41,170 6,885 4,166 7,213 59,434
Contractual interest
sensitivity gap (17,864) 531 3,772 27,029 13,468
Adjustment (2) 33,424 - (33,424) - -
Adjusted interest
sensitivity gap $ 15,560 $ 531 $ (29,652) $ 27,029 $ 13,468
Cumulative adjusted interest
sensitivity gap $15,560 $16,091 $ (13,561) $ 13,468
Cumulative adjusted
gap ratio 3.01 2.10 0.74 1.23
Cumulative adjusted gap as a
percent of earning
assets 21.34% 22.07% (18.60%) 18.47%
<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
($17,864,000) over the less than three month time frame. Included within this
time period are $33,424,000 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 $15,560,000.
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 March 31, 1996 was $8,510,000 compared to
$8,416,000 at December 31, 1995, representing an increase of $94,000. This
increase is due entirely to increases in retained earnings and was offset by a
$33,000 decrease in the net unrealized gain on securities classified as
available for sale. Total shareholders' equity expressed as a percentage of
total assets remained at approximately 11% at March 31, 1996, which is
consistent with December 31, 1995's level. Cash dividends totalling $63,000, or
$0.33 per share were declared during the first quarter of 1996 versus dividends
of $58,000, or $0.30 per share, during the first quarter of 1995. These payout
levels represented approximately 33% and 45% of the Company's year-to-date
earnings for the three-month periods ended March 31, 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 March 31, 1996,
the Company continues to exceed each of the regulatory risk-based capital
requirements as shown in the following table:
RISK-BASED CAPITAL RATIOS
March 31, 1996
</TABLE>
<TABLE>
Minimum
Actual Requirement
<S> <C> <C>
Tier 1 risk-based capital ratio 16.6% 4.0%
Total risk-based capital ratio 17.7% 8.0%
Leverage ratio 11.2% 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 branchfacility in Charleston, West Virginia.
Management anticipates opening the facility by early summer of 1996 in leased
space at Laidley Tower, a high-rise office building in downtown Charleston.
Concurrent with the application for a Charleston branch, the Bank withdrew its
previous application for a Huntington, West Virginia branch, which had been
approved in January of 1995. See Note 5 to the condensed consolidated financial
statements for more information.
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 anattempt 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 tocommence with the purchase of land and the construction of
a new branch location. The lease is to be continued on a month-to-month basis
until a new location is constructed. Current plans call for 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 purchased
approximately 2 acres of land on Route 219, North at a contract price of
$190,000. Construction plans and budgets for the new branch location have not
been finalized, however it is estimated thatthe annual expense of this facility
will be substantially less than the expenses on the current branch 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 1. Legal Proceedings
None
Item. 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of First National Bankshares Corporation
was held on April 25, 1996. A total of 136,063 shares, or 70.7% of
outstainding shares, were voted, with 120,028 represented by proxy and
16,035 represented in person. At this meeting, the following business was
transacted.
a) The following individuals were elected to serve as Company directors
for a three-year term expiring in 1999:
Number of Votes Cast
For Against Abstaining
S. Elwood Bare 132,963 0 3,100
Ronald B. Snyder 132,963 0 3,100
Richard E. Ford 132,963 0 3,100
b) The accounting firm of Arnett & Foster of Charleston, WV was approved
by the shareholders as the Company's accounting firm. 136,013 shares
voted for this appointment and 50 shares abstained. No votes were cast
against this motion.
c) An incentive stock option plan (as more fully described in Management's
Discussion and Analysis under the heading "Stock Option Plan") was
approved by the shareholders. 124,141 shares voted for this plan,
11,392 shares voted against the plan, and 530 shares abstained from
voting on this matter.
d) No other matters were voted upon by the shareholders at this meeting.
Item 5. Other Information
None
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, 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
Date: May 03, 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,142
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,116
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,952
<INVESTMENTS-CARRYING> 12,243
<INVESTMENTS-MARKET> 12,244
<LOANS> 45,591
<ALLOWANCE> 606
<TOTAL-ASSETS> 77,269
<DEPOSITS> 67,793
<SHORT-TERM> 0
<LIABILITIES-OTHER> 966
<LONG-TERM> 0
<COMMON> 963
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 77,269
<INTEREST-LOAN> 1,115
<INTEREST-INVEST> 320
<INTEREST-OTHER> 42
<INTEREST-TOTAL> 1,477
<INTEREST-DEPOSIT> 571
<INTEREST-EXPENSE> 571
<INTEREST-INCOME-NET> 906
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 635
<INCOME-PRETAX> 271
<INCOME-PRE-EXTRAORDINARY> 271
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.207
<LOANS-NON> 389
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 643
<CHARGE-OFFS> 61
<RECOVERIES> 24
<ALLOWANCE-CLOSE> 606
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
