U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of
(I.R.S. Employer
incorporation or organization)
Identification Number)
One Cedar Street, Ronceverte, West Virginia
24970
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code (304) 647-4500
Securities registered pursuant to Sec. 12(b) of the Act- None
Securities registered pursuant to Sec. 12(g) of the Act- None
Securities issued pursuant to a registrant statement which became
effective under the Securities Act of 1933-
Common Stock, par value $5.00 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 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 X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference
in Part III of this Form 10-K or any amendment to this Form 10-K
[X] Not subject to Section 16(a) requirements.
As of February 28, 1996, the aggregate market value of the
outstanding voting common stock held by nonaffiliates of the
registrant, computed by reference to the price at which said
stock was actually sold in a transaction known to management
which took place on or about February 23, 1996, (management
believes $50 was paid per share) was $8,140,850. This price
was determined from this transaction known to management of the
registrant since its stock is not extensively traded, listed on
any exchange, or quoted by NASDAQ.
The total number of shares of the registrant's common stock
outstanding as of February 28, 1996, was 192,500 .
THIS REPORT CONTAINS 57 PAGES. THE INDEX TO EXHIBITS IS ON
PAGE 54 .<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
Form 10-K
Table of Contents
Page
PART I
Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . . .4
Item 3 - Legal Proceedings. . . . . . . . . . . . . . . . . . . . .5
Item 4 - Submission of Matters to a Vote of Security Holders. . . .5
PART II
Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . .. . . . .5
Item 6 - Selected Financial Data. . . . . . . . . . . . . . . . . .7
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . 8 - 18
Item 8 - Financial Statements and Supplementary Data. . . . .19 - 43
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 44
PART III
Item 10 - Directors and Executive Officers of the Registrant.45 - 47
Item 11 - Executive Compensation. . . . . . . . . . . . . . . . . 48
Item 12 - Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . 49
Item 13 - Certain Relationships and Related Transactions. . . . . 50
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K
Financial Statements. . . . . . . . . . . . . . . . . . 51
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
<PAGE>
PART I
ITEM 1 - BUSINESS
Organizational History
First National Bankshares Corporation (referred to in this report
as "the Company") is a West Virginia corporation. It was
organized on January 28, 1986, and is a registered bank holding
company under the Bank Holding Company Act of 1956,
as amended.
The Company has one wholly-owned subsidiary, a national banking
association which until January 1996 was known as
The First National Bank in Ronceverte, when the name was changed
to First National Bank ("the Bank"). The Bank was
originally organized and chartered in 1888, but was reorganized
after the Great Depression and now operates under a
charter dated 1933. Pursuant to a plan of reorganization, the
Bank became a wholly-owned subsidiary of the Company
on August 3, 1987. The Company's business activities are
conducted through the Bank, as the Bank presently accounts
for substantially all of the Company's assets, revenues and
earnings.
General
The Bank is a Federally insured depository institution offering a
wide variety of services that are typical of full service
community banks from its main office located in Ronceverte and
from its branch office in Lewisburg. 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. It anticipates opening the facility by early summer of
1996. 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.
The Bank accepts deposits primarily from customers located within
its primary market area. The Bank offers both its
individual and business customers assorted deposit products with
various maturities and interest rates, including non-
interest bearing and interest bearing demand deposits, savings
deposits, certificates of deposit, club accounts and
individual retirement accounts.
The Bank offers a full spectrum of lending services to its
customers, including commercial loans and lines of credit,
residential real estate loans, consumer installment loans and
other personal loans. Loan terms, including interest rates,
loan to value ratios, and maturities are tailored as much as
possible to meet the needs of the borrower. Commercial loans
are generally secured by various collateral, including commercial
real estate, accounts receivable and business machinery
and equipment. Residential real estate loans consist primarily
of mortgages on the borrower's personal residence, and
are typically secured by a first lien on the subject property.
Consumer and personal loans are generally secured, often
by first liens on automobiles, consumer goods or depository
accounts. A special effort is made to keep loan products as
flexible as possible within the guidelines of prudent banking
practices in terms of interest rate risk and credit risk. Bank
lending personnel adhere to established lending limits and
authorities based on each individual's lending expertise and
experience.
When considering loan requests, the primary factors taken into
consideration by the Bank are the cash flow and financial
condition of the borrower, the value of the underlying
collateral, if any, and the character and integrity of the
borrower.
These factors are evaluated in a number of ways including an
analysis of financial statements, credit reviews and visits
to the borrower's place of business.
The Bank also offers a broad range of fiduciary services through
its Trust Department, including the administration of trusts
and decedents' estates and other personal and corporate fiduciary
services. Personal fiduciary services include the
settlement of estates, administration of testamentary and inter
vivos trusts, agency or custodial accounts, investment
management and guardian services.
Market Area
The Bank's primary market area includes the cities of Ronceverte
and Lewisburg and surrounding Greenbrier County.
This area is predominately rural and comprised of moderate income
households. Major employment in the area includes
agriculture, tourism, health care, education and light
manufacturing. Unemployment rates in the area often exceed the
national and West Virginia averages.
Competition
The banking and financial services business is highly
competitive, especially in the Bank's market area. The Bank's
principal competitors include four other commercial banks, each
of which are owned by statewide or regional bank holding
companies. As of December 31, 1995, the Bank had deposits
representing an estimated 22.4% of total deposits and
loans representing an estimated 20.5% of total loans of all five
commercial banks servicing its market area. In addition,
the Bank also competes for loans, deposits and trust accounts
with other regional banks, credit unions, savings and loan
associations, consumer finance companies, insurance companies and
direct lending agencies affiliated with Federal and
state governments.
The increasingly competitive environment is a result primarily of
changes in regulation, changes in technology and product
delivery systems, and the accelerating pace of consolidation
among financial services providers. In order to compete with
the other financial services providers, the Bank principally
relies upon local promotional activities, personal relationships
established by officers, directors and employees with its
customers, and specialized services tailored to meet its
customers' needs.
The Bank generates new business primarily through newspaper and
radio advertising, referrals and direct-calling efforts.
Referrals for new business come from Company directors, present
customers of the Bank and professionals such as
attorneys and accountants.
Supervision and Regulation
The Company is subject to regulation under the Bank Holding
Company Act of 1956, as amended ("the Act"). The Act
requires the prior approval of the Federal Reserve Board for a
bank holding company to acquire or hold more than a 5%
voting interest in any bank, and restricts interstate banking
activities. On September 29, 1994, the Act was amended by
The Interstate Banking and Branch Efficiency Act of 1994 which
authorized interstate bank acquisition anywhere in the
country, effective one year after the date of enactment and
interstate branching by acquisition and consolidation, effective
June 1, 1997 in those states that have not opted out by that
date. The impact of this amendment on the Company cannot
be measured at this time. The Act further restricts bank holding
company nonbanking activities to those which are
determined by the Federal Reserve Board to be closely related to
banking and a proper incident thereto.
The Bank is a national banking association chartered under the
laws of the United States. As such, the operations of the
Bank are subject to the regulations of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation ("the FDIC")
and West Virginia law. The Bank is also subject to
periodic examination by the Comptroller of the Currency.
The Federal Deposit Insurance Corporation Improvement Act of 1991
covers a wide expanse of banking regulatory issues.
The FDIC Improvement Act deals with the recapitalization of the
Bank Insurance Fund, with deposit insurance reform,
including requiring the FDIC to establish a risk-based premium
assessment system, and with a number of other regulatory
and supervisory matters.
The monetary policies of regulatory authorities, including the
Federal Reserve Board, have a significant effect on the
operating results of banks and bank holding companies. The
nature of future monetary policies and the effect of such
policies on the future business and earnings of the Company and
the Bank cannot be predicted.
Employees
At December 31, 1995, the Bank employed 34 full-time and 2
part-time employees. The Company has no employees
who are not also employees of the Bank. Such employees are not
represented by any collective bargaining unit, and
management believes its employee relations are good.
Statistical Information
The disclosures required by Industry Guide 3 - Statistical
Disclosure by Bank Holding Companies
are included in "Item 6 - Selected Financial Data" on page 7 and
"Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 8 to 18
of this report, and are incorporated herein by reference.
ITEM 2 - PROPERTIES
The Bank owns its principal office at One Cedar Street in
Ronceverte, West Virginia. The building is fully used by the
Bank
in its operations. It also owns an adjacent drive-in banking
facility that provides drive-in services, as well as customer
parking for the principal office of the Bank. The Bank's branch
on Route 219 North in Lewisburg, West Virginia, is leased.
The lease on the Bank's Lewisburg branch commenced April 1, 1986,
and ran for a 10-year term, expiring in March of
1996. In January of 1996, Bank Management and the Board of
Directors opted to regegotiate 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 current lease, but to commence with the
purchase of land and the construction of a new branch location.
In late February of 1996, the Bank signed an agreement to
purchase roughly 2 acres of land on Route 219, approximately
1 mile north of the current branch location. The purchase price
was set at $190,000. This agreement is subject to O.C.C.
approval, as well as all other typical environmental and legal
factors associated with a real property transaction. The lease
on the existing branch is being continued on a month-to-month
basis. Management does not anticipate that this action
will have any significant impact on its financial position.
The Bank's properties are considered well suited for its current
needs. Both the main office located in Ronceverte, WV,
and the branch location in Lewisburg, WV, have full-service
banking available, including drive-in banking services. Space
at both locations is ample, and no significant modifications are
required at either location. The proposed branch facility
will also be a full-service branch offering the same services as
the current locations.
As noted previously, the Bank has obtained permission to locate a
new branch in the downtown area of Charleston, WV.
This facility is to be leased; however, lease negotiations are
still in process.
ITEM 3 - LEGAL PROCEEDINGS
The Company and the Bank are not currently involved in any
material legal proceedings, other than routine litigation
incidental to their business, which involve them or any of their
properties.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the
Company, through the solicitation of proxies or otherwise,
during the fourth quarter of 1995.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's stock was first issued on August 3, 1987, as a
result of the consummation of the transaction by which First
National Bankshares Corporation became a one-bank holding company
owning all of the outstanding stock of the Bank.
As a result of the issuance of the Company's stock, the
stockholders of the Bank became the stockholders of the
Company's receiving 5 shares of the Company's common stock for
each share of the common stock of the Bank held
by them. As of February 28, 1996, the Company's common stock was
held by approximately 466 stockholders of record.
Substantially all funds for payment of dividends to shareholders
is derived from dividends paid by the subsidiary Bank to
the Company. Dividends paid by the Bank are subject to the
regulatory restrictions summarized in Note 12 to the financial
statements.
There is no active or organized trading market for the common
stock of the Company. The stock of the Company is
traded on a limited basis in privately negotiated transactions.
At present, there is no market maker for the Company's
common stock. Accordingly, the prices shown below may not be
indicative of prices which would prevail if the stock were
more actively traded. Bid and ask prices are not available for
the stock of the Company.
While management occasionally knows of the actual price paid for
its common stock in a transaction, management is not
aware of prices paid in most, and sometimes all, sales of the
Company stock since such transactions are privately
negotiated. However, in some of these transactions, individuals
have called the Company and asked for a value for its
common stock. In response to such inquiries, the Company
provides the individual with the book value of its common
stock as of the end of the most recent quarter; and the Company's
management believes that trades of its common stock
have taken place at or near its book value. Based upon such
information, management believes that the following high
and low prices, which are the book values of a share of the
Company's common stock at the beginning and end of each
of the quarters shown below, represent amounts which may have
been paid for the common stock of the Company during
the periods indicated:
<TABLE>
1995 1994
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $39.70 $38.90 $40.73 $40.16
Second Quarter 41.87 40.24 40.73 39.91
Third Quarter 42.48 41.83 39.91 39.86
Fourth Quarter 43.72 43.03 39.86 37.94
</TABLE>
The Company traditionally paid dividends on a semi-annual basis.
However, beginning in September of 1994, the
Company's Board of Directors voted to begin a practice of
declaring quarterly dividends. A summary of dividends per
share declared during 1995 and 1994 follows:
<TABLE>
1995 1994
<S> <C> <C>
First Quarter .30 .00
Second Quarter .30 .30
Third Quarter .30 .30
Fourth Quarter .30 .40
</TABLE>
The Company plans to continue the pattern of declaring quarterly
dividends in the future at a rate consistent with its
historical payout ratios.
<PAGE>
ITEM 6. - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data and ratios)
1995 1994 1993 1992 1991
SUMMARY OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Interest income $ 5,688 $ 5,599 5,926 6,460 7,215
Interest expense 2,115 2,089 2,359 2,887 3,844
Net interest income 3,573 3,510 3,568 3,573 3,371
Provision for loan losses 0 123 459 460 402
Non-interest income 415 419 366 375 363
Non-interest expense 2,920 3,100 2,815 2,814 2,552
Income before income taxes 1,068 706 659 674 780
Income before cumulative effect
of change in accounting
principle 767 542 498 491 589
Net income 767 542 298 491 589
PER SHARE DATA
Income before cumulative effect of
change in accounting principle $3.98 $ 2.82 $ 2.59 $2.55 $3.06
Net income 3.98 2.82 1.55 2.55 3.06
Cash dividends declared 1.20 1.00 0.90 0.90 0.90
AVERAGE BALANCE SHEET SUMMARY
Loans, net $41,853 40,954 44,532 43,652 41,838
Securities 27,321 31,722 28,261 25,401 20,645
Deposits 66,367 72,082 72,584 71,442 69,542
Shareholders' equity 8,223 7,779 7,616 7,314 6,849
Total assets 75,351 80,274 80,615 79,216 76,858
AT YEAR END
Loans, net $45,773 38,766 45,240 44,199 42,849
Securities 24,015 30,802 29,518 26,443 24,311
Deposits 66,166 69,685 73,543 72,941 70,890
Shareholders' equity 8,415 7,311 7,487 7,362 7,045
Total assets 75,455 77,738 81,615 80,560 78,286
SELECTED RATIOS
Return on average assets (1) 1.02% 0.68% 0.62% 0.62% 0.77%
Return on average equity (1) 9.33 6.97 6.54 6.70 8.60
Average equity to average assets 10.91 9.69 9.45 9.23 8.91
Dividend payout ratio (1) 30.12 35.52 34.76 35.32 29.39
<FN>
(1) - Before cumulative effect of change in accounting principle
<PAGE>
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
The following is a discussion and analysis focused on significant
changes in the financial condition and results of
operations of the Company for the applicable periods covered by
the consolidated financial statements appearing
elsewhere in this report. This discussion and analysis should be
read in conjunction with such financial statements and
the accompanying notes thereto.
First National Bankshares Corporation (the "Company"),
incorporated under the laws of the State of West Virginia in
1986,
is a one bank holding company headquartered in Ronceverte, West
Virginia. The Company owns 100% of the outstanding
common stock of First National Bank ("the Bank"), which comprises
substantially all of the Company's assets and
liabilities, and from which the Company presently derives all of
its earnings.
Earnings Summary
The Company reported net income of $767,000 for 1995,
representing an increase of $225,000 or 41.5% over the
$542,000 reported for 1994. This increase in 1995 earnings was
primarily attributable to a $123,000 reduction in the
provision for loan losses, a $62,000 increase in net interest
income, and a $180,000 decrease in non-interest expense.
The Company's 1994 earnings were also significantly improved over
1993's earnings before the cumulative effect of
change in accounting principle, due to lower loan loss provisions
and increased non-interest income.
On a per share basis, net income before the cumulative effect of
the change in accounting principle was $3.98 in 1995,
$2.82 in 1994, and $2.59 in 1993. An analysis of the changes in
earnings per share by major statement of income
component is presented in the following table:
</TABLE>
<TABLE>
1995 1994
vs. vs.
1994 1993
<S> <C> <C>
Earning per common share, prior year (1) $ 2.82 $2.59
Increase (decrease) from changes in:
Net interest income .33 (0.30)
Provision for loan losses .64 .74
Other income (.03) 0.28
Other expenses .94 (1.48)
Income taxes (.72) (0.01)
Earning per common share (1) $3.98 2.82
<FN>
(1) -- Before cumulative effect of change in accounting principle
Return on average assets (ROA), a measure of how effectively the
Company utilizes its assets to produce net income,
was 1.02% for 1995, compared to .68% for 1994 and .62% for 1993
(before cumulative effect of accounting change).
Return on average equity (ROE), which measures earnings
performance relative to the total amount of equity capital
invested in the Company, was 9.33% in 1995, 6.97% in 1994, and
6.54% in 1993 (before cumulative effect of accounting
change). The improvement in both of these ratios is due to the
improved earnings noted above.
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 loans, securities and other interest
earning assets over interest expense on deposits. Net
interest income is influenced 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. Net interest
income is presented and discussed in this section on a fully
Federal tax-equivalent basis to enhance the comparability of
the performance of tax-exempt securities to other fully taxable
earning assets. For the years ended 1995, 1994, and 1993,
tax-equivalent adjustments of $121,000, $121,000, and $103,000,
respectively, are included in interest income, and were
computed assuming a tax rate of 34% in all periods.
For the year 1995, the Company's net interest income, as
adjusted, increased $63,000 or 1.8% to $3,694,000 as
compared to $3,631,000 and $3,670,000 in 1994 and 1993,
respectively. Correspondingly, the Company's net interest
margin increased to 5.16% in 1995 compared with 4.78% in 1994 and
4.82% in 1993. An increase in loan demand
resulted in funds being invested in higher-yielding loans during
1995 instead of lower yielding securities and fed funds.
Further analysis of the Company's yields on interest earning
assets and interest bearing liabilities and changes in net
interest income as a result of changes in average volume and
interest rates are presented in TABLES I and II.
Provision for Loan Losses
The provision for loan losses represents charges to earnings
necessary to maintain the allowance for loan losses at a level
which is considered adequate in relation to the estimated risk
inherent in the loan portfolio. Management considers various
factors in determining the amount of the provision for loan
losses including overall loan quality, changes in the mix and
size of the loan portfolio, previous loss experience and general
economic conditions.
The provision for loan losses totalled $0.00 in 1995, $123,000
for in 1994, and $459,000 in 1993. The reduction in the
provision for 1995 reflects management's general strengthening of
the Company's loan underwriting standards, a
reduction in the level of past due loans and an overall decline
in net charge-offs. See the ALLOWANCE FOR LOAN
LOSSES AND RISK ELEMENTS section which follows for further
discussion.<PAGE>
TABLE I
AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
<S>
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
INTEREST EARNING ASSETS <C> <C> <C> <C> <C>
Loans, net of unearned discount (1) $42,632 $4,018 9.42% $ 41,882 $ 3,679
<C> <C> <C> <C>
8.78% $ 45,367 $ 4,177 9.21%
Securities:
Taxable 22,494 1,337 5.94% 27,169 1,585
5.83 25,044 1,475 5.89
Tax-exempt (2) 4,827 355 7.35 4,553 355
7.80 3,217 302 9.39
Total securities 27,321 1,692 6.19 31,722 1,940
6.12 28,261 1,777 6.29
Federal funds sold 1,635 99 6.05 2,365 101
4.27 2,483 75 3.02
Total interest earnings assets 71,588 5,809 8.11 75,969
5,720 7.53 76,111 6,029 7.92
NON INTEREST EARNING ASSETS
Cash and due from banks 2,227 2,799 3,074
Bank premises and equipment 1,071 1,089 1,119
Other assets 1,224 1,345 1,146
Allowance for loan losses (759) (928) (835)
Total assets $75,351 $ 80,274 $ 80,615
INTEREST BEARING LIABILITIES
Demand deposits $ 13,298 354 2.66 $12,077 327 2.71
$ 11,596 351 3.03
Savings deposits 20,075 703 3.50 24,801 781 3.15
24,276 894 3.68
Time deposits 23,744 1,058 4.45 26,053 981 3.77
28,266 1,114 3.94
Total interest bearing liabilities 57,117 2,115 3.70 62,931
2,089 3.32 64,138 2,359 3.68
NON INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 9,250 9,151 8,446
Other liabilities 569 413 415
Shareholders' equity 8,415 7,779 7,616
Total liabilities and
shareholders' equity $75,351 $ 80,274 $ 80,615
NET INTEREST EARNINGS $3,694 $3,631 $3,670
NET YIELD ON INTEREST EARNING ASSETS 5.16% 4.78% 4.82%
<FN>
(1) - For purposes of this table, nonaccruing loans are included
in average loan balances. Also, loan fees which are
insignificant, are included in interest income.
(2) - Computed on a fully Federal tax-equivalent basis using the
rate of 34% for all years.<PAGE>
TABLE II
CHANGE IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES (1)
(Dollars in thousands)
</TABLE>
<TABLE>
<CAPTION>
1995 vs. 1994 1994 vs 1993
Increase(Decrease) Increase (Decrease)
Due to Change in: Due to Change in:
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 67 $272 $ 339 $ (312) $(186) $(498)
Securities:
Taxable (277) 29 (248) 124 (14) 110
Tax-exempt (2) 21 (21) 0 110 (57) 53
Total securities (256) 8 (248) 234 (71) 163
Federal funds sold (37) 34 (3) (4) 30 26
Total interest earning
assets (226) 314 88 (82) (227) (309)
INTEREST BEARING LIABILITIES
Demand deposits 33 (6) 27 14 (38) (24)
Savings deposits (159) 81 (78) 19 (132) (113)
Time deposits (92) 168 76 (85) (48) (133)
Total interest bearing
liabilities (218) 243 25 (52) (218) (270)
NET INTEREST EARNINGS $ (8) $ 71 $ 63 (30) $ (9) (39)
<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 assuming a fully tax-equivalent basis using the
rate of 34%.
<PAGE>
Non-interest Income
Non-interest income includes revenues from all sources other than
interest income and yield related loan fees. For the
year 1995, non-interest income was $415,000, down 0.9% from
$419,000 in 1994, but greatly increased over 1993's level
of $366,000. The following table details the components of
non-interest income earned by the Company in 1995, 1994,
and 1993, as well as the percentage increase (decrease) in each
over the prior year.
</TABLE>
<TABLE>
1995 1994 1993
Percent Percent
Amount Change Amount Change Amount
<S> <C> <C> <C> <C> <C>
Trust department income $139,000 78.2% $ 78,000 200.0% $ 26,000
Service fees and commissions 209,000 (5.4) 221,000 (16.6) 265,000
Other 67,000 44.2 120,000 60.0 75,000
415,000 1.0 $419,000 14.5 $ 366,000
</TABLE>
The increase in trust department income in 1995 and 1994 resulted
primarily from fees realized from the administration
of a large estate, and while the Company seeks to attract new
trust business, estates and other trust services tend to
fluctuate, and trust revenues may again fall to historical levels
in the future. Service charges and commissions in 1995
declined due to lower insurance commissions derived principally
from sales of credit life insurance to installment loan
customers and reflects the weak demand for new installment loans
during the same period. Other non-interest income
declined to a historic level of $67,000 during 1995. The
increase in 1994 was primarily attributable to the collection of
$39,000 in insurance proceeds from a key man life insurance
policy during the year which was a one-time, non-recurring
item.
Non-interest Expense
Non-interest expense comprises overhead costs which are not
related to interest expense or to losses from loans or
securities. The following table itemizes the primary components
of non-interest expense for 1995, 1994 and 1993, and
the percentage increase (decrease) in each over the prior year.
<TABLE>
1995 1994 1993
Percent Percent
Amount Change Amount Change Amount
<S> <C> <C> <C> <C> <C>
Salaries and employee
benefits $1,470,000 (0.4%) $1,476,000 8.1% $1,365,000
Net occupancy expense 213,000 8.7 196,000 15.3 170,000
Equipment rental, depreciation
and maintenance 207,000 (9.2) 28,000 20.0 190,000
Federal deposit insurance
premiums 80,000 (56.6) 184,000 0.6 183,000
Data processing 176,000 (6.4) 188,000 (6.5 ) 201,000
Other 774,000 (6.5) 828,000 17.2 706,000
$ 2,920,000 (5.8) $3,100,000 10.1 2,815,000
</TABLE>
Salaries and employee benefits represent the Company's largest
non-interest cost, comprising approximately 50.3% of
total non-interest expense in 1995. The slight decrease in
salaries and employee benefits in 1995 compared to 1994 is
due primarily to a reduction in the total number of employees.
However, the overall reduction was offset by normal merit
salary increases for existing staff and by the Company's hiring
of a Credit Administration Officer, which was a newly
established position.
Increased occupancy and equipment costs realized in 1995 is a
result of the performance of certain building maintenance
and upgrade projects and from the additional depreciation expense
on computers and other equipment acquired during
the latter part of the previous year.
Federal Deposit insurance premiums fell dramatically in 1995,
falling by $104,000 to $80,000. This was due to a general
reduction in FDIC assessment premiums realized throughout the
banking industry. 1994's other non-interest expenses
was much higher than 1995's level, primarily due to a one-time,
non-recurring consulting expense realized during 1994.
Income Taxes
The Company's income tax expense, which includes both Federal and
State income taxes, totalled $301,000 or 28.2%
of pre-tax income in 1995, compared to $164,000 or 23.2% in 1994,
and $161,000 or 24.4% in 1993. 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 interest
income derived from tax-exempt securities. The increase
in the Company's effective tax rate is attributable to a
disproportionate increase in taxable income (primarily from loan
growth and decreased expense levels) in comparison to non-taxable
income. There was no increase in tax-exempt
income for the Company during 1995, therefore tax-exempt interest
income represented a much smaller percentage of
the company's profit before taxes. Additional details relative
to the Company's income taxes are included in Note 8 to the
accompanying consolidated financial statements.
Changes in Financial Position
Company total assets declined $2,283,000 or 2.9% to $75,455,000
at year end 1995 compared to $77,738,000 at year
end 1994. This decline in total assets resulted from a decline
in total deposits of $3,519,000 or 5.1%. Average Company
total assets also fell, declining 6.1% from $80,274,000 during
1994 to $75,351,000 during 1995. TABLE I presents the
Company's average balance sheet composition for the years ended
1995, 1994 and 1993.
Securities
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS No.
115). In conjunction with the adoption of SFAS No. 115,
the Company elected to classify a substantial portion of its
securities portfolio as available for sale to permit sufficient
flexibility in regard to the Company's asset/liability management
program. Securities classified as available for sale are
carried at fair value with unrealized gains and losses reported
as a separate component of shareholders' equity, net of
deferred income taxes.
During 1995, concurrent with the adoption of the Special Report
"A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities"
issued by the Financial Accounting Standards Board,
the Bank reassessed the classifications of its securities and
transferred securities with amortized cost of $6,496,000 and
estimated fair value of $6,488,000 from the available for sale
category to the held to maturity category. In the opinion of
management, this transaction did not have a significant effect on
the Company's financial statements.
The securities portfolio decreased $6,787,000 or 22.0% from year
end 1994 to year end 1995. Average total securities
decreased from $31,722,000 during 1994 to $27,321,000 during
1995, or 13.9%. As previously discussed, these
decreases resulted from increased loan demand and the
corresponding shift in funds from securities to higher-yielding
loans. This movement of funds from securities to loans was a
gradual process occurring as various securities reached
their scheduled maturity dates. No securities were sold to fund
loan growth or meet other liquidity needs.
At year end 1995, the Company had an unrealized gain on
securities classified as available for sale of $43,000, net of
applicable deferred income taxes. This represents a $568,000
increase over 1994's net unrealized loss of ($525,000),
net of applicable deferred income taxes. This increase is due to
the period's overall decline in interest rates and the
corresponding increase in the market value of the Company's
security portfolio.
Details as to the amortized cost and estimated fair values of the
Company's securities by type are presented in Note 3 of
the accompanying consolidated financial statements. At December
31, 1995, the Company did not own securities of any
one issuer, other than the U.S. Government or its agencies, that
exceeded ten percent of shareholders' equity. The
distribution of securities together with the weighted average
yields by maturity at December 31, 1995 are summarized in
TABLE III.
<PAGE>
TABLE III
SECURITY MATURITY ANALYSIS
(At amortized cost, dollars in thousands)
<TABLE>
<CAPTION>
After One After Five
Within but within but within After
One Year Five Years Ten Years Ten Years
Amount Yield(1) Amount Yield(1) Amount Yield(1) Amount Yield(1)
<S>
Securities Held to Maturity <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 2,000 5.42% $ 1,001 5.50% $ - - % $ - - %
U.S. Government agencies
and corporations - - 5,496 5.33 - - - -
Corporate debt securities - - 500 5.12 - - - -
State and political
subdivisions 385 3.80 840 4.57 3,292 4.84 - -
Total $ 2,385 5.16 $7,837 5.26 $3,292 4.84 $- -
Securities Available for Sale
U.S. Treasury securities $ - - % $ 969 5.97% $ - - %$ - - %
U.S. Government agencies
and corporations 6,022 5.26 3,149 6.50 - - - -
Other - - - - - - 291 6.20
Total $ 6,022 5.26 4,118 6.38 $ - - $ 291 6.20
<FN>
(1) -- Weighted average yield presented without adjustment to a
tax equivalent basis.
Loans
Loans, net of unearned income increased $6,798,000, or 17.2%, to
$46,477,000 during 1995. Average loans outstanding,
net of unearned income, increased from $41,882,000 in 1994 to
$42,632,000 in 1995, or 1.8%. A summary of the
Company's year-end loan balances by type, as well as an analysis
of the decline in such balances from December 31,
1994 to December 31, 1995, is summarized in the following table.
</TABLE>
<TABLE>
Percent
Increase
1995 (Decrease) 1994
<S> <C> <C> <C>
Commercial, financial and agricultural $ 13,135,000 43.8% $9,132,000
Real estate - construction 2,020,000 206.1 660,000
Real estate - mortgage 23,430,000 10.8 21,144,000
Installment and other 7,832,000 (9.8) 8,683,000
$ 46,417,000 17.2% $39,619,000
</TABLE>
The increase in loans is primarily attributable to overall growth
in the commercial loan portfolio, as the Bank makes a more
concentrated effort to obtain commercial business. Additionally,
the Bank increased its mortgage loan portfolio through
the purchase of several large-dollar mortgages from a mortgage
broker. These loans are all conforming loans and meet
the Bank's typical underwriting criteria. Installment loans
have decreased by approximately 9.8%. This is due largely to
a decreased demand for personal and consumer loans in the Bank's
primary market.
A summary of loan maturities by loan type as of December 31, 1995
is included in Note 4 of the accompanying
consolidated financial statements.
Allowance for Loan Losses and Risk Elements
As more fully explained in Notes 1 and 5 of the financial
statements, 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 Disclosure", respectively. Under SFAS
Nos. 114 and 118, certain impaired loans are required to be
reported at the present value of expected future cash flows
discounted using the loan's original effective interest rate or,
alternatively, at the loan's observable market price, or at the
fair value of the loans' collateral if the loan is collateral
dependent. The adoption of SFAS Nos. 114 and 118 did not
significantly impact the Company's financial position or results
or operations during 1995.
The allowance for loan losses is maintained at a level considered
adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to
operating expense and reduced by net charge-offs. The
Company's management, on a quarterly basis, performs a
comprehensive loan evaluation which encompasses the
identification of all potential problem credits, which are
included on an internally generated watch list. The
identification
of loans for inclusion on the watch list is facilitated through
the use of various sources, including past due loan reports,
previous internal and external loan evaluations, classified loans
identified as part of regulatory agency loan reviews and
reviews of new loans representative of current lending practices
within the Bank. Once this list is reviewed to ensure it is
complete, detail reviews of specific loans for collectibility,
performance and collateral protection are performed. A grade
is assigned to the individual loans reviewed utilizing internal
grading criteria, which is somewhat similar to the criteria
utilized by the Bank's primary regulatory agency. Based on the
results of these reviews, specific reserves for potential
losses are identified. In addition, management considers
historical loan loss experience, new loan volume, portfolio
composition, levels of non-performing and past due loans and
current and anticipated economic conditions in evaluating
the adequacy of the allowance for loan losses.
At December 31, 1995, the allowance for loan losses was $643,000
or 1.39% of total loans (net of unearned income)
compared to $853,000 or 2.15% at December 31, 1994. Loan
charge-offs, net of recoveries, for 1995 were $209,000
compared to $271,000 and $234,000 in 1994 and 1993, respectively.
Expressed as a percentage of average loans
outstanding during 1995, 1994 and 1993, net loan charge-offs were
0.49%, 0.65% and 0.52%, respectively. See Note
5 to the consolidated financial statements for an analysis of the
activity in the Company's allowance for loan losses in
1995, 1994 and 1993. An allocation of the allowance for loan
losses to specific loan categories is presented in TABLE
IV.
TABLE IV
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 245 28.3% $ 472 23.1% $ 200 9.1%
Real estate - construction - 4.3 - 1.7 2 1.0
Real estate - mortgage 136 50.5 258 53.3 135 67.8
Installment 101 13.5 123 18.6 496 22.0
Other - 3.4 - 3.3 - 0.1
Unallocated 161 - - - 164 -
$ 643 100.0% $ 853 100.0% $1,001 100.0%
</TABLE>
The following presents a summary of the Company's non-performing
assets and accruing loans past due 90 days or more
at December 31, 1995, 1994 and 1993.
<PAGE>
<TABLE>
(in thousands)
December 31,
1995 1994 1993
<S> <C> <C> <C>
Non-performing assets:
Nonaccrual loans $ 375 $ 933 $ 934
Other real estate owned 10 - 48
Restructured loans - - -
$ 385 $ 933 $ 982
Accruing loans past due 90 days or more
$ - $ - $ 1
</TABLE>
If interest on nonaccrual loans had been accrued, such income
would have approximated $41,000, $72,000 and $17,000
in 1995, 1994 and 1993, respectively. Interest income recognized
on nonaccrual loans and included in Company interest
income is not material. The Company places into nonaccrual
status those loans which the full collection of principal and
interest are unlikely or which are past due 90 or more days,
unless the loans are adequately secured and in the process
of collection. Any potential problem credits which are not
nonaccruing loans or are not accruing loans past due 90 or
more days do not represent or result from trends of uncertainties
which management reasonably expects will materially
impact future operating results, liquidity or capital resources,
nor do they represent material credits about which
management is aware of any information which would cause the
borrowers to not comply with the loan repayment terms.
Deposits
Total deposits decreased to $66,166,000, or 5.1% at December 31,
1995, from $69,685,000 at December 31, 1994.
Average total deposits declined from $72,082,000 during 1994 to
$66,367,000 during 1995, a decline of 7.9%. These
reductions were primarily the result of a $1,597,000 or 11.3%
decline in the balance of N.O.W. and money market
accounts from year end 1994 to year end 1995, as well as a
decline in savings accounts of 9.6%, or $2,035,000. These
declines were somewhat expected due to the Bank's strategy of
holding the rates paid on these deposit products relatively
stable during the year. The decision to hold these rates steady
reflects a number of considerations including the
availability of liquid funds and actions by competitors.
Non-interest bearing demand deposits also declined for the year,
falling by $518,000 or 5.6% from the previous year. All other
categories of deposits at year end 1995 remained relatively
stable in comparison to their respective balances at year end
1994.
Details relative to the maturities of and interest expense on
time certificates of deposit of $100,000 or more are presented
in Note 7 of the accompanying consolidated financial statements.
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
measured $3,614,000 at December 31, 1995 or
33.6% less than the $5,441,000 total at December 31, 1994. This
decline in liquidity was due to an increase in loan
demand and the corresponding shift of funds from Fed Funds sold
into the more profitable loan category. Despite this
decrease, liquidity remains more than adequate. 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 December 31, 1995 of $8,407,000 (at amortized cost)
in securities maturing within one year. Also, the Company has
additional securities with maturities greater than one year
with an estimated fair value totalling $10,501,000 and classified
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 interest bearing
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 VI.
On a contractual repricing basis, the Company is negatively
gapped by $22,221,000 over the less than six month time
frame. Included within this time period are $31,763,000 in
interest bearing demand deposits and savings accounts which
on a contractual basis are subject to immediate repricing.
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
VI reflects an adjustment to compensate for the time
lag in the repricing of these deposits. After this adjustment,
the table reflects a positive gap in the less than six month time
frame of $9,542,000. 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.
TABLE VI
INTEREST RATE SENSITIVITY GAPS
December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
Repricing (1)
0-90 91-180 181-365 After
Days Days Days 1 Year Total
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans, net of unearned discount $18,199 $2,938 $5,585 $19,695 $ 46,417
Securities (at amortized cost) 2,071 1,500 4,529 15,915 24,015
Federal funds sold 893 - - - 893
Total interest earning assets 21,163 4,438 10,114 35,610 71,325
INTEREST BEARING LIABILITIES
Demand deposits $12,579 $ - $- $ - $ 12,579
Savings deposits 19,186 - - - 19,186
Time deposits 8,628 7,431 2,616 7,035 25,710
Total interest bearing
liabilities 40,391 7,431 2,616 7,035 57,475
Contractual interest
sensitivity gap (19,228) (2,993) 7,498 28,575 13,850
Adjustment (2) 31,763 - (31,763) - -
Adjusted interest
sensitivity gap $ 12,535 $(2,993)$(24,265) 28,575 $ 13,850
Cumulative adjusted interest
sensitivity gap $ 12,535 $(9,542)$(14,723) 3,852
Cumulative adjusted gap as a percent
of total earning assets 17.6% (13.4%) (20.6%) 19.4%
<FN>
(1) - Contractual repricing used unless otherwise noted.
(2) - Adjustment to approximate the actual repricing of interest
bearing demand deposits and savings accounts
based upon historical experience.
<PAGE>
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 December 31, 1995 was $8,415,000
compared to $7,311,000 at December 31, 1994,
representing an increase of 15.1%. With this increase, which is
largely attributable to an increase of $569,000 in the
Bank's net unrealized gain recorded on securities classified as
available for sale (See SECURITIES section for further
discussion), total shareholders' equity expressed as a percentage
of total assets increased from 9.4% at December 31,
1994 to 11.2% at December 31, 1995.
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
December 31, 1995, the Company continues to exceed each
of the regulatory risk-based capital requirements as shown in the
following table.
RISK-BASED CAPITAL RATIOS
</TABLE>
<TABLE>
Minimum
Actual Requirement
<S> <C> <C>
Tier 1 risk-based capital ratio 16.2% 4.0%
Total risk-based capital ratio 18.2% 8.0%
Leverage ratio 11.1% 3.0%
</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.
Impact of Inflation
The consolidated financial statements and related data included
in this report were prepared in accordance with generally
accepted accounting principles, which require the Company's
financial position and results of operations to be measured
in terms of historical dollars. Consequently, the relative value
of money generally is not considered. Substantially all of
the Company's assets and liabilities are monetary in nature and,
as a result, interest rates and competition in the market
area tend to have a more significant impact on the Company's
performance than the effects of inflation.<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent auditor's report and consolidated financial
statements of the Company and its subsidiary appear
herein.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
First National Bankshares Corporation
and subsidiary
Ronceverte, West Virginia
We have audited the accompanying consolidated balance sheets of
First National Bankshares Corporation and
subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity
and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
The consolidated financial statements of First National
Bankshares Corporation and subsidiary for the year ended
December 31, 1993, were audited by other auditors whose report,
dated January 6, 1994 (except for certain information
in such financial statements as to which the date is March 21,
1995), expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We
believe that our audits provides a reasonable basis for our
opinion.
In our opinion, the 1995 and 1994 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of First National Bankshares
Corporation and subsidiary as of December 31, 1995 and
1994, and the results of their operations and cash flows for the
years then ended, in conformity with generally accepted
accounting principles.
As more fully described in Notes 3 and 9 to the consolidated
financial statements, the Company changed its methods
of accounting for postretirement benefits in 1993 and securities
in 1994 to comply with the requirements of new accounting
pronouncements.
ARNETT & FOSTER
Charleston, West Virginia
February 2, 1996<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C>
Cash and due from banks $ 2,720,887 $3,720,620
Federal funds sold 893,000 1,720,000
Securities held to maturity (estimated fair value
1995 $13,609,276; 1994 $7,157,729) 13,514,482 7,521,406
Securities available for sale 10,500,880 23,280,715
Loans, less allowance for loan losses
of $643,439 and $852,862, respectively 45,773,252 38,766,072
Bank premises and equipment, net 999,187 1,035,218
Accrued interest receivable 706,746 796,083
Other assets 346,482 897,676
Total assets $75,454,916 $77,737,790
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non interest bearing $ 8,690,907 9,208,674
Interest bearing 57,475,281 60,476,672
Total deposits 66,166,188 69,685,346
Other liabilities 873,324 741,436
Total liabilities 67,039,512 70,426,782
Commitments and Contingencies
Shareholders' Equity
Common stock, $5.00 par value, authorized
500,000 shares, issued 192,500 shares 962,500 962,500
Capital surplus 1,000,000 1,000,000
Retained earnings 6,409,585 5,873,771
Net unrealized gain (loss) on securities 43,319 (525,263)
Total shareholders' equity 8,415,404 7,311,008
Total liabilities and shareholders' equity
$75,454,916 $77,737,790
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $4,018,204 $3,678,920 $4,176,798
Interest and dividends on securities:
Taxable 1,336,509 1,585,325 1,474,946
Tax-exempt 234,415 234,347 198,969
Interest on Federal funds sold 98,910 100,834 75,001
Total interest income 5,688,038 5,599,426 5,925,714
Interest expense on deposits 2,115,406 2,089,199 2,358,903
Net interest income 3,572,632 3,510,227 3,566,811
Provision for loan losses - 123,000 459,000
Net interest income after provision for
loan losses 3,572,632 3,387,227 3,107,811
Other income (expense):
Trust department income 139,312 78,389 26,250
Service fees 209,190 220,843 264,570
Securities gains (losses), net 990 (391) 2,529
Other 65,720 120,262 73,143
Total other income 415,212 419,103 366,492
Other expenses:
Salaries and employee benefits 1,469,823 1,476,669 1,365,357
Net occupancy expense 212,465 196,272 170,030
Equipment rentals, depreciation
and maintenance 207,008 227,930 189,918
Federal deposit insurance premiums 80,310 183,697 182,986
Data processing 176,041 187,665 200,615
Advertising 90,721 84,428 72,999
Professional and legal 132,394 286,006 142,914
Mailing and postage 65,634 70,214 79,418
Stationery and supplies 58,716 79,632 76,490
Other 426,810 307,867 333,876
Total other expenses 2,919,922 3,100,380 2,814,603
Income before income tax expense and cumulative
effect of change in accounting principle 1,067,922 705,950 659,700
Income tax expense 301,108 163,961 161,351
Income before cumulative effect of change in
accounting principle 766,814 541,989 498,349
Cumulative effect of change in accounting
for postretirement benefits - - (200,359)
Net income $766,814 $541,989 $297,990
<FN>
(Continued)<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - Continued
For The Years Ended December 31, 1995, 1994 and 1993
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Earnings per common share before cumulative
effect of change in accounting principle $ 3.98 $ 2.82 $ 2.59
Cumulative effect of change in accounting
for postretirement benefits - - (1.04)
Earnings per common share $ 3.98 $ 2.82 $ 1.55
Average common shares outstanding 192,500 192,500 192,500
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Net
Unrealized Total
Gain Share-
Common Capital Retained (Loss) on holders'
Stock Surplus Earnings Securities Equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 962,500 1,000,000 5,399,542 - 7,362,042
Net income - - 297,990 - 297,990
Cash dividends declared on common
stock ($.90 per share) - - (173,250) - (173,250)
Balance, December 31, 1993 962,500 1,000,000 5,524,282 - 7,486,782
Net income - - 541,989 - 541,989
Cash dividends declared on common
stock ($1.00 per share) - - (192,500) - (192,500)
Net unrealized gain (loss) on securities
upon adoption of SFAS No. 115 - - - 311,567 311,567
Change in net unrealized gain (loss)
on securities - - - (836,830)(836,830)
Balance, December 31, 1994 962,500 1,000,000 5,873,771 (525,263) 7,311,008
Net income - - 766,814 - 766,814
Cash dividends declared on common
stock ($1.20 per share) - - (231,000) - (231,000)
Change in net unrealized gain (loss)
on securities - - - 568,582 568,582
Balance, December 31, 1995 $ 962,500 $1,000,000 $ 6,409,585 $43,319 $8,415,404
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $766,814 541,989 $ 297,990
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Cumulative effect of change in
accounting principle - - 200,359
Depreciation 151,529 147,377 129,551
Provision for loan losses - 123,000 459,000
Deferred income taxes (benefit) 72,875 41,383 (136,264)
Securities (gains) losses, net (990) 391 (2,529)
(Gain) loss on sale of other assets - - 17,107
(Gain) loss on disposal of bank
premises and equipment 4,166 - -
Amortization of securities premiums and
(accretion of discounts), net (5,659) 57,450 60,136
(Increase) decrease in accrued interest
receivable 89,337 23,978 4,820
(Increase) decrease in other assets 197,916 (164,989) (29,535)
Increase (decrease) in other
liabilities 48,935 79,203 4,953
Net cash provided by operating
activities 1,324,923 849,782 1,005,588
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of
securities held to maturity 2,497,865 716,250 6,256,588
Proceeds from maturities and calls of
securities available for sale 7,359,233 6,000,000 -
Proceeds from sales of securities
available for sale - 1,000,000 -
Proceeds from sales of securities - - 257,522
Principal payments received on
securities held to maturity - 83,529 94,478
Purchases of securities held to
maturity (1,953,302) (3,513,445) (9,741,724)
Purchases of securities available
for sale (232,200) (6,436,016) -
Principal payments received on
(loans made to) customers, net (7,007,180) 6,350,364 (1,499,996)
Purchases of Bank premises and
equipment (119,664) (92,619) (125,968)
Proceeds from sales of other assets 73,000 45,500 -
Net cash provided by (used in)
investing activities 617,752 4,153,563 (4,759,100)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand
deposit, NOW and savings accounts (4,150,169) (2,057,415) 4,075,159
Proceeds from sales of (payments for
matured) time deposits, net 631,011 (1,799,752) (3,473,319)
Dividends paid (250,250) (115,500) (173,250)
Net cash provided by (used in)
financing activities (3,769,408) (3,972,667) 428,590
</TABLE>
(Continued)<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Increase (decrease) in cash
and cash equivalents $(1,826,733) $1,030,678 (3,324,922)
Cash and cash equivalents:
Beginning 5,440,620 4,409,942 7,734,864
Ending $3,613,887 $5,440,620 $4,409,942
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest on deposits $2,093,711 $2,056,556 $2,415,308
Income taxes $ 83,090 $326,673 $318,717
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in
settlement of loans $ - $ 500 $ 47,749
Dividends declared and unpaid $ 57,750 $ 77,000 $ -
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
The accounting and reporting policies of First National
Bankshares Corporation and subsidiary
conform to generally accepted accounting principles and to
general practices within the banking
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
following is a summary of the Company's more
significant accounting policies.
Principles of consolidation: The accompanying consolidated
financial statements include the
accounts of First National Bankshares Corporation, and its
wholly-owned subsidiary, First National
Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Presentation of cash flows: For purposes of reporting
cash flows, cash and cash equivalents
includes cash on hand, Federal funds sold and amounts due
from banks (including cash items in
process of clearing). Cash flows from demand deposits,
NOW accounts and savings accounts are
reported net since their original maturities are less than
three months. Cash flows from loans and
certificates of deposit and other time deposits are
reported net.
Securities: Securities are classified as "held to
maturity", "available for sale" or "trading." The
appropriate classification is determined at the time of
purchase of each security and re-evaluated at
each reporting date.
Securities held to maturity - Debt securities for which
the Company has the positive intent and
ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and
accretion of discounts.
Securities available for sale - Securities not
classified as "held to maturity" or as "trading" are
classified as "available for sale." Securities
classified as "available for sale" are those securities
the Company intends to hold for an indefinite period of
time, but not necessarily to maturity.
"Available for sale" securities are reported at
estimated fair value net of unrealized gains or
losses, which are adjusted for applicable income taxes,
and reported as a separate component
of shareholders' equity.
Trading securities - There are no securities classified
as "trading" in the accompanying financial
statements.
Realized gains and losses on sales of securities are
recognized on the specific identification method.
Amortization of premiums and accretion of discounts are
computed using the interest method.
Loans and allowance for loan losses: Loans are stated at
the amount of unpaid principal, reduced
by unearned income and an allowance for loan
losses.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allowance for loan losses is maintained at a level
considered adequate to provide for losses that
can be reasonably anticipated. The allowance is increased
by provisions charged to operating
expense and reduced by net charge-offs. The subsidiary
bank makes continuous credit reviews of
the loan portfolio and considers current economic
conditions, historical loan loss experience, review
of specific problem loans and other factors in determining
the adequacy of the allowance for loan
losses. Loans are charged against the allowance for loan
losses when management believes
collectibility is unlikely.
Unearned interest on discounted loans is amortized to
income over the life of the loans, using
methods which approximate the interest method. For all
other loans, interest is accrued daily on the
outstanding balances.
In 1995, the Bank 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
Disclosure," respectively. Under SFAS Nos. 114
and 118, a loan is impaired when, based on current
information and events, it is probable that the
Bank will be unable to collect all amounts due in
accordance with the contractual terms of the specific
loan agreement. Impaired loans, other than certain large
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.
Generally, after management's evaluation, loans are placed
on non-accrual status when principal
or interest is greater than 90 days past due based upon
the loan's contractual terms. 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.
Certain loan fees and direct loan costs are recognized as
income or expense when incurred.
Whereas, Statement Number 91 of the Financial Accounting
Standards Board requires that such fees
and costs be deferred and amortized as adjustments of the
related loan's yield over the contractual
life of the loan. The subsidiary bank's method of
recognition of loan fees and direct loan costs
produces results which are not materially different from
those that would be recognized had
Statement Number 91 been adopted.
Bank premises and equipment: Bank premises and equipment
are stated at cost less accumulated
depreciation. Depreciation is computed primarily by the
straight-line method for bank premises and
equipment over the estimated useful lives of the assets.
Repairs and maintenance expenditures are
charged to operating expenses as incurred. Major
improvements and additions to premises and
equipment are capitalized.
Other real estate: Other real estate consists primarily
of real estate held for resale which was
acquired through foreclosure on loans secured by such real
estate. At the time of acquisition, these
properties are recorded at the lower of cost or appraised
market value with any writedown being
charged to the allowance for loan losses. Expenses
incurred in connection with operating these
properties are charged to operating expenses. Gains and
losses on the sales of these properties are
credited or charged to operating income in the year of the
transactions.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes: The consolidated provision for income taxes
includes Federal and state income taxes
and is based on pretax net income reported in the
consolidated financial statements, adjusted for
transactions that may never enter into the computation of
income taxes payable. Deferred tax assets
and liabilities are based on the differences between the
financial statement and tax bases of assets
and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws
and rates applicable to the periods in which the
differences are expected to affect taxable income.
Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the
date of enactment.
Valuation allowances are established when deemed necessary
to reduce deferred tax assets to the
amount expected to be realized.
Earnings per share: Earnings per common share are
computed based upon the weighted average
shares outstanding. The weighted average number of shares
outstanding was 192,500, for each of
the years ended December 31, 1995, 1994, and 1993.
Profit sharing and 401(k) plans: The subsidiary bank
sponsors a profit-sharing plan and a 401(k)
plan which cover substantially all employees. Bank
contributions to the plans are charged to
expense. (See Note 9)
Postretirement benefit plans: The subsidiary bank
provides certain healthcare and life insurance
benefits for all retired employees that meet certain
eligibility requirements. The plans are contributory
with retiree contributions and are unfunded. The
subsidiary bank's share of the estimated costs that
will be paid after retirement is being accrued by charges
to expense over the employees' active
service periods to the dates they are fully eligible for
benefits. (See Note 9)
Trust Department: Assets held in an agency or fiduciary
capacity by the subsidiary bank's Trust
Department are not assets of the subsidiary bank and are
not included in the accompanying
consolidated balance sheets. Trust Department income is
recognized on the cash basis in
accordance with customary banking practice. Reporting
such income on a cash basis rather than
on the accrual basis does not have a material effect on
net income.
Reclassifications: Certain accounts in the consolidated
financial statements for 1994 and 1993, as
previously presented, have been reclassified to conform to
current year classifications.
Note 2. Cash Concentrations
At December 31, 1995, the subsidiary bank had a
concentration totalling $1,507,384 with
Nationsbank, which consisted of a due from bank balance
and Federal funds sold. At December 31,
1994, the subsidiary bank had concentrations totalling
$1,034,527 and $1,251,557 with Crestar Bank
and Nationsbank, respectively. Deposits with
correspondent banks are generally unsecured, have
limited insurance under current banking insurance
regulations and may be limited by bank regulations
if the correspondent bank does not meet certain capital
levels.
Note 3. Securities
Effective January 1, 1994, the Company adopted Statement
of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS No. 115). In
connection with the adoption of SFAS No. 115, certain
securities totaling $24,706,684 (at amortized
cost) were classified as available for sale. Accordingly,
shareholders' equity at January 1, 1994, was
increased $311,567, net of income taxes of $190,960, to
reflect the net unrealized holding gains of
such securities. The adoption of SFAS No. 115 had no
impact on the accompanying statements of
income. <PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1995, concurrent with the adoption of the Special
Report "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in
Debt and Equity Securities" issued by the
Financial Accounting Standards Board, the subsidiary bank
reassessed the classifications of its
securities and transferred securities with an amortized
cost of $6,496,223 and estimated fair value
of $6,488,454 from the available for sale category to the
held to maturity category. This transfer did
not have a significant impact on the accompanying
financial statements.
The amortized cost, unrealized gains and losses, and
estimated fair values of securities at December
31, 1995 and 1994, are summarized as follows:
<TABLE>
<CAPTION> 1995
Carrying
Value Estimated
(Amortized Unrealized Fair
Cost) Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity
Taxable:
U.S. Treasury securities $3,000,783 $ 12,185 $ - $3,012,968
U.S. Government agencies
and corporations 5,496,523 32,637 9,680 5,519,480
Corporate debt securities 500,000 - 5,800 494,200
Total taxable 8,997,306 44,822 15,480 9,026,648
Tax-exempt:
State and political
subdivisions 4,517,176 74,882 9,430 4,582,628
Total $13,514,482 $ 119,704 $ 24,910 $13,609,276
</TABLE>
<TABLE>
<CAPTION>
1995
Carrying
Value
(Estimated
Amortized Unrealized Fair
Cost Gains Losses Value)
Available for sale
Taxable: <C> <C> <C> <C>
U.S. Treasury securities $969,357 $ 25,329 $ - $ 994,686
U.S. Government agencies
and corporations 9,170,332 52,325 7,563 9,215,094
Federal Reserve Bank stock 56,650 - - 56,650
Federal Home Loan Bank
stock 232,200 - - 232,200
Total taxable 10,428,539 77,654 7,563 10,498,630
Tax-exempt:
Federal Reserve Bank
stock 2,250 - - 2,250
Total $10,430,789 $77,654 $7,563 $10,500,880
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1994
Carrying
Value Estimated
(Amortized Unrealized Fair
Cost) Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity
Taxable:
U.S. Treasury securities $1,000,000 $ - $ 20,938 $ 979,062
U.S. Government agencies
and corporations 1,001,681 - 28,556 973,125
Corporate debt securities 500,000 - 51,350 448,650
Total taxable 2,501,681 - 100,844 2,400,837
Tax-exempt:
State and political
subdivisions 5,019,725 7,781 270,614 4,756,892
Total $7,521,406 $ 7,781 $371,458 $7,157,729
</TABLE>
<TABLE>
<CAPTION>
1994
Carrying
Value
(Estimated
Amortized Unrealized Fair
Cost Gains Losses Value)
Available for Sale
Taxable:
<S> <C> <C> <C> <C>
U.S. Treasury securities $3,960,583 $ 2,281 $ 145,052 $3,817,812
U.S. Government agencies
and corporations 20,069,329 2,222 667,548 19,404,003
Federal Reserve Bank
stock 56,650 - - 56,650
Total taxable 24,086,562 4,503 812,600 23,278,465
Tax-exempt:
Federal Reserve Bank stock 2,250 - - 2,250
Total $24,088,812 $ 4,503 $812,600 $ 23,280,715
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values
of securities at December 31, 1995, are
summarized as follows:
<TABLE>
<CAPTION>
Held to maturity Available for sale
Carrying
Carrying Value
Value (Estimated
(Amortized Fair Amortized Fair
Cost) Value Cost Value)
<S> <C> <C> <C> <C>
Due in one year or less $2,384,854 $2,388,392 $6,022,062 $6,044,953
Due from one to five years 7,837,452 7,866,453 4,117,627 4,164,827
Due from five to ten years 3,292,176 3,354,431 - -
Equity securities - - 291,100 291,100
Total $13,514,482 $13,609,276 $10,430,789 $10,500,880
</TABLE>
The proceeds from sales, calls and maturities of securities and
principal payments received on mortgage-backed obligations and
the related gross gains and losses realized are as follows:
<TABLE>
<CAPTION>
For the Proceeds From Gross Realized
Year Ended Calls and Principal
December 31, Sales Maturities Payments Gains Losses
<S> <C> <C> <C> <C> <C>
1995
Securities held
to maturity $ - $2,497,865 $ - $ - $ -
Securities avail-
able for sale - 7,359,223 - 990 -
$ - $9,857,088 $ - $ 990 $ -
1994
Securities held to
maturity $ - $ 716,250 $ 83,529 $ - $ 437
Securities available
for sale 1,000,000 6,000,000 - 46 -
$1,000,000 $6,716,250 $ 83,529 $ 46 $ 437
1993 $ 257,522 $6,256,588 $ 94,478 $2,529 $ -
<FN>
At December 31, 1995 and 1994, securities carried at $1,000,000 and
$1,500,207, respectively, with estimated fair values of $1,006,900
and $1,496,269, respectively, were pledged to secure public
deposits, and for other purposes required or permitted by law.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans
Loans are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $13,134,525 $9,131,592
Real estate - construction 2,019,845 659,790
Real estate - mortgage 23,430,089 21,144,382
Installment 6,522,299 7,620,566
Other 1,570,863 1,320,111
Total loans 46,677,621 39,876,441
Less unearned income 260,930 257,507
Total loans net of unearned income 46,416,691 39,618,934
Less allowance for loan losses 643,439 852,862
Loans, net $45,773,252 $38,766,072
</TABLE>
Included in the net balance of loans are non-accrual loans
amounting to $375,048 and $933,245 at December 31, 1995 and 1994,
respectively. If interest on non-accrual loans had been accrued,
such income would have approximated $40,652, $71,560 and $16,943
for the years ended December 31, 1995, 1994 and 1993, respectively.
The following represents loan maturities at December 31, 1995:
<TABLE>
After 1 But
Within 1 Year Within 5 Years After 5 Years
<S> <C> <C> <C>
Commercial, financial and
agricultural $ 8,689,415 $2,963,712 $ 1,481,398
Real estate - construction 1,941,692 78,153 -
Real estate - mortgage 10,204,894 8,500,642 4,724,553
Installment 1,809,899 2,979,350 1,733,050
Other 1,546,355 24,508 -
Total $24,192,255 $14,546,365 $ 7,939,001
Loans due after one year with:
Variable rates $ 6,658,206
Fixed rates 15,827,160
Total $22,485,366
<FN>
Concentrations of credit risk: The subsidiary bank grants
commercial, residential and consumer
loans to customers primarily located in Greenbrier County,
West Virginia.
As of December 31, 1995 and 1994, the Bank had direct
extensions of credit to medical professionals
totaling approximately $2,163,122 and $2,487,073,
respectively. The security for these loans
generally consists of mortgages on personal residences and
medical office buildings and liens on
medical practice equipment and receivables. The Bank
evaluates the credit worthiness of each such
customer on a case-by-case basis and the amount of
collateral it obtains is based upon
management's credit evaluation.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The subsidiary bank has had, and may be expected to have
in the future, banking transactions in the
ordinary course of business with directors, principal
officers, their immediate families and affiliated
companies in which they are principal stockholders
(commonly referred to as related parties), all of
which have been, in the opinion of management, on the same
terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others.
The following presents the activity with respect to
related party loans aggregating $60,000 or more
to any one related party:
</TABLE>
<TABLE>
1995 1994
<S> <C> <C>
Balance, beginning $ 776,860 $ 811,867
Additions 208,563 330,798
Amounts collected (207,663) (365,805)
Balance, ending $ 777,760 $ 776,860
<FN>
Note 5. Allowance for loan losses and New Accounting Pronouncement
An analysis of the allowance for loan losses for the years
ended December 31, 1995, 1994 and 1993, is as follows:
</TABLE>
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning of year $852,862 $1,000,803 $ 775,982
Losses:
Commercial, financial
and agricultural 90,348 22,772 196,904
Real estate - mortgage 75,000 3,249 23,009
Installment 215,885 400,576 81,290
Total 381,233 426,597 301,203
Recoveries:
Commercial, financial and
agricultural 3,250 5,683 288
Real estate - mortgage 2,470 1,000 5,021
Installment 166,090 148,973 61,715
Total 171,810 155,656 67,024
Net losses 209,423 270,941 234,179
Provision for loan losses - 123,000 459,000
Balance, end of year $643,439 $852,862 $1,000,803
<FN>
As explained in Note 1, the Bank adopted SFAS Nos. 114 and 118 in
1995. The Company's total recorded investment in impaired loans
at December 31, 1995, approximated $292,161, for which the related
allowance for loan losses determined in accordance with SFAS Nos. 114
and 118 approximated $125,000. The Company's average investment in
such loans approximated $483,780 for the year ended December 31, 1995.
All impaired loans at December 31, 1995, were collateral dependent,
and accordingly, the fair value of the loan's collateral was used to
measure the impairment of each.<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For purposes of SFAS Nos. 114 and 118, the Bank 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); small balance commercial
loans (currently those less than $50,000); and installment loans to
individuals, exclusive of those loans in excess of $50,000.
For the year ended December 31, 1995, the Company recognized
approximately $2,237 in interest income on impaired loans.
Using a cash-basis method of accounting, the Bank would have
recognized approximately the same amount of interest income on
such loans.
Note 6. Bank Premises and Equipment
The major categories of Bank premises and equipment and accumulated
depreciation at December 31, 1995 and 1994, are summarized as follows:
</TABLE>
<TABLE>
1995 1994
<S> <C> <C>
Land $ 108,298 $ 108,298
Building and improvements 1,127,603 1,114,484
Furniture and equipment 1,496,851 1,677,860
2,732,752 2,900,642
Less accumulated
depreciation 1,733,565 1,865,424
Bank premises and
equipment, net $ 999,187 $1,035,218
<FN>
Depreciation expense for the years ended December 31, 1995, 1994
and 1993 totaled $151,529, $147,377 and $129,551, respectively.
Note 7. Deposits
The following is a summary of interest bearing deposits by type as
of December 31, 1995 and 1994:
</TABLE>
<TABLE>
1995 1994
<S> <C> <C>
Interest bearing demand deposits $12,579,368 $14,176,730
Savings deposits 19,185,594 21,220,634
Certificates of deposit 25,710,319 25,079,308
Total $57,475,281 $60,476,672
<FN>
Time certificates of deposit in denominations of $100,000 or more
totaled $2,151,222 and $1,866,648 at December 31, 1995 and 1994,
respectively. Interest paid on time certificates of deposit in
denominations of $100,000 or more was $89,256, $72,418, and $78,702
for the years ended December 31, 1995, 1994 and 1993, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the maturity distribution of
certificates of deposit in denominations of $100,000 or more
as of December 31, 1995:
</TABLE>
<TABLE>
Amount Percent
<S> <C> <C>
Three months or less $ 365,541 16.99%
Three through six months 569,661 26.48%
Six through twelve months 200,000 9.30%
Over twelve months 1,016,020 47.23%
Total $2,151,222 100.00%
<FN>
Note 8. Income Taxes
During 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS No. 109). The cumulative effect of adopting SFAS No. 109 did not
have a material effect on net income in 1993.
The components of applicable income tax expense (benefit) for the
years ended December 31, 1995, 1994 and 1993, are as follows:
</TABLE>
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $198,444 $104,093 $ 263,888
State 29,789 18,485 33,727
228,233 122,578 297,615
Deferred
(Federal and State) 72,875 41,383 (136,264)
Total $301,108 $163,961 $ 161,351
<FN>
A reconciliation between the amount of reported income tax expense
and the amount computed by multiplying the statutory income tax rates
by book pretax income for the years ended December 31, 1995, 1994
and 1993, is as follows:
</TABLE>
<TABLE>
1995 1994 1993
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Computed tax at applicable
statutory rate $ 363,094 34.0 $240,023 34.0 $ 224,228 34.0
Increase (decrease) in
taxes resulting from:
Tax-exempt interest (79,701) (7.5) (79,678) (11.2) (67,649) (10.3)
State income taxes, net
of Federal income
tax benefit 19,657 1.8 12,349 1.7 22,260 3.4
Life insurance benefits - - (13,100) (1.9) - -
Other, net (1,942) (.1) 4,367 .6 (17,488) (2.7)
Applicable income
taxes $ 301,108 28.2 $163,961 23.2 $ 161,351 24.4
<FN>
Deferred income taxes reflect the impact of "temporary differences"
between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured for tax purposes. Deferred
tax assets and liabilities represent the future tax return
consequences of temporary differences, which will either be taxable
or deductible when the related assets and liabilities are recovered
or settled.<PAGE>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences which give rise to the
Company's deferred tax assets and liabilities as of December
31, 1995 and 1994, are as follows:
<TABLE>
1995 1994
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $141,106 $ 220,687
Employee benefits 142,503 136,416
Accruals - 9,301
Net unrealized loss on securities - 282,834
283,609 649,238
Deferred tax liabilities:
Depreciation 12,600 23,557
Accretion on securities 5,722 4,686
Net unrealized gain on securities 26,775 -
45,097 28,243
Net deferred tax assets $238,512 $ 620,995
<FN>
The income tax expense (benefit) on realized securities gains
(losses) was $376, ($149), and $961, for the years ended
December 31, 1995, 1994 and 1993, respectively.
Note 9. Employee Benefits
Profit-Sharing Plan: The subsidiary bank sponsors a noncontributory
defined contribution profit-sharing plan covering substantially
all employees.
Contributions to the Plan are at the discretion of the Board of
Directors.
401(k) Plan: The subsidiary bank also sponsors a 401(k) defined
contribution plan covering substantially all employees.
Participants are eligible to contribute up to 10% of their annual
compensation to the Plan. The Bank matches participant contributions
in an amount equal up to 3.5% of each participant's annual
compensation. In addition, the Bank is also eligible to make
discretionary contributions to the Plan.
The Bank's contributions to the above Plans for the years
ended December 31, 1995, 1994 and 1993,
totaled $117,500, $75,259 and $106,899, respectively.
Postretirement Benefit Plans: The subsidiary bank
sponsors a postretirement healthcare plan and
a postretirement life insurance plan for all retired
employees that meet certain eligibility requirements.
Both plans are contributory with retiree contributions
that are adjustable based on various factors,
some of which are discretionary. The plans are unfunded.
Effective January 1, 1993, the Company
adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for
Postretirement Benefits other than Pensions" (SFAS No.
106) to account for its share of the costs of
those benefits. In conjunction therewith, the Company
charged 1993 net income $200,359 ($1.04
per common share), representing the cumulative effect, net
of applicable income taxes of $122,800,
of fully accruing the $323,159 unfunded accumulated
postretirement benefit obligation existing at
January 1, 1993. The change in accounting had the
additional effect of reducing 1993 income before
the cumulative effect of the change in accounting
principle by $11,727, or $0.06 per common share.
<PAGE>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Net postretirement benefit cost included the following
components for the years ended December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
Health Life Health Life Health Life
Care Insurance Care Insurance Care Insurance
Plan Plan Plan Plan Plan Plan
<S> <C> <C> <C> <C> <C> <C>
Service cost-benefits
attributable to
service during
the year $ 4,887 $ 1,905 $6,225 $ 2,454 $4,161 $ 1,578
Interest on
accumulated
postretirement
benefit
obligation 18,359 6,229 19,355 7,138 18,593 6,321
Amortization of (gain)
loss (490) - 331 694 - -
Net postretirement
benefit cost $ 22,756 $ 8,134 $25,911 $10,28 $ 22,754 $ 7,899
<FN>
The following tables set forth the plans' funded status
reconciled with the obligations recognized in the
accompanying consolidated balance sheets at December 31, 1995
and 1994
</TABLE>
<TABLE>
1995 1994
Health Life Health Life
Care Insurance Care Insurance
Plan Plan Total Plan Plan Total
<S> <C> <C> <C> <C> <C> <C>
Accumulated
postretirement
benefit obligation:
Retirees $(117,153) $(44,197) $(161,350) $(134,632) $(43,900)$(178,532)
Active participants
fully eligible
for benefits (49,559) (19,053) (68,612) (33,131) (12,427) (45,558)
Other active
participants (76,375) (29,587) (105,962) (69,651) (26,502) (96,153)
(243,087) (92,837) (335,924) (237,414) (82,829) (320,243)
Plan assets - - - - - -
Accumulated
postretirement
benefit obligation
in excess of
plan assets (243,087) (92,837) (335,924) (237,414) (82,829) (320,243)
Unrecognized net (gain)
loss (39,303) (1,703) (41,006) (30,932) (7,814) (38,746)
Accrued postretirement
benefit cost $(282,390) $(94,540) $(376,930)$(268,346) $(90,643)$(358,989)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average discount rates used in estimating the
accumulated postretirement benefit
obligations of the health care plan and the life insurance
plan at December 31, 1995 and 1994, were
7% and 8%, respectively.
For measurement purposes, a 7% annual rate of increase in
per capita healthcare costs of covered
benefits was assumed through 1999, 6% for the next 5 years,
5 1/2% for the next 5 years, and 5%
thereafter. If assumed healthcare cost trend rates were
increased by 1 percentage point in each year,
the accumulated postretirement benefit obligation at
December 31, 1995, would be increased by
$10,430 and the aggregate of the service and interest cost
components of net postretirement benefit
cost for the year ended December 31, 1995, would be
increased by $938.
Note 10. Lease Obligation
The subsidiary bank leases its branch facility in
Lewisburg, West Virginia under an operating lease with
an initial term of ten years, commencing April 1, 1986.
The lease provides for two successive options
for five-year renewals. Total lease payments of $90,446
were charged to expense for each of the years
ended December 31, 1995, 1994 and 1993. Total future
minimum lease payments under the lease
are as follows:
Year Ending
December 31, Amount
1996 $22,611
The lessor of the branch facility is an entity owned by two directors
of the Company and subsidiary bank.
Note 11. Commitments and Contingencies
Financial instrument with off-balance-sheet risk: The
subsidiary bank is a party to financial
instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs
of its customers. These financial instruments include
commitments to extend credit and standby
letters of credit. Those instruments involve, to varying
degrees, elements of credit and
interest rate risk in excess of the amount recognized in
the consolidated balance sheets. The
contract amounts of those instruments reflect the extent
of involvement the Bank has in particular
classes of financial instruments.
<TABLE>
Financial instruments whose contract Contract Amount
amounts represent credit risk 1995 1994
<S> <C> <C>
Commitments to extend credit $8,560,726 $5,005,431
Standby letters of credit - 570,672
Total $8,560,726 $5,576,103
</TABLE>
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and standby
letters of credit is represented by the
contractual amount of those instruments. The Bank uses
the same credit policies in making
commitments and conditional obligations as it does for
on-balance sheet instruments.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation
of any condition established in the contract. Commitments
generally have fixed expiration dates or
other termination clauses and may require payment of a
fee. The Bank evaluates each customer's
credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on
management's credit evaluation. Collateral held
varies but may include accounts receivable, inventory,
equipment or real estate.
Standby letters of credit are conditional commitments
issued by the Bank to guarantee the
performance of a customer to a third party. Those
guarantees are primarily issued to support private
borrowing arrangements. The credit risk involved in
issuing letters of credit is essentially the same
as that involved in extending loans. These letters of
credit are generally uncollateralized.
Litigation: The Company is involved in various legal
actions arising in the ordinary course of
business. In the opinion of counsel, the outcome of these
matters will not have a significant adverse
effect on the consolidated financial statements.
Employment Agreement: The Company has an employment
agreement with its chief executive
officer. This agreement contains change in control
provisions that would entitle the officer to receive,
under certain circumstances, twice his annual compensation
in the event there is a change in control
in the Company (as defined) and a termination of his
employment. The maximum contingent liability
under this agreement approximates $275,000 at December 31,
1995.
Note 12. Regulatory Restrictions on Capital and Dividends
The subsidiary bank is required to maintain minimum
amounts of capital to total "risk weighted"
assets, as defined by banking regulations. A comparison
of the subsidiary bank's capital as of
December 31, 1995, with the minimum requirements for an
adequately capitalized bank is presented
below:
<TABLE>
Minimum
Actual Requirements
<S> <C> <C>
Tier 1 Risk-based Capital 16.19% 4.0%
Total Risk-based Capital 18.16% 8.0%
Leverage Ratio 11.11% 3.0%
<FN>
The primary source of funds for the dividends paid by
First National Bankshares Corporation is
dividends received from its subsidiary bank. Dividends
paid by the subsidiary bank are subject to
restrictions by banking regulations. The most restrictive
provision requires approval by the regulatory
agency if dividends declared in any year exceed the year's
net income, as defined, plus the net
retained profits of the two preceding years. During 1996,
the net retained profits available for dis-
tribution to First National Bankshares Corporation as
dividends without regulatory approval are
approximately $890,000, plus net retained profits, as
defined, for the interim periods through the date
of declaration.
Note 13. Fair Value of Financial Instruments
The following summarizes the methods and significant
assumptions used by the Bank in estimating
its fair value disclosures for financial instruments.
Cash and due from banks: The carrying values of cash and
due from banks approximate their
estimated fair value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal funds sold: The carrying values of Federal funds
sold approximate their estimated fair
values.
Securities: Estimated fair values of securities are based
on quoted market prices, where available.
If quoted market prices are not available, estimated fair
values are based on quoted market prices
of comparable securities.
Loans: The estimated fair values for loans are computed
based on scheduled future cash flows of
principal and interest, discounted at interest rates
currently offered for loans with similar terms to
borrowers of similar credit quality. No prepayments of
principal are assumed.
Deposits: The estimated fair values of demand deposits
(i.e. noninterest bearing checking, NOW,
Super NOW, money market and savings accounts) and other
variable rate deposits approximate their
carrying values. Fair values of fixed maturity deposits
are estimated using a discounted cash flow
methodology at rates currently offered for deposits with
similar remaining maturities. Any intangible
value of long-term relationships with depositors is not
considered in estimating the fair values
disclosed.
Off-balance sheet instruments: The fair values of
commitments to extend credit and standby
letters of credit are estimated using the fees currently
charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
present credit standing of the
counterparties. The amounts of fees currently charged on
commitments and standby letters of credit
are deemed insignificant, and therefore, the estimated
fair values and carrying values are not shown
below.
The carrying values and estimated fair values of the
Bank's financial instruments are summarized below:
</TABLE>
<TABLE>
December 31, 1995
Estimated
Carrying Fair
Value Value
<S> <C> <C>
Financial assets:
Cash and due from banks $2,720,887 $2,720,887
Federal funds sold 893,000 893,000
Securities available for sale 10,500,880 10,500,880
Securities held to maturity 13,514,482 13,609,276
Loans 45,773,252 45,680,242
$73,402,501 $73,404,285
Financial liabilities:
Deposits $66,166,188 $66,202,397
<FN>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Condensed Financial Statements of Parent Company
The investment of the Corporation in its wholly-owned
subsidiary is presented on the equity method
of accounting. Information relative to the Corporation's
balance sheets at December 31, 1995 and
1994, and the related statements of income and cash flows
for the years ended December 31, 1995,
1994 and 1993, are presented as follows:
</TABLE>
<TABLE>
Balance Sheets
Assets 1995 1994
<S> <C> <C>
Cash $ 4,833 $4,635
Investment in bank subsidiary, eliminated
in consolidation 8,409,837 7,304,242
Other assets 58,484 79,131
Total assets $8,473,154 $ 7,388,008
Liabilities and shareholders' equity
Liabilities
Dividends payable $ 57,750 $77,000
Shareholders' equity
Common stock, $5.00 par value, authorized
500,000 shares, issued 192,500 shares 962,500 962,500
Capital surplus 1,000,000 1,000,000
Retained earnings (consisting of undivided profits of
subsidiary not yet distributed) 6,409,585 5,873,771
Net unrealized gain (loss) on securities 43,319 (525,263)
Total shareholders' equity 8,415,404 7,311,008
Total liabilities and
shareholders' equity $8,473,154 $7,388,008
Statements of Income 1995 1994 1993
Income - dividends from bank
subsidiary $ 231,000 $ 192,500 $ 173,250
Expenses - operating 1,932 5,607 13,226
Income before income taxes and undistributed
income 229,068 186,893 160,024
Applicable income tax expense
(benefit) (733) (2,131) (4,860)
Income before undistributed
income 229,801 189,024 164,884
Equity in undistributed income
in bank subsidiary 537,013 352,965 133,106
Net income $766,814 $541,989 $ 297,990
<FN>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
<TABLE>
Statements of Cash Flows 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $766,814 $541,989 $297,990
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
subsidiary (537,013) (352,965) (133,106)
(Increase) decrease in
other assets 20,647 (74,271) 49
Net cash provided by
operating activities 250,448 114,753 164,933
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders (250,250) (115,500) (173,250)
Net cash (used in) financing
activities (250,250) (115,500) (173,250)
Increase (decrease) in cash 198 (747) (8,317)
Cash:
Beginning 4,635 5,382 13,699
Ending $ 4,833 $ 4,635 $5,382
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Dividends declared and unpaid $ 57,750 $ 77,000 $-
First National Bankshares Corporation accounts for its
investment in its bank subsidiary by the equity
method. During the years ended December 31, 1995, 1994
and 1993, changes were as follows:
Number of shares owned at December 31, 1995 - 38,500
Percent to total shares at December 31, 1995 - 100%
Balance at December 31, 1992 $7,343,434
Add (deduct):
Equity in net income 306,356
Dividends declared (173,250)
Balance at December 31, 1993 7,476,540
Add (deduct):
Equity in net income 545,465
Dividends declared (192,500)
Net unrealized gain (loss) on securities (525,263)
Balance at December 31, 1994 7,304,242
Add (deduct):
Equity in net income 768,013
Dividends declared (231,000)
Change in net unrealized gain
(loss) on securities 568,582
Balance at December 31, 1995 $ 8,409,837
</TABLE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The number of directors of the Company is fixed at 11. Each
director of the Company is also a director of the Bank.
Additional information about the directors, including their
principal occupation and age, is set forth in the following
table:
Name, Positions and Year First Year
Offices Held (Other Became a Term
Than Director) Principal Occupation Director of
With the Company or Employment for of the Office
and the Bank the Past Five Years Age Company Expires
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
S. Elwood Bare Pharmacist; Owner/President 69 1986 1996
Chairman of the Board, of P.A. George & Co.,
Member of Asset/Liability, Inc. (drug store)
Audit & Compliance, and
Trust Committees of the
Bank
L. Thomas Bulla President & CEO of 56 1993 1998
President & CEO First National Bankshares Corp.
of the Company and First National Bank (1993-
Member of Asset/ present); Director, President
Liability and & CEO of Bank One, West Virginia
Trust Committees Charleston, NA (1985-1993)
of the Bank
J. R. Dawkins Cattle Dealer; Farm 78 1986 1997
Member of Audit & Operator
Compliance Committee
of the Bank
Richard E. Ford Attorney at Law 68 1987 1996
Member of Audit & Partner - Haynes, Ford
Compliance and Trust & Rowe
Committees of the Bank
Walter Bennett Fuller Retired Banker 72 1986 1997
Vice Chairman of the Board,
Member of Asset/Liability,
Audit & Compliance, and
Trust Committees of the Bank
William D. Goodwin Attorney at Law, 52 1986 1998
Member of Asset/Liability Owner/Broker, Coldwell
and Trust Committees of Banker Stuart & Watts Real
the Bank Estate, Inc.
(Table continued on next page)<PAGE>
Name, Positions and Year First Year
Offices Held (Other Became a Term
Than Director) Principal Occupation Director of
With the Company or Employment for of the Office
and the Bank the Past Five Years Age Company Expires
Houston B. Moore, M.D. Retired Physician; Farm 68 1986 1997
Member of Asset/Liability Operator and Cattle Dealer
Committee of the Bank
Lucie T. Refsland, Ed.D. Interim Director (1995)
Member of Trust and Associate Professor 59 1995 1998
Committee of the Bank Mathematics (1993 - present)
Greenbrier Community College
William R. Satterfield Owner - Greenbrier 51 1986 1998
Member of Asset/Liability Insurance Agency
and Audit & Compliance
Committees of the Bank
Richard L. Skaggs Partner - Park Grove 73 1986 1997
Member of Audit & Farms (farm feed and
Compliance Committee supply)
of the Bank
Ronald B. Snyder President, R.B.S., Inc. 56 1988 1996
Member of Asset/Liability (construction company)
Committee of the Bank
<FN>
The directors of the Company serve staggered 3 year terms.
Directors Bare, Ford, and Snyder whose terms expire in
1996, have been nominated to stand for re-election at the 1996
annual meeting of the Company's stockholders to serve
a 3 year term which will expire in 1999.
On March 16, 1996, Director Houston B. Moore, M.D., died after a
long illness. As provided for in the Company's bylaws,
the Board of Directors will appoint a new director to fulfill Dr.
Moore's unexpired term.<PAGE>
Executive Officers
The current executive officers of the Company and the Bank and
information about these officers is set forth on the
following table.
</TABLE>
<TABLE>
Name Age Offices Held During Last Five Years
<S> <C> <C>
L. Thomas Bulla 56 President & CEO of the Company and the Bank
(1993 to present);President and CEO of Bank One,
West Virginia, Charleston, NA (1985 - 1993)
Charles A. Henthorn 36 Executive Vice President of the Bank (1996 to
present); Senior Vice President of the Bank
(1994 to 1996); Vice President and Senior
Commercial Lender of Bank One, West Virginia,
Charleston, NA (1991- 1994); National Bank
Examiner with the Office of the Comptroller of
the Currency (1983 - 1991)
Darrell G. Echols 59 Vice President of the Company (1987 to
present); Senior Vice President and Loan Officer of
the Bank (1970 to present)
Keith E. Morgan 58 Secretary-Treasurer of the Company (1987 to
present); Senior Vice President, Cashier,
Trust Officer and Secretary to the Board of the
Bank (1970 to present)
William D. Sturgill 48 Vice President and Operations Officer of the
Bank (1972 to present)
<FN>
The executive officers of the Company listed above shall continue
in office until the 1996 organizational meeting of the
directors of the Company. It is expected that, for 1996, the
current officers will be re-elected to the offices they now hold.
The executive officers of the Bank listed above shall continue in
office until the 1997 organizational meeting of its
directors; and it is expected that these persons will be
reelected to the offices they now hold.
Compliance with Section 16(a) of the Exchange Act
The Company files this Form 10-K Annual Report pursuant to
Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"). Since the Company does not have any class of
securities registered pursuant to Section 12 of the
Exchange Act, the provisions of Section 16 thereof are not
applicable to the Company's directors, officers and
shareholders.
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the
compensation paid to the chief executive officer for the years
1995, 1994 and 1993:
</TABLE>
<TABLE>
All Other
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
<S> <C> <C> <C> <C>
L. Thomas Bulla (1) 1995 137,500 25,000 24,287 (3)
President & CEO of the
Company and the Bank 1994 125,000 -0- 9,498
William M. Dickson (2)1993 99,155 400 9,393
President of the Company
and the Bank
<FN>
FOOTNOTES:
(1) Mr. Bulla was appointed President and CEO year-end 1993.
(2) Mr. Dickson retired effective year-end 1993.
(3) The amount shown under the "All Other Compensation" column
above for 1995 is the total of the following: (i) directors
fees of $6,800, (ii) the amount of premiums paid by the Bank
for term life insurance for Mr. Bulla's benefit of $1,356, (iii)
401-K Plan contribution of $5,714, (iv) Profit Sharing
Supplemental Retirement Plan contribution of $10,417.
The Company has an employment agreement with its chief executive
officer. This agreement contains change in control
provisions that would entitle the officer to receive, under
certain circumstances, twice his annual salary in the event there
is a change in control in the Company (as defined therein) and a
termination of his employment. The maximum
contingent liability under this agreement approximates $275,000
at December 31, 1995.
The Directors of the Company do not receive any fees or
compensation for services as directors thereof. All of the
directors of the Company, however, are also directors of the
Bank; and, as such, receive $200.00 for each Board, and
$50.00 for each Board Committee meeting attended, plus $200.00
per month. No Board Committee fees are paid to
directors who are also salaried officers of the Bank.
On March 26, 1996, the Board of Directors voted to submit an incentive stock
option by the stockholders at the scheduled annual meeting. The purpose of
the plan is 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. 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.
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
There are no shareholders, known to the Company, who beneficially
own more than 5% of the Company's common
stock, the only class of stock outstanding, as of February 28,
1996.
The following table sets forth information as of February 28,
1996, regarding the amount and nature of the beneficial
ownership of common stock of the Company held by each of the
directors of the Company and by all of the directors
and executive officers of the Company and the Bank as a group:
</TABLE>
<TABLE>
Shares Owned Percent of
Name Beneficially Class
<S> <C> <C> <C>
S. Elwood Bare 1,125 (1) .58%
L. Thomas Bulla 6,150 (2) 3.19%
John R. Dawkins 4,665 (3) 2.42%
Richard E. Ford 2,927 (4) 1.52%
Walter Bennett Fuller 1,875 (5) .97%
William D. Goodwin 1,570 (6) .82%
Houston B. Moore, M.D. 895 (7) .46%
Lucie T. Refsland, Ed.D. 203 (8) .11%
William R. Satterfield, Jr. 1,325 (9) .69%
Richard L. Skaggs 525 (10) .27%
Ronald B. Snyder 3,248 (11) 1.69%
All Directors and Executive Officers of the Company & Bank as
a Group (14 persons) 29,683 15.43%
<FN>
FOOTNOTES
(1) Mr. Bare has sole voting and investment authority for 950
shares and shared voting and investment authority for
175 shares.
(2) Mr. Bulla has sole voting and investment authority for 3,600
shares and shared voting and investment authority for
2,550 shares.
(3) Mr. Dawkins has sole voting and investment authority for
4,165 shares and shared voting and investment authority
for 500 shares.
(4) Mr. Ford has sole voting and investment authority for 1,612
shares and shared voting and investment authority for
1,315 shares.
(5) Mr. Fuller has sole voting and investment authority for
1,875 shares.
(6) Mr. Goodwin has sole voting and investment authority for 920
shares and shared voting and investment authority
for 650 shares.
(7) Dr. Moore has sole voting and investment authority for 400
shares and shared voting and investment authority for
495 shares.
(8) Ms. Refsland has sole voting and investment authority for
203 shares and shared voting and investment authority
for -0- shares.
(9) Mr. Satterfield has sole voting and investment authority for
1,075 shares and shared voting and investment authority
for 250 shares.
(10) Mr. Skaggs has sole voting and investment authority for 200
shares and shared voting and investment authority for
325 shares.
(11) Mr. Snyder has sole voting and investment authority for 200
shares and shared voting and investment authority for
3,048 shares.
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the ordinary course of business since January 1, 1995, The
Company's subsidiary, the Bank, as in the past, has had
banking transactions with the directors and executive officers of
the Company and the Bank, members of their immediate
families, corporations and other entities in which such directors
and officers were executive officers or had, directly or
indirectly, beneficial ownership of 10% or more in any class of
equity securities, and trusts in which they have a substantial
beneficial interest or for which they serve as a fiduciary.
Management of the Company is of the opinion that any
outstanding extensions of credit to such persons were made in the
ordinary course of the business of the Bank on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time in comparable
transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable
features. See Note 4 of the Financial Statements for additional
information.
The Bank leases its branch banking facility on Route 219 North in
Lewisburg, West Virginia, from Company Directors
Goodwin and Satterfield. The lease term began April 1, 1986, and
runs for a period of 10 years, expiring in March of
1996. The Bank has the right to renew the lease for 2 additional
successive 5 year periods. The annual rental during
the initial 10 year term is $90,446. In 1995, the Bank paid the
lessors rent in the amount of $90,446.
In January of 1996, Bank Management and the Board of Directors
opted to regegotiate 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 current lease, but to commence 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.
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Page(s) in
Form 10-K
(a) (1) Financial Statements
The following consolidated financial statements and accountant's
report appear on pages 20 through 43 of this Form 10-K
Report of independent auditors . . . . . . . . . . . . . . . . . . . 20
Consolidated balance sheets at December 31, 1995 and 1994. . . . . . 21
Consolidated statements of income for the years ended December 31,
1995, 1994, and 1993. . . . . . . . . . . . . . . . . . . . . . .22-23
Consolidated statements of shareholders' equity for the years
ended December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . 24
Consolidated statements of cash flows for the years ended
December 31, 1995, 1994, and 1993. . . . . . . . . . . . . . . .25-26
Notes to the consolidated financial statements . . . . . . . . . .27-43
(a) (2) Financial Statement Schedules
All other schedules for which provision is made in the
applicable regulations
of the Commission have been omitted as the schedules are
not required
under the related instructions, or are inapplicable, or
the information required
thereby is set forth in the financial statements or the
notes thereto
(a) (3) Exhibits required to be filed by Item 601 of Regulation
S-K and 14(c) of Form 10-K
See index to exhibits. . . . . . . . . . . . . . . . . . . . . . . 54
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the registrant
during the quarter ended December 31, 1995.
(c) Exhibits
See Item 14(a)(3), above
(d) Financial Statement Schedules
See Item 14(a)(2), above
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant)
By: /s/ L. Thomas Bulla 03/12/96
L. Thomas Bulla
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
</TABLE>
<TABLE>
<S> <C>
/s/ Bennett Fuller 03/12/96 /s/ William R.Satterfield Jr. 03/12/96
Bennett Fuller, Director William R.Satterfield, Jr., Director
/s/ Ronald B. Snyder 03/12/96 /s/ Richard E. Ford 03/12/96
Ronald B. Snyder, Director Richard E. Ford, Director
/s/ William D. Goodwin 03/12/96
William D. Goodwin, Director H. B. Moore, M.D., Director
/s/ S. Elwood Bare 03/12/96 /s/ Richard L.Skaggs 03/12/96
S. Elwood Bare, Director Richard L.Skaggs, Director
/s/ Lucie T. Refsland, Ph.D. 03/12/96
John R. Dawkins, Director Lucie T. Refsland, Ph.D., Director
/s/ L. Thomas Bulla 03/12/96 /s/ Keith E. Morgan 03/12/96
L. Thomas Bulla, President, Chief Keith E. Morgan, Secretary & Treasurer
Executive Officer and Director Principal Financial and Accounting Officer)
(Principal Executive Officer)
</TABLE>
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The Company has not yet sent an annual report and proxy
materials to its stockholders. Such report and material shall
be sent to its stockholders subsequent to the filing of this
Form 10-K, and copies thereof shall be furnished to the
Commission when they are sent to the stockholders.
<PAGE>
INDEX TO EXHIBITS
PRIOR FILING
EXHIBIT REFERENCE
NUMBER DESCRIPTION OR PAGE
(3)i Articles of Incorporation of Registrant. . . . . . . . (a)
(3)ii By-laws of Registrant. . . . . . . . . . . . . . . . . (a)
(10) Material Contract
Agreement dated October 14, 1993, between L. Thomas Bulla
and First National Bank. . . . . . . . . . . . . . . . (a)
(21) Subsidiary of Registrant . . . . . . . . . . . . . . . .55
(23) Consents of experts and counsel
Consent of Independent Auditors. . . . . . . . . . . . .56
Consent of Persinger & Company, L.L.C. . . . . . . . . .57
(a) Attached to and incorporated by reference from First
National Bankshares Corporation's Form 10-K Annual Report
dated December 31, 1994, and filed March 28, 1995, with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT (21)
SUBSIDIARY OF THE REGISTRANT
The following is the subsidiary of the registrant. Such
subsidiary is incorporated in the State of West Virginia.
FIRST NATIONAL BANK, a national banking association organized
under the laws of the United States of America.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
Securities and Exchange Commission
Washington, D.C.
We hereby consent to the inclusion in this Annual Report on Form
10-K of our report dated February 2, 1996, on our audit
of the consolidated financial statements of First National
Bankshares Corporation as of December 31, 1995 and 1994,
and for the two years in the period ended December 31, 1995,
appearing in thie 1995 Annual Report to Shareholders
of First National Bankshares Corporation.
ARNETT & FOSTER /s/
Charleston, West Virginia
March 25, 1996
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DISTRICT OF COLUMBIA
We hereby consent to the use in this Annual Report on Form 10-K of our report,
dated January 6, 1994, except for notes 15 and 17, as to which the date is March
21, 1995, relating to the consolidated statements of income, shareholders'
equity and cash flows of First National Bankshares Corporation for the year
ended December 31, 1993.
PERSINGER & COMPANY, L.L.C. /s/
Covington, Virginia
March 22, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> 12-31-95
<PERIOD-END> 12-31-95
<CASH> 2,721
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 893
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<INCOME-PRETAX> 1,068
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