UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 33-14252
FIRST NATIONAL BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 62-1306172
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One Cedar Street, Ronceverte, West Virginia 24970
(Address of principal executive offices) (Zip Code)
(304) 647-4500
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No
The number of shares outstanding of the issuer's classes of common stock as of
September 30, 1996:
Common Stock, $5 par value -- 192,500 shares
THIS REPORT CONTAINS 22 PAGES<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 1996
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996 and December 31, 19953
Consolidated Statements of Income -
Three Months Ended September 30, 1996 and 1995 and
Nine months Ended September 30, 1996 and 1995 4
Consolidated Statements of Shareholders' Equity -
Three Months Ended September 30, 1996 and 1995 and
Nine months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows -
Nine months Ended September 30, 1996 and 1995 6-7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
ASSETS (Unaudited) Audited
<S> <C> <C>
Cash and due from banks $ 2,475 $ 2,721
Federal funds sold 9,402 893
Securities held to maturity (estimated market
value $16,193 and $13,609, respectively)
(Note 2) 16,234 13,514
Securities available for sale (Note 2) 3,278 10,501
Loans, net (Notes 3 and 4) 48,095 45,773
Bank premises and equipment 1,781 999
Accrued interest receivable 464 707
Other assets 754 347
Total assets $ 82,483 $ 75,455
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 10,349 $ 8,691
Interest bearing 61,856 57,475
Total deposits 72,205 66,166
Repurchase Agreements 327 0
Other liabilities 1,201 873
Total liabilities 73,733 67,039
Shareholders' equity
Common stock, $5.00 par value, authorized
500,000 shares, issued 192,500 shares 963 963
Surplus 1,000 1,000
Retained earnings 6,790 6,410
Net Unrealized gain (loss) on securities (3) 43
Total shareholders' equity 8,750 8,416
Total liabilities and shareholders'
equity $ 82,483 $75,455
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $1,169 $1,031 $3,429 $2,917
Interest and dividends on securities:
Taxable 256 327 812 1,051
Tax-exempt 53 57 160 180
Interest on Federal funds sold 64 13 152 73
Total interest income 1,542 1,428 4,553 4,221
Interest Expense
Interest on deposits 599 540 1,757 1,562
Interest on Repurchase Agreements 4 0 5 0
Total Interest Expense 603 540 1,762 1,562
Net interest income 939 888 2,791 2,659
Provision for loan losses 0 0 0 0
Net interest income after provision
for loan losses 939 888 2,791 2,659
Other income
Service fees 68 44 166 139
Insurance commissions 4 8 15 18
Securities gains 0 0 1 0
Flood Insurance Proceeds 94 0 94 0
Other income 17 56 113 156
183 108 389 313
Other expense
Salaries and employee benefits 413 354 1,168 1,051
Net occupancy expense 70 45 165 145
Equipment rental, depreciation and
maintenance 79 81 192 170
Other operating expenses 324 220 854 847
886 700 2,379 2,213
Income before income taxes 236 296 801 759
Income tax expense 70 92 232 216
Net income $ 166 $ 204 $ 569 $ 543
Earnings per common share (Note 5) $ 0.86 $ 1.06 $ 2.95 $2.83
Dividends per common share $ 0.33 $ 0.30 $ 0.99 $ 0.90
<FN>
See Notes to Consolidated Financial Statements<PAGE>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Balance, beginning of period $ 8,648 $ 8,008 $ 8,416 $ 7,311
Net income 166 204 569 543
Cash dividends declared (63) (58) (189) (174)
Change in net unrealized (loss) on
securities available for sale (1) 26 (46) 500
Balance, end of period $8,750 $ 8,180 $ 8,750 $8,180
<FN>
See Notes to Consolidated Financial Statements<PAGE>
</FN>
</TABLE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 569 $543
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 121 113
Provision for loan losses 0 0
Amortization of security premiums (accretion) of
security discounts, net 21 (15)
(Increase) Decrease accrued interest receivable 243 199
(Increase) Decrease in other assets (390) 36
Increase (Decrease) in other liabilities 327 191
Net cash provided by operating activities 891 1,067
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities available for sale 0 0
Proceeds from maturities and calls of securities held
to maturity 4,272 2,398
Proceeds from maturities and calls of securities
available for sale 7,141 6,500
Principal payments received on securities held to
maturity 0 0
Purchases of securities held to maturity (6,994) (1,954)
Purchases of securities available for sale 0 0
Principal collected on (loans made to) customers, net (2,322) (5,724)
Purchases of bank premises and equipment (903) (117)
Net cash provided by investing activities 1,194 1,103
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts 5,207 (2,189)
Proceeds from sales of (payments for matured)
time deposits, net 832 (1,897)
Net increase (decrease) in Repurchase Agreements 327 0
Dividends paid (188) (193)
Net cash (used in) financing activities 6,178 (4,279)
Increase (decrease) in cash and cash equivalents 8,263 (2,109)
Cash and cash equivalents:
Beginning 3,614 5,441
Ending $11,877 $ 3,332
</TABLE>
(Continued)<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
1996 1995
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $1,742 $1,552
Income taxes $ 159 $ 126
September 30,
1996 1995
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Dividends Declared and Payable $ 63 $ 57
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accounting and reporting policies of First National Bankshares
Corporation and Subsidiary (the"Company ) conform to generally accepted
accounting principles and to general policies within the financial
services industry. The consolidated statements include the accounts
of the Company and its wholly-owned subsidiary, First National Bank. All
significant intercompany balances and transactions have been
eliminated. The information contained in the consolidated financial
statements is unaudited except where indicated. In the opinion of
management, all adjustments for a fair presentation of the results of
the interim periods have been made. All such adjustments were of a
normal, recurring nature. The results of operations for the nine
months ended September 30, 1996 are not necessarily indicative of the
results to be expected for the full year. The consolidated financial
statements and notes included herein should be read in conjunction with
the Company's 1995 audited financial statements and Form 10-K.
Note 2. Securities
The amortized cost, unrealized gains, unrealized losses and estimated
fair values of securities at September 30, 1996 and December 31, 1995
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1996
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity:
Taxable:
U.S. Treasury Securities $ 5,992 $ 0 $ 4 $ 5,988
U.S. Government Agencies
and corporations 5,227 6 43 5,190
Corporate Debt Securities 500 0 10 490
Total Taxable 11,719 6 57 11,668
Tax Exempt:
State & political
subdivisions 4,515 38 28 4,525
Total securities held
to maturity $ 16,234 $ 44 $ 85 $ 16,193<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities $ 977 $ 0 $ 2 $ 975
U.S. Government Agencies
and corporations 2,004 1 3 2,002
Federal Home Loan Bank
Stock 242 0 0 242
Federal Reserve Bank Stock 57 0 0 57
Total Taxable 3,280 1 5 3,276
Tax Exempt:
Federal Reserve Bank Stock 2 0 0 2
Total securities available
for sale $3,282 $ 1 $ 5 $ 3,278
December 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities $ 3,001 $ 12 $ 0 $ 3,013
U.S. Government Agencies
and corporations 5,496 33 9 5,520
Corporate Debt Securities 500 0 6 494
Total Taxable 8,997 45 15 9,027
Tax Exempt:
State & political
subdivisions 4,517 74 9 4,582
Total securities held to
maturity $ 13,514 $ 119 $ 24 $ 13,609
December 31, 1995
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities $ 969 $ 25 $ 0 $ 994
U.S. Government Agencies
and corporations 9,171 52 7 9,216
Federal Home Loan Bank
Stock 232 0 0 232
Federal Reserve Bank Stock 57 0 0 57
Total Taxable 10,429 77 7 10,499
Tax Exempt:
Federal Reserve Bank Stock 2 0 0 2
Total securities available
for sale $ 10,431 $ 77 $ 7 $ 10,501<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the Company's
securities at September 30, 1996 are summarized as follows (in thousands):
Held to Maturity Available for Sale
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
Due within 1 year $8,112 $8,114 $1,504 $1,505
Due after 1 but within 5 years 4,831 4,779 1,477 1,472
Due after 5 but within 10 years 3,291 3,300 0 0
Due after 10 years 0 0 301 301
$ 16,234 $ 16,193 $3,282 $3,278
The proceeds from sales and calls and maturities of securities, including
principal payments received on mortgage-backed securities and the related
gross gains and losses realized for the nine month periods ended September
30, 1996 and 1995 are as follows (in thousands):
Proceeds From Gross Realized
Calls and Principal
Sales Maturities Payments Gains Losses
Nine months ended
September 30, 1996
Securities held to maturity $ 0 $4,272 $ 0 $ 0 $ 0
Securities available for sale $ 0 7,141 0 0 0
$ 0 $ 11,413 $ 0 $ 0 $ 0
Nine months ended
September 30, 1995:
Securities held to maturity $ 0 $ 2,398 $ 0 $ 0 $ 0
Securities available for sale 0 6,500 0 0 0
$ 0 $ 8,898 $ 0 $ 0 $ 0
Note 3. Loans
Total loans as of September 30, 1996 and December 31, 1995 are
summarized as follows (in thousands):
September 30, December 31,
1996 1995
Commercial, financial and agricultural $ 14,308 $ 13,135
Real estate - construction 1,705 2,020
Real estate - mortgage 25,063 23,430
Installment loans to individuals 6,147 6,522
Other 1,596 1,571
Total loans 48,819 46,678
Less unearned income (120) (262)
Total loans net of unearned income 48,699 46,416
Less allowance for loan losses (604) (643)
Loans, net $48,095 $ 45,773
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Loan Losses
Analyses of the allowance for loan losses are presented below
(in thousands) for the nine month periods ended September 30, 1996
and 1995:
Nine months Ended
September 30,
1996 1995
Balance, beginning of period $ 643 $ 853
Loans charged off (171) (190)
Recoveries 132 68
Net losses (39) (122)
Provision for loan losses 0 0
Balance, end of period $ 604 $ 731
</TABLE>
Note 5. Earnings Per Share
Earnings per common share are computed based on the weighted-average
shares outstanding. For the nine month periods ended September 30,
1996 and 1995, the weighted-average common shares outstanding was
192,500. The weighted average common shares outstanding for the three
month periods then ended was also 192,500.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis focused on significant changes in
the financial condition and results of operations of First National
Bankshares Corporation ("The Company"), and its subsidiary, First National
Bank. This discussion and analysis should be read in conjunction with the
consolidated financial statements and notes accompanying this analysis.
EARNINGS SUMMARY
The Company reported net income of $166,000 for the three months ended September
30, 1996 compared to $204,000 for the quarter ended September 30, 1995,
representing a 18.9% decrease. The decrease in quarterly earnings is
primarily attributable to expenses related to a new branch location in
Charleston, WV, and the expenses recognized in relation to flood waters that
hit the Bank in early 1996 (both of these events are discussed in detail in
the following pages). For the nine month period ended September 30, 1996,
The Company's net income of $569,000 increased 4.7% from the $543,000
reported for the same period of 1995. The increase in year-to-date earnings
was primarily attributable to increased interest income, as further
discussed in the analysis below.
Earnings per common share was $0.86 for the quarter ended September 30, 1996
compared to the $1.06 reported for the third quarter of 1995. For the nine
month period ended September 30, 1996, earnings per common share totaled
$2.95 compared with $2.83 for the same period of 1995. An analysis of the
contribution of each major component of the statement of income to earnings
per share is presented in the following chart both for the three month and
for the nine month periods ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 8.01 $ 7.42 $0.59 $23.65 $21.93 $1.72
Interest expense 3.13 2.81 0.32 9.15 8.11 1.04
Net interest income 4.88 4.61 0.27 14.50 13.82 0.68
Provision for loan losses 0.00 0.00 0.00 0.00 0.00 0.00
Net interest income after
provision for loan losses 4.88 4.61 0.27 14.50 13.82 0.68
Non-interest income 0.95 0.56 0.39 2.02 1.63 0.39
Non-interest expense 4.60 3.64 0.96 12.36 11.50 0.86
Income before income taxes 1.23 1.53 (0.30) 4.16 3.95 0.21
Income tax expense 0.36 0.48 (0.12) 1.21 1.12 0.09
Net income $ 0.87 $ 1.05 $(0.18) $ 2.95 $ 2.83 $ 0.12
The Company s annualized return on average assets (ROA) for the third quarter of
1996 was 0.83% compared to 1.08% for the third quarter of 1995. This
compares with ROA of 0.96% and 0.95% for the nine month periods ended
September 30, 1996 and 1995, respectively. Annualized return on average
shareholders' equity (ROE) was 7.55% for the third quarter of 1996 compared
to 10.48% in the third quarter of 1995, while year-to-date ROE was 8.75%
and 9.29% as of September 30, 1996 and 1995, respectively.
NET INTEREST INCOME
The most significant component of The Company s net earnings is net interest
income, which represents the excess of interest income earned on earning
assets over the interest expense paid for sources of funds. Net interest income
is affected by changes in volume resulting from growth and alteration of the
balance sheet's composition, as well as by fluctuations in market interest
rates and maturities of sources and uses of funds.
For purposes of this discussion, net interest income is presented on a fully
tax-equivalent basis to enhance the comparability of the performance of
tax-exempt to fully taxable earning assets. For the periods ended September
30, 1996 and 1995, the tax-equivalent adjustment was $87,000 and $93,000,
respectively.
The Company's net interest income on a fully tax-equivalent basis totaled
$2,871,000 for the nine month period ended September 30, 1996 compared to
$2,751,000 for the same period of 1995, representing an increase of $120,000
or 4.4%. The Company's net yield on interest earning assets increased to
5.18% in 1996 from 5.13% in 1995. The increase in the net yield on earning
assets is due to changes in rate and volume compared to the first half of
1995 (see Table II). The cost of interest bearing liabilities increased to
3.93% versus the previous year's 3.63%, and was primarily due to increased
rates paid on time deposits, specifically a 7-month CD promotion offered
by the bank that carried over into the first nine months of 1996 and a
subsequent 8-month CD promotion. Further analysis of The Company' s yields on
interest earning assets and interest earning liabilities and changes in its net
interest income are presented in TABLE I and TABLE II.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
The provision for loan losses represents charges to earnings necessary to
maintain an adequate allowance for potential future loan losses. Management's
determination of the appropriate level of the allowance is based on an
ongoing analysis of credit quality and loss potential in the loan portfolio,
actual loan loss experience relative to the size and characteristics of the
loan portfolio, change in the composition and risk characteristics of the
loan portfolio and the anticipated influence of national and local economic
conditions. The adequacy of the allowance for loan losses is reviewed
quarterly and adjustments are made as considered necessary.
The provision for loan losses totaled $0 for the third quarter of 1996, the
same as that recorded in the third quarter of 1995. For the nine month
period ended September 30, 1996, the provision for loan losses was also
$0, which was the same as the provision during the first nine months of 1995.
This elimination was primarily the result of management's strengthening of
the Company's loan underwriting standards and continued reduction in the
level of past due loans. The Bank's loan portfolio has improved
dramatically, with the majority of loan growth being in high-quality
commercial loans. Due to this improvement in overall loan quality, the
reduction in past due loans, and a decrease in non-accrual loans, management
feels that the current reserve is adequate.
The allowance for loan losses was $604,000 at September 30, 1996 compared to
$643,000 at December 31, 1995. Expressed as a percentage of loans (net of
unearned income), the allowance for loan losses was 1.24% at September 30,
1996 compared to 1.40% at December 31, 1995. Loans charged-off, net of
recoveries of previously charged-off loans, totaled $39,000 and $122,000 for
the periods ended September 30, 1996 and 1995, respectively. See Note 4 of
the notes to the consolidated financial statements for an analysis of the
activity in the Company's allowance for loan losses for the nine month
periods ended September 30, 1996 and 1995.
Non-accrual loans declined 60.8% to $253,000 as of September 30, 1996,
compared to $645,000 at September 30, 1995. The Company places into
non-accrual status those loans which the full collection of principal and
interest are unlikely or which are past due 90 or more days, unless the loans
are adequately secured and in the process of collection. The decrease in the
level of non-accrual loans is attributed to the charge-off of several credits
deemed uncollectible and the Company's enhanced loan collection policies and
procedures.<PAGE>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
</TABLE>
<TABLE>
<CAPTION>
Nine months Ended Nine months Ended
September 30, 1996 September 30, 1995
Average Interest Yield/ Average Interest Yield/
Balance (1) Rate Balance (1) Rate
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 46,348 $ 3,426 9.86% $ 41,599 $ 2,917 9.35%
Securities:
Taxable 19,080 812 5.67% 23,469 1,050 5.97%
Tax-exempt 4,518 242 7.15% 4,874 273 7.47%
Total securities 23,598 1,054 5.96% 28,343 1,323 6.22%
Federal funds sold 3,884 152 5.23% 1,595 73 6.10%
Total interest earning
assets 73,830 4,632 8.37% 71,537 4,313 8.04%
NON-INTEREST EARNING ASSETS
Cash and due from banks 2,396 2,191
Bank premises and
equipment 1,362 1,089
Other assets 1,762 1,155
Allowance for loan losses (606) (735)
Total assets $78,744 $ 75,237
INTEREST BEARING LIABILITIES
Demand deposits $13,384 268 2.67% $13,443 $ 268 2.66%
Savings deposits 20,148 532 3.52% 20,259 527 3.47%
Time deposits 26,126 958 4.89% 23,620 767 4.33%
Repurchase Agreements 159 5 3.80% 0 0 0.00%
Total interest bearing
liabilities 59,817 1,763 3.93% 57,322 1,562 3.63%
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits $ 9,220 $ 9,194
Other liabilities 1,071 934
Shareholders' equity 8,637 7,787
Total liabilities and
shareholders' equity $ 78,745 $75,237
NET INTEREST
EARNINGS $2,869 $2,751
NET YIELD ON INTEREST EARNING
ASSETS 5.18% 5.13%
<FN>
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 1996
and 1995.<PAGE>
</TABLE>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine months Ended
September 30, 1996 vs. September 30, 1995
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 345 $ 164 $ 509
Securities:
Taxable (189) (49) (238)
Tax-exempt (2) (19) (11) (30)
Total securities (208) (60) (268)
Federal funds sold 91 (12) 79
Total interest earning assets 228 92 320
INTEREST BEARING LIABILITIES
Demand deposits (1) 1 0
Savings deposits (3) 8 5
Time deposits 86 105 191
Repurchase Agreements 0 5 5
Total interest bearing liabilities 82 119 201
NET INTEREST EARNINGS $ 146 $ (27) $ 119
<FN>
(1) - The change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) - Calculated on a fully tax-equivalent basis using the rate of 34%.
<PAGE>
A summary of the Company's past due loans and non-performing assets is provided
in the following table.
</TABLE>
SUMMARY OF PAST DUE LOANS AND NON-PERFORMING ASSETS
(in thousands of dollars)
September 30, December 31,
1996 1995 1995
Loans past due 90 or more days
still accruing interest $ 0 $ 0 $ 0
Non-performing assets:
Non-accruing loans $ 253 $ 645 $ 375
Other real estate owned 24 23 10
$ 277 $ 668 $ 385
NON-INTEREST INCOME
Non-interest income includes revenues for all sources other than interest income
and yield related loan fees. For the nine month period ended September 30,
1996, non-interest income totaled $389,000, representing an increase of
$76,000 from the $313,000 recorded during the same period of 1995. As a
percentage of average assets, non-interest income was 0.49% and 0.42% for the
nine month periods ended September 30, 1996 and 1995, respectively. While
service fees increased 19.4% to $166,000 from $139,000, other income
decreased to $113,000 from 1995's level of $156,000. This decrease is due
primarily to the loss of non-recurring trust income that was realized during
the first half 1995. Also contributing to the increase in non-interest income
is the one-time, non-recurring insurance reimbursement of damages caused by
flood waters in January of 1996. Total reimbursement totaled $94,000. This
is discussed in more detail in the FLOOD RELATED MATTERS section below. Non-
interest income for the third quarter was $183,000 versus 1995's third
quarter of $108,000, due to the non-recurring insurance reimbursement
discussed above.
NON-INTEREST EXPENSE
Non-interest expense comprises overhead costs which are not related to
interest expense or to losses from loans or securities. As of September 30,
1996, the Company's non-interest expense totaled $2,379,000, representing an
increase of $166,000 over total non-interest expense incurred for the nine
months ended September 30, 1995. Expressed as a percentage of average assets,
non-interest expense remained relatively stable at 3.0% at September 30,
1996, versus 2.9% at September 30, 1995. This increase is partially due to
the write-off of an additional $55,000 in flood-related expenses that were
finalized during the third quarter, as well as one-time start-up expenses
incurred in relation to the new Charleston, WV, branch. These items are
discussed in more detail in the FLOOD RELATED MATTERS and BRANCH MATTERS
sections below. For the third quarter, non-interest expense was $886,000
versus 1995's level of $700,000. This increase is due to the write-off
described above. Salaries and employee benefits are The Company s largest
non-interest cost, representing approximately 49% and 47% of total
non-interest expense at September 30, 1996 and 1995, respectively. Salaries
and employee benefits increased $117,000, or 11.1% as of September 30, 1996
compared to September 30, 1995. Salaries and employee benefits for the third
quarter were $413,000 versus 1995's level of $354,000. These increases are
due to the addition of four new employees for the Company' s new Charleston
branch location, as well as normal merit increases for certain members of the
existing staff.
INCOME TAXES
The Company s income tax expense, which includes both Federal and State
income taxes, totaled $232,000 for the nine month period ended September 30,
1996, reflecting a $16,000 increase when compared to the same period of 1995,
principally due to an increased level of taxable earnings. Income tax
expense equaled 29.1% and 28.5% of income before taxes at September 30, 1996
and 1995, respectively. Income taxes for the quarter ended September 30,
1996 and 1995 were $70,000 and $92,000, respectively. The third quarter 1996
tax expense is lower than 1995's level due to an over-accrual for income
taxes during the previous six months. For financial reporting purposes,
income tax expense does not equal the Federal statutory income tax rate of
34.0% when applied to pre-tax income, primarily because of State income taxes
and tax-exempt interest income included in income before income taxes.
FINANCIAL CONDITION
The Company s total assets were $82,483,000 at September 30, 1996, compared to
$75,455,000 at December 31, 1995, representing a 9.3% increase. This increase
is due largely to an increase in time deposits and non-interest bearing
deposits, and the corresponding increase in assets further discussed below.
Time deposits totaled $26,113,000 and non-interest bearing deposits totaled
$10,349,000 as of September 30, 1996.
The Bank's total securities portfolio decreased by $4,503,000 or 18.7% from
December 31, 1995. This decrease is due entirely to anticipated maturities
in the securities portfolio. As these securities matured, the proceeds were
placed in Fed Funds Sold to ensure adequate liquidity for anticipated loan
growth and possible deposit attrition. A summary of the Company's securities
portfolio (both held-to-maturity and available-for-sale) is included as Note 2
to the consolidated financial statements.
Loans, net of unearned income, increased by $2,322,000 or 5.1% during the
first nine months of 1996. A summary of the Bank's loans by category is
included as Note 3 to the consolidated financial statements. This increase
represents a concentrated effort to grow loans and management believes that
loan growth will continue throughout 1996 due to competitive loan pricing and
the Bank's branch expansion into the larger Charleston, WV, market.
Fixed assets increased dramatically during the first nine months of 1996 to
$1,781,000 from $999,000 at year end 1995. This increase is due to several
factors including: the remodeling of the Bank s main office in Ronceverte, WV,
which was damaged by flood waters in January of 1996; the Bank's branch
expansion into the Charleston, WV, market; and the planned relocation of the
Bank's Lewisburg, WV, branch from the current facility which is leased on a
month-to-month basis, to a Bank-owned location (each of these contributing
factors are discussed in more detail in the sections to follow). All assets
acquired as part of the Charleston branch opening and the flood remodeling
costs have been capitalized (or expensed) as of September 30, 1996. At the end
of the third quarter, the Bank had construction-in-progress of approximately
$165,000 which is related to the construction of the new Lewisburg branch
discussed below.
Total deposits increased to $72,205,000 as of September 30, 1996, from
$66,166,000 at December 31, 1995. This increase was centered in time deposits
and non-interest bearing deposits, as well as a general increase in savings
accounts. These increases resulted from a general increase in interest rates
on certificates of deposit, the two certificate of deposit promotions
mentioned above, and the implementation of a new savings deposit product, as
well as other local competitive conditions.
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity reflects The Company s ability to ensure the availability of adequate
funds to meet loan commitments and deposit withdrawals, as well as provide for
other Company transactional requirements. Liquidity is provided primarily
by funds invested in cash and due from banks and Federal funds sold, which
totaled $11,877,000 at September 30, 1996 versus $3,614,000 at December 31,
1995. This increase in The Company s liquidity position is due to the
anticipated funding requirements of new loan growth in the Charleston market.
As recent securities maturities occurred, the proceeds were placed into
Federal Funds Sold to ensure adequate liquidity. The Company's liquidity
position is monitored continuously to ensure that day-to-day as well as
anticipated funding needs are met.
Further enhancing the Company's liquidity is the availability as of September
30, 1996 of $8,112,000 in securities maturing within one year. Also, The
Company has classified additional securities with an estimated fair value
totaling $2,977,000 as available-for-sale in response to an unforeseen need
for liquidity. Management is not aware of any trends, commitments, events or
uncertainties that have resulted in or are reasonably likely to result in a
material change to the Company's liquidity.
Interest rate risk represents the volatility in earnings and market values of
interest earning assets and liabilities resulting from changes in market
rates. The Company seeks to minimize interest rate risk through asset/liability
management. The Company s principal asset/liability management strategy is gap
management. Gap is the measure of the difference between the volume of
repricing interest earning assets and interest bearing liabilities during
given time periods. When the volume of repricing interest earning assets
exceeds the volume of repricing interest bearing liabilities, the gap is
positive -- a condition which usually is favorable during a rising rate
environment. The opposite case, a negative gap, generally is favorable during a
falling rate environment. When the interest rate sensitivity gap is near zero,
the impact of interest rate risk is limited, for at this point changes in net
interest income are minimal regardless of whether interest rates are rising
or falling. An analysis of the Company's current gap position is presented
in TABLE III.<PAGE>
TABLE III
INTEREST RATE SENSITIVITY GAPS
September 30, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Repricing (1)
0 to 3 3 to 6 6 to 12 After
Months Months Months 12 Months Total
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans, net of unearned
income $ 19,846 $ 3,602 $ 4,593 $ 20,054 $ 48,095
Securities 5,885 1,500 2,235 9,892 19,512
Federal funds sold 9,402 0 0 0 9,402
Total interest
earning assets 35,133 5,102 6,828 29,946 77,009
INTEREST BEARING LIABILITIES
Demand deposits 13,557 0 0 0 13,557
Savings deposits 22,186 0 0 0 22,186
Time deposits 5,957 9,519 4,842 5,795 26,113
Total interest
bearing liabilities 41,700 9,519 4,842 5,795 61,856
Contractual interest
sensitivity gap (6,567) (4,417) 1,986 24,151 15,153
Adjustment (2) 35,743 (35,743) 0 0 0
Adjusted interest
sensitivity gap $ 29,176 $(40,160) $ 1,986 $ 24,151 $ 15,153
Cumulative adjusted
interest sensitivity
gap $29,176 $ (10,984) $ (8,998)$ 15,153
Cumulative adjusted
gap ratio 5.90 0.11 0.84 1.24
Cumulative adjusted gap as a percentage
of Total Earning
Assets 37.89% (14.26%) (11.68%) 19.68%
<FN>
(1) - Repricing on a contractual basis unless otherwise noted.
(2) - Adjustment to approximate the actual repricing of interest bearing demand
deposits and savings accounts based upon historical experience.icing basis, the
Company is negatively gapped by $6,567,000 over the less than three month
time frame. Included within this time period are $35,743,000 in interest
bearing demand deposits and savings accounts which on a contractual basis are
immediately repriceable. However, based on historical experience, the
repricing of these deposit balances tends to lag, at a minimum, three to six
months behind changes in market interest rates. For this reason, TABLE III
reflects an adjustment to compensate for the time lag in the repricing of
these deposits. After this adjustment, the table reflects a positive gap in the
less than three month time frame of $29,176,000. Management can, at its
discretion, change the rates on demand deposits more swiftly if it becomes
necessary, therefore the actual adjusted gap may differ from the adjustment used
above, depending on market conditions.
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 September 30, 1996 was $8,750,000 compared to
$8,416,000 at December 31, 1995, representing an increase of $233,000, or 2.8%.
This increase is attributable to the Company s improved profits and
the corresponding increase in retained earnings. Total shareholders' equity
expressed as a percentage of total assets decreased from 11.2% at December 31,
1995 to 10.6% at September 30, 1996, due to increased asset levels. Cash
dividends totaling $190,000, or $0.99 per share were declared during the first
nine months of 1996 versus dividends of $173,000, or $0.90 per share, during
the first nine months of 1995. These payout levels represented 33% and 32% of
The Company's year-to-date earnings for September 30, 1996 and 1995,
respectively.
The Company s subsidiary bank is subject to the Federal Reserve Board's
risk-based capital guidelines. Such guidelines provide for relative weighting
of both on and off-balance sheet items (such as loan commitments and
standby letters of credit) based on their perceived degree of risk. At
September 30, 1996, The Company continues to exceed each of the regulatory risk-
based capital requirements as shown in the following table:
RISK-BASED CAPITAL RATIOS
September 30, 1996
Minimum
Actual Requirement
Tier 1 risk-based capital ratio 18.2% 4.0%
Total risk-based capital ratio 19.4% 8.0%
Leverage ratio 10.8% 3.0%
Improved operating results and a consistent dividend program, coupled with an
effective management of credit and interest rate risk will be the key elements
towards the Company continuing to maintain its present strong capital position
in the future.
FLOOD-RELATED MATTERS
In January, 1996, the main office of the Bank realized damage due to flood
waters which necessitated significant remodeling of the first floor. This
damage was covered by adequate flood insurance. Management decided to
increase the construction to include not only the replacement of flood damaged
items, but also the overall remodeling of the first floor. During the
construction and remodeling period assets purchased, as well as several
expensable items, were placed into two construction-in-progress accounts so that
management could more easily track estimated flood damages and remodeling costs.
In September, 1996, these amounts were segregated. All depreciable assets
were capitalized and put into depreciation as of the effective date of service,
with all destroyed and damaged assets being written off as of the flood date.
All items that met the criteria for expensable items were taken as a non-
recurring expense in the month of September. An additional $55,000 of expenses
ere offset by $94,000 in insurance proceeds. All excess monies were invested in
additional fixed assets.
BRANCH MATTERS
The Bank received approval from the Office of the Comptroller of the Currency in
January, 1996, to open a branch facility in Charleston, West Virginia. In late
June, 1996, the Bank occupied its leased space at Laidley Tower, a high-
rise office building in downtown Charleston, and commenced with pre-opening
activities. The Branch officially opened for business on July 15, 1996. The
new Branch is staffed with six employees, four of which are newly hired
positions. $312,000 of additional fixed assets have been placed on a
depreciating basis in accordance with Bank and IRS policies.
The Bank has historically leased its branch banking facility on Route 219 North
in Lewisburg, West Virginia, from two Company Directors. The lease term began
April 1, 1986, and ran for a period of 10 years, expiring in March of
1996. In January of 1996, Bank Management and the Board of Directors opted to
renegotiate the lease in an attempt to reduce the annual cost to the Bank, as
well as to evaluate other branch options. Negotiations did not result in a
mutually satisfactory agreement, and the Board of Directors voted not to renew
the existing lease, but to commence with the purchase of land and the
construction of a new branch location. The old lease is to be continued on
a month-to-month basis under current terms until a new location is completed.
On May 3, 1996, the Company exercised an option to purchase approximately 2
acres of land on Route 219, North at a contract price of $190,000.
Construction of the building commenced during the third quarter of 1996, with
the total construction costs of this project, excluding the land purchase,
currently estimated at $352,000, excluding landscaping costs.
Upon completion, total operating costs for the new facility, including
depreciation expense, are expected to be less than those of the existing
location.
STOCK OPTION PLAN
On March 26, 1996, the Board of Directors approved an incentive stock option
plan to provide a method whereby key employees of the Company and its
subsidiaries who are responsible for the management, growth, and protection
of the business, and who are making substantial contributions to the success and
profitability of the business, may be encouraged to acquire a stock ownership in
the Company, thus creating a proprietary interest in the business and providing
them with greater incentive to continue in the service of and to promote the
interest of the Company and its stockholders. The incentive stock option plan
was approved by the shareholders on April 25, 1996. Accordingly, the
Company will from time to time during the effective period of the plan, grant to
the employees selected in the manner provided in the plan options to purchase
shares of the common stock of the Company subject to certain conditions
specified in the plan. The maximum number of shares eligible under this plan is
5.0% of the current outstanding common shares, or 9,625 shares of the Company's
common stock. No options have been granted as of the September 30, 1996.<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. There are no exhibits included in this filing.
b. The Company did not file any Form 8-K, Current Reports during the
quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST NATIONAL BANKSHARES CORPORATION
By
L. Thomas Bulla
President and Chief Executive Officer
By
Keith E. Morgan
Secretary & Treasurer
By
Jack D. Whitt
Chief Financial Officer, First National Bank
(Principal Financial and
Accounting Officer)
Date:
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST NATIONAL BANKSHARES CORPORATION
By /S/ L. Thomas Bulla
L. Thomas Bulla
President and Chief Executive Officer
By /S/ Keith E. Morgan
Keith E. Morgan
Secretary & Treasurer
By /S/ Jack D. Whitt
Jack D. Whitt
Chief Financial Officer, First National Bank
(Principal Financial and
Accounting Officer)
Date: 09/30/96
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 2,475
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,402
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,234
<INVESTMENTS-CARRYING> 3,278
<INVESTMENTS-MARKET> 16,193
<LOANS> 48,095
<ALLOWANCE> 2,999
<TOTAL-ASSETS> 82,483
<DEPOSITS> 72,205
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,201
<LONG-TERM> 0
<COMMON> 963
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 82,483
<INTEREST-LOAN> 1,169
<INTEREST-INVEST> 309
<INTEREST-OTHER> 64
<INTEREST-TOTAL> 1,542
<INTEREST-DEPOSIT> 599
<INTEREST-EXPENSE> 603
<INTEREST-INCOME-NET> 939
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 324
<INCOME-PRETAX> 70
<INCOME-PRE-EXTRAORDINARY> 70
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166
<EPS-PRIMARY> .86
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.18
<LOANS-NON> 253
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 643
<CHARGE-OFFS> 171
<RECOVERIES> 132
<ALLOWANCE-CLOSE> 604
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
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</TABLE>
