UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------------------------
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, 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 X No
The number of shares outstanding of the issuer's classes of common stock as of
March 31, 1997:
Common Stock, $5 par value -- 192,500 shares
THIS REPORT CONTAINS 25 PAGES
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 ................... 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1997 and 1996 ............. 4
Condensed Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1997 and 1996 ............. 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 ............. 6-7
Notes to Condensed 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 1. Legal Proceedings ............................................ 21
Item 2. Changes in Securities ...................................... none
Item 3.Defaults upon Senior Securities ............................... none
Item 4. Submission of Matters to a Vote of Security Holders .......... 21
Item 5. Other Information ............................................ 21
Item 6. Exhibits and Reports on Form 8-K ............................ 21
SIGNATURES ...................................................... 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
March 31, Dec 31,
1997 1996
ASSETS (Unaudited) (1)
Cash and due from banks ................................. $ 2,718 $ 2,576
Federal funds sold ...................................... 3,624 2,663
Securities held to maturity (estimated fair value
$17,326 and $18,850, respectively) (Note 2) ........ 17,352 18,836
Securities available for sale (Note 2) .................. 3,062 3,782
Loans, net of allowance of $644 and
$654, respectively (Notes 3 and 4) ................ 59,547 52,800
Bank premises and equipment ............................. 2,069 1,965
Accrued interest receivable ............................. 555 659
Other assets ............................................ 431 387
-------- --------
Total assets .............................. $ 89,358 $ 83,668
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing ........................... $ 9,931 $ 10,211
Interest bearing .............................. 64,057 63,105
-------- --------
Total deposits ............................ 73,988 73,316
Repurchase Agreements .............................. 591 493
Long-term borrowings (Note 7) ...................... 5,000 0
Other liabilities .................................. 865 1,018
-------- --------
Total liabilities ......................... 80,444 74,827
-------- --------
Commitments and Contingencies (Note 5)
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 .................................. 6,965 6,878
Net Unrealized gain (loss) on securities ........... (14) 0
-------- --------
Total shareholders' equity ................ 8,914 8,841
-------- --------
Total liabilities and shareholders' equity $ 89,358 $ 83,668
======== ========
(1) Extracted from December 31, 1996 audited financial statements.
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands of dollars, except per share data) Three Months Ended
March 31,
1997 1996
---------- --------
Interest Income
Interest and fees on loans .......................... $1,301 $1,115
Interest and dividends on securities:
Taxable ........................................ 244 266
Tax-exempt ..................................... 50 54
Interest on Federal funds sold ...................... 12 42
------ ------
Total interest income .......................... 1,607 1,477
------ ------
Interest Expense
Interest on deposits ................................ 625 571
Interest on Repurchase Agreements ................... 6 0
Interest on Fed Funds Purchased ..................... 4 0
Interest on Long-Term Borrowings .................... 6 0
------ ------
Total Interest Expense ......................... 641 571
------ ------
Net interest income ............................ 966 906
Provision for loan losses ................................ 0 0
------ ------
Net interest income after
provision for loan losses ...................... 966 906
------ ------
Non interest income
Service fees ........................................ 71 53
Trust Income ........................................ 7 21
Other income ........................................ 22 20
------ ------
Total non interest income ...................... 100 94
------ ------
Non interest expense
Salaries and employee benefits ...................... 426 374
Net occupancy expense ............................... 63 47
Equipment rental, depreciation and maintenance ...... 67 48
Data processing ..................................... 43 45
Advertising ......................................... 11 11
Professional & legal ................................ 28 29
Mailing & postage ................................... 18 22
Directors' fees & shareholder expenses .............. 32 29
Stationary & supplies ............................... 29 20
Other operating expenses ............................ 99 104
------ ------
Total non interest expense ....................... 816 729
------ ------
Income before income taxes ............................... 250 271
------ ------
Income tax expense .................................. 86 82
------ ------
Net income ..................................... $ 164 $ 189
====== ======
Earnings per common share (Note 6) ....................... $ 0.85 $ 0.99
====== ======
Dividends per common share ............................... $ 0.40 $ 0.33
====== ======
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars)
Unaudited
Three Months Ended
March 31,
1997 1996
Balance, beginning of period ..................... $ 8,841 $ 8,416
Net income .................................. 164 189
Cash dividends declared ..................... (77) (63)
Change in net unrealized (loss) on
securities available for sale .......... (14) (32)
------- -------
Balance, end of period ........................... $ 8,914 $ 8,510
======= =======
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Unaudited
Three Months Ended
March 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 164 $ 189
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation ...................................... 56 38
Provision for loan losses ......................... 0 0
Deferred income taxes (benefit) ................... 8 20
Amortization of security premiums (accretion) of
security discounts, net ........................ (19) 3
(Gain) loss on disposal of assets ................. 2 0
(Increase) Decrease accrued interest receivable ... 104 160
(Increase) Decrease in other assets ............... (44) (176)
Increase (Decrease) in other liabilities .......... (208) 69
------- -------
Net cash provided by operating activities ......... 63 303
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held
to maturity ....................................... 1,500 1,272
Proceeds from maturities and calls of securities
available for sale ................................ 1,000 1,500
Purchases of securities available for sale ............. (302) (10)
Principal collected on (loans made to) customers, net .. (6,747) 182
Purchases of bank premises and equipment ............... (104) (172)
------- -------
Net cash provided by (used in) investing activities (4,653) 2,772
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts .............................. (159) 1,327
Proceeds from sales of (payments for matured)
time deposits, net ................................ 831 300
Increase (decrease) in Fed funds purchased ............. 0 0
Increase (decrease) in Repurchase agreements ........... 98 0
Proceeds from long-term borrowings ..................... 5,000 0
Dividends paid ......................................... (77) (58)
------- ------
Net cash provided by (used in) financing activities 5,693 1,569
------- ------
Increase (decrease) in cash and cash equivalents .. 1,103 4,644
Cash and cash equivalents:
Beginning .............................................. $ 5,239 $ 3,614
------- -------
Ending ................................................. $ 6,342 $ 8,258
------- =======
(Continued)
6
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(In thousands of dollars)
Unaudited
Three Months Ended
March 31,
1997 1996
------ ------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors ............................. $699 $523
==== ====
Income taxes ............................................ $ 61 $131
==== ====
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends declared and unpaid ................................ $ 77 $ 63
==== ====
See Notes to Condensed Consolidated Financial Statements
7
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accounting and reporting policies of First National Bankshares
Corporation and Subsidiary (the "Company") conform to generally
accepted accounting principles and to general policies within the
financial services industry. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
The condensed 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 condensed
consolidated financial statements is unaudited except where
indicated. In the opinion of management, all adjustments for a
fair presentation of the results of the interim periods have been
made. All such adjustments were of a normal, recurring nature. The
results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results to be expected for
the full year. The condensed consolidated financial statements and
notes included herein should be read in conjunction with the
Company's 1996 audited financial statements and Form 10-K.
Certain amounts in the condensed consolidated financial
statements for the prior year, as previously presented, have been
reclassified to conform to current year classifications.
Note 2. Securities
The amortized cost, unrealized gains, unrealized losses and
estimated fair values of securities at March 31, 1997 and December
31, 1996 are summarized as follows (in thousands):
March 31, 1997
Estimated
Amortized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities ...... $ 3,001 $ 1 $ 2 $ 3,000
U.S. Government Agencies
and corporations .......... 9,722 4 34 9,692
Corporate Debt Securities ..... 500 0 9 491
------- ------- ------- -------
Total Taxable ............. 13,223 5 45 13,183
Tax Exempt:
State & political subdivisions 4,129 35 21 4,143
------- ------- ------- -------
Total securities held to maturity $17,352 $ 40 $ 66 $17,326
======= ======= ======= =======
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Estimated
Amortized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities ........ $ 982 $ 0 $ 4 $ 978
U.S. Government Agencies
and corporations ............ 1,500 0 19 1,481
Federal Reserve Bank Stock ...... 57 0 0 57
Federal Home Loan Bank Stock .... 544 0 0 544
------ ------ ------ ------
Total Taxable ............... 3,083 0 23 3,060
Tax Exempt:
Federal Reserve Bank Stock ...... 2 0 0 2
------ ------ ------ ------
Total securities held to maturity $3,085 $ 0 $ 23 $3,062
====== ====== ====== ======
December 31, 1996
Estimated
Amortized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities ........ $ 3,003 $ 2 $ 0 $ 3,005
U.S. Government Agencies
and corporations ............ 11,203 20 31 11,192
Corporate Debt Securities ....... 500 0 7 493
------- ------- ------- -------
Total Taxable ............... 14,706 22 38 14,690
Tax Exempt:
State & political subdivisions .. 4,130 44 14 4,160
------- ------- ------- -------
Total securities held to maturity $18,836 $ 66 $ 52 $18,850
======= ======= ======= =======
December 31, 1996
Estimated
Amortized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities ........ $ 980 $ 3 $ 0 $ 982
U.S. Government Agencies
and corporations ............ 2,500 5 8 2,498
Federal Home Loan Bank Stock .... 242 0 0 242
Federal Reserve Bank Stock ...... 57 0 0 57
------ ------ ------ ------
Total Taxable ............... 3,779 8 8 3,779
Tax Exempt:
Federal Reserve Bank Stock ...... 2 0 0 2
------ ------ ------ ------
Total securities held to maturity $3,781 $ 8 $ 8 $3,781
====== ====== ====== ======
9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the Company's
securities at March 31, 1997 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 ............. $10,077 $10,075 $ 0 $ 0
Due after 1 but within 5 years 4,236 4,200 2,483 2,460
Due after 5 but within 10 years 3,039 3,050 0 0
Due after 10 years ............ 0 0 602 602
------- ------- ------- -------
$17,352 $17,326 $ 3,085 $ 3,062
======= ======= ======= =======
Federal Reserve Bank stock and Federal Home Loan Bank stock are equity
securities which are included in securities available for sale in the
accompanying condensed consolidated financial statements. Such securities
are carried at cost, since they may only be sold back to the respective
Federal Reserve or Federal Home Loan Bank at par value.
The proceeds from sales and calls and maturities of securities, and the
related gross gains and losses realized for the three month periods ended
March 31, 1997 and 1996 are as follows (in thousands):
PROCEEDS FROM GROSS REALIZED
------------------ ----------------
Calls and
Sales Maturities Gains Losses
Three months ended March 31, 1997
Securities held to maturity . $ 0 $1,500 $ 0 $ 0
Securities available for sale 0 1,000 0 0
------ ------ ------ ------
$ 0 $2,500 $ 0 $ 0
====== ====== ====== ======
Three months ended March 31, 1996:
Securities held to maturity . $ 0 $1,272 $ 0 $ 0
Securities available for sale 0 1,500 0 0
------ ------ ------ ------
$ 0 $2,772 $ 0 $ 0
====== ====== ====== ======
Note 3. Loans
Total loans as of March 31, 1997 and December 31, 1996 are
summarized as follows (in thousands):
March 31, December 31,
1997 1996
--------- ---------
Commercial, financial and agricultural $ 24,670 $ 19,578
Real estate - construction ........... 2,679 2,396
Real estate - mortgage ............... 25,236 24,031
Installment loans to individuals ..... 6,197 6,254
Other ................................ 1,468 1,300
-------- --------
Total loans ...................... 60,250 53,559
Less unearned income ................. (59) (105)
-------- --------
Total loans net of unearned income 60,191 53,454
Less allowance for loan losses ....... (644) (654)
-------- --------
Loans, net ................... $ 59,547 $ 52,800
======== ========
10
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Loan Losses
Analyses of the allowance for loan losses are presented below (in
thousands) for the three month periods ended March 31, 1997 and
1996:
Three Months Ended
March 31,
1997 1996
------- --------
Balance, beginning of period $ 654 $ 643
Loans charged off ....... (24) (61)
Recoveries .............. 14 24
----- -----
Net losses .......... (10) (37)
----- -----
Provision for loan losses 0 0
----- -----
Balance, end of period ...... $ 644 $ 606
===== =====
The Company's total recorded investment in impaired loans at March
31, 1997 and 1996, approximated $127,000 and $160,000,
respectively, for which related allowance for loan losses
determined in accordance with generally accepted accounting
principles approximated $25,000 and $25,000, respectively. All
impaired loans at March 31, 1997 and 1996 were collateral
dependent, and accordingly, the fair value of the loan's
collateral was used to measure the impairment of each loan.
Note 5. Commitments and Contingencies
The Company's subsidiary bank is, through the ordinary course of
business, party to financial instruments with off-balance sheet
risk. These financial instruments include standby letters of
credit and commitments to extend credit. The contract amounts of
these instruments are as follows, in thousands of dollars:
March 31,
1997 1996
----------- ------------
Commitments to extend credit $ 9,541 $ 5,892
=========== ============
Management is not aware of any commitments or contingencies which
may reasonably be expected to have a material impact on operating
results, liquidity or capital resources. The Company continues to
have commitments related to various legal actions, commitments to
extend credit, and employment contracts arising in the normal
course of business.
Note 6. Earnings Per Share
Earnings per common share are computed based on the
weighted-average shares outstanding. For the three month periods
ended March 31, 1997 and 1996, the weighted-average common shares
outstanding was 192,500. Options under the Company's stock option
plan are considered common stock equivalents for purposes of
earnings per share data but are excluded from the computation due
to their insignificance.
Note 7. Long-Term Borrowings
The Company's subsidiary bank is a member of the Federal Home Loan
Bank of Pittsburgh, Pennsylvania ("FHLB"). On March 24, 1997, the
Bank entered into a long-term borrowing arrangement with the FHLB
of Pittsburgh. This advance is secured by stock in the FHLB of
Pittsburgh, qualifying first mortgage loans, mortgage-backed
securities and certain investment securities. The advance is
payable in one balloon payment on March 23, 2000. Interest is
payable monthly at a fixed rate of 6.68% per annum.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis focused on significant changes in the
financial condition and results of operations of First National Bankshares
Corporation (the "Company" or "Bankshares"), and its subsidiary, First National
Bank for the periods indicated. This discussion and analysis should be read in
conjunction with the Company's 1996 consolidated financial statements and notes
included in its Annual Report to Shareholders and Form 10-K. The statements
contained in this discussion may include forward-looking statements based upon
management's expectations, and actual results may differ materially.
EARNINGS SUMMARY
The Company reported net income of $164,000 for the three months ended March 31,
1997 compared to $189,000 for the quarter ended March 31, 1996, representing a
13.2% decrease. The decrease in quarterly earnings was primarily attributable to
increases in non-interest expense. See NON-INTEREST EXPENSE section which
follows for further discussion of these items.
Earning per common share were $0.85 for the quarter ended March 31, 1997
compared to the $0.99 reported for the first quarter of 1996. An analysis of the
contribution of each major component of the statement of income to earnings per
share is presented in the following chart for the three month periods ended
March 31, 1997 and 1996.
Three Months Ended
March 31,
Increase
1997 1996 (Decrease)
Interest income .................. $ 8.35 $ 7.67 $ 0.68
Interest expense ................. 3.33 2.96 0.37
----- ----- -----
Net interest income ......... 5.02 4.71 0.31
Provision for loan losses ........ 0.00 0.00 0.00
----- ----- -----
Net interest income after
provision for loan losses 5.02 4.71 0.31
----- ----- -----
Non-interest income .............. 0.52 0.49 0.03
Non-interest expense ............. 4.24 3.79 0.45
----- ----- -----
Income before income taxes .. 1.30 1.41 (0.11)
Income tax expense ............... 0.45 0.42 0.03
----- ----- -----
Net income ............. $ 0.85 $ 0.99 $(0.14)
===== ===== =====
The Company's annualized return on average assets (ROA) for the first quarter of
1997 was 0.79% compared to 0.99% for the first quarter of 1996. Annualized
return on average shareholders' equity (ROE) was 7.36% for the first quarter of
1997 compared to 8.87% in the first quarter of 1996. These decreases are due not
only to decreased earnings, but also to the increase in average assets in 1997
compared to 1996.
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 March 31, 1997
and 1996, the tax-equivalent adjustment was $25,000 and $29,000, respectively.
The Company's net interest income on a fully tax-equivalent basis totaled
$991,000 for the three month period ended March 31, 1997 compared to $934,000
for the same period of 1996, representing an increase of $57,000 or 6.1%. The
Company's net annualized yield on interest earning assets decreased to 5.03% for
the three months ended March 31, 1997, from 5.17% for the same period of 1996.
12
<PAGE>
The decrease in the yield on earning assets is primarily due to the lower yield
on the Company's loan portfolio. During late 1995 and early 1996, the Company
recognized loan fees on two commercial real estate construction loans which did
not carry over into the first quarter of 1997. During the first quarter of 1997,
loans yielded an average of 9.18% versus 9.67% in 1996. The Company's tax
equivalent yield on securities was 6.02% versus 1996's yield of 6.11%. The cost
of interest bearing liabilities remained consistent, with 1997's and 1996's
annualized costs being approximately 3.99%. An illustrative analysis of the
Company's yields on interest earning assets and interest earning liabilities and
changes in its net interest income are presented on the following pages in TABLE
I and TABLE II.
13
<PAGE>
<TABLE>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
INTEREST EARNING ASSETS
Loans $ 56,709 $ 1,301 9.18% $ 46,137 $ 1,115 9.67%
Securities:
Taxable 17,075 244 5.72 18,247 266 5.83
Tax-exempt 4,129 75 7.28 4,517 82 7.26
---------- ---------- -------- ---------- ---------- -------
Total securities 21,204 319 6.02 22,764 348 6.11
---------- ---------- -------- ---------- ---------- -------
Federal funds
sold 910 12 5.35 3,343 42 5.03
---------- ---------- ------- ---------- ---------- -------
Total interest earning
assets 78,823 $ 1,633 8.29% $ 72,244 $ 1,505 8.33%
========== ========== ========= ========== ========== =========
NON-INTEREST EARNING ASSETS
Cash and due from banks 2,407 2,155
Bank premises
and equipment 2,055 1,028
Other assets 1,100 1,217
Allowance for loan losses (653) (624)
---------- ----------
tal assets $ 83,732 $ 76,020
========== ==========
INTEREST BEARING LIABILITIES
Demand deposits 3,215 $ 87 2.64 $ 12,575 $ 84 2.67
Savings deposits 21,290 195 3.67 19,439 172 3.54
Time deposits 28,109 343 4.88 25,772 315 4.89
---------- ---------- ------- ---------- ---------- -------
Total interest
bearing deposits$ 62,614 $ 625 3.99% $ 57,786 $ 571 3.95%
Repurchase agreements 637 6 3.61 0 0 0.0
Fed funds purchased 504 4 3.23 0 0 0.0
Long-term borrowings 382 6 6.68 0 0 0.0
---------- ---------- ------- ---------- ---------- --------
Total interest
bearing liabilities$ 64,137 $ 641 4.00% $ 57,786 $ 571 3.95%
---------- ---------- -------- ---------- ---------- ---------
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 9,614 8,640
Other liabilities 1,045 1,070
Shareholders' equity 8,936 8,524
---------- ----------
Total liabilities and
shareholders' equity $ 83,732 $ 76,020
========== ==========
NET INTEREST
EARNINGS $ 991 $ 934
========== ==========
NET YIELD ON INTEREST
EARNING ASSETS 5.03% 5.17%
============ =========
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 1997
and 1996.
</TABLE>
14
<PAGE>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
Three Months Ended
March 31, 1997 vs. March 31, 1996
Increase (Decrease)
Due to Changes in:
---------------------
Volume (1) Rate (1) Total
INTEREST EARNING ASSETS
Loans ................................. $ 245 $ (59) $ 186
Securities:
Taxable .......................... (17) (5) (22)
Tax-exempt (2) ................... (7) 0 (7)
----- ----- -----
Total securities ............. (24) (5) (29)
----- ----- -----
Federal funds sold .................... (33) 3 (30)
----- ----- -----
Total interest earning assets .... 188 (61) 127
----- ----- -----
INTEREST BEARING LIABILITIES
Demand deposits ....................... 4 (1) 3
Savings deposits ...................... 17 6 23
Time deposits ......................... 29 (1) 28
Repurchase agreements ................. 6 0 6
Federal funds purchased ............... 4 0 4
Long term borrowings .................. 6 0 6
----- ----- -----
Total interest bearing liabilities 66 4 70
----- ----- -----
NET INTEREST EARNINGS ........ $ 122 $ (65) $ 57
===== ===== =====
(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) - Tax-exempt securities income has been calculated based upon a fully
tax-equivalent basis using the rate of 34%.
15
<PAGE>
PROVISION FOR LOAN LOSSES AND LOAN QUALITY
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. Refer to
the Loan Portfolio section for additional discussion of the allowance for loan
losses and asset quality.
No provision for loan losses was considered necessary during the first quarters
of 1996 and 1995. The lack of a provision during the first three months of 1996
and 1995 reflects management's enhancement of the Company's loan underwriting
requirements, a reduction in the level of past due loans and an overall decline
in net charge-offs.
NON-INTEREST INCOME
Non-interest income includes revenues from all sources other than interest
income and yield related loan fees. For the three month period ended March 31,
1997, non-interest income totalled $100,000, up slightly from the $94,000 that
was recorded during the first quarter of 1996. Stated as a percentage of average
assets, non-interest income was approximately 0.12% for both the first quarters
of 1997 and 1996. This dollar increase is a direct result of the Company's
concentrated effort to increase its service fee income. This additional service
fee income more than offset the 66.7% decrease in trust income from the first
quarter of 1996 to the first quarter of 1997. The decrease in trust department
income in 1997 resulted from the loss of non-recurring fees which were realized
during the first quarter of 1996 from the administration of a large estate.
While the Company seeks to attract new trust business, estates and other trust
services tend to fluctuate, and trust revenues may remain at current levels
during 1997.
NON-INTEREST EXPENSE
Non-interest expense comprises overhead costs which are not related to interest
expense, income taxes or the provision for loan losses. As of March 31, 1997,
the Company's non-interest expense totalled $816,000, representing an increase
of $87,000, or 11.19%, over the non-interest expense incurred in the first
quarter of 1996. However, expressed as a percentage of average assets,
non-interest expense remained consistent at 0.97% at March 31, 1997, versus
0.96% at March 31, 1996.
Salaries and employee benefits are the Company's largest non-interest cost,
representing approximately 52% and 49% of total non-interest expense at March
31, 1997 and 1996, respectively. Salaries and employee benefits increased
$52,000, or 13.90% as of March 31, 1997 compared to March 31, 1996. This
increase is primarily due to the additional staff hired for the Company's new
Charleston, WV, office, as well as general merit and promotion-related pay
increases.
Net occupancy expense increased to $63,000 through March 31, 1997, versus
$47,000 for the same period of 1996. This 34.04% increase is primarily due to
the Company's two new branch locations. Also as a result of the new equipment
acquired in connection with these new branches, equipment rental, depreciation,
and maintenance costs increased from $48,000 for the first quarter of 1996 to
$67,000 for the first three months of 1997, an increase of $19,000. These
additional non interest expenses were budgeted by management and are expected to
be offset by the additional net interest income generated by the new branch
locations.
INCOME TAXES
The Company's income tax expense, which includes both Federal and State income
taxes, totalled $86,000 for the three month period ended March 31, 1997,
reflecting a $4,000 increase when compared to the same period of 1996. Income
tax expense equaled 34.4% and 30.3% of income before taxes at March 31, 1997 and
1996, respectively. For financial reporting purposes, income tax expense does
not equal the Federal statutory income tax rate of 34.0% when applied to pre-tax
income, primarily because of State income taxes and tax-exempt interest income
included in income before income taxes.
FINANCIAL CONDITION
The Company's total assets were $89,358,000 at March 31, 1997, compared to
$83,668,000 at December 31, 1996, representing an increase of $5,690,000 or
6.80%. Average assets increased $3,747,000, or 4.68%, to $83,732,000 for the
same period. Details concerning changes in the Company's major balance sheet
items and changes in financial condition follow.
16
<PAGE>
Securities
The Bank's total securities portfolio decreased by $2,204,000 or 9.7% from
December 31, 1996. This decline is due to typical maturities and calls. Proceeds
were primarily invested in Fed funds sold and used to fund loan growth. A
summary of the Company's securities portfolio (both held-to-maturity and
available-for-sale) is included as Note 2 to the condensed consolidated
financial statements.
Loan Portfolio
Loans, net of unearned income, increased dramatically during the first quarter
of 1997 from $53,454,000 at year end 1996 to $60,191,000 as of March 31, 1997.
This 12.60% increase in the loan portfolio is largely due to the Bank's entrance
into the more active Charleston, WV, market. Continued loan growth, primarily in
high-quality commercial and commercial real estate loans and residential
mortgages, is anticipated by Bank management. A summary of the Bank's loans by
category in comparison to year end 1996 is included in Note 3 to the condensed
consolidated financial statements.
The allowance for loan losses was $644,000 at March 31, 1997 compared to
$654,000 at December 31, 1996. Expressed as a percentage of loans (net of
unearned income), the allowance for loan losses was 1.07% at March 31, 1997
compared to 1.22% at December 31, 1996. Loans charged-off, net of recoveries of
previously charged-off loans, totalled $10,000 and $37,000 for the three months
ended March 31, 1997 and 1996, respectively. See Note 4 of the notes to the
condensed consolidated financial statements for an analysis of the activity in
the Company's allowance for loan losses for the three month periods ended March
31, 1997 and 1996.
Non-accrual loans declined 52.4% to $185,000 as of March 31, 1997, compared to
$389,000 as of March 31, 1996. The Company places into non-accrual status those
loans for 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 Company's enhanced loan collection policies and procedures.
A summary of the Company's past due loans and non-performing assets is provided
in the following table.
SUMMARY OF PAST DUE LOANS AND NONPERFORMING ASSETS
(in thousands of dollars)
March 31, December 31,
1997 1996 1996
----- ---- ----
Loans past due 90 or more days
still accruing .......... $ 0 0 $ 0
==== ==== ====
Nonperforming assets:
Nonaccruing loans ....... $185 $389 $161
Other real estate owned . 22 5 22
---- ---- ----
$207 $394 $183
==== ==== ====
Management believes its allowance for loan losses is adequate to cover potential
losses existing in the loan portfolio at March 31, 1997.
Deposits
Total deposits at the end of the first quarter increased only slightly from year
end 1996, rising $672,000, or 0.9%, to $73,988,000. Non-interest bearing
deposits decreased by $280,000, or 2.74%, while interest bearing deposits
increased by $952,000, or 1.51%. This increase in interest bearing deposits
consisted of increases in all of the Company's interest bearing deposit
accounts, but was primarily centered in savings and NOW accounts.
Long-term borrowings
Due to increased loan demand, the Company obtained a $5,000,000, 3-year advance
from the Federal Home Loan Bank. In anticipation of an increase in interest
rates on borrowed funds, the Company's subsidiary bank borrowed the funds from
the FHLB of Pittsburgh to lock-in a funding source for its anticipated loan
growth. For more information on this FHLB debt please see Note 7 to the
condensed consolidated financial statements.
17
<PAGE>
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
$6,342,000 at March 31, 1997 versus $5,239,000 at December 31, 1996. The
Company's liquidity position is monitored continuously to ensure that day-to-day
as well as anticipated future funding needs are met.
Further enhancing the Company's liquidity is the availability as of March 31,
1997 of $10,077,000, at amortized cost, in securities maturing within one year.
Also, the Company has classified securities with an estimated fair value
totaling $3,062,000 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 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 gap position as of March 31, 1997, is
presented in TABLE III.
18
<PAGE>
TABLE III
INTEREST RATE SENSITIVITY GAPS
March 31, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
REPRICING (1)
Within 3 3 to 6 6 to 12 After
Months Months 12 Months 12 Months Total
----------- ------------ ------------ ----------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans, net of unearned
income $ 18,839 $ 3,236 $ 9,040 $ 29,076 $ 60,191
Securities 1,735 5,000 3,342 10,337 20,414
Federal funds
sold 3,624 0 0 0 3,624
---------- ------------ ------------ ----------- -----------
Total interest
earning assets 24,198 8,236 12,382 39,413 84,229
---------- ------------ ------------ ----------- -----------
INTEREST BEARING LIABILITIES
Demand deposits 13,980 0 0 0 13,980
Savings deposits 21,626 0 0 0 21,626
Time deposits 5,704 6,516 11,030 5,201 28,451
Repurchase
Agreements 591 0 0 0 591
Fed funds purchased 0 0 0 0 0
Long-term borrowings 0 0 0 5,000 5,000
---------- ------------ ------------ ----------- -----------
Total interest
bearing liabilities 41,901 6,516 11,030 10,201 69,648
---------- ------------ ------------ ----------- -----------
Contractual interest
sensitivity gap (17,703) 1,720 1,352 29,212 14,581
Adjustment (2) 35,606 (35,606)
---------- ------------
Adjusted interest
\ sensitivity gap$ 17,903 $ (33,886) $ 1,352 $ 29,212 $ 14,581
========== ============= ============ =========== ===========
Cumulative adjusted interest
sensitivity gap $ 17,903 $ (15,983) $ (14,631) $ 14,581
========== ============= ============ ===========
Cumulative adjusted
gap ratio 3.84 0.67 0.75 1.21
========== ============ ============ ===========
Cumulative adjusted gap as a
percent of earning assets 21.26% (18.98%) (17.37%) 17.31%
========== ============ ============ ===========
</TABLE>
(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.
The preceding table reflects the Bank's cumulative one year net interest
sensitivity position, or gap, as 0.75, or ($14,631,000.) Thus, the Bank is in a
negative gap position within a one year time frame. This indicates that a
significant increase in interest rates within a short time frame during 1997
could have a significant negative impact on the Bank's net interest income.
However, interest rates on the majority of the Bank's interest-bearing deposits
may be changed by management at any time based on their terms. Since management
believes that repricing of interest bearing deposits in an increasing interest
rate environment will generally lag behind the repricing of interest bearing
assets, the Bank's interest rate risk within one year is at an acceptable level.
The information presented in the table above represents a static view of the
Bank's gap position as of March 31, 1997, and as such, does not consider
variables such as future loan and deposit volumes, mixes and interest rates. The
Company seeks to maintain its adjusted interest sensitivity gap within 12 months
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.
19
<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 March 31, 1997 was $8,914,000 compared to
$8,841,000 at December 31, 1996, representing an increase of $73,000. This
increase is due entirely to increases in retained earnings and was offset by a
$14,000 increase in the net unrealized loss on securities classified as
available for sale. Total shareholders' equity expressed as a percentage of
total assets was approximately 10.00% at March 31, 1997, which is only slightly
lower than December 31, 1996's level of 10.57%. Cash dividends totaling $77,000,
or $0.40 per share were declared during the first quarter of 1997 versus
dividends of $63,000, or $0.33 per share, during the first quarter of 1996.
These payout levels represented approximately 47% and 33% of the Company's
year-to-date earnings for the three-month periods ended March 31, 1997 and 1996,
respectively.
REGULATORY RESTRICTIONS ON CAPITAL AND DIVIDENDS
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.
Quantitative measures established by regulation to ensure capital adequacy
require the subsidiary bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier capital (as defined) to average
assets (as defined). Management believes, as of March 31, 1997, that the
subsidiary bank meets all capital adequacy requirements to which it is subject.
RISK-BASED CAPITAL RATIOS
March 31, 1997
Minimum
Actual Requirement
Tier 1 risk-based capital ratio 15.43% 4.00%
Total risk-based capital ratio 16.55% 8.00%
Leverage ratio 10.66% 3.00%
Improved operating results and a consistent dividend program, coupled with an
effective management of credit and interest rate risk will be the key elements
towards the Company continuing to maintain its present strong capital position
in the future.
BRANCH MATTERS
The Bank 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. Upon
lease termination, Management and the Board of Directors opted to commence with
the construction of a new branch location to be owned by the Bank. The new
Branch location is located approximately one mile north of the previous branch
site on U.S. Route 219 in Lewisburg, WV. The facility opened for business on
January 27, 1997. Management anticipates that this new facility will have
similar or lower operating costs than the previous facility. The total cost of
this new facility, not including additional equipment, was $590,000, including
the $190,000 purchase price of the land.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor its subsidiary Bank is currently involved in
any material legal proceedings, other than routine litigation
incidental to their business.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item. 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders of First National Bankshares
Corporation was held on April 24, 1997. A total of 147,416 shares, or
76.6% of outstanding shares, were voted, with 142,447 represented by
proxy and 4,969 represented in person. At this meeting, the following
business was transacted.
a) J.R. Dawkins, Walter Bennett Fuller, and Richard L.
Skaggs were elected to serve as Company directors for a
three-year term expiring in the year 2000. Shareholders
voted for three of the five nominees, with the three
nominees receiving the most votes being elected as
directors. 1,693 votes abstained from voting.
TOTAL
VOTES
Nominees selected by Board of Directors
J. R Dawkins 139,482
Walter Bennett Fuller 143,005
Richard L. Skaggs 141,563
Nominees from the Floor
Henry Sessions 10,081
Jackson K. Tuckwiller 6,580
b) The accounting firm of Arnett & Foster of Charleston, WV
was approved by the shareholders as the Company's accounting
firm. 141,213 shares voted for this appointment and 6,188
shares abstained. 15 votes were cast against this motion.
c) No other matters were voted upon by the shareholders at
this meeting.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) All exhibits included with this filing follow the signature page.
1. Exhibit 11, Computation of Per Share Earnings, is filed herewith.
2. Exhibit 27, Financial Data Schedule, is filed herewith.
b). The Company did not file any Form 8-K, Current Reports during the
quarter ended March 31, 1997.
21
<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: 03/12/97
--------
22
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
Primary Earnings Per Share
Primary Earnings per Share is calculated based upon the Company's net
income after income taxes, divided by the weighted average number of shares
outstanding during the fiscal period.
Fully Diluted Earnings Per Share
Fully Diluted Earnings Per Share is calculated based upon the Company's net
income after income taxes, divided by the weighted average number of shares
outstanding during the period plus all exercisable stock options
outstanding but not yet exercised at the end of the period.
As of March 31, 1997, the Company had no exercisable stock options
outstanding.
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 2718
<INT-BEARING-DEPOSITS> 640057
<FED-FUNDS-SOLD> 3624
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3062
<INVESTMENTS-CARRYING> 17352
<INVESTMENTS-MARKET> 17326
<LOANS> 59547
<ALLOWANCE> 644
<TOTAL-ASSETS> 89358
<DEPOSITS> 73988
<SHORT-TERM> 591
<LIABILITIES-OTHER> 865
<LONG-TERM> 5000
<COMMON> 0
0
963
<OTHER-SE> 7951
<TOTAL-LIABILITIES-AND-EQUITY> 89358
<INTEREST-LOAN> 1301
<INTEREST-INVEST> 294
<INTEREST-OTHER> 12
<INTEREST-TOTAL> 1607
<INTEREST-DEPOSIT> 625
<INTEREST-EXPENSE> 641
<INTEREST-INCOME-NET> 966
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 816
<INCOME-PRETAX> 250
<INCOME-PRE-EXTRAORDINARY> 250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 0.85
<EPS-DILUTED> 0.85
<YIELD-ACTUAL> 8.29
<LOANS-NON> 185
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 654
<CHARGE-OFFS> 24
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 644
<ALLOWANCE-DOMESTIC> 644
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
