UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,
1998
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 |X|
No
The number of shares outstanding of the issuer's classes of common stock as of
June 30, 1998:
Common Stock, $5 par value -- 192,903 shares
THIS REPORT CONTAINS 28 PAGES
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Three Month Period Ended June 30, 1998
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
June 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Income -
Three Months Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Shareholders' Equity -
Three Months Ended June 30, 1998 and 1997 and
Six Months Ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 6-7
Condensed Consolidated Statement of Comprehensive Income
Three Months Ended June 30, 1998 and 1997
Six Months Ended June 30, 1998 and 1997 8
Notes to Condensed Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities none
Item 3. Defaults upon Senior Securities
none
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K
24
SIGNATURES 25
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data)
June 30, December 31,
1998 1997
ASSETS (Unaudited) (1)
Cash and due from banks ............................ $ 2,703 2,742
Federal funds sold ................................. 2,738 3,159
Securities held to maturity (estimated fair value
$10,324 and $12,405 respectively) (Note 2) ...... 10,242 12,322
Securities available for sale (Note 2) ............. 7,130 4,989
Loans, net of allowance of $756 and
$636, respectively (Notes 3 and 4) ........... 67,893
69,108
Bank premises and equipment, net ................... 1,979 2,073
Accrued interest receivable ........................ 589 660
Other assets ....................................... 1,226 377
Total assets ............................... $94,500 $95,430
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing .......................... $ 9,719 $10,035
Interest bearing ............................. 68,216 68,301
------- -------
Total deposits ............................. 77,935 78,336
Repurchase Agreements ........................... 1,058 1,330
Long-term borrowings ............................ 5,493 5,500
Other liabilities ............................... 638
-------
939
Total liabilities .......................... 85,124 86,105
------- -------
Commitments and Contingencies (Note 5)
Shareholders' equity
Common stock, $5.00 par value, authorized
500,000 shares, issued 192,903 and 192,500
shares, respectively ............................... 965 963
Surplus ......................................... 1,021 1,000
Retained earnings ............................... 7,383 7,362
Net Unrealized gain (loss) on securities ........ 7
-------
-------
Total shareholders' equity ................. 9,376 9,325
------- -------
Total liabilities and shareholders' equity . $94,500 $95,430
(1) Extracted from December 31, 1997 audited financial statements.
See Notes to Condensed Consolidated Financial Statements
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
Six Months Ended
June 30,
June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans .......... $ 1,533 $ 1,455 $ 3,115 $ 2,756
Interest and dividends on securities:
Taxable .......................... 200 226 396 470
Tax-exempt ....................... 41 50 91 100
Interest on Federal funds sold ...... 60 22 109 34
------- ------- ------- -------
Total interest income ............ 1,834 1,753 3,711 3,360
------- ------- -------
Interest Expense
Interest on deposits ................ 735 674 1,459 1,299
Interest on Repurchase Agreements ... 15 8 29
14
Interest on Fed Funds Purchased ..... -- 1 -- 5
Interest on Long-term Borrowings .... 90 85 180 91
Total Interest Expense ........... 840 768 1,668 1,409
Net interest income .............. 994 985 2,043 1,951
Provision for loan losses .............. 405 13 420 13
------- ------- ------- -------
Net interest income after provision
for loan losses ................ 589 972 1,623 1,938
Other income
Service fees ........................ 65 65 121 136
Trust income ........................ 20 5 45 12
Other income ........................ 19 33 43 55
------- ------- -------
104 103 209 203
------- ------- ------- -------
Other expense
Salaries and employee benefits ...... 369 430 779 856
Net occupancy expense ............... 66 67 129 119
Equipment rental, depreciation and
maintenance .......... 75 73 149 140
Other operating expenses ............. 244 215 494 486
------- ------- ------- -------
754 785 1,551 1,601
------- ------- -------
Income before income taxes .............. (61) 290 281 540
Income tax expense/(benefit) ......... (25) 102 104 188
------- ------- ------- -------
Net income ........................ $ (36) $ 188 $ 177 $ 352
======= ======= ======= =======
Basic earnings per common share (Note 6) $ (0.19) $ 0.98 $ 0.92 $ 1.83
======= =======
Diluted earnings per common share (Note 6)$ (0.19) $ 0.98 $ 0.92 $ 1.83
======= =======
Dividends per common share .............. $ 0.40 $ 0.40 $ 0.80 $ 0.80
======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Balance, beginning of period .......... $ 9,464 $ 8,914 $ 9,325 $ 8,841
Net income ......................... (36) 188 177 352
Cash dividends declared ............ (77) (77) (154) (154)
Issued 403 shares of common
stock pursuant to stock option
exercise ........................ 21 -- 21 --
Change in net unrealized (loss) on
securities available for sale ... 4 10 7 (4)
Balance, end of period ................ $ 9,376 $ 9,035 $ 9,376 $ 9,035
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
Six Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................ $ 177 $ 352
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation ....................................... 127 113
Provision for loan losses .......................... 420 13
Deferred income taxes .............................. 14 --
Amortization of security premiums (accretion) of
security discounts, net .......................... (25) (28)
(Gain) Loss on disposal of assets .................. 1 (2)
(Increase) Decrease in accrued interest receivable . 71 (53)
(Increase) Decrease in other assets ................ 9 (140)
Increase (Decrease) in other liabilities ........... (301) (279)
Net cash provided by (used in) operating activities. 493 (24)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held
to maturity ........................................ 3,075 3,235
Proceeds from maturities and calls of securities
available for sale ................................. -- 1,000
Purchases of securities held to maturity ..............(1,000) (195)
Purchases of securities available for sale ............(2,101) 0
Principal collected on (loans made to) customers, net . (80) (10,783)
Purchases of bank premises and equipment .............. (34) (244)
Net cash provided by (used in) investing activities. (140) (6,987)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts ............................... 419 (1,055)
Proceeds from sales of (payments for matured)
time deposits, net ................................. (820) 2,916
Net increase (decrease) in Repurchase Agreements ...... (272) 388
Proceeds from long-term borrowings .................... -- 5,000
Repayments on long-term borrowings .................... (7) --
Proceeds from sale of common stock pursuant to
stock option exercise .............................. 21 --
Dividends paid ........................................ (154) (154)
Net cash provided by (used in) financing activities. (813) 7,095
Increase (decrease) in cash and cash equivalents ... (460) 84
Cash and cash equivalents:
Beginning ............................................. 5,901 5,239
Ending ...............................................$ 5,441 $ 5,323
(Continued)
See Notes to Condensed Consolidated Financial Statements
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $1,448 $1,418
====== ======
Income taxes $ 349 $ 262
===== ======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends declared and unpaid $ 77 $ 77
===== ======
Property acquired in settlement of loans $ 875 $ =
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands of dollars, except per share data)
Unaudited Unaudited
Three Months Ended
Six Months Ended
June 30,
June 30,
1998 1997 1998 1997
- ----------------------------------------- ------ ------ ------
Net Income $(36) $ 188 $ 177 $ 352
Other comprehensive income,
net of tax:
Unrealized gains/(losses) on
securities:
Gain (loss) arising during the
period 4 10 7 (4)
Reclassification adjustment - - - -
Other comprehensive income - - - -
---- ------ ------ -----
Comprehensive Income $(32) $ 198 $ 184 $ 348
===== ====== ====== ======
See Notes to Condensed Consolidated Financial Statements
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accounting and reporting policies of First National Bankshares
Corporation and its wholly owned subsidiary, First National Bank, (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 and
six months ended June 30, 1998 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 1997 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 June 30, 1998 and December 31, 1997 are
summarized as follows (in thousands):
June 30, 1998
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities ......... $ -- $ -- $ -- $ --
U.S. Government Agencies
and corporations ............... 6,230 16 1 6,245
Corporate Debt Securities ........ 500 -- 1 499
Total Taxable .................. 6,730 16 2 6,744
Tax Exempt:
State & political subdivisions ... 3,512 68 -- 3,580
Total securities held to maturity .$10,242 $ 84 $ 2 $10,324
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
June 30, 1998
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Available for Sale:
Taxable:
U.S. Treasury Securities $ 1,997 $ 3 $ -- $ 2,000
U.S. Government Agencies
and corporations ........... 4,480 8 -- 4,488
Federal Reserve Bank Stock ... 57 -- --
57
Federal Home Loan Bank Stock . 574 -- --
574
Other Equity Securities ...... 9 -- -- 9
------ ------- ------- -------
Total Taxable .............. 7,117 11 -- 7,128
Tax Exempt:
Federal Reserve Bank Stock ... 2 -- --
------- ------- -------
2
Total securities available
for sale .................$ 7,119 $ 11 $ -- $ 7,130
December 31, 1997
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Treasury Securities .......$ 500 $ -- $ -- $ 500
U.S. Government Agencies
and corporations ............. 7,233 13 3 7,243
Corporate Debt Securities ...... 500 -- 3 497
Total Taxable ................ 8,233 13 6 8,240
Tax Exempt:
State & political subdivisions.. 4,089 76 -- 4,165
Total securities held to
maturity $12,322 $ 89 $ 6 $12,405
December 31, 1997
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Treasury Securities .... $1,994 $ 3 $ -- $ 1,997
U.S. Government Agencies
and corporations .......... 2,455 4 7 2,452
Federal Home Loan Bank Stock 481 -- --
481
Federal Reserve Bank Stock .. 57 -- --
------- ------- -------
57
Total Taxable ............. 4,987 7 7 4,987
Tax Exempt:
Federal Reserve Bank Stock .. 2 -- --
------- ------- -------
2
Total securities held to
maturity ... $ 4,989 $ 7 $ 7 $ 4,989
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the Company's
securities at June 30, 1998 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 $3,983 $3,985 $ 2,977 $2,981
Due after 1 but within 5 years 4,373 4,403 3,500 3,507
Due after 5 but within 10 year 1,886 1,936 - -
Equity Securities - - 642 642
------ ------ ------- ------
$10,242 $10,324 $ 7,119 $7,130
======= ======= ======= ======
The Company's 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, including
principal payments received on mortgage-backed securities and the related
gross gains and losses realized for the six month periods ended June 30, 1998
and 1997 are as follows (in thousands):
Proceeds From
Gross Realized
Calls and Principal
Sales Maturities Payments Gains Losses
Six months ended June 30, 1998
Securities held to maturity -- $3,075 $ -- $ -- --
Securities available for sale -- -- -- -- --
-- 3,075 $ -- $ -- $ --
=============================================== ====== ======= ========
Six months ended June 30, 1997
Securities held to maturity -- $3,235 $ -- $ -- --
Securities available for sale -- 1,000 -- -- --
-- 4,235 $ -- $ -- $ --
=============================================== ====== ======= ========
(3) Loans
Total loans as of June 30, 1998 and December 31, 1997 are summarized as
follows (in thousands):
June 30, December 31,
1998 1997
Commercial, financial and agricultural $26,067 $ 29,431
Real estate - construction 1,973 3,515
Real estate - mortgage 31,892 29,067
Installment loans to individuals 7,068 6,389
Other 1,652 1,366
-------- --------
Total loans 68,652 69,768
Less unearned income (3) (24)
Total loans net of unearned income 68,649 69,744
Less allowance for credit losses (756) (636)
-------- ---------
Loans, net $67,893 $ 69,108
======== ========
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Credit Losses
Analyses of the allowance for credit losses are presented below (in
thousands) for the three month periods ended June 30, 1998 and 1997 and
twelve months ended December 31, 1997:
Six Months Ended
June 30, Dec 31,
1998 1997 1997
- -------- ---------- ------
Balance, beginning of period $ 636 $ 654 $ 654
Loans charged off (329) (51) (108)
Recoveries 29 27 59
--------- ---- -- ------
Net (losses)/recoveries (300) (24) (49)
--------- ------- -------
Provision for credit losses 420 13 31
--------- ------- ------
Balance, end of period $ 756 $ 643 $ 636
========= ======= ======
The Company's total recorded investment in impaired loans at June 30,
1998 and December 31, 1997, approximated $318,000 and $498,000,
respectively, for which the related allowance for credit losses
determined in accordance with generally accepted accounting principles
approximated $250,000 and $215,000, respectively. All impaired loans
were collateral dependent, and accordingly, the fair value of the loan's
collateral was used to measure the impairment of each loan. Impaired
loans are included in nonaccrual loans.
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 unused portions of existing lines of
credit at June 30, 1998 and December 31, 1997, and the contract amounts
of commitments to lend are as follows, in thousands of dollars:
June 30, December 31
1998 1997
Commitments to extend credit $ 10,396 $10,898
========= =======
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: Basic earnings per common share is computed based
upon the weighted average shares outstanding. The weighted average
number of shares outstanding was 192,520 and 192,500 for six month
periods ended June 30, 1998 and 1997, respectively.
Under Financial Accounting Standards Statement No. 128, "Earnings per
Share," which was adopted on December 31, 1997, the Company is required
to present basic and diluted per share amounts. Diluted per share
amounts assume the conversion, exercise or issuance of all potential
common stock instruments unless the effect is to reduce the loss or
increase the income per common share from continuing operations. The
Company has an incentive stock option plan which is considered in
determining diluted earnings per share. At June 30, 1998, 3,603 shares
were outstanding under the stock option plan, all being fully vested and
exercisable, with 5,619 shares remaining as available for grant. Per
share information for prior periods presented have been restated to
conform to this Statement No 128.
For the six month periods presented, basic and diluted earnings per
share are calculated as follows:
<PAGE>
June 30, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
shareholders $ 177,000 192,520 $ 0.92
Effect of Dilutive Securities
Stock options - 246
-------- -------
Diluted EPS
Income available to common
shareholders $ 177,000 192,766 $ 0.92
June 30, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
shareholders $ 352,000 192,500 $ 1.83
Effect of Dilutive Securities
Stock options - -
-------- --
Diluted EPS
Income available to common
shareholders $ 352,000 192,500 $ 1.83
Grants under the plan are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost is recognized for
grants under the plan. Had compensation cost for the stock-based compensation
plan been determined on the grant date in accordance with FASB Statement No 123,
the net income and earnings per share would have been reduced to the proforma
amounts shown below (in thousands except earnings per share data)::
Six Months Ended
June 30,
1998 1997
---- ----
Net income:
As reported $177 $352
Proforma $166 $333
Basic earnings per share:
As reported $0.92 $1.83
Proforma $0.86 $1.73
Diluted earnings per share:
As reported $0.92 $1.83
Proforma $0.86 $1.73
Note 7. Subsequent Event:
On July 31, 1998, the Company signed a non-binding letter of intent
setting forth an agreement in principle for the merger of First
National Bankshares Corporation with Pocahontas Bankshares Corporation,
a West Virginia corporation and registered bank holding company. The
agreement in principle contemplates that each share of the Company will
be exchanged for 3.6 shares of Pocahontas Bankshares Corporation common
stock. The merger is contingent upon execution of a definitive merger
agreement and approval by the shareholders of both companies and
regulatory authorities. The merger is anticipated to be consummated
under the pooling of interests method of accounting.
<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 for the
periods indicated. This discussion and analysis should be read in conjunction
with the Company's 1997 consolidated financial statements and notes included in
its Annual Report to Shareholders and Form 10-K. This discussion may include
forward-looking statements based upon management's expectations, and actual
results may differ materially.
EARNINGS SUMMARY
The Company reported a net loss of $36,000 for the three months ended June 30,
1998 compared to net income of $188,000 for the quarter ended June 30, 1997. For
the six month period ended June 30, 1998, the Company's net income of $177,000
decreased $175,000 from the $352,000 reported for the same period of 1997. The
decreases in quarterly and year-to-date earnings were primarily attributable to
an increased loan loss provision.
Basic earning per common share were $(0.19) for the quarter ended June 30, 1998
compared to the $0.98 reported for the second quarter of 1997. For the six month
period ended June 30, 1998, basic earnings per common share totaled $0.92
compared with $1.83 for the same period of 1997. An analysis of the contribution
of each major component of the statement of income to basic earnings per share
is presented in the following chart both for the three month and for the six
month periods ended June 30, 1998 and 1997.
Three Months Ended Six Months Ended
June 30, June 30,
Increase Increase
1998 1997(Decrease) 1998 1997 (Decrease)
Interest income $9.53 $ 9.11 $0.42 $19.28 $ 17.45 $ 1.83
Interest expense 4.36 3.99 0.37 8.66 7.32 1.34
Net interest income 5.17 5.12 0.05 10.62 10.13 0.49
Provision for loan losses 2.10 0.07 2.03 2.18 0.07 2.11
Net interest income after
provision for loan losses 3.07 5.05 (1.98) 8.44 10.06 (1.62)
Non-interest income 0.54 0.54 - 1.09 1.05 0.04
Non-interest expense 3.92 4.08 (0.16) 8.06 8.31 (0.25)
---- ------ ------- ------ ------ -------
Income before income taxes (0.31) 1.51 (1.82) 1.47 2.80 (1.33)
Income tax expense (0.12) 0.53 (0.65) 0.55 0.97 (0.42)
------ ------ ------- ------ ------ -------
Net income $(0.19) $ 0.98$ (1.17) $ 0.92 $ 1.83 $ (0.91)
The Company's annualized return on average assets (ROA) for the second quarter
of 1998 was (0.15)% compared to 0.87% for the second quarter of 1997. This
compares with ROA of 0.37% and 0.82% for the six month periods ended June 30,
1998 and 1997, respectively. Annualized return on average shareholders' equity
(ROE) was (1.52)% for the second quarter of 1998 compared to 8.33% in the second
quarter of 1997, while year-to-date ROE was 3.74% and 7.80% as of June 30, 1998
and 1997, respectively.
The most significant factor impacting net income and related performance ratios
was the unanticipated foreclosure of collateral on a major loan customer and an
additional provision for loan losses. This factor and other factors influencing
both year to date and quarterly results of operations are addressed in the
following sections.
NET INTEREST INCOME
The most significant component of the Company's net earnings is net interest
income, which represents the excess of interest income earned on earning assets
over the interest expense paid for sources of funds. Net interest income is
affected by changes in volume resulting from growth and alteration of the
balance sheet's composition, as well as by fluctuations in market interest rates
and maturities of sources and uses of funds.
For purposes of this discussion, net interest income is presented on a fully
tax-equivalent basis to enhance the comparability of the performance of
tax-exempt to fully taxable earning assets. For the periods ended June 30, 1998
and 1997, the tax-equivalent adjustment was $47,000 and $52,000, respectively.
<PAGE>
The Company's net interest income on a fully tax-equivalent basis totaled
$2,090,000 for the six month period ended June 30, 1998 compared to $2,003,000
for the same period of 1997, representing an increase of $87,000 or 4.3%. For
the quarters ended June 30, 1998 and 1997, net interest income on a fully
tax-equivalent basis totaled $1,015,000 and $1,011,000, respectively, an
increase of less than 1.8%. For the six months ended June 30, 1998 and 1997,
respectively, the Company's net yield on interest earning assets decreased to
4.63% from 4.92%. This decrease was primarily a result of the higher cost of
rate-sensitive liabilities. More specifically, the cost of interest bearing
liabilities increased to 4.47% versus the previous year's 4.22%, and was
primarily due to the increased volume of interest bearing deposit balances
outstanding in 1998 versus 1997. The net yield on interest earning assets is
expected to remain at its current level for the remainder of 1998. 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.
<PAGE>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1998
Average Yield/ Average Yield/
Balance Interest(1)Rate BalanceI Interest(1) Rate
INTEREST EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans (2): .........$69,357 $3,115 8.98% $59,751 $2,756 9.22%
Securities:
Taxable ......... 13,142 396 6.03 16,280 470 5.77
Tax-exempt ...... 3,817 138 7.22 4,151 152 7.30
Total securities 16,959 534 6.30 20,431 622 6.08
Federal funds sold . 4,016 109 5.43 1,299 34 5.23
Total interest
assets ..... 90,332 3,758 8.32 81,481 3,412 8.37
NON-INTEREST EARNING ASSETS
Cash and due from
banks 2,352 2,360
Bank premises and
equipment 2,037 2,074
Other assets 1,236 1,108
Allowance for
loan losses (678) (647)
------- ------
Total assets $95,279 $86,376
======= =======
INTEREST BEARING LIABILITIES
Demand deposits $12,471 $ 157 2.52 $12,924 $ 171 2.65
Savings deposits 25,132 528 4.20 21,601 408 3.78
Time deposits 30,004 774 5.16 28,614 720 5.03
Total interest-bearing
deposits 67,607 1,459 4.32 63,139 1,299 4.11
Repurchase Agreements 1,485 29 3.91 733 14 3.82
Federal Funds Purchased - - - 254 5 3.94
Long-term FHLB borrowings 5,497 180 6.55 2,680 91 6.79
------ ------ ---- ------ ------ ----
Total other interest
bearing liabilities 6,982 209 5.99 3,667 110 6.42
Total interest bearing
liabilities 74,589 1,668 4.47 66,806 1,409 4.22
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits $10,265 $9,575
Other liabilities 957 968
Shareholders' equity 9,468 9,027
------ ------
Total liabilities and
shareholders' equity $95,279 $86,376
========= =======
NET INTEREST
EARNINGS $2,090 $2,003
====== ======
NET YIELD ON INTEREST EARNING
ASSETS 4.63% 4.92%
(1) - Calculated on a fully tax-equivalent basis using the rate of
34% for 1998 and 1997.
(2) - For purposes of these computations, nonaccrual loans are included in the
amounts of average loans outstanding. Included in interest is loan fees of
$36,000 and $49,000 for 1998 and 1997, respectively.
</TABLE>
<PAGE>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 vs. June 30, 1997
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
INTEREST EARNING ASSETS
<S> <C> <C> <C>
Loans $ 508 $ (149) $ 359
Securities:
Taxable (80) 6 (74)
Tax-exempt (2) (17) 3 (14)
------- ------- -------
Total securities (97) 9 (88)
------- ------- -------
Federal funds sold 72 3 75
------- ------- ------
Total interest earning assets 483 (137) 346
------ -------- ------
INTEREST BEARING LIABILITIES
Demand deposits (7) (7) (14)
Savings deposits 61 59 120
Time deposits 42 12 54
Repurchase agreements 15 - 15
Federal funds purchased (5) - (5)
Long-term FHLB borrowings 89 - 89
------- ------- ------
Total interest bearing liabilities 195 64 259
-------- -------- ------
NET INTEREST EARNINGS $ 288 $ (201) $ 87
====== ======= ======
</TABLE>
(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>
PROVISION FOR LOAN LOSSES
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.
During the second quarter of 1998, the Bank made a $405,000 provision for loan
losses compared to $13, 000 during the second quarter of 1997. For the six
months ended June 30, 1998 and 1997, respectively, the provision for loan losses
was $420,000 and $13,000. The additional provision in 1998 was primarily a
result of a significant unexpected charge-off on a commercial real estate loan,
as well as an increase in the specific allocation for a previously reserved
credit. For additional discussion of these factors and the related allowance for
loan losses account, refer to the Loan and Related Risk Elements section of this
discussion.
NON-INTEREST INCOME
Non-interest income includes revenues for all sources other than interest income
and yield related loan fees. For the six month period ended June 30, 1998,
non-interest income totaled $209,000, representing a slight increase of $6,000
from the $203,000 recorded during the same period of 1997. As a percentage of
average assets, non-interest income was 0.22% and 0.24% for the six month
periods ended June 30, 1998 and 1997, respectively. This dollar increase is a
direct result of increased trust revenues, which offset a decline in general
service fees. Estates and other trust services tend to fluctuate from year to
year, and trust revenues are currently expected to increase from 1997's levels
during 1998.
On a quarter-to-quarter basis, non-interest income increased to $104,000 for the
second quarter of 1998 compared to $103,000 for the second quarter of 1997.
There were no significant matters influencing non-interest income during the
second quarter of 1998 compared to the same period of 1997.
NON-INTEREST EXPENSE
Non-interest expense comprises overhead costs which are not related to interest
expense or to losses from loans or securities. As of June 30, 1998, the
Company's non-interest expense totaled $1,553,000, representing a decrease of
$48,000, or 3.0%, over total non-interest expense incurred for the six months
ended June 30, 1997. Expressed as a percentage of average assets, non-interest
expense decreased to 1.6% at June 30, 1998, versus 1.9% at June 30, 1997. This
decrease is primarily attributable to the Company's salaries and related
benefits expenses.
Salaries and employee benefits are the Company's largest non-interest cost,
representing approximately 50% and 53% of total non-interest expense at June 30,
1998 and 1997, respectively. Salaries and employee benefits decreased $77,000,
or 8.9% as of June 30, 1998 compared to June 30, 1997. This decrease is
primarily due to the net impact of certain job eliminations and retirements, net
of new employees and general merit and promotion-related pay increases for
existing staff.
On a quarter-to-quarter basis, other non-interest expense decreased to $756,000,
or 3.6%, for the second quarter of 1998 from $785,000 during the second quarter
of 1997. Salaries and employee benefits decreased to $369,000, or 14.1%, for the
second quarter of 1998 from $430,000 for the same period of 1997. These
quarter-to-quarter changes are due to the same reasons discussed above.
INCOME TAXES
The Company's income tax expense, which includes both Federal and State income
taxes, totaled $104,000 for the six month period ended June 30, 1998, reflecting
a $84,000 decrease when compared to the same period of 1997. Income tax expense
equaled 37.2% and 34.8% of income before taxes at June 30, 1998 and 1997,
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.
CHANGES IN FINANCIAL CONDITION
The Company's total assets were $94,500,000 at June 30, 1998, compared to
$95,430,000 at December 31, 1997, representing a decrease of $930,000, or 1.0%,
while average assets increased to $95,279,000 from $90,824,000 for the same
periods, respectively. Details concerning changes in the Company's major balance
sheet items and changes in financial condition follow.
<PAGE>
Securities
The Bank's total securities portfolio decreased by $61,000 or 0.3% from December
31, 1997. This decrease is a result of the net impact of normal maturities in
the Company's securities portfolio and regular purchases of new securities. As a
general rule, the Company is classifying all new securities purchases as
available-for-sale, which has resulted in a higher percentage of
available-for-sale securities in the Company's portfolio compared with previous
periods. A summary of the Company's securities portfolio (both held-to-maturity
and available-for-sale) is included as Note 2 to the condensed consolidated
financial statements.
Loans and Related Risk Elements
Loans, net of unearned income, decreased during the second quarter of 1998 from
$69,744,000 at year end 1997 to $68,649,000 as of June 30, 1998. The 1.6%
decrease in the loan portfolio is largely due to two commercial loan payoffs
during the first quarter of 1998 and the foreclosure and resulting charge-off of
a commercial real estate credit. However, continued loan growth, primarily in
high-quality commercial and commercial real estate loans and residential
mortgages, is anticipated by Bank management. Average loans outstanding through
June 30, 1998, of $69,357,000 increased significantly from the average loans
outstanding through June 30, 1997, of $59,751,000. A summary of the Bank's loans
by category in comparison to year end 1997 is included in Note 3 to the
condensed consolidated financial statements.
The allowance for loan losses was $756,000 at June 30, 1998 compared to $636,000
at December 31, 1997. Expressed as a percentage of loans (net of unearned
income), the allowance for loan losses was 1.10% at June 30, 1998 compared to
0.91% at December 31, 1997. Loans charged-off, net of recoveries of previously
charged-off loans, totaled $300,000 and $24,000 for the six months ended June
30, 1998 and 1997, respectively. For the year ended December 31, 1997, net
charge-offs totaled $43,000. 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 six month periods ended June 30,
1998 and 1997, and December 31, 1997.
The Company's allowance for loan losses is divided into allocated and
unallocated categories. The allocated portion of the allowance is established on
a loan-by-loan and pool-by-pool basis. The unallocated portion is for inherent
losses that may exist as of the evaluation date, but which have not been
specifically identified by the processes used to establish the allocated portion
due to inherent imprecision in the objective process of identification. The
unallocated portion is subjective and requires judgment based on various
qualitative factors in the loan portfolio and the market in which the Company
operates. At June 30, 1998, the unallocated portion of the allowance
approximated $177,000 compared to $132,000 at year-end 1997, or 23.4% and 20.8%
of the total allowance, respectively. The unallocated amount at June 30, 1998
and December 31, 1997 is considered necessary because the Bank's methodology
used to calculate the allocated portion of the allowance does not yet reflect
the additional risk factors which may be inherent in the portfolio due to the
significant loan growth over the past two years.
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. A summary of the Company's past due loans and non-performing assets
is provided in the following table:
SUMMARY OF PAST DUE LOANS AND NON-PERFORMING ASSETS
(in thousands of dollars)
June 30, December 31,
1998 1997 1997
- --------------------------------------------- ------- ----
Loans past due 90 or more days
still accruing $ - $ - $ -
NON-PERFORMING assets:
Non-accruing loans $ 478 $ 1,174 $1,733
Other real estate owned 885 22 22
------ ------- ------
$1,363 $ 1,196 $1,755
====== ======= ======
In total, non-performing assets decreased to $1,363,000 compared to $1,755,000
at December 31, 1997. Non-accrual loans decreased significantly to $478,000 as
of June 30, 1998, compared to $1,174,000 and $1,733,000 at June 30, 1997 and
December 31, 1997, respectively. The $1,255,000 decrease from December 31, 1997
was due in large part to the Bank's unexpected foreclosure on the real property
securing a commercial real estate construction note in May 1998. The
construction note was placed on nonaccrual status in the previous quarter due to
the customer's serious delinquency. The loan customer has since filed for
bankruptcy, and in the best interest of the Bank, the property was seized at
foreclosure in an effort to minimize losses. The property was subsequently
offered at public auction and purchased by the bank for $875,000 and placed in
other real estate owned. The difference between the note balance and the
purchase price ($273,000) was charged to the allowance for credit losses. The
property is approximately 85% complete for its intended use. Currently, the Bank
is in the process of marketing the real estate at its current completion state
and several parties have expressed interest in the site. Depending upon the
offers received on the site, management may decide to complete construction of
the property in an effort to improve the site's marketability. Approximately
$50,000 would be needed to complete construction of the property for its
intended use. Based upon an independent appraisal of the site and management's
estimate of the foreclosed property's fair value, management expects to sell the
property for at least the current recorded balance, with no further loss to the
Bank.
As a result of the aforementioned foreclosure and related charge to the
allowance for credit loses, a provision for credit losses of $405,000 was
necessary during the second quarter to restore the unallocated allowance to a
level considered appropriate by management. Based upon management's analysis of
the allocated and unallocated reserve amounts as of June 30, 1998, the reserve
appears adequate to absorb specifically identified losses and other losses
inherent in the loan portfolio. Future provisions for credit losses are not
anticipated for the remainder of 1998.
Deposits
Total deposits decreased 0.5% to $77,935,000 as of June 30, 1998, from
$78,336,000 at December 31, 1997. However, average total deposits increased from
$75,149,000 as of December 31, 1997 to $77,872,000 at June 30, 1998, or 3.6%.
The increase in average total deposits was mainly limited to savings accounts.
Average savings accounts increased from $22,108,000 at December 31, 1997 to
$25,132,000 at June 30, 1998, or 13.6%. The increase is primarily due to the
competitive rate the Bank offers on a certain savings product. Deposits are
expected to remain at current levels for the remainder of 1998.
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 March of 1997. 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. In addition, in late December 1997, the Company
match-funded a certain commercial note with $500,000 of amortizing FHLB
borrowings to lock-in an acceptable fixed interest spread.
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
$5,441,000 at June 30, 1998 versus $5,901,000 at December 31, 1997. The
Company's liquidity position is monitored continuously to ensure that day-to-day
as well as anticipated funding needs are met.
Further enhancing the Company's liquidity is the availability as of June 30,
1998 of $6,960,000 in securities maturing within one year. Also, the Company has
classified additional securities with an estimated fair value totaling
$3,507,000 as available for sale in response to an unforeseen need for
liquidity. Additionally, the Company's subsidiary bank has unused portions of
lines of credit available under existing borrowing arrangements.
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 position.
Interest rate risk represents the volatility in earnings and market values of
interest earning assets and liabilities resulting from changes in market rates.
The Company seeks to minimize interest rate risk through asset/liability
management. The Company's principal asset/liability management strategy is gap
management. Gap is the measure of the difference between the volume of repricing
interest earning assets and interest bearing liabilities during given time
periods. When the volume of repricing interest earning assets exceeds the volume
of repricing interest bearing liabilities, the gap is positive -- a condition
which usually is favorable during a rising rate environment. The opposite case,
a negative gap, generally is favorable during a falling rate environment. When
the interest rate sensitivity gap is near zero, the impact of interest rate risk
is limited, for at this point changes in net interest income are minimal
regardless of whether interest rates are rising or falling. An analysis of the
Company's current gap position is presented in TABLE III.
TABLE III
INTEREST RATE SENSITIVITY GAPS
June 30, 1998
(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>
INTEREST EARNING ASSETS
Loans, net of unearned income 20,090 $3,710 $6,762 $38,087 68,649
Securities 4,497 980 1,482 10,413 17,372
Federal funds sold 2,738 -- -- -- 2,738
------- -------- -------- ------- ------
Total interest earning assets 27,325 4,690 8,244 48,500 88,759
INTEREST BEARING LIABILITIES
Demand deposits 12,129 -- -- -- 12,129
Savings deposits 25,944 -- -- -- 25,944
Time deposits 10,825 9,190 6,131 3,997 30,143
Repurchase agreements 1,058 -- -- -- 1,058
Long-term FHLB borrowings 6 6 6 5,475 5,493
------- -------- -------- ------- ------
Total interest bearing liabilities 49,962 9,196 6,137 9,472 74,767
Contractual interest sensitivity gap (22,637) (4,506) 2,107 39,028 13,992
Adjustment (2) 25,897 (25,897)
Cumulative adjusted interest
sensitivity gap $ 3,260 $(30,403) $2,107 $ 39,028 $13,992
Cumulative adjusted interest
sensitivity gap ............ $ 3,260 (27,143) $(25,036) 13,992
Cumulative adjusted gap ratio .. 1.14 0.54 0.62 1.19
======== ======== ======= ======
Cumulative adjusted gap as a percentage
of Total Earning Assets 3.67% (30.58)% (28.21)% 15.76
</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 0.62, or $(25,036). 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 the next
12 months could have a significant 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 June 30, 1998, 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 downward movements in interest rates in an effort to limit the effects
of interest rate risk on Company net interest income.
<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 June 30, 1998 was $9,376,000 compared to
$9,325,000 at December 31, 1997, representing an increase of $51,000. A
reconciliation of the increase is reported in the Condensed Consolidated
Statement of Shareholders' Equity. Average total shareholders' equity expressed
as a percentage of average total assets was approximately 9.9% at June 30, 1998,
which is slightly lower than December 31, 1997's level of 10.2%. Cash dividends
totaling $154,000, or $0.40 per share were declared during the first half of
1998 which is the same dividend level paid during the first half of 1997. These
payout levels represented approximately 88% and 44% of the Company's
year-to-date earnings for the six-month periods ended June 30, 1998 and 1997,
respectively. The Company's return on average equity (ROE) decreased to 3.7% for
the first half of 1998 compared to 7.8% in the first half of 1997. This decrease
is directly attributable to the decreased earnings for the first six months of
1998 compared to the same period in 1997.
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 June 30, 1998, that the
subsidiary bank meets all capital adequacy requirements to which it is subject,
as evidenced by the following table:
RISK-BASED CAPITAL RATIOS
June 30, 1998
Minimum
Actual Requirement
Tier 1 risk-based capital ratio 14.3% 4.00%
Total risk-based capital ratio 15.5% 8.00%
Leverage ratio 9.8% 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.
<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
No matters were submitted to the shareholders for voting during
the second quarter of 1998.
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 June 30, 1998. However, a Form 8-K was filed on August 8,
1998 disclosing the Company's signing of a non-binding letter of intent
to merge with Pocahontas Bankshares Corporation, a West Virginia
corporation and registered bank holding company. The document is
incorporated herein by reference in its entirety.
<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/ Charles A.
Henthorn
Charles A. Henthorn
Secretary to the Board of Directors
By /S/ Matthew L. Burns
Matthew L. Burns, CPA
Chief Financial Officer, First National Bank
(Principal Financial and Accounting Officer)
Date: August 12, 1998
<PAGE>
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
Earnings Per Share
Basic 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.
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 the conversion, exercise or issuance of
all potential common stock instruments unless the effect is to increase the
income per common share from continuing operations.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000814178
<NAME> MATTHEW L. BURNS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,703
<INT-BEARING DEPOSITS> 0
<FED-FUNDS-SOLD> 2,738
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,130
<INVESTMENTS-CARRYING> 10,242
<INVESTMENTS-MARKET> 10,324
<LOANS> 67,893
<ALLOWANCE> 756
<TOTAL-ASSETS> 94,500
<DEPOSITS> 77,935
<SHORT-TERM> 1,058
<LIABILITIES-OTHER> 638
<LONG-TERM> 5,493
0
0
<COMMON> 965
<OTHER-SE> 8,411
<TOTAL-LIABILITIES-AND-EQUITY> 94,500
<INTEREST-LOAN> 3,115
<INTEREST-INVEST> 487
<INTEREST-OTHER> 109
<INTEREST-TOTAL> 3,711
<INTEREST-DEPOSIT> 1,459
<INTEREST-EXPENSE> 1,668
<INTEREST-INCOME-NET> 2,043
<LOAN-LOSSES> 420
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,551
<INCOME-PRETAX> 281
<INCOME-PRE-EXTRAORDINARY> 177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.92
<YIELD-ACTUAL> 0
<LOANS-NON> 478
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 636
<CHARGE-OFFS> 329
<RECOVERIES> 29
<ALLOWANCE-CLOSE> 756
<ALLOWANCE-DOMESTIC> 756
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 177
</TABLE>
