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, 1999
--------------------------------------------------
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
March 31, 1999:
Common Stock, $5 par value -- 192,903 shares
THIS REPORT CONTAINS 29 PAGES
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended March 31, 1998
<TABLE>
<CAPTION>
INDEX
<S> <C>
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Shareholders' Equity -
Three Months Ended March 31, 1999 and 1998 6
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 7-8
Notes to Condensed Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14 - 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities none
Item 3. Defaults upon Senior Securities none
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
ASSETS (Unaudited) (1)
<S> <C> <C>
Cash and due from banks $ 2,696 2,337
Federal funds sold 3,178 5,679
Securities held to maturity (estimated fair value
$9,998 and $8,805, respectively) (Note 2) 9,993 8,739
Securities available for sale (Note 2) 10,064 9,127
Loans, less allowance for loan losses of $751 and
$766, respectively (Notes 3 and 4) 67,233 68,671
Bank premises and equipment, net 1,805 1,848
Accrued interest receivable 692 602
Other real estate owned acquired in settlement of loans 875 875
Other assets 551 475
--------------- ----------------
Total assets $ 97,087 $ 98,353
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 10,239 $ 12,123
Interest bearing 69,951 69,098
--------------- ----------------
Total deposits 80,190 81,221
Repurchase agreements 665 951
Other liabilities 926 946
Long-term borrowings 5,484 5,488
--------------- ----------------
Total liabilities 87,265 88,606
--------------- ----------------
Commitments and Contingencies (Note 5)
Shareholders' equity
Common stock, $5.00 par value, authorized
500,000 shares, issued 192,903 shares 965 965
Surplus 1,019 1,019
Retained earnings 7,886 7,770
Accumulated other comprehensive income (48) (7)
---------------- ----------------
Total shareholders' equity 9,822 9,747
--------------- ----------------
Total liabilities and shareholders' equity $ 97,087 $ 98,353
=============== ================
</TABLE>
(1) Extracted from December 31, 1998 audited financial statements.
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Unaudited
(In thousands of dollars, except per share data) Three Months Ended
March 31,
<S> <C> <C>
1999 1998
---------- ---------
Interest Income
Interest and fees on loans $ 1,458 $ 1,582
Interest and dividends on securities:
Taxable 229 196
Tax-exempt 42 50
Interest on Federal funds sold 49 49
---------- ---------
Total interest income 1,778 1,877
---------- ---------
Interest Expense
Interest on deposits 718 724
Interest on repurchase agreements 8 14
Interest on long-term borrowings 89 90
---------- ---------
Total interest expense 815 828
---------- ---------
Net interest income 963 1,049
Provision for loan losses - 15
---------- ---------
Net interest income after
provision for loan losses 963 1,034
---------- ---------
Non-interest income
Service fees 67 56
Trust income 21 25
Other income 21 24
---------- ---------
Total non-interest income 109 105
---------- ---------
Non-interest expense
Salaries and employee benefits 389 410
Net occupancy expense 69 63
Equipment rental, depreciation and maintenance 70 74
Data processing 50 41
Advertising 15 12
Professional & legal 20 24
Mailing & postage 17 18
Directors' fees & shareholder expenses 27 35
Stationary & supplies 21 14
Other operating expenses 97 106
---------- ---------
Total non-interest expense 775 797
---------- ---------
Income before income taxes 297 342
---------- ---------
Income tax expense 96 129
---------- ---------
Net income $ 201 $ 213
========== =========
Basic earnings per common share (Note 6) $ 1.04 $ 1.11
========== =========
Diluted earnings per common share (Note 6) $ 1.04 $ 1.10
========== =========
Dividends per common share $ 0.44 $ 0.40
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Unaudited
(In thousands of dollars, except per share data) Three Months Ended
March 31,
<S> <C> <C>
1999 1998
---------- ---------
Net Income $ 201 $ 213
Other comprehensive income, net of tax:
Unrealized gains/(losses) on securities:
Gain (loss) arising during the period (41) 3
Reclassification adjustment - -
Other comprehensive income - -
---------- ---------
Comprehensive Income $ 160 $ 216
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of dollars)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
March 31,
<S> <C> <C>
1999 1998
Balance, beginning of period $ 9,747 $ 9,325
Net income 201 213
Cash dividends declared (85) (77)
Change in net unrealized (loss) on
securities available for sale (41) 3
---------- ---------
Balance, end of period $ 9,822 $ 9,464
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
March 31,
<S> <C> <C>
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 201 $ 213
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 58 66
Provision for loan losses - 15
Deferred income taxes (benefit) 1 4
Amortization of security premiums (accretion) of
security discounts, net (12) (20)
(Gain) loss on disposal of assets - 1
(Increase) decrease in accrued interest receivable (90) 95
(Increase) decrease in other assets (49) (24)
Increase (decrease) in other liabilities (20) (11)
--------- ----------
Net cash provided by operating activities 89 339
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held
to maturity 1,228 1,500
Proceeds from maturities and calls of securities
available for sale 2,002 -
Purchases of securities held to maturity (2,478) -
Purchases of securities available for sale (3,000) (1,093)
Principal collected on (loans made to) customers, net 1,438 973
Purchases of bank premises and equipment (15) (24)
--------- ----------
Net cash provided by (used in) investing activities (825) 1,356
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, NOW
and savings accounts 156 179
Proceeds from sales of (payments for matured)
time deposits, net (1,187) (1,196)
Net increase (decrease) in repurchase agreements (286) (71)
Principal payments on long-term borrowings (4) (3)
Dividends paid (85) (77)
--------- ----------
Net cash provided by (used in) financing activities (1,406) (1,168)
--------- ----------
Increase (decrease) in cash and cash equivalents (2,142) 527
Cash and cash equivalents:
Beginning $ 8,016 $ 5,901
--------- ----------
Ending $ 5,874 $ 6,428
========= ====
</TABLE>
(Continued)
7
<PAGE>
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(In thousands of dollars)
<TABLE>
<CAPTION>
Unaudited
Three Months Ended
March 31,
<S> <C> <C>
1999 1998
--------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 878 $ 815
========= ==========
Income taxes $ 10 $ 195
========= ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends declared and unpaid $ 85 $ 77
========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
8
<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 inter-company 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, 1999
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 1998 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, 1999 and December
31, 1998 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1999
<S> <C> <C> <C> <C>
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Government Agencies
and corporations $ 5,983 $ - $ 81 $ 5,902
State & political subdivisions 500 - 9 491
----------- ----------- ----------- -----------
Total Taxable 6,483 - 90 6,393
Tax Exempt:
State & political subdivisions 3,510 95 - 3,605
----------- ----------- ----------- -----------
Total securities held to maturity $ 9,993 $ 95 $ 90 $ 9,998
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
<S> <C> <C> <C> <C>
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Government Agencies
and corporations 9,503 9 88 9,424
Federal Reserve Bank stock 57 - - 57
Federal Home Loan Bank stock 574 - - 574
Other equity securities 7 - - 7
---------- ----------- ----------- -----------
Total Taxable 10,141 9 88 10,062
Tax Exempt:
Federal Reserve Bank stock 2 - - 2
---------- ----------- ----------- -----------
Total securities available for sale $ 10,143 $ 9 $ 88 $ 10,064
========== =========== =========== ===========
December 31, 1998
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Government Agencies
and corporations $ 5,229 $ 4 $ 23 $ 5,210
State & political subdivisions - - - -
- - - -----------
Total Taxable 5,229 4 23 5,210
Tax Exempt:
State & political subdivisions 3,510 85 - 3,595
---------- ----------- ----------- -----------
Total securities held to maturity $ 8,739 $ 89 $ 23 $ 8,805
========== =========== =========== ===========
December 31, 1998
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Government Agencies
and corporations $ 8,495 $ 15 $ 25 $ 8,485
Federal Reserve Bank stock 57 - - 57
Federal Home Loan Bank stock 574 - - 574
Other equities 9 - - 9
---------- ----------- ----------- -----------
Total Taxable 9,135 15 25 9,125
Tax Exempt:
Federal Reserve Bank stock 2 - - 2
---------- ----------- ----------- -----------
Total securities held to maturity $ 9,137 $ 15 $ 25 $ 9,127
========== =========== =========== ===========
</TABLE>
10
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the
Company's securities at March 31, 1999 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
<S> <C> <C> <C> <C>
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
Due within 1 year $ 2,237 $ 2,237 $ 1,500 $ 1,508
Due after 1 but within 5 years 6,536 6,526 6,003 5,935
Due after 5 but within 10 years 720 744 2,000 1,981
Due after 10 years 500 491 - -
Equity securities - - 640 640
---------- ----------- ----------- -----------
$ 9,993 $ 9,998 $ 10,143 $ 10,064
========== =========== =========== ===========
</TABLE>
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 do not have a stated
maturity date, and are carried at cost, since they may only be
sold back to the respective issuer or another member 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, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
PROCEEDS FROM GROSS REALIZED
Calls and
<S> <C> <C> <C> <C>
Sales Maturities Gains Losses
Three months ended March 31, 1998
Securities held to maturity $ - $ 1,228 $ - $ -
Securities available for sale - 2,002 - -
----------- ---------- ----------- -----------
$ - $ 3,230 $ - $ -
=========== ========== =========== ===========
Three months ended March 31, 1997:
Securities held to maturity $ - $ 1,500 $ - $ -
Securities available for sale - - - -
----------- ---------- ----------- -----------
$ - $ 1,500 $ - $ -
=========== ========== =========== ===========
</TABLE>
Note 3. Loans
Total loans as of March 31, 1999 and December 31, 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1999 1998
-------------- ----------------
Commercial, financial and agricultural $ 26,661 $ 26,581
Real estate - construction 968 956
Real estate - mortgage 30,377 31,646
Installment loans to individuals 8,348 8,482
Other 1,630 1,772
-------------- ----------------
Total loans 67,984 69,437
Less unearned income - -
-------------- ----------------
Total loans net of unearned income 67,984 69,437
Less allowance for credit losses 751 766
-------------- ----------------
Loans, net $ 67,233 $ 68,671
============== ================
</TABLE>
11
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Allowance for Credit Losses
Analyses of the allowance for loan losses are presented below (in
thousands) for the three month periods ended March 31, 1999 and
1998:
<TABLE>
<CAPTION>
Three Months Ended
<S> <C> <C> <C>
March 31, Dec 31,
1999 1998 1998
-------------- ----------- ------------
Balance, beginning of period $ 766 $ 636 $ 636
Loans charged off (34) (23) (364)
Recoveries 19 12 45
-------------- ----------- ------------
Net losses (15) (11) (319)
-------------- ----------- ------------
Provision for credit losses - 15 449
-------------- ----------- ------------
Balance, end of period $ 751 $ 640 $ 766
============== =========== ============
</TABLE>
The Company's total recorded investment in impaired loans at March
31, 1999 and December 31, 1998, approximated $453,000 and
$318,000, respectively, for which the related allowance for credit
losses determined in accordance with generally accepted accounting
principles approximated $194,000 and $250,000, respectively. All
impaired loans at March 31, 1999 and 1998 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 unused portions of
existing lines of credit at March 31, 1999 and December 31, 1998,
and the contract amount of commitments to lend are as follows, in
thousands of dollars:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31
1999 1998
-------------- -----------
Commitments to extend credit $ 11,512 $ 11,508
============== ===========
</TABLE>
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 192,903 and 192.500 for
the three months ended March 31, 1999 and 1998, respectively.
Under Financial Accounting Standards Statement No. 128, Earnings
per Share, 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. At March 31, 1999, shares
totaling 3,603 were outstanding under the stock option plan, all
being fully-vested and exercisable, with 5,619 shares remaining as
available for grant.
12
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic and diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>
March 31, 1999
<S> <C> <C> <C>
Income Shares Per Share
(Numerator) ( Denominator) Amount
----------- ---------------- -----------
Basic EPS
Income available to common shareholders $ 201,000 192,903 $ 1.04
===========
Effect of Dilutive Securities
Stock options - 1,097
------------- -----------
Diluted EPS
Income available to common shareholders $ 201,000 194,000 $ 1.04
============== =========== ===========
March 31, 1998
Income Shares Per Share
(Numerator) ( Denominator) Amount
----------- ---------------- -----------
Basic EPS
Income available to common shareholders $ 213,000 192,500 $ 1.11
===========
Effect of Dilutive Securities
Stock options - 321
------------- -----------
Diluted EPS
Income available to common shareholders $ 213,000 192,821 $ 1.10
============== =========== ===========
</TABLE>
13
<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 1998 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 $201,000 for the three months ended March 31,
1999 compared to $213,000 for the quarter ended March 31, 1998, representing a
5.6% decrease. The decrease in quarterly earnings was primarily attributable to
a decrease in net interest income. See the NET INTEREST INCOME section which
follows for further discussion of this item.
Basic earnings per common share was $1.04 for the quarter ended March 31, 1999
compared to the $1.11 reported for the first quarter of 1998. 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 for the three month
periods ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
<S> <C> <C> <C>
Increase
1999 1998 (Decrease)
Interest income $ 9.22 $ 9.75 $ (0.53)
Interest expense 4.22 4.30 (0.08)
---------- ---------- ------------
Net interest income 5.00 5.45 (0.45)
Provision for loan losses 0.00 0.08 (0.08)
---------- ---------- ------------
Net interest income after
provision for loan losses 5.00 5.37 (0.37)
---------- ---------- ------------
Non-interest income 0.56 0.55 0.01
Non-interest expense 4.02 4.14 (0.12)
---------- ---------- ------------
Income before income taxes 1.54 1.78 (0.24)
Income tax expense 0.50 0.67 (0.17)
---------- ---------- ------------
Net income $ 1.04 $ 1.11 $ (0.07)
========== ========== ============
</TABLE>
The Company's annualized return on average assets (ROA) for the first quarter of
1999 was 0.82% compared to 0.90% for the first quarter of 1998. Annualized
return on average shareholders' equity (ROE) was 8.21% for the first quarter of
1999 compared to 8.99% in the first quarter of 1998. These decreases are
directly attributable to the decreased earnings level discussed herein.
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, 1999
and 1998, the tax-equivalent adjustment was $22,000 and $25,000, respectively.
The Company's net interest income on a fully tax-equivalent basis totaled
$985,000 for the three-month period ended March 31, 1999 compared to $1,074,000
for the same period of 1998, representing a decrease of $89,000 or 8.29%. As
illustrated in Table I, the Company's net yield on interest earning assets
decreased to 4.31% for the three months ended March 31, 1999 compared to 4.76%
reported in the comparable period of 1998. The majority
14
<PAGE>
of the decline occurred in interest earning assets, where the yield declined
from 8.44% in 1998 to 7.88% in 1999. As shown in Table II, this decline is
largely attributable to a decreased interest rate environment in 1999. As a tool
to manage interest rate risk, a majority of the Company's loan portfolio is
written with variable interest rate features, whereby loan interest rates are
repriced at specified time intervals based upon a pre-determined index rate.
Variable rate commercial credits are priced based upon the prime rate as
published in the Wall Street Journal. During the first quarter
of 1999, the prime rate stood at 7.75% which compares to 8.50% during the first
quarter of 1998. The seventy-five basis point decline in the prime rate was
largely responsible for the negative impact on the loan interest yield, where
the yield declined from 9.07% in 1998 to 8.51% in 1999. As a result of the
depressed interest rate environment and other factors, interest income on
earning assets was down $102,000 in 1999 compared 1998.
Further analysis of the Company's yields on interest earning assets and interest
bearing liabilities and changes in net interest income as a result of changes in
average volume and interest rates are presented in Tables I and II.
15
<PAGE>
<TABLE>
<CAPTION>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
---------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
INTEREST EARNING ASSETS
Loans $ 68,550 $ 1,458 8.51% $ 69,732 $ 1,582 9.07%
Securities:
Taxable 14,724 229 6.22 12,739 196 6.15
Tax-exempt 3,862 64 6.62 4,090 75 7.33
---------- ---------- -------- ---------- ---------- ---------
Total securities 18,586 293 6.30 16,829 271 6.44
---------- ---------- -------- ---------- ---------- ---------
Federal funds sold 4,266 49 4.59 3,576 49 5.48
---------- ---------- --------- ---------- ---------- --------
Total interest earning assets $ 91,403 $ 1,800 7.88% $ 90,137 $ 1,902 8.44%
========== ========== ========= ========== ========== =========
NON-INTEREST EARNING ASSETS
Cash and due from banks 3,237 2,385
Bank premises and equipment 1,824 2,065
Other assets 1,974 1,115
Allowance for credit losses (768) (637)
---------- ----------
Total assets $ 97,670 $ 95,065
========== ==========
INTEREST BEARING LIABILITIES
Demand deposits $ 12,065 $ 70 2.32% $ 12,596 $ 79 2.51
Savings deposits 28,526 287 4.02 24,683 256 4.15
Time deposits 29,398 361 4.91 30,206 389 5.15
---------- ---------- -------- ---------- ---------- -------
Total interest bearing deposits $ 69,989 $ 718 4.10 $ 67,485 $ 724 4.29%
Repurchase agreements 1,072 8 2.99% 1,429 14 3.92
Long-term borrowings 5,486 89 6.52 5,498 90 6.55
---------- ---------- --------- ---------- ---------- -------
Other interest bearing liabilities 6,558 97 5.95 6,927 104 6.01
Total interest bearing liabilities $ 76,547 $ 815 4.26% $ 74,412 $ 828 4.45%
---------- ---------- --------- ---------- ---------- --------
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 10,412 10,138
Other liabilities 924 1,038
Shareholders' equity 9,787 9,477
---------- ----------
Total liabilities and
shareholders' equity $ 97,670 $ 95,065
========== ==========
NET INTEREST
EARNINGS $ 985 $ 1,074
========== ==========
NET YIELD ON INTEREST
EARNING ASSETS 4.31% 4.76%
========= ============
</TABLE>
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 1999
and 1998.
(2) - For purposes of this table, nonaccruing loans are included in average loan
balances and loan fees are included in interest income.
16
<PAGE>
<TABLE>
<CAPTION>
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
<S> <C> <C> <C>
Three Months Ended
March 31, 1999 vs. March 31, 1998
Increase (Decrease)
Due to Changes in:
Volume (1) Rate (1) Total
INTEREST EARNING ASSETS
Loans $ (26) $ (98) $ (124)
Securities:
Taxable 31 2 33
Tax-exempt (2) (4) (7) (11)
---------- --------- ---------
Total securities 27 (5) 22
---------- --------- ---------
Federal funds sold 8 (8) -
---------- --------- ---------
Total interest earning assets 9 (111) (102)
---------- ---------- ----------
INTEREST BEARING LIABILITIES
Demand deposits (3) (6) (9)
Savings deposits 39 (8) 31
Time deposits (10) (18) (28)
Repurchase agreements (3) (3) (6)
Long-term borrowings - (1) (1)
---------- --------- ---------
Total interest bearing liabilities 23 (36) (13)
---------- ---------- ---------
NET INTEREST EARNINGS $ (14) $ (75) $ (89)
========== =========== ===========
</TABLE>
(1) - The changes 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%.
17
<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.
No provision for loan losses was considered necessary during the first quarter
of 1999. During the first quarter of 1998, the Company made a provision for loan
losses of $15,000. See further discussion of loan quality and the related
allowance for loan losses in the LOAN PORTFOLIO section of this analysis.
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,
1999, non-interest income totaled $109,000, up $4,000 or 3.8% from the $105,000
that was recorded during the first quarter of 1998. Stated as a percentage of
average assets, non-interest income was approximately 0.11% for the first
quarter of 1999 and 1998.
Effective January 1, 1999, management implemented a new fee schedule whereby
certain service charges assessed on demand deposit accounts were increased. As a
result, service fees increased $11,000 or 19.6% during the first quarter of 1999
compared to the same period of 1998, and for the year, are expected to increase
over 1998's level. The increase in service fee income was offset by a $7,000
decline in trust and other income during the quarter. Estate and other trust
services tend to fluctuate from year to year, and trust revenues are expected to
be lower in 1999 compared to 1998.
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, 1999,
the Company's non-interest expense totaled $775,000, representing a decrease of
$22,000, or 2.8%, from the $797,000 non-interest expense incurred in the first
quarter of 1998. Expressed as a percentage of average assets, non-interest
expense decreased to 0.79% at March 31, 1999, from 0.84% at March 31, 1998.
Salaries and employee benefits are the Company's largest non-interest cost,
representing approximately 50% and 51% of total non-interest expense at March
31, 1999 and 1998, respectively. Salaries and employee benefits decreased
$21,000, or 5.1% as of March 31, 1999 compared to March 31, 1998. This decrease
is primarily due to the company having three fewer full-time equivalents in 1999
compared to 1998. Less staff has been the result of employee retirements and
voluntary resignations. Management feels the existing staff is adequate to meet
its customers' needs without incurring excessive amounts of overtime or
contractual labor. Therefore, the positions, for the short-term, will not be
filled.
Recent changes in the State of West Virginia's property tax laws coupled with
the assessment of property taxes on various large dollar capital additions
within the past few years, namely the new branch in Lewisburg, have increased
net occupancy expense $6,000 over the amount reported in 1998. Data processing,
which stood at $41,000 in 1998, increased $9,000 or 21.9% during the first
quarter of 1999. The increase is largely attributable to an estimated 15% fee
hike imposed by the third party processor since February 1998. The $8,000
decrease in director's fees and shareholder expenses and the $7,000 increase in
stationary and supplies expenses are largely due to timing differences. The
amounts incurred for both line items during the first quarter of 1999 are not
materially different from budgeted amounts, and for the year, are not expected
to be materially different from 1998's expense. No other significant variances
or unusual non-interest expense items occurred during the quarter.
INCOME TAXES
The Company's income tax expense, which includes both federal and state income
taxes, totaled $96,000 for the three-month period ended March 31, 1999 compared
to $129,000 for same period of 1998. Income tax expense equaled 32.3% and 37.7%
of income before taxes at March 31, 1999 and 1998, 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
the state income taxes, net of the federal benefit, and tax-exempt interest
income included in income before income taxes.
18
<PAGE>
CHANGES IN FINANCIAL CONDITION
The Company's total assets were $97,087,000 at March 31, 1999, compared to
$98,353,000 at December 31, 1998, representing a decrease of $1,266,000 or
1.29%. Average total assets have also declined during the quarter. However, the
decrease was only $683,000 or 0.69%. Details concerning changes in the Company's
major balance sheet items and changes in financial condition follow.
Securities
The Bank's total securities portfolio increased by $2,191,000 or 12.2% from
December 31, 1998. Due to slow loan demand and net payoffs in the loan
portfolio, management opted to purchase securities with interest yields better
than overnight investments, such as Federal funds sold. In anticipation of
future loan growth, an effort was made to purchase short-term securities. A
summary of the Company's securities portfolio is included as Note 2 to the
condensed consolidated financial statements.
Loan Portfolio
Loans, net of unearned income, decreased during the first quarter of 1999 from
$69,437,000 at year end 1998 to $67,984,000 as of March 31, 1999. Similarly,
average loans outstanding through March 31, 1999, of $68,550,000 decreased from
the average loans outstanding at March 31, 1998, of $69,732,000. With the lowest
mortgage and prime interest rates in recent years, many customers have taken the
opportunity to refinance their existing debt. Although the Company strives to
remain competitive in the pricing of its loan products, several large dollar
credits have refinanced with competing banks and financial institutions. Through
the strength of its business and personal relationships, future loan growth,
primarily in high-quality commercial and commercial real estate loans and
residential mortgages, is anticipated by Bank management. Marketing efforts will
focus on the Bank's primary and contiguous market areas. A summary of the Bank's
loans by category in comparison to year end 1998 is included in Note 3 to the
condensed consolidated financial statements.
The allowance for loan losses was $751,000 at March 31, 1999 compared to
$766,000 at December 31, 1998. Expressed as a percentage of loans (net of
unearned income), the allowance for loan losses was 1.10% at March 31, 1999 and
December 31, 1998. Loans charged-off, net of recoveries of previously
charged-off loans, totaled $15,000 and $11,000 for the three months ended March
31, 1999 and 1998, 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,
1999 and 1998, and December 31, 1998.
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 upon various
qualitative factors in the loan portfolio and the market in which the Company
operates. At March 31, 1999, the unallocated portion of the allowance
approximated $244,000 compared to $95,000 at year-end 1998, or 32.5% and 12.4%
of the total allowance, respectively. The increase in the unallocated portion is
due to the following: (1) a principal payment received on a problem credit
reduced the specific allocation by $47,000, and (2) the decrease in total loan
outstandings equated to a smaller pooled reserve requirement. However, the
increase in the unallocated portion was most impacted by the improvement in the
Company's loss experience over the past several years. Currently, the Company
uses an adjusted three-year charge-off factor for each pool of loans to measure
the pooled requirement. Cumulative net charge-offs over the past three years
total $358,000. This same loss history equates to approximately 0.17% of the
average total loan balance over the same time period and compares favorably to
other common-sized banks within its market area. This low level of net losses
has been achieved through sound lending policies and procedures.
Total recorded investment in impaired loans at March 31, 1999 and December 31,
1998, approximated $453,000 and $318,000, respectively, for which related
allowance for credit losses determined in accordance with generally accepted
accounting principles approximated $194,000 and $250,000, respectively. All
impaired loans at March 31, 1999 and 1998 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.
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:
19
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF PAST DUE LOANS AND NON-PERFORMING ASSETS
(in thousands of dollars)
<S> <C> <C> <C>
March 31, December 31,
1998 1997 1997
----------- ----------- ----------------
Loans past due 90 or more days still accruing $ - - $ -
=========== =========== =========
NON-PERFORMING assets:
Non-accruing loans $ 453 $ 1,707 $ 318
Other real estate owned 875 20 875
----------- ----------- ---------
$ 1,328 $ 1,727 $ 1,193
=========== =========== =========
</TABLE>
Total non-performing assets at March 31, 1999 increased $134,000 from its
December 31, 1998 balance, with non-accrual loans accounting for the entire
increase. As discussed above, all non-accrual loans at March 31, 1999 have been
individually reviewed for their estimated loss exposure, and a portion of the
allowance for loan losses has been allocated to cover such losses, if needed.
In February 1999, the Company entered into an agreement to lease the commercial
property it holds in other real estate. The terms of the lease call for the
lessee to make monthly payments for three years with the option to purchase the
property at any time during the lease term at a price equal to the book value of
the property , reduced by the amount of the lease payments, up to a maximum of
$100,000.
Deposits
Total deposits at the end of the first quarter decreased from year-end 1998,
falling $1,031,000, or 1.27%, to $80,190,000. Ending balances for non-interest
bearing deposits decreased by $1,884,000, or 15.54%, while interest bearing
deposits increased by $853,000, or 1.23%. Historically, the Company has
experienced deposit runoff in the first quarter, particularly in transactional
accounts (e.g., demand deposit, NOW and money market accounts), as depositors
access account balances for various reasons. For comparative purposes, total
deposits fell $1,017,000 or 1.3% in the first quarter of 1998.
For the quarter, total savings deposits grew $1,782,000 or 6.42%. Much of the
growth has occurred in a particular savings product where the balance grew
$2,201,000 or 17.1% since December 31, 1998. This product offers a competitive
interest rate and immediate liquidity, which is attractive in the current
interest rate environment. The growth in savings has been offset by a $989,000
decline in certificates of deposit, while other interest bearing deposits grew
marginally. As certificates of deposit matured during the quarter, some larger
balance customers transferred deposits to the savings product mentioned above,
which contributed to the savings growth. This shifting of deposits between
savings and certificates of deposit has not materially impacted interest expense
as the highest interest rate offered on the savings product is comparable to
short-term interest rates offered on certificates of deposits. See the NET
INTEREST INCOME section of this analysis for further discussion of the impact on
the Company's interest expense.
Management anticipates that non-interest deposits will rebound from their
"seasonal" decline during the second quarter. In addition, interest bearing
deposits will continue to be pursued in order to fund future asset growth.
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
$5,874,000 at March 31, 1999 versus $8,016,000 at December 31, 1998. 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 of $3,737,000, at
amortized cost, in debt securities maturing within one year as of March 31,
1999. Also, the Company has classified additional debt securities with an
estimated fair value totaling $7,916,000 as available for sale in response to an
unforeseen need for liquidity.
20
<PAGE>
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, 1999, is
presented in TABLE III.
21
<PAGE>
<TABLE>
<CAPTION>
TABLE III
INTEREST RATE SENSITIVITY GAPS
March 31, 1999
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
REPRICING (1)
Within 3 3 to 6 6 to 12 After
Months Months 12 Months 12 Months Total
----------- ------------ ------------ ----------- -------------
INTEREST EARNING ASSETS
Loans, net of unearned income $ 21,064 $ 4,026 $ 9,326 $ 33,568 $ 67,984
Securities, at amortized cost 1,249 2,488 - 15,759 19,496
Federal funds sold 3,178 - - - 3,178
---------- ------------ ------------ ----------- -----------
Total interest earning assets 25,491 6,514 9,326 49,327 90,658
---------- ------------ ------------ ----------- -----------
INTEREST BEARING LIABILITIES
Demand deposits 12,157 - - - 12,157
Savings deposits 29,547 - - - 29,547
Time deposits 6,102 6,299 11,161 4,685 28,247
Repurchase Agreements 665 - - - 665
Long-term borrowings 3 3 6 5,472 5,484
---------- ------------ ------------ ----------- -----------
Total interest bearing liabilities 48,474 6,302 11,167 10,157 76,100
---------- ------------ ------------ ----------- -----------
Contractual interest sensitivity gap (22,983) 212 (1,841) 39,170 14,558
Adjustment (2) 24,539 (24,539) - - -
---------- ------------ ------------ --------- -----------
Adjusted interest sensitivity gap $ 1,556 $ (24,327) $ (1,841) $ 39,170 $ 14,558
========== ============= ============= =========== ===========
Cumulative adjusted interest
sensitivity gap $ 1,556 $ (22,771) $ (24,612) $ 14,558
========== ============= ============ ===========
Cumulative adjusted gap ratio 1.07 0.58 0.63 1.19
========== ============ ============ ===========
Cumulative adjusted gap as a
percent of earning assets 1.72% (25.12%) (27.15%) 16.06%
========== ============ ============ ===========
</TABLE>
(1) - Contractual repricing, not contractual maturities, is used in this table
unless otherwise noted. No pre-payment assumptions were assumed. (2) -
Adjustment to approximate the actual repricing of certain 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 0.63, or ($24,612,000.) 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 1999
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, 1999, 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.
22
<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, 1999 was $9,822,000 compared to
$9,747,000 at December 31, 1998, representing an increase of $75,000. Average
total shareholders' equity expressed as a percentage of average total assets was
approximately 10.02% at March 31, 1999, which is higher than December 31, 1998's
level of 9.90%. Cash dividends totaling $85,000, or $0.44 per share were
declared during the first quarter of 1999 which is 10% higher than dividend
level paid during the first quarter of 1998. These payout levels represented
approximately 42% and 36% of the Company's year-to-date earnings for the
three-month periods ended March 31, 1999 and 1998, respectively. The Company's
return on average equity (ROE) decreased to 8.21% for the first quarter of 1999
compared to 8.99% in the first quarter of 1998.
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, 1999, that the
subsidiary bank meets all capital adequacy requirements to which it is subject,
as evidenced by the following table:
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
March 31, 1999
<S> <C> <C>
Minimum
Actual Requirement
Tier 1 risk-based capital ratio 15.01% 4.00%
Total risk-based capital ratio 16.15% 8.00%
Leverage ratio 10.08% 3.00%
</TABLE>
Improved operating results and a consistent dividend program, coupled with an
effective management of credit and interest rate risk will be the key elements
towards the Company continuing to maintain its present strong capital position
in the future.
YEAR 2000:
As discussed in greater detail in the 1998 10-K, the Company has committed a
great amount of effort and resources to ensure that critical information and
non-information systems will operate effectively in the Year 2000 (or "Y2K").
Should problems be confronted, a contingency plan detailing various manual
operations and "backup" procedures is available. A similar contingency plan has
been utilized during recent natural disasters with little or no problems
encountered. In addition to its "in-house" information and non-information
systems, the Company has sought representations from major vendors, suppliers
and customers regarding their readiness for Y2K. In particular, commercial loan
customers identified as highly susceptible to Y2K failures have been asked by
the Company for representations regarding their readiness for Y2K. These
customers will be closely monitored and estimated loan losses resulting from
potential Y2K exposure will be incorporated in the evaluation for loan loss
reserve.
To date, the Company is approximately 95% complete with regards to replacement
and remediation. Since December 31, 1998, the Company has incurred outlays
totaling approximately $16,000 representing both capital and noncapital
expenditures. For the remainder of 1999, no material outlays are expected to be
incurred.
The Company is approximately 80% complete with regards to its testing for Y2K
compliance. Remaining areas of testing include Automated Teller Machines (or
"ATMs") and various third party processors and software, such as payroll and
credit bureau vendors. All such testing is expected to be completed by the end
of the second quarter.
23
<PAGE>
Management is addressing possible liquidity concerns in the event depositors
withdraw large amounts of cash at or near year end. At this time, the cash
requirements at or near year end cannot be reasonably predicted. However, the
Bank, with input from industry regulators, will be working on estimating
possible cash requirements in the near future. See the LIQUIDITY AND INTEREST
RATE MANAGEMENT section for further discussion on liquidity.
24
<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 22, 1999. A total of 128,087 shares, or
66% of outstanding shares, were voted, with 126,309 represented by
proxy and 1,778 represented in person. At this meeting, the following
business was transacted:
a) Election for three-year term
Richard E. Ford and Ronald B. Snyder were elected to serve as
Company directors for a three-year term expiring in the year
2002. Results of the election were as follows:
TOTAL
VOTES
Nominees selected by Board of Directors
Richard E. Ford 124,002
Ronald B. Snyder 126,162
Nominees from the Floor
None
b) The accounting firm of Arnett & Foster of Charleston, WV was
approved by the shareholders as the Company's accounting firm
as 127,951shares voted for this appointment and 131shares
abstained. Five 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, 1999.
25
<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
Executive Vice President
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: / /
26
<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.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000814178
<NAME> First National Bankshares Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1.00000
<CASH> 2,696
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,178
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,064
<INVESTMENTS-CARRYING> 9,993
<INVESTMENTS-MARKET> 9,998
<LOANS> 67,984
<ALLOWANCE> 751
<TOTAL-ASSETS> 97,087
<DEPOSITS> 80,190
<SHORT-TERM> 665
<LIABILITIES-OTHER> 926
<LONG-TERM> 5,484
0
0
<COMMON> 965
<OTHER-SE> 8,857
<TOTAL-LIABILITIES-AND-EQUITY> 97,087
<INTEREST-LOAN> 1,458
<INTEREST-INVEST> 271
<INTEREST-OTHER> 49
<INTEREST-TOTAL> 1,778
<INTEREST-DEPOSIT> 718
<INTEREST-EXPENSE> 815
<INTEREST-INCOME-NET> 963
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 775
<INCOME-PRETAX> 297
<INCOME-PRE-EXTRAORDINARY> 201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
<YIELD-ACTUAL> 4.31
<LOANS-NON> 453
<LOANS-PAST> 0
<LOANS-TROUBLED> 103
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 766
<CHARGE-OFFS> 34
<RECOVERIES> 19
<ALLOWANCE-CLOSE> 751
<ALLOWANCE-DOMESTIC> 751
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 244
</TABLE>
