UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
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
November 10, 2000:
Common Stock, $1 par value -- 967,015 shares
THIS REPORT CONTAINS 25 PAGES
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarterly Period Ended September 30, 2000
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 2000 and 1999 and
Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 2000 and 1999 and
Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Shareholders' Equity -
Three Months Ended September 30, 2000 and 1999 and
Nine Months Ended September 30, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 7-8
Notes to Condensed Consolidated Financial Statements 9-12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
2
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data)
<S> <C> <C>
September 30, December 31,
2000 1999
ASSETS (Unaudited) (1)
Cash and due from banks $ 2,049 $ 3,717
Interest-bearing deposits with other banks 5 17
Federal funds sold - 30
Securities held to maturity (estimated fair value
$10,971 and $11,160 respectively) 11,101 11,520
Securities available for sale 9,475 11,357
Loans, net of allowance of $785 and
$764, respectively 88,022 74,264
Bank premises and equipment, net 1,587 1,695
Accrued interest receivable 923 727
Other real estate owned acquired in settlement of loans 852 884
Other assets 651 618
Total assets $ 114,665 $ 104,829
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 10,804 $ 10,741
Interest bearing 81,147 78,391
Total deposits 91,951 89,132
Short-term borrowings 10,631 4,113
Other liabilities 921 960
Long-term borrowings 462 473
Total liabilities 103,965 94,678
Commitments and Contingencies
Shareholders' equity
Common stock, $1.00 par value, authorized
10,000,000 shares, issued 967,015 and 964,515
shares, respectively 967 965
Surplus 1,042 1,019
Retained earnings 8,836 8,370
Accumulated other comprehensive income (145) (203)
Total shareholders' equity 10,700 10,151
Total liabilities and shareholders' equity $ 114,665 $ 104,829
(1) Extracted from the December 31, 1999 audited financial statements.
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<TABLE>
<CAPTION>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Interest income
Interest and fees on loans $ 1,987 $ 1,574 $ 5,426 $ 4,510
Interest and dividends on securities:
Taxable 276 357 865 830
Tax-exempt 36 41 108 123
Interest on interest-bearing deposits with other banks 1 26 1 75
Interest on federal funds sold - 39 26 150
Total interest income 2,300 2,037 6,426 5,688
Interest expense
Interest on deposits 936 805 2,619 2,261
Interest on short-term borrowings 153 9 308 22
Interest on long-term borrowings 7 71 21 251
Total interest expense 1,096 885 2,948 2,534
Net interest income 1,204 1,152 3,478 3,154
Provision for loan losses 35 50 50 80
Net interest income after provision
for loan losses 1,169 1,102 3,428 3,074
Other income
Service fees 79 77 222 223
Securities (losses) (3) - (3) -
Trust income 6 6 30 47
Other income 20 27 61 72
102 110 310 342
Other expense
Salaries and employee benefits 415 410 1,252 1,198
Net occupancy expense 67 64 205 205
Equipment rental, depreciation and maintenance 71 70 208 209
Data processing 56 43 171 138
Professional and legal 34 31 88 73
Directors' fees and shareholder expense 24 26 87 74
Other operating expenses 162 178 525 491
829 822 2,536 2,388
Income before income taxes 442 390 1,202 1,028
Income tax expense 146 131 398 341
Net income $ 296 $ 259 $ 804 $ 687
Basic earnings per common share $ 0.31 $ 0.27 $ 0.83 $ 0.71
Diluted earnings per common share $ 0.30 $ 0.27 $ 0.83 $ 0.71
Dividends per common share $ 0.13 $ 0.09 $ 0.35 $ 0.27
See Notes to Condensed Consolidated Financial Statements
</TABLE>
4
<TABLE>
<CAPTION>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands of dollars)
<S> <C> <C> <C> <C>
Unaudited Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Net Income $ 296 $ 259 $ 804 $ 687
Other comprehensive income:
Gross unrealized gains/(losses)
arising during the period 156 (51) 95 (253)
Adjustments for income tax (expense)/
benefit (61) 20 (37) 99
Other comprehensive income, net of tax 95 (31) 58 (154)
Comprehensive Income $ 391 $ 228 $ 862 $ 533
</TABLE>
See Notes to Condensed Consolidated Financial Statements
5
<TABLE>
<CAPTION>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Balance, beginning of period $ 10,434 $ 9,882 $ 10,151 $ 9,747
Net income 296 259 804 687
Cash dividends declared (125) (86) (338) (256)
Issued 2,500 shares of common
stock pursuant to stock option
exercise - - 25 -
Change in net unrealized gain(loss) on
securities available for sale 95 (31) 58 (154)
Balance, end of period $ 10,700 $ 10,024 $ 10,700 $ 10,024
</TABLE>
See Notes to Condensed Consolidated Financial Statements
6
<TABLE>
<CAPTION>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Nine Months Ended
September 30,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 804 $ 687
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 164 175
Provision for loan losses 50 80
Deferred income tax (benefit)/expense (50) 71
Amortization of security premiums (accretion) of
security discounts, net (18) (132)
Securities losses, net 3 -
(Gain) on disposal of bank premises and equipment - (6)
(Increase) Decrease in accrued interest receivable (196) (205)
(Increase) Decrease in other assets (20) (21)
Increase (Decrease) in other liabilities (78) (36)
Net cash provided by operating activities 659 613
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing deposits with
other banks 12 4,483
Proceeds from maturities and calls of securities held
to maturity 1,012 4,483
Proceeds from maturities and calls of securities
available for sale 2,500 6,502
Purchases of securities held to maturity (600) (8,722)
Purchases of securities available for sale (501) (11,838)
Loans made to customers, net of principal collected (13,808) (2,865)
Principal payments received from leases 32 10
Proceeds from sale of bank premises and equipment - 20
Purchases of bank premises and equipment (56) (50)
Net cash used in investing activities (11,409) (12,460)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand deposits, NOW
and savings accounts (2,799) 15,504
Net increase (decrease) in time deposits 5,618 (2,442)
Net increase (decrease) in short-term borrowings 6,518 2,956
Principal payments on long-term borrowings (11) (5,011)
Proceeds from sale of common stock pursuant to
stock option exercise 25 -
Dividends paid (299) (255)
Net cash provided by financing activities 9,052 10,752
Decrease in cash and cash equivalents (1,698) (1,095)
Cash and cash equivalents:
Beginning 3,747 8,016
Ending $ 2,049 $ 6,921
(Continued)
See Notes to Condensed Consolidated Financial Statements
</TABLE>
7
<TABLE>
<CAPTION>
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
(In thousands of dollars)
<S> <C> <C>
Nine Months Ended
September 30,
2000 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 2,980 $ 2,608
Income taxes $ 445 $ 267
</TABLE>
See Notes to Condensed Consolidated Financial Statements
8
<TABLE>
<CAPTION>
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, (the "Company" or
"First National"), and its wholly owned subsidiaries, First National Bank and FNB Insurance, LLC,
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
subsidiaries, First National Bank and FNB Insurance, LLC. All significant intercompany balances and
transactions have been eliminated. The information contained in the condensed consolidated financial
statements is unaudited. 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 nine months ended September 30, 2000 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 1999
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.
Accounting Pronouncements
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities," (FAS 133) which requires all derivatives to be recorded on the balance sheet at
fair value and establishes "special" accounting for fair value, cash flow, and foreign currency hedges.
FAS 133 is effective, as amended, for years beginning after June 15, 2000. The impact of adopting
the pronouncement would be immaterial as the Company does not currently hold derivative
instruments or engage in hedging activities.
Note 2. Securities
The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at
September 30, 2000 and December 31, 1999 are summarized as follows (in thousands):
<S> <C> <C> <C> <C>
September 30, 2000
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Government Agencies
and corporations $ 7,600 $ - $ 120 $ 7,480
State and political subdivisions 485 - 20 465
Total Taxable 8,085 - 140 7,945
Tax Exempt:
State and political subdivisions 3,016 18 8 3,026
Total securities held to maturity $ 11,101 $ 18 $ 148 $ 10,971
</TABLE>
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
September 30, 2000
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Government Agencies
and corporations $ 8,999 - 238 8,761
Federal Reserve Bank Stock 57 - - 57
Federal Home Loan Bank Stock 646 - - 646
Other equity securities 9 - - 9
Total Taxable 9,711 - 238 9,473
Tax Exempt:
Federal Reserve Bank Stock 2 - - 2
Total securities available for sale $ 9,713 $ - $ 238 $ 9,475
December 31, 1999
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity:
Taxable:
U.S. Government Agencies
and corporations $ 8,000 $ - $ 196 $ 7,804
State and political subdivisions 500 - 172 328
Total Taxable 8,500 - 368 8,132
Tax Exempt:
State and political subdivisions 3,020 21 13 3,028
Total securities held to maturity $ 11,520 $ 21 $ 381 $ 11,160
December 31, 1999
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale:
Taxable:
U.S. Government Agencies
and corporations $ 10,978 $ - $ 333 $ 10,645
Federal Reserve Bank Stock 57 - - 57
Federal Home Loan Bank Stock 646 - - 646
Other equities securities 7 - - 7
Total Taxable 11,688 - 333 11,355
Tax Exempt:
Federal Reserve Bank Stock 2 - - 2
Total securities held to maturity $ 11,690 $ - $ 333 $ 11,357
</TABLE>
10
<TABLE>
<CAPTION>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The maturities, amortized cost and estimated fair values of the Company's securities at
September 30, 2000 are summarized as follows (in thousands):
<S> <C> <C> <C> <C>
Held to Maturity Available for Sale
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
Due within 1 year $ 3,000 $ 2,987 $ - $ -
Due after 1 but within 5 years 7,348 7,253 8,999 8,761
Due after 5 but within 10 years 268 266 - -
Due after 10 years 485 465 - -
Equity securities - - 714 714
$ 11,101 $ 10,971 $ 9,713 $ 9,475
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 issuer at par value.
</TABLE>
<TABLE>
<CAPTION>
Note 3. Loans
Total loans as of September 30, 2000 and December 31, 1999 are summarized as follows (in
thousands):
<S> <C> <C>
September 30, December 31,
2000 1999
Commercial, financial and agricultural $ 34,629 $ 30,877
Real estate - construction 1,447 1,451
Real estate - mortgage 36,711 31,395
Installment loans to individuals 13,190 9,080
Other 2,830 2,225
Total loans 88,807 75,028
Less unearned income - -
Total loans net of unearned income 88,807 75,028
Less allowance for credit losses 785 764
Loans, net $ 88,022 $ 74,264
</TABLE>
<TABLE>
<CAPTION>
Note 4. Allowance for Credit Losses
Analyses of the allowance for credit losses are presented below (in thousands) for the nine month periods
ended September 30, 2000 and 1999 and twelve months ended December 31, 1999:
<S> <C> <C> <C>
Nine Months Ended
September 30, Dec 31,
2000 1999 1999
Balance, beginning of period $ 764 $ 766 $ 766
Loans charged off (55) (258) (291)
Recoveries 26 44 189
Net losses (29) (214) (102)
Provision for credit losses 50 80 100
Balance, end of period $ 785 $ 632 $ 764
</TABLE>
11
<TABLE>
<CAPTION>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Compan's total recorded investment in impaired loans at September 30, 2000 and December
31, 1999, approximated $374,000 and $0, respectively, for which the related allowance for credit
losses determined in accordance with generally accepted accounting principles approximated
$170,000 and $0, 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.
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 September 30, 2000 and December 31,
1999, and the contract amounts of commitments to lend are as follows, in thousands of dollars:
September 30, December 31
2000 1999
Commitments to extend credit $ 14,034 $ 13,903
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
Diluted earnings 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 September 30, 2000, 43,610 stock options were outstanding under the 1996
incentive stock option plan, representing all of the shares allocated to the plan, net of 4,515 stock options
that have been exercised since the plan's inception. Of the outstanding stock options, 28,140 are fully
vested and exercisable, with the remaining options becoming fully exercisable on February 6, 2001.
Grants under the plan are accounted for following the intrinsic value method. 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 the fair value
method, net income and earnings per share would have been reduced to the proforma amounts
shown below (in thousands except earnings per share data):
<S> <C> <C>
Nine Months Ended
September 30,
2000 1999
Net income:
As reported $804 $687
Proforma $798 $664
Basic earnings per share:
As reported $0.83 $0.71
Proforma $0.83 $0.69
Diluted earnings per share:
As reported $0.83 $0.71
Proforma $0.82 $0.68
</TABLE>
12
<TABLE>
<CAPTION>
ITEM 2.
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 "First National"), and its subsidiaries,
First National Bank and FNB Insurance, LLC, for the periods indicated. This discussion and analysis should be
read in conjunction with the Company's 1999 consolidated financial statements and notes included in its Annual
Report to Shareholders and Form 10-K.
The Private Securities Litigation Act of 1995 indicates that the disclosure of forward-looking information is
desirable for investors and encourages such disclosure by providing a safe harbor for forward-looking statements
by corporate management. This Quarterly Report on Form 10-Q contains forward-looking statements that involve
risk and uncertainty. In order to comply with the terms of the safe harbor, the corporation notes that a variety of
factors could cause the Company's actual results and experience to differ materially from the anticipated results
or other expectations expressed in those forward-looking statements.
EARNINGS SUMMARY
The Company reported net income of $296,000 for the three months ended September 30, 2000 compared
to net income of $259,000 for the quarter ended September 30, 1999, a 14.3% increase. For the nine month
period ended September 30, 2000, the Company's net income of $804,000 increased $117,000 from the
$687,000 reported for the same period of 1999, a 17.0% increase. Basic earnings per common share was
$0.31 for the quarter ended September 30, 2000 compared to $0.27 reported for the third quarter of 1999.
For the nine month period ended September 30, 2000, basic earnings per common share totaled $0.83
compared with $0.71 for the same period of 1999. 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 nine month periods ended September 30, 2000 and 1999.
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
Increase Increase
2000 1999 (Decrease) 2000 1999 (Decrease)
Interest income $ 2.38 $ 2.11 $ 0.27 $ 6.65 $ 5.90 $ 0.75
Interest expense 1.13 0.92 0.21 3.05 2.63 0.42
Net interest income 1.25 1.19 0.06 3.60 3.27 0.33
Provision for loan losses 0.04 0.05 (0.01) 0.05 0.08 (0.03)
Net interest income after
provision for loan losses 1.21 1.14 0.07 3.55 3.19 0.36
Non-interest income 0.11 0.12 (0.01) 0.32 0.35 (0.03)
Non-interest expense 0.86 0.85 0.01 2.63 2.48 0.15
Income before income taxes 0.46 0.41 0.05 1.24 1.06 0.18
Income tax expense 0.15 0.14 0.01 0.41 0.35 0.06
Net income $ 0.31 $ 0.27 $ 0.04 $ 0.83 $ 0.71 $ 0.12
Return on average assets (ROA) measures how effectively the Company utilizes its assets to produce income.
Annualized ROA for the third quarter of 2000 was 1.08% compared to 1.00% for the third quarter of 1999. This
compares with an ROA of 0.98% and 0.88% for the nine month periods ended September 30, 2000 and 1999,
respectively. Annualized return on average shareholders' equity (ROE) was 10.97% for the third quarter of
2000 compared to 10.48% in the third quarter of 1999, while year-to-date ROE was 9.93% and 9.27% as of
September 30, 2000 and 1999, respectively.
NET INTEREST INCOME
The most significant component of the Company's net earnings is net interest income, which represents the
excess of interest income earned on earning assets over the interest expense paid for sources of funds. Net
interest income is affected by changes in volume resulting from growth and alteration of the balance sheet's
composition, as well as by fluctuations in market interest rates and maturities of sources and uses of funds.
For purposes of this discussion, net interest income is presented on a fully tax-equivalent basis to enhance
13
the comparability of the performance of tax-exempt to fully taxable earning assets. For the periods ended
September 30, 2000 and 1999, the tax-equivalent adjustment was $56,000 and $63,000, respectively.
The Company's net interest income on a fully tax-equivalent basis totaled $3,535,000 for the nine month
period ended September 30, 2000 compared to $3,217,000 for the same period of 1999, representing an
increase of $318,000 or 9.9%. As shown in Table I, total average earning assets increased $4,706,000, or
4.8%, over 1999's total and contributed greatly to the overall increase in interest income. The increase is
primarily due to the $11,167,000 increase in average loans, which is a 16.1% increase over 1999's average
balance. The loan growth has been funded by a $5,721,000 increase in interest bearing liabilities, along with net
maturities from the securities portfolio and use of short-term funding sources, such as federal funds sold.
The Company's net yield on interest earning assets ("net interest margin") was 4.56% for the first nine months
of 2000 compared to 4.35% in 1999. The 21 basis point increase in the net interest margin is primarily the result
of the Federal Reserve's successive increases in the short-term interest rates. As discussed above, growth in the
Company's loan portfolio - its highest yielding asset - relative to other interest-earning assets has improved the
margin. In addition, various asset/liability strategies have been employed to minimize the interest rate risk, whereby
assets and liabilities re-price with the rise and fall in interest rates, thereby maintaining an interest rate spread that
management feels is adequate. The current net interest margin compares to 4.57% and 4.64% at June 30, 2000
and March 31, 2000, respectively. Although the yield on the Company's earning assets has increased during the
year, it has been outpaced by the increase in the cost of interest rate liabilities, where it has increased from 4.26%
at March 31, 2000 to its current rate of 4.53%. Increased competition for deposits from nontraditional financial
institutions has prompted the Company to raise interest rates on certain deposit products in order to attract new
deposits and to retain its current book of business. Loan growth has outpaced deposit growth, spurring additional
short-term borrowings, which have borne a higher cost compared to the previous year. Controlling its cost of funds
will be paramount for the Company to maintain its current net interest margin.
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.
</TABLE>
14
<TABLE>
<CAPTION>
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
Average Yield/ Average Yield/
Balance Interest(1) Rate Balance Interest(1) Rate
INTEREST EARNING ASSETS
Loans (2): $ 80,553 $ 5,426 8.98% $ 69,386 $ 4,510 8.67%
Securities:
Taxable 19,075 866 6.05 19,348 830 5.72
Tax-exempt 3,019 164 7.24 3,567 186 6.95
Total securities 22,094 1,030 6.22 22,915 1,016 5.91
Interest-bearing deposits with
other banks 47 1 2.84 2,073 75 4.82
Federal funds sold 605 26 5.73 4,219 150 4.74
Total interest earning
assets 103,299 6,483 8.37 98,593 5,751 7.78
NON-INTEREST EARNING ASSETS
Cash and due from banks 2,792 2,300
Bank premises and equipment 1,649 1,773
Other assets 2,207 2,029
Allowance for loan losses (757) (702)
Total assets $ 109,190 $ 103,993
INTEREST BEARING LIABILITIES
Demand deposits $ 14,895 272 2.43 $ 16,181 283 2.33
Savings deposits 36,919 1,289 4.66 31,112 948 4.06
Time deposits 27,202 1,058 5.19 28,295 1,030 4.85
Total interest-bearing deposits 79,016 2,619 4.42 75,588 2,261 3.99
Short-term borrowings 7,214 308 5.69 962 22 3.05
Long-term FHLB borrowings 479 21 5.85 4,438 251 7.54
Total other interest bearing liabilities7,693 329 5.70 5,400 273 6.74
Total interest bearing liabilities 86,709 2,948 4.53 80,988 2,534 4.17
NON-INTEREST BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 10,916 12,251
Other liabilities 769 870
Shareholders' equity 10,796 9,884
Total liabilities and
shareholders' equity $ 109,190 $ 103,993
NET INTEREST
EARNINGS $ 3,535 $ 3,217
NET YIELD ON INTEREST EARNING
ASSETS 4.56% 4.35%
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 2000 and 1999.
(2) - For purposes of these computations, non-accrual loans are included in the amounts of average loans outstanding.
Included in interest are loan fees of $74,000 and $120,000 for 2000 and 1999, respectively.
</TABLE>
15
<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>
Nine Months Ended
Sept. 30, 2000 vs. Sept. 30, 1999
Increase (Decrease)
Due to Changes in:
Volume(1) Rate(1) Total
INTEREST EARNING ASSETS
Loans $ 747 $ 169 $ 916
Securities:
Taxable (12) 48 36
Tax-exempt (2) (29) 7 (22)
Total securities (41) 55 14
Interest-bearing deposits with other banks (52) (22) (74)
Federal funds sold (150) 26 (124)
Total interest earning assets 504 228 732
INTEREST BEARING LIABILITIES
Demand deposits (23) 12 (11)
Savings deposits 191 150 341
Time deposits (41) 69 28
Short-term borrowings 252 34 286
Long-term borrowings (184) (46) (230)
Total interest bearing liabilities 195 219 414
NET INTEREST EARNINGS $ 309 $ 9 $ 318
(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%.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents charges to earnings necessary to maintain an adequate allowance
for loan losses. During the third quarter of 2000, the Bank made a $35,000 provision for loan losses compared
to $50,000 during the third quarter of 1999. For the nine months ended September 30, 2000 and 1999,
respectively, the provision for loan losses was $50,000 and $80,000. 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 from all sources other than interest income and yield-related loan fees.
For the nine month period ended September 30, 2000, non-interest income totaled $310,000, representing
a decrease of $32,000 from the $342,000 recorded during the same period of 1999, while on a quarter-to-
quarter basis, total non-interest income decreased to $102,000 for the third quarter of 2000 compared to
$110,000 for the third quarter of 1999. As a percentage of average assets, non-interest income (annualized)
was 0.38% and 0.44% for the nine month periods ended September 30, 2000 and 1999, respectively. The
significant items affecting non-interest income are discussed below.
Estates and other trust services tend to fluctuate from year to year. Trust income for the nine month period
ended 2000, which totaled $30,000, is $17,000 less than the income level reported for the same period in
1999. For the quarter, trust income totaled $6,000 for 2000 and 1999, respectively. Total assets administered
by the Bank's trust department have decreased following the settlement of a single large estate in 1999. This
decrease in trust assets has led to the decline in trust income. The Bank signed an agreement in July 2000
with a trust manager whereby all current and future estates and trusts will be managed by the third party. The
contract may be terminated by either party with 90 days written notice. The agreement bolsters the Bank's
access to various resources and expertise in trust management, and will allow the Company to focus on
marketing the service in its primary and contiguous market areas; a service which management feels can be
efficacious given the demographics of the market areas. The agreement stipulates a revenue sharing
16
provision with the third party. Management expects future trust income as reported in the statement of income
to be markedly lower due to the revenue sharing discussed above, at least until the Company can implement
its marketing strategies.
NON-INTEREST EXPENSE
Non-interest expense comprises overhead costs which are not related to interest expense or to losses from
loans or securities. As of September 30, 2000, the Company's year to date non-interest expense totaled
$2,536,000, an increase of $148,000, or 6.2%, over total non-interest expense incurred for the nine months
ended September 30, 1999. On a quarter-to-quarter basis, non-interest expense increased to $829,000 for
the third quarter of 2000 from $822,000 during the third quarter of 1999. Expressed as a percentage of
average assets, non-interest expense (annualized) for the nine month periods ended 2000 and 1999 was 3.1%
for both periods. The significant items affecting non-interest expense are discussed below.
Salaries and employee benefits are the Company's largest non-interest cost, representing approximately
49.4% and 50.2% of total non-interest expense for the nine months ended September 30, 2000 and 1999,
respectively. For the nine months ended September 30, 2000, salaries and employee benefits increased
$54,000, or 4.5% compared to the same period of September 30, 1999. For the quarter, salaries and employee
benefits increased from $410,000 reported in 1999 to $415,000 reported in the same period of 2000, an increase
of $5,000 or 1.2%. Annual merit raises and escalating medical insurance have accounted for the year to date
variance. During the quarter, these items were mitigated due to having one less full-time employee.
Data processing has increased $13,000 and 33,000 (or 30.2% and 23.9%) for the quarter and nine months ended
September 30, 2000, respectively, when compared to 1999. In April 2000, the Company installed a customer
database system which assists in identifying product and customer profitability. The costs of processing and
maintaining the data with the vendor have been $5,000 and $16,000 for the quarter end and year to date,
respectively. In July 2000, the Company began offering its online banking product. To date, direct costs
associated with the product have amounted to $6,000.
Professional and legal expense increased $3,000 from the $31,000 reported in quarter end 1999. Similarly, for
the nine months ended September 30, 2000, the expense is $15,000 more than the amount reported in 1999. Both
variances are due to general fee structure increases assessed by our professional service providers.
Director's fees and shareholders' expense increased $13,000, or 17.6%, year to date when compared to 1999.
The increase is due to the net addition of one board member during the first nine months of 2000. Shareholders'
expense is more in 2000 compared to 1999 due to the Company outsourcing its stock transfer function to a third
party beginning with the third quarter of 1999. Prior to this, the expense was borne by the Company internally in
salaries expense.
INCOME TAXES
The Company's income tax expense, which includes both federal and state income taxes, totaled $398,000
for the nine month period ended September 30, 2000 compared to $341,000 incurred in 1999. The effective
tax rate approximated 33% for the three and nine months ended September 30, 2000 and was comparable
to 1999.
CHANGES IN FINANCIAL CONDITION
The Company's total assets were $114,665,000 at September 30, 2000, compared to $104,829,000 at
December 31, 1999, representing an increase of $9,836,000, or 9.4%, while average assets during the first
nine months of 2000 were $109,190,000. Details concerning changes in the Company's major balance sheet
items and changes in financial condition follow.
Cash and Cash Equivalents
At September 30, 2000, cash and due from banks totaled $2,049,000 compared to $3,747,000 at December
31, 1999, a decrease of $1,629,000. Subsequent to December 31, 1999, the Company lowered its cash on
hand which was being held due to Year 2000 liquidity. The current balance is commensurate with historical
cash requirements.
Securities and Federal Funds Sold
The Bank's total securities portfolio decreased by $2,301,000 or 10.1% from December 31, 1999. The decrease
is due to net maturities during the year, which were used to fund loan growth and/or pay down borrowings.
17
At September 30, 2000, the estimated fair market value of the Company's security portfolio (including held to
maturity securities) is $368,000 below the portfolio's amortized cost. The declines, which do not impact net
income, are a function of the rise and fall in interest rates and are believed to be temporary, as the credit quality
of the portfolio remains strong. The majority of the portfolio consists of U.S. Government agencies and highly-rated
state and municipal bonds (Moody/S&P ratings of AA- and higher). A summary of the Company's securities
portfolio is included as Note 2 to the condensed consolidated financial statements.
It is the Bank's philosophy to minimize its involvement in overnight funds, however due to liquidity reasons (i.e.'
fluctuations in loan and deposit balances), the bank may buy or sell funds on an overnight basis. The Company's
federal funds sold position was $0 at September 30, 2000. The average balance for the first nine months of 2000
was $605,000. Strong loan growth over the past nine months has aided in minimizing the Company's investment
in the overnight market. See further discussion of liquidity in the LIQUIDITY AND INTEREST RATE RISK
MANAGEMENT section below.
Loans and Related Risk Elements
Overall, the Company's loan portfolio has increased $13,779,000 or 18.4% since December 31, 1999. Various
marketing strategies have been successful in growing the loan portfolio. In addition, bank consolidation in the
Company's primary market area has afforded the Company an opportunity to capitalize on new customer
relationships. 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.
The Company's largest loan portfolio is its real estate mortgage portfolio, which totaled $36,711,000 at September
30, 2000 or 41.3% of total loans outstanding, and increased $5,316,000 from year end 1999. Commercial,
financial and agricultural loans (which include loans secured by commercial real estate) totaled $34,629,000 at
September 30, 2000 and represent 39.0% of total loans outstanding at September 30, 2000. The other major
portfolio is the Company's installment loans portfolio which was $13,190,000 at quarter end and comprised
approximately 14.9% of total loans at September 30, 2000. A summary of the Bank's loans by category in
comparison to year end 1999 is included in Note 3 to the condensed consolidated financial statements.
The allowance for loan losses was $785,000 at September 30, 2000 compared to $764,000 at December 31, 1999.
Expressed as a percentage of loans (net of unearned income), the allowance for loan losses was 0.88% at
September 30, 2000 compared to 1.02% at December 31, 1999. The allowance for loan losses is maintained at
a level considered adequate to provide for losses that can be reasonably estimated. On a quarterly basis,
management performs a comprehensive evaluation of the adequacy of the allowance which encompasses
evaluating problem credits and their potential loss, if any. In addition, management considers historical loan loss
experience, new loan volume, portfolio composition, levels of nonperforming and past due loans and current and
anticipated economic conditions in evaluating the adequacy of the allowance for loan losses. In management's
opinion, the allowance for loan losses is adequate to absorb the current estimated risk of loss in the existing loan
portfolio.
</TABLE>
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C>
September 30, December 31,
2000 1999 1999
Loans past due 90 or more days still accruing $ - $ - $ -
NONPERFORMING assets:
Non-accruing loans $ 390 $ 141 $ -
Other real estate owned 852 865 884
$ 1,242 $ 1,006 $ 884
Total nonperforming assets at September 30, 2000 increased $358,000 from its December 31, 1999 balance. One
credit, which management has identified as impaired, accounts for $374,000 of the total non-accruing loans. A
specific reserve for loss has been assigned to the credit ($170,000), which management feels is adequate.
Included in other real estate owned is a parcel of commercial property carried at $824,000 as of September 30,
2000. The building and related improvements are currently leased under a three year contract. The lease is
structured as a triple-net lease, where the lessee pays all expenses associated with the property. All lease
18
payments received under the agreement have been applied against the carrying amount of the property under a
cost-recovery method. See the Company's financial statements included in the 1999 Form 10-K for a more
detailed discussion of the lease arrangement.
</TABLE>
<TABLE>
<CAPTION>
Deposits and Other Funding Sources
Total deposits increased 3.2% to $91,951,000 as of September 30, 2000, from $89,132,000 at December 31,
1999. On average, total deposits during the first nine months of 2000 were $89,932,000. The Company has
actively pursued deposits within the past nine months and has been successful in attracting new relationships.
Management expects future deposit growth to be slow over the next quarter as the market for deposits remains
very competitive. As a result, the Company will rely on other funding sources, such as its short-term borrowings,
as needed in order to meet its liquidity needs.
At quarter end, non-interest bearing deposits totaled $10,804,000, or 11.7% of total deposits, compared to
$10,471,000 at year end 1999. On average for the nine months ended September 30, 2000, these deposits totaled
$10,916,000. Interest-bearing deposits totaled $81,147,000 at September 30, 2000, or 88.3% of total deposits,
an increase of $2,857,000 from the December 31, 1999 balance of $78,391,000. Average interest-bearing
deposits totaled $79,016,000 year to date. Interest-bearing deposits consisted of the following at September 30,
2000 and December 31, 1999 (in thousands):
<S> <C> <C>
Sept. 30, December 31,
2000 1999
Demand deposits $ 14,038 $ 15,549
Savings 36,150 37,400
Certificates of deposit 30,959 25,442
Total $ 81,147 $ 78,391
The Company has three deposit relationships, comprising of both interest and non-interest bearing deposits, that
may fluctuate significantly on a daily basis. These relationships had average outstanding balances of $2,918,000,
or 3.2% of the average total deposits for the nine months ended September 30, 2000. Fluctuations within the
account balances may have a significant impact on the Company's net interest margin as other funding sources,
such as federal funds purchased, generally cost more than the weighted average rate paid on the three
relationships.
Short-term borrowings consist of securities sold under agreements to repurchase ("repurchase agreements",
Federal funds purchased, and a one year note from the FHLB. At September 30, 2000, the respective balances
of each borrowing was $2,345,000, $5,286,000, and $3,000,000, respectively. At December 31, 1999, short-term
borrowings of $4,113,000 consisted entirely of repurchase agreements. Strong loan growth coupled with slow
deposit growth has prompted additional activity in short-term borrowings.
</TABLE>
<TABLE>
<CAPTION>
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
Liquidity measures 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 $2,054,000 at September 30, 2000 versus $3,764,000 at December 31, 1999. The Company's cash
position at year end 1999 was higher than normal due to a cash buildup for Year 2000 withdrawals. The
Company's liquidity position is monitored continuously to ensure that day-to-day as well as anticipated funding
needs are met.
Further enhancing the Company's liquidity is the availability as of September 30, 2000 of $3,015,000 of debt
securities maturing within one year. Also, the Company has classified additional debt and equity securities
with an estimated fair value totaling $9,475,000 as available for sale. Additionally, the Company's subsidiary
bank has unused lines of credit available under existing borrowing arrangements with correspondent banks
approximating $40,000,000 should the need arise.
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 declining
19
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
September 30, 2000
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Repricing (1)
0 to 3 3 to 6 6 to 12 After
Months Months Months 12 Months Total
INTEREST-EARNING ASSETS
Loans, net of unearned income $ 28,037 $ 4,877 $ 13,777 $ 42,116 $ 88,807
Securities, at amortized cost - 15 3,000 17,085 20,100
Interest-bearing deposits with other banks 5 - - - 5
Federal funds sold - - - - -
Total interest-earning assets 28,042 4,892 16,777 59,021 108,912
INTEREST-BEARING LIABILITIES
Demand deposits 14,038 - - - 14,038
Savings deposits 36,150 - - - 36,150
Time deposits 4,093 5,954 9,461 11,552 31,060
Short-term borrowings 10,254 262 115 - 10,631
Long-term FHLB borrowings 4 4 8 446 462
Total interest-bearing liabilities 64,539 6,220 9,584 11,998 92,341
Contractual interest sensitivity gap (36,497) (1,328) 7,193 47,203 16,571
Adjustment (2) 23,952 (23,952) - - -
Adjusted interest sensitivity gap $ (12,545) $ (25,280) $ 7,193 $ 47,203 $16,571
Cumulative adjusted interest sensitivity gap $ (12,545) $(37,285) $(30,632) $ 16,571
Cumulative adjusted gap ratio 0.69 0.47 0.62 1.18
Cumulative adjusted gap as a percentage
of total earning assets (11.52)% (34.73)% (28.13)% 15.22%
(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
$(30,632). 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 September
30, 2000, 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.
</TABLE>
<TABLE>
<CAPTION>
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 and to effectively serve the communities in
which they are located.
Total shareholders' equity at September 30, 2000 was $10,700,000 compared to $10,151,000 at December 31,
1999, representing an increase of $549,000. A reconciliation of the increase is reported in the condensed
20
consolidated statements of shareholders' equity included in Item I, page 6. Average total shareholders' equity
expressed as a percentage of average total assets was approximately 9.9% at September 30, 2000 and December
31, 1999. Cash dividends totaling $338,000, or $0.35 per share were declared during the nine months ended
September 30, 2000 which is 29.6% higher than the dividend level paid during the same period of 1999. These
payout levels represented approximately 42.0% and 37.3% of the Company's year-to-date earnings for the nine-
month periods ended September 30, 2000 and 1999, respectively.
The Company is unaware of any trends or uncertainties, nor do any material commitments for capital expenditures
exist, which may materially impair its capital position.
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 September 30, 2000, that the subsidiary bank meets all capital adequacy requirements to which
it is subject, as evidenced by the following table:
<S> <C> <C>
RISK-BASED CAPITAL RATIOS
September 30, 2000
Minimum
Actual Requirement
Tier 1 risk-based capital ratio 12.98% 4.00%
Total risk-based capital ratio 13.92% 8.00%
Leverage ratio 9.57% 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.
</TABLE>
PART II. OTHER INFORMATION
21
Item 1. Legal Proceedings
As of September 30, 2000, neither the Company nor its subsidiaries are
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 27, Financial Data Schedule, is filed herewith following
the signature page.
b). First National filed a Form 8-K on September 13, 2000 in which it
announced a change in independent auditors. The document is
incorporated herein by reference in its entirety.
SIGNATURES
22
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
President and Chief Executive Officer
By /s/
Charles A. Henthorn
Secretary/Treasurer, First National
Bankshares Corporation
Executive Vice President, First
National Bank
By /s/
Matthew L. Burns
Chief Financial Officer, First National
Bank (Principal Financial and
Accounting Officer)
Date: November 10, 2000
