PART I
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File No. 2-76198
FIRST NATIONAL BANKSHARES, INC.
(Exact name of Registrant as
specified in its charter)
LOUISIANA 72-0807084
(State of Incorporation) (I.R.S. Employer Identification No.)
600 East Main Street, Houma, Louisiana 70360
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number) (504) 868-1660
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each Class which registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock ($2.50 par value)
(Title of Class)
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 proceeding 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
Indicate by check mark if disclosure of delinquent filers
pursuant to item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
State the aggregate market value of voting stock held by
nonaffiliates of registrant as of December 31, 1994 -- Common --
$5,612,090
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of March 15, 1995.
Common Stock ($2.50 par value) -- 2,017,600 shares
outstanding
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual
Shareholders Meeting to be held on April 4, 1995 are
incorporated into Part III hereof.
This report contains 62 pages.
Item 1. Business
(a) General Development of Business
First National Bankshares, Inc. (the Company) is a bank
holding company which owns 100 percent of the voting shares of
First National Bank of Houma (First National).
The Company was incorporated as a Louisiana business
corporation in 1974 and remained dormant until July 31, 1982,
when it acquired all of the outstanding shares of First National
in exchange for 1,125,812 shares of the Company's stock. This
transaction was accounted for as a pooling of interests.
(b) Financial Information About Industry Segments
The Company and its subsidiaries are engaged only in
banking and bank-related businesses.
(c) Narrative Description of Business of the Company and
its
Subsidiaries
The Company
The Company is a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended (the Federal
Act), and is registered as such with the Board of Governors of
the Federal Reserve System (the Board). Under the Federal Act,
bank holding companies are prohibited, with certain exceptions,
from engaging in activities other than banking or managing or
controlling banks or furnishing services to or performing
services for their subsidiaries. The Federal Act authorizes the
Board, however, to permit bank holding companies to engage in
activities which the Board has determined to be so closely
related to banking or managing or controlling banks as to be a
proper incident thereto. In making these determinations, the
Board is required to consider whether the performance of such
activities by a bank holding company or its subsidiaries can
reasonably be expected to produce benefits to the public such as
greater convenience; to increase competition or to gain in
efficient use of resources; to result in decreased or unfair
competition; or to produce conflicts of interest or unsound
banking practices. The Company conducts all of its business
operations through its subsidiaries. The operations of the
Company's bank subsidiary and the Company's only bank-related
subsidiary are described below.
First National
First National was established in 1919 and is a "Full
Service" bank with its main office and two full service branches
in the City of Houma and two other branches within the confines
of the Parish of Terrebonne. First National serves the entire
parish as well as several adjacent sections of Lafourche Parish,
a combined area with a population of between 90,000 and 100,000.
First National offers complete banking services for
individuals, partnerships, corporations, municipalities and
others. These include checking, savings and interest-bearing
transaction accounts, business, real estate, interim
construction, personal and installment loans, collection
services, safe deposit facilities, individual and corporate
trust and agency services, and a number of special services.
First National, operating in Terrebonne Parish under a
national charter, competes with six other banks in its prime
trade area, Terrebonne Parish. In addition, three savings and
loan associations in Terrebonne Parish furnish non-bank
competition.
First National has a large number of customers acquired
over a period of many years and is not dependent upon a single
customer, or upon a few customers. The loss of any single
customer would not have a material adverse effect on First
National. First National's trade area is heavily concentrated
in the oil and gas industry, in particular, in oil and gas
support services. First National has a significant amount of
loans to and deposits from companies that operate in this
industry. Management of First National believes that the impact
of this concentration is significant but manageable, primarily
because these loans and deposits are distributed among a number
of different companies involved in various support services (see
Schedule III-A for further information regarding loan
concentration). There are no material seasonal factors that
would have any adverse effect on First National.
First Export Corporation
The Company's only other subsidiary is First Export
Corporation, a Louisiana corporation formed in 1983 for the
purpose of facilitating the export of goods manufactured in
Terrebonne Parish and the State of Louisiana. On June 30, 1989,
the Company decided to liquidate the assets of First Export and
place the corporation on inactive status. This decision was
based on the depressed conditions of the local economy and the
poor performance of First Export. The activities of First
Export were generally limited to fact finding and establishing
contacts with international traders and U.S. Government
officials.
Regulation
The operations of the Company and its subsidiaries are
subject to regulation by the Louisiana Commissioner of Financial
Institutions, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, and the
Office of the Comptroller of the Currency under applicable state
and federal law. These statutes and regulations relate to
required reserves, investments, loans, mergers and
consolidations, issuance of securities, payment of dividends,
establishment of branches and other aspects of operations.
Payments of Dividends
The Company is a bank holding company and its ability to
fund dividend payments is dependent upon its ability to receive
funds from First National. Due to regulatory restrictions, the
Company and the Bank were not in a position to pay dividends
from 1987 through the third quarter of 1994. During 1994, the
Bank received permission from the OCC to transfer some of its
equity to the Company in the form of cash. In 1994, the Company
also received permission from the Federal Reserve Bank of
Atlanta to use a portion of that cash to pay a dividend of 10
cents per share. The dividend was declared on December 29,
1994, and was payable on January 25, 1995.
Borrowing by the Company
Federal law prohibits the Company from borrowing from First
National, unless the borrowing is secured by specified amounts
and types of collateral. Additionally, such secured loans are
generally limited to 10 percent of First National's capital and
surplus. Further, the Company and First National are prohibited
from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing
of services.
Support of First National
Under Federal Reserve Board policy, the Company is expected
to act as a source of financial strength to First National, its
bank subsidiary, and to commit resources to support First
National in circumstances in which First National might need
such outside support.
Annual Insurance Assessment
First National is subject to deposit insurance assessment
by the Federal Deposit Insurance Corporation. These assessments
had been rising in recent years. In 1994, the Bank realized a
decrease in the assessment due to the improved condition of
First National. Management believes that continued improvement
of the condition of the Bank would result in additional
assessment reductions. Proposed changes by the FDIC also would
lower the assessments for well capitalized financial
institutions.
Miscellaneous
Federal and state law provide for the enforcement of any
pro rata assessment of stockholders of a bank to cover
impairment of capital stock by sale, to the extent necessary, of
the stock of any assessed stockholder failing to pay the
assessment. The Company, as the stockholder of First National,
is subject to these provisions.
The earnings of the Company's bank subsidiary and,
therefore, to a large extent the earnings of the Company, are
affected by the policies of the regulatory authorities,
including the Federal Reserve System, of which First National is
a member. An important function of the Federal Reserve System
is to regulate the national supply of bank credit. Among the
instruments used to do so are open market operations in U.S.
Government securities, changes in the discount rate of bank
borrowings, changes in reserve requirements against banks'
deposits, and limitations on interest rates which member banks
may pay on time and savings deposits. These instruments are
used in varying combinations to influence overall growth and
distribution of bank loans, investments and deposits, and their
use may also affect interest rates charged on loans or paid for
deposits.
The monetary policies of the Federal Reserve authorities
have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do
so in the future. The effect, if any, of such policies upon the
future business and income of the Company cannot be predicted
with accuracy.
Employees
As of December 31, 1994, the Company employed 106 full-time
and 32 part-time persons, or approximately 134.2 full-time
equivalent employees.
(d) Financial Information about Foreign and Domestic
Operations and Export Sales
The Company has customers in many foreign countries but the
portion of revenue derived from these foreign customers is not
material to its overall revenues.
(e) Supplemental Statistical Information
The following Schedules I through VIII present summarized
statistical data of the Company and its subsidiaries.
SCHEDULE I-A
Distribution of Average Assets, Liabilities and
Shareholders' Equity for the Periods Indicated
For Years ended December 31,
(In thousands)
1994 1993 1992
ASSETS:
Cash and due from
financial institutions $ 6,854 $ 6,940 $ 6,960
Taxable securities 82,116 78,897 84,577
Non-taxable securities 666 1,253 1,760
Interest-bearing deposits
with other banks 1,853 2 2,953
Net loans (1) 83,544 83,490 77,479
Federal funds sold and
securities purchased under
agreements to resell 4,287 5,688 3,472
Other assets 13,184 12,203 14,101
TOTAL ASSETS $192,504 $188,473 $191,302
LIABILITIES AND SHAREHOLDERS' EQUITY:
Non interest-bearing deposits $ 27,193 $ 25,972 $ 25,452
Interest bearing deposits 149,655 149,577 150,999
Total deposits 176,848 175,549 176,451
Funds purchased and securities
sold under agreements
to repurchase 3,125 2,315 5,999
Other liabilities 1,192 1,531 1,815
Total liabilities 181,165 179,395 184,265
Shareholders' Equity 11,339 9,078 7,037
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $192,504 $188,473 $191,302
(1) Gross loans and discounts, net of unearned income and
allowance for possible loan losses.
SCHEDULE I-B
Average Amount Outstanding for Major Categories
of Interest-Earning Assets and Interest-Bearing
Liabilities for the Periods Indicated
For Years Ended December 31,
(In thousands)
1994 1993 1992
ASSETS:
Loans (1)(2) $ 86,337 $ 86,214 $ 80,022
Federal funds sold and
securities purchased
under agreements to resell 4,287 5,688 3,472
Taxable securities 82,116 78,897 84,577
Non-taxable securities 666 1,253 1,760
Interest-bearing deposits
with other banks 1,853 2 2,953
TOTAL INTEREST-EARNING ASSETS $175,259 $172,054 $172,784
LIABILITIES:
Savings and negotiable
interest-bearing deposits $ 83,931 $ 85,750 $ 79,227
Time deposits 65,724 63,827 71,772
Funds purchased and
securities sold under
agreements to repurchase 3,125 2,315 5,999
TOTAL INTEREST-BEARING
LIABILITIES $152,780 $151,892 $156,998
(1) Net of unearned income.
(2) Includes nonaccrual loans.
SCHEDULE I-C
Interest Earned or Paid on the Major Categories
of Interest-Earning Assets and Interest-Bearing
Liabilities for the Periods Indicated
For Years Ended December 31,
(In thousands)
1994 1993 1992
Interest Earned On:
Loans $ 8,000 $ 7,535 $ 7,331
Federal funds sold and
securities purchased under
agreements to resell 159 172 116
Taxable securities 4,939 4,569 5,360
Non-taxable securities 84 46 121
Interest-bearing deposits with
other banks 103 -0- 104
Total interest earned (1) $13,285 $12,322 $13,032
Interest Paid On:
Savings and negotiable
interest-bearing deposits $ 1,854 $ 2,074 $ 2,440
Time deposits 2,814 2,650 3,527
Funds purchased and securities
sold under agreements
to repurchase 105 61 198
Total interest paid $ 4,773 $ 4,785 $ 6,165
(1) All interest earned is reported on a taxable equivalent
basis using a tax rate of 34 percent in 1994 and 0 percent in
1993 and 1992.
SCHEDULE I-D
Average Interest Rate Earned or Paid for Major
Categories of Interest-Earning Assets and
Interest-Bearing Liabilities for the Periods Indicated
For Years Ended December 31,
1994 1993 1992
Average Rate Earned On:
Loans 9.27% 8.74% 9.16%
Federal funds sold and
securities purchased under
agreements to resell 3.71% 3.02% 3.34%
Taxable securities 6.01% 5.79% 6.34%
Non-taxable securities 12.61% 3.67% 6.88%
Interest-bearing deposits with
other banks 5.56% 0.00% 3.52%
Total (weighted average rate)(1) 7.58% 7.16% 7.54%
Average Rate Paid On:
Savings and negotiable
interest-bearing deposits 2.21% 2.42% 3.08%
Time deposits 4.28% 4.15% 4.91%
Funds purchased and
securities sold under
agreements to repurchase 3.36% 2.63% 3.30%
Total (weighted average rate) 3.12% 3.15% 3.93%
(1) All interest rates are reported on a taxable equivalent
basis using a tax rate of 34 percent in 1994 and 0 percent in
1993 and 1992.
SCHEDULE I-E
Net Interest Earnings and Net Yield
on Interest-Earning Assets
Years ended December 31,
(In thousands except percentage data)
1994 1993 1992
Total interest income (1) $13,285 $12,322 $13,032
Total interest expense 4,773 4,785 6,165
Net interest earnings $ 8,512 $ 7,537 $ 6,867
Net yield on interest-
earning assets 4.86% 4.38% 3.97%
(1) All interest earned is reported on a taxable equivalent
basis using a tax rate of 34 percent in 1994 and 0 percent in
1993 and 1992.
SCHEDULE I-F
ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
(In thousands)
Current Prior Increase
year year (decrease)
1994
INTEREST INCOME: (1)
Loans $ 8,000 $ 7,535 $ 465
Federal funds sold
and securities
purchased under
agreements to resell 159 172 (13)
Taxable securities 4,939 4,569 370
Non-taxable securities 84 46 38
Other Investments 103 -0- 103
Total $13,285 $12,322 $ 963
INTEREST EXPENSE:
Savings and negotiable
interest-bearing
deposits $ 1,854 $ 2,074 $(220)
Time deposits 2,814 2,650 164
Funds purchased and
securities sold
under agreements
to repurchase 105 61 44
Total $ 4,773 $ 4,785 $ (12)
Attributable to
Rate/
Volume Rate volume
1994
INTEREST INCOME: (1)
Loans $ 11 $ 454 $ -0-
Federal funds sold and
securities purchased under
agreements to resell (42) 39 (10)
Taxable securities 186 176 8
Non-taxable securities (22) 112 (52)
Other Investments -0- -0- 103
Total $ 133 $ 781 $ 49
INTEREST EXPENSE:
Savings and negotiable
interest-bearing
deposits $ (44) (180) $ 4
Time deposits 79 83 2
Funds purchased and
securities sold under
agreements to
repurchase 21 17 6
Total $ 56 $ (80) $ 12
Current Prior Increase
year year (decrease)
1993
INTEREST INCOME: (1)
Loans $ 7,535 $ 7,331 $ 204
Federal funds sold
and securities
purchased under
agreements to resell 172 116 56
Taxable securities 4,569 5,360 (791)
Non-taxable securities 46 121 (75)
Other Investments -0- 104 (104)
Total $12,322 $13,032 $(710)
INTEREST EXPENSE:
Savings and negotiable
interest-bearing
deposits $ 2,074 $ 2,440 $(366)
Time deposits 2,650 3,527 (877)
Funds purchased and
securities sold
under agreements
to repurchase 61 198 (137)
Total $ 4,785 $ 6,165 $(1,380)
Attributable to
Rate/
Volume Rate volume
1993
INTEREST INCOME: (1)
Loans $ 567 $ (337) $ (26)
Federal funds sold and
securities purchased under
agreements to resell 74 (11) (7)
Taxable securities (360) (462) 31
Non-taxable securities (35) (56) 16
Other Investments (104) -0- -0-
Total $ 142 $ (866) $ 14
INTEREST EXPENSE:
Savings and negotiable
interest-bearing
deposits $ 201 (524) $ (43)
Time deposits (390) (547) 60
Funds purchased and
securities sold under
agreements to
repurchase (122) (40) 25
Total $ (311) $(1,111) $ 42
(1) All interest earned is reported on a taxable equivalent
basis using a tax rate of 34 percent in 1994 and 0 percent in
1993.
SCHEDULE II-A
Securities Portfolio
Book and Market values of securities at the dates indicated
December 31,
(In thousands)
1994 1993
Book Market Book Market
Value Value Value Value
U.S. Government
Obligations:
- Collateralized
Mortgage
Obligations $30,596 $28,643 $36,086 $36,128
- Other Obligations 33,606 32,445 46,759 47,235
State and Municipal
Obligations 673 622 864 800
Other Securities (1) 3,064 3,052 3,232 3,240
Total $67,939 $64,762 $86,941 $87,403
December 31,
(In thousands)
1992
Book Market
Value Value
U.S. Government
Obligations:
- Collateralized
Mortgage
Obligations $28,708 $28,687
- Other Obligations 57,554 58,414
State and Municipal
Obligations 1,289 775
Other Securities (1) 2,552 2,583
Total $90,103 $90,459
NOTE: The Company at December 31, 1994, 1993 and 1992 did not
own any debt securities, with a book value greater than 10% of
equity, issued by a state of the U.S. and its political
subdivisions or agencies which are payable from and secured by the
same source of revenue or taxing authority.
(1) At December 31, 1994, the Company held a collateralized
mortgage obligation issued by Merrill Lynch Capital Market with a
book value of $1,753,000 and a market value of $1,741,000.
SCHEDULE II-B
Maturity of Securities at December 31, 1994
and Weighted Average Yields of Such Securities
Maturity
(In thousands except percentage data)
After one
Within but within
one year five years
Amount Yield Amount Yield
U.S. government
obligations
- Collateralized
Mortgage
Obligations (1) $ -0- 0.00% $ -0- 0.00%
- Other
Obligations (2) 3,100 5.21% 10,966 5.56%
State and municipal
obligations -0- 0.00% -0- 0.00%
Other
securities (3) -0- 0.00% -0- 0.00%
Total $3,100 5.21% $10,966 5.56%
Maturity
(In thousands except percentage data)
After five
but within After
ten years ten years
Amount Yield Amount Yield
U.S. government
obligations
- Collateralized
Mortgage
Obligations (1) $2,580 6.75% $28,822 6.74%
- Other
Obligations (2) 7,292 7.32% 14,239 7.35%
State and municipal
obligations -0- 0.00% 673 9.55%
Other
securities (3) -0- 0.00% 3,305 6.41%
Total $9,869 7.17% $47,039 6.96%
NOTE: The weighted average yields are calculated on the basis
of the amortized cost and effective yields weighted for the
scheduled maturity of each security.
(1) The Company's collateralized mortgage obligations consisted
of pool certificates issued and/or guaranteed by U.S. Government
Agencies. $22,571,000 are variable rate securities. These
securities are subject to prepayments.
(2) At December 31, 1994, other U.S. government obligations
included ownership interests in pools of residential mortgages
guaranteed by U.S. government agencies and corporations. The
average contractual life of pools owned by the Company was 18
1/2 years at December 31, 1994; however, the underlying
mortgages are subject to significant prepayments, primarily when
the contractual interest rate exceeds the current market rate on
similar mortgages.
(3) At December 31, 1994, other securities included $389,000 of
capital stock of the Federal Reserve Bank of Atlanta which
$389,000 has no stated maturity date and pays dividends at a
rate of 6 percent and $566,800 of capital stock of the Federal
Home Loan Bank of Dallas which has no stated maturity date and
pays dividends based upon the federal funds rate.
SCHEDULE III-A
Loan Portfolio
Loan by Type Outstanding (1)
December 31,
(In thousands)
1994 1993 1992
Commercial,
financial,
and agricul-
tural $43,792(2) $43,378 $48,323
Real estate-
construction 1,233 1,061 378
Real estate-
mortgage 13,049 12,009 13,658
Consumer 35,440 25,033 20,871
Other 149 1,137 136
Total loans $93,663 $82,618 $83,366
December 31,
(In thousands)
1991 1990
Commercial,
financial,
and agricul-
tural $44,468 $40,981
Real estate-
construction 352 284
Real estate-
mortgage 13,681 7,897
Consumer 18,187 18,833
Other 1,082 1,258
Total loans $77,770 $69,253
(1) No significant foreign debt outstanding.
(2) Includes loans to the following categories of borrowers, all
of which could be considered to be in the oil and gas industry
(in thousands):
Oil and gas production and related
service companies $12,258
Water transportation and related
companies 5,056
Total $17,314
Of the amounts shown on Schedule III-C, $860,000 of the
nonaccrual loans, and $17,000 of the renegotiated loans in 1994 relate
to borrowers included in the oil and gas industry.
SCHEDULE III-B
Maturities and Sensitivity to Changes in
Interest Rates as of December 31, 1994
Maturity
(In thousands)
Over one
One year through
or less 5 years
LOANS:
Commercial, financial
and agricultural .......... $21,771 $14,891
Real estate-construction .... 1,144 -0-
Real estate-mortgage ........ 2,447 3,124
Consumer and other .......... 3,883 19,387
TOTAL ....................... $29,245 $37,402
Loans with pre-determined
interest rates ............ $ 6,321 $34,664
Loans with floating
interest rates ............ 22,924 2,738
TOTAL ....................... $29,245 $37,402
Maturity
(In thousands)
Over
5 years Total
LOANS:
Commercial, financial
and agricultural .......... $ 5,478 $42,140
Real estate-construction .... 89 1,233
Real estate-mortgage ........ 7,374 12,945
Consumer and other .......... 12,047 35,317
TOTAL ....................... $24,988 $91,635
Loans with pre-determined
interest rates ............ $24,988 $65,973
Loans with floating
interest rates ............ -0- 25,662
TOTAL ....................... $24,988 $91,635
Normally, borrowers are expected to meet contract terms. In
some cases, borrowers are permitted to roll over obligations
after appropriate review of the credit quality and based
entirely on the borrower's ability and willingness to repay.
The data shown above is in a format which conforms with reports
to the bank regulatory agencies, and has not been restated to
reflect anticipated roll-overs which management does not feel
will be material. Unearned income is included in the amounts
shown above and nonaccruing loans are excluded.
SCHEDULE III-C
Nonperforming Loans
December 31,
(In thousands)
1994 1993 1992 1991 1990
Loans accounted
for on a non-
accrual basis (1) $2,037 $2,367 $1,736 $1,942 $2,059
Loans which are
contractually
past due 90 or
more days as
to interest or
principal payment,
but are not
included above 64 267 23 1 1,058
Loans the term
of which have
been renegotiated
to provide a
reduction or
deferral of
interest or
principal because
of a deterioration
in the financial
position of the
borrower, but
are not included
above (2) 2,444 877 4,565 3,960 4,597
Total Nonperforming
Loans $4,545 $3,511 $6,324 $5,903 $7,714
In addition to the nonperforming loans, the Company has
identified certain loans which, although currently performing,
have credit weaknesses such that doubt exists as to the
borrower's future ability to comply with present terms. At
December 31, 1994, these loans totaled approximately $794,000.
Loans were charged off as soon as the probability of a loss is
established. In management's opinion, all known losses had been
charged to the reserve as of December 31, 1994.
(1) Loans are transferred to a non-accrual status when payment
of principal or interest is past due 90 days or more, unless the
loan is both well secured and in the process of collection.
Once placed on a nonaccrual status, loans are not restored to
accruing status until all delinquent principal and/or interest
has been brought current or the loan becomes both well secured
and in the process of collection. The net effect of recording
income on nonaccrual loans on the cash basis was to reduce
interest income by approximately $183,000 in 1994.
(2) Foregone interest on loans whose interest rates were
renegotiated was $11,000 in 1994.
SCHEDULE IV-A
Summary of Loan Loss Experience
The following table summarizes averages of loan balances,
changes in the allowance for possible loan losses arising from
loans charged off and recoveries on loans previously charged
off, by loan category, and additions to the allowance which have
been charged to operating expense.
Years ended December 31,
(In thousands except percentage data)
1994 1993 1992 1991 1990
Average amount of
loans
outstanding (1) $86,337 $86,214 $80,022 $72,321 $58,754
Balance of
allowance
for possible
loan losses
at the
beginning of
year $ 2,835 $ 2,434 $ 2,490 $ 3,425 $ 6,692
Loans charged
off: (2)
Commercial,
financial,
and agricultural 13 187 308 1,308 3,638
Real estate-
construction -0- -0- -0- -0- -0-
Real estate-
mortgage 2 -0- -0- -0- 5
Consumer and
other 170 200 178 154 90
Total charged
off 185 387 486 1,462 3,733
Recoveries of loans
previously charged
off:
Commercial,
financial
and agricultural 648 696 267 476 280
Real estate-
mortgage 4 -0- 2 3 13
Consumer and
other 53 41 36 44 98
Total recoveries 705 737 305 523 391
Net loans
charged off
(recovered) (520) (350) 181 939 3,342
Provision charged
(credited) to
operating
expense (500) 51 125 4 75
Balance of
allowance
for possible
loan losses
at the end
of year $ 2,855 $ 2,835 $ 2,434 $ 2,490 $3,425
Ratio of net
charge-offs
(recoveries)
during period
to average loans
outstanding (0.60)% (0.41)% 0.23% 1.30% 5.69%
(1) Net of unearned income.
(2) Loans that are six months past due are considered bad debts
and are charged off unless they are well secured and in the
process of collection. When the probability of a loss is
established before a loan becomes six months past due, those
loans are charged off as soon as the probability of a loss is
established.
SCHEDULE IV-B
Allocation of the Allowance for Possible Loan Losses
Balance at December 31,
(in thousands)
1994 1993 1992
Percent Percent Percent
of Loans of Loans of Loans
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
Commercial,
financial and
agricultural $ 688 46.8% $1,097 52.5% $1,206 58.0%
Real estate-
construction -0- 1.3% -0- 1.3% -0- 0.5%
Real estate-
mortgage 109 13.9% 66 14.5% 86 16.4%
Consumer 340 37.8% 370 30.3% 210 25.0%
Other 12 0.2% -0- 1.4% -0- 0.1%
Unallocated 1,706 N/A 1,302 N/A 932 N/A
TOTAL $2,855 100.0% $2,835 100.0% $2,434 100.0%
1991 1990
Percent Percent
of Loans of Loans
to Total to Total
Amount Loans Amount Loans
Commercial,
financial and
agricultural $1,160 57.2% $2,613 56.9%
Real estate-
construction 4 0.5% 4 0.4%
Real estate-
mortgage 113 17.6% 135 12.0%
Consumer 376 23.4% 157 28.7%
Other 12 1.3% 50 2.0%
Unallocated 825 N/A 466 N/A
TOTAL $2,490 100.0% $3,425 100.0%
A review is made of all large or known problem loans. An
estimate of the potential loss on these loans is made on an
individual loan basis and allocated to the respective category
of the allowance for possible an loan losses. Additionally, an
allocation is made to each category based upon the ratio of
historical and estimated future net charge-offs to average total
loans outstanding for the past two years and applied to the
remaining loan balances in each category.
SCHEDULE V
Deposits
Summary of Average Deposits and Their Yields
Years ended December 31,
(In thousands except for percentage data)
1994 1993 1992
Amount Rate Amount Rate Amount Rate
Demand
deposits in
domestic
offices $ 27,193 -- $ 25,972 -- $ 25,452 --
Savings and
negotiable
interest-
bearing
deposits
in domestic
offices 83,931 2.21% 85,750 2.42% 79,227 3.08%
Time deposits
in domestic
offices 65,724 4.28% 63,827 4.15% 71,772 4.91%
Total
deposits $176,848 2.64% $175,549 2.69% $176,451 3.38%
Certificates of deposit outstanding in amounts $100,000 or more
by the amount of time remaining until maturity as of December
31, 1994, are as follows:
Time certificates
of deposit of
$100,000 or more
(In thousands)
Remaining maturity
3 Months or less $12,687
Over 3 through 6 months 1,407
Over 6 through 12 months 2,509
Over 12 months 2,953
Total $19,556
SCHEDULE VI
Return on Equity and Assets
The ratio of net earnings to average shareholders' equity and
average total assets and certain other ratios are presented below.
Years ended December 31,
1994 1993 1992
(AS RESTATED)
Percentage of
net income to:
Average total assets 3.05% 1.12% 0.59%
Average shareholders'
equity 50.94% 22.31% 14.61%
Dividend payout
ratio (1) 3.44% --% --%
Percentage of average
shareholders' equity
to average total
assets 5.89% 4.82% 3.68%
(1) No dividends were declared in 1993 and 1992.
SCHEDULE VII
Short-Term Borrowings
Short-term borrowings include federal funds purchased from other
banks and securities sold under agreements to repurchase. Statistical
information regarding short-term borrowings is presented below
(in thousands):
1994 1993 1992
Amount outstanding at
December 31, $3,334 $2,180 $1,552
Weighted average interest
rate at December 31, 4.00% 2.50% 2.00%
Maximum outstanding at any
month-end during year $7,034 $5,394 $13,086
Average amount outstanding
during year $3,125 $2,315 $5,999
Weighted average interest
rate during year 3.36% 2.63% 3.30%
SCHEDULE VIII
Interest Sensitivity/Gap Analysis
Interest Rate Sensitivity Period
December 31, 1994
(in thousands)
0-3 4-12 1-5 Over 5
Months Months Years Years Total
ASSETS:
Loans $27,432 $10,767 $33,867 $19,569 $ 91,635
Investments 39,637 9,649 12,777 5,876 67,939
Other 16,004 -0- -0- -0- 16,004
Total Assets $83,073 $20,416 $46,644 $25,445 $175,578
FUNDING SOURCES:
Interest-
Bearing
Deposits $63,720 $24,418 $22,253 $40,538 $150,959
Short-Term
Funds 3,634 -0- -0- -0- 3,934
Long-Term Debt 53 36 -0- -0- 89
Total Funding
Sources $67,407 $24,454 $22,253 $40,538 $154,982
REPRICING/MATURITY GAP:
Period $15,666 ($ 4,038) $24,391 ($15,092)
Cumulative $15,666 $11,628 $36,019 $20,957
Period Gap/
Total Assets 8.9% (2.3)% 13.9% (8.6)%
Cumulative Gap/
Total Assets 8.9% 6.6 % 20.5% 11.9 %
Amounts stated include only fixed and variable rate instruments
that are still accruing interest. Variable rate instruments are
included in the next period in which they are subject to a
change in rate. The principal portion of scheduled payments on
fixed rate instruments are included in the periods in which they
become due or mature. Because changes in rates paid on
interest-bearing demand deposits have lagged behind changes in
rates on other instruments, only 50 percent of the balance of
interest-bearing demand deposits is included in the first period
and 50 percent is included in the last period.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990
(AS RESTATED)
(In Thousands, Except Number of Shares and Per Share Data)
Total Interest Income $13,257 $12,322 $ 13,032 $ 15,164 $15,083
Total Interest Expense 4,773 4,785 6,165 9,290 9,898
Net Interest Income 8,484 7,537 6,867 5,874 5,185
Provision (Credit) for
Possible Loan Losses (500) 51 125 4 75
Net Interest Income After
Provision for Possible
Loan Losses 8,984 7,486 6,742 5,870 5,110
Noninterest Income 1,654 1,636 1,629 1,598 1,878
Securities Gains (Losses) (978) (73) 82 (64) (933)
Noninterest Expense 7,759 7,512 7,333 7,324 8,687
Income (Loss) Before
Income Taxes and
Extraordinary Items 1,901 1,537 1,120 80 (2,632)
Provision (Credit) for
Income Taxes (3,979) (241) 334 - -
Extraordinary Item:
Income Tax Benefit of
Net Operating Loss
Carryforward - - 334 - -
Cumulative Effect of
Change in Accounting
Principle - 340 - - -
Net Income (Loss) $5,880 $2,118 $1,120 $ 80 $(2,632)
Average Shares
Outstanding 2,017,600 2,017,600 2,017,600 2,017,600 2,017,600
Per Share Data:
Net Income (Loss) $2.91 $1.05 $.56 $.04 $(1.30)
Cash Dividends Declared $0.10 - - - -
Selected Ratios:
Return on Total
Average Assets 3.05% 1.12% .59% .04% (1.41)%
Return on Total Average
Shareholders' Equity 50.94% 22.31% 14.61% 1.15% (31.58)%
Shareholders' Equity to
Total Assets 7.07% 5.08% 3.93% 3.24% 2.98%
Balance Sheet Totals:
Total Assets $197,007 $197,732 $196,006 $196,742 $203,861
Average Equity $ 11,339 $ 9,078 $ 7,037 $ 6,125 $ 7,287
Average Assets $192,504 $188,473 $191,302 $197,612 $186,639
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis of operations for 1994
highlight the changes in financial position and results of
operations of First National Bankshares, Inc. (the Company).
The financial position and results of operations of the Company
in 1994, 1993 and 1992 were due primarily to its banking
subsidiary, First National Bank of Houma (First National or the
Bank). Management's discussion should be read in conjunction
with the consolidated financial statements and accompanying
notes included in this annual report.
In late 1995, the Company discovered an error had been made in
the calculation of a reduction in the latter part of 1994 of the
valuation allowance against the Company's deferred tax asset.
The error, which resulted in an understatement of the valuation
allowance by $525,000 for the period ending December 31, 1994,
related in part to the order of use of tax loss carryforwards
from 1987 and 1988 and in part to the order of use of bad debt
and other than bad debt tax loss carryforwards from 1990. To
correct the error, the Company is restating its financial
statements for the periods ending December 31, 1994, March 31,
1995, June 30, 1995, and September 30, 1995 and filing with the
Securities and Exchange Commission an amended Annual Report on
Form 10-K/A and amended Quarterly Reports on Form 10-Q/A for
those periods to reflect the restated financial statements.
For the period reflected by this report, the Company has
restated the financial statements as follows:
Year Ended
December 31, 1994 December 31, 1994
Income Net
Other Stockholders' Tax Net Income
Assets Equity Benefit Income Per Share
As originally
Reported $9,675 $14,448 ($4,501) $6,405 $3.17
Restatement (525) (525) 525 (525) (0.26)
As restated $9,150 $13,923 ($3,979) $5,880 $2.91
The Management's Discussion and Analysis of Financial Condition
and Results of Operations that follows and the financial
statements included herewith have been amended from the original
filing of this report to reflect the foregoing restatement. For
a discussion of the impact of the restatement and for restated
financial statements for other periods, refer to the amended
periodic filings for those periods.
OVERVIEW
During 1994 the economy continued to show signs of increased
stability. 1994 was also a year which produced a rising
interest rate environment. The Company recorded a profit of
$5,880,000 in 1994 as compared to a profit of $2,118,000 and
$1,120,000 in 1993 and 1992, respectively. The profit in 1994
was substantially affected by a nonrecurring $3,979,000 credit
to income taxes, principally as a result of the Company reducing
a valuation allowance relating to deferred income tax assets.
The Bank continued its reduction of nonearning assets to a more
manageable level in 1994.
Asset Quality, Liquidity and Capital are discussed in the
following analysis of the Company.
THE COMPANY AND FIRST NATIONAL
This discussion highlights the principal factors affecting
earnings and the significant changes in the statement of
condition. The discussion concentrates on First National since
it contains the primary assets and liabilities of the Company.
FINANCIAL CONDITION
STATEMENTS OF AVERAGE BALANCES
The following table presents key elements of the Company's
statements of condition. Average amounts are used in this table
and in the accompanying discussion because average balances more
clearly present the changes in financial condition than do
year-end amounts.
(In Thousands) 1994 1993
Cash and Due from Financial
Institutions:
Noninterest-Bearing $ 6,854 $6,940
Interest-Bearing 1,853 2
Securities 82,782 80,150
Net Loans 83,544 83,490
Federal Funds Sold and
Resell Agreements 4,287 5,688
Banking Premises and
Equipment 5,848 6,004
Other Assets 7,336 6,199
Total Average Assets $192,504 $188,473
Noninterest-Bearing Deposits $ 27,193 $ 25,972
Interest-Bearing Deposits 149,655 149,577
Federal Funds Purchased and
Repurchase Agreements 3,125 2,315
Other Liabilities 1,192 1,531
Total Average Liabilities 181,165 179,395
Shareholders' Equity 11,339 9,078
Total Average Liabilities and
Shareholders' Equity $192,504 $188,473
While average total loans for 1994 were approximately the same
as 1993, total loans at December 31, 1994, were $11,000,000, or
13.4 percent, greater than total loans at December 31, 1993.
During the third quarter of 1994, the Bank purchased $5,000,000
of Title I loans and, in the fourth quarter of 1994, sold
$1,130,000 of pleasure boat loans.
Average deposits increased $1,300,000 during 1994.
Interest-bearing deposits remained relatively level, while
noninterest-bearing deposits increased by approximately
$1,200,000.
RESULTS OF OPERATIONS
NET INTEREST INCOME
(In Thousands) 1994 1993 1992
Interest and Fees on Loans $ 8,000 $ 7,535 $ 7,331
Interest on Securities 4,995 4,615 5,481
Interest on Funds Sold, etc. 159 172 116
Interest on Deposits with other
Financial Institutions 103 - 104
Total Interest Income 13,257 12,322 13,032
Interest on Deposits 4,668 4,724 5,967
Interest on Funds Purchased 105 61 198
Total Interest Expense 4,773 4,785 6,165
Net Interest Income $ 8,484 $ 7,537 $ 6,867
In 1994 interest and fees on loans increased $465,000 as a
result of the effect of higher interest rates generated by
market conditions. In 1993 higher volumes in loans offset the
effect of a lower interest rate environment.
During 1994, the increase of $380,000 of interest earned on
securities was the result of an increase in the average balance
of securities of $2,600,000 and the effect of rising interest
rates. In 1993, the reduction of interest earned resulted from
$6,500,000 in lower balances in the portfolio and lower interest
rates. Interest on funds sold remained relatively level despite
a reduction of $1,400,000 in average balances. The reduction
was offset by rising interest rates in 1994. Comparing 1993 to
1992, interest on funds sold increased due to higher balances.
The Company invested excess funds in 1994 in an interest-bearing
account with the Federal Home Loan Bank of Dallas, Texas.
Earnings from that account in 1994 amounted to $103,000.
The securities portfolio is principally comprised of debt
instruments, of which approximately 95 percent are issued or
guaranteed by the U.S. Government and its agencies.
The Company's derivative financial instruments are broadly
defined as financial instruments which derive their value from
various indices. At December 31, 1994, the Company held
$44,666,000 or 65.7 percent of its securities portfolio in the
form of derivative financial instruments. Approximately 73
percent of the Company's derivative financial instruments are
subject to interest rate caps ranging from 9.5 percent to 24.0
percent, which could adversely impact the yield and interest
income that could be realized should various indices rise above
these interest rate caps. Net interest income may be adversely
impacted in 1995 and subsequent years as a result of the
expiration in the third quarter of 1995 of "teaser rates" on
approximately $5,857,000 of derivative financial instruments.
The rates in effect, after the expiration of "teaser rates," are
floating rates which would increase or decrease in response to
changes in interest rates. Based upon interest rate indices in
effect on December 31, 1994, the expiration of "teaser rates" in
1995 would cause the interest rate to decrease from 7.00 percent
to 3.74 percent on $1,770,000 of securities maturing in July
2000, from 8.00 percent to 3.74 percent on $2,524,000 of
securities maturing in August 2003 and from 11.00 percent to
3.34 percent on $1,563,000 of securities maturing in September
2008. Assuming interest rate indices remain as they were on
December 31, 1994, the effect of the expiration of these "teaser
rates" in 1995 would be the reduction in net interest income for
the second half of 1995 of approximately $115,000.
Interest-bearing liabilities increased approximately $900,000
in 1994. Considering the increase in balances and interest rate
increases, the Company was able to hold interest expense level
with that of 1993. The $1,400,000 decrease in interest expense
in 1993 as compared to 1992 was the result of lower rates paid
and a reduction of approximately $5,100,000 in interest-bearing
liabilities in 1993.
Net interest income improved in 1994 and in 1993 due to
improvements in its net interest spread and improvements in the
level of nonearning assets.
PROVISION FOR POSSIBLE LOAN LOSSES
A credit provision for possible loan losses of $500,000 was
recorded in 1994 as compared to provisions of $51,000 and
$125,000 in 1993 and 1992, respectively. At this time,
management does not anticipate a credit provision for possible
loan losses in 1995 in an amount similar to the amount recorded
in 1994. The credit provision in 1994 was the result of
management's analysis that the current allowance for possible
loan losses was more than adequate to cover any potential
losses. Net recoveries were $520,000 in 1994 compared to net
recoveries of $350,000 in 1993 and net charge-offs of $181,000
in 1992. The recoveries are the result of the improved quality
of the loan portfolio and management's continued attention to
loans charged-off in previous years. The allowance for possible
loan losses was $2,855,000 at December 31, 1994, representing
3.0 percent of outstanding loans and 62.8 percent of
nonperforming loans. The allowance for possible loan losses at
December 31, 1993, was $2,835,000, representing 3.4 percent of
outstanding loans and 80.7 percent of nonperforming loans.
NONINTEREST INCOME AND NONINTEREST EXPENSE
(In Thousands) 1994 1993 1992
Noninterest Income $1,654 $1,636 $1,629
Gains (Losses) on
Securities Transactions (978) (73) 82
Total Noninterest Income $ 676 $1,563 $1,711
Noninterest Expense $7,759 $7,512 $7,333
Noninterest income before securities gains (losses) increased
slightly in 1994 as compared to 1993 and in 1993 as compared to
1992.
The losses on securities transactions recorded in the fourth
quarter of 1994 of $877,000 were due to a decision by management
to sell approximately $15,000,000 in securities which were
adversely affected by a deteriorating market brought on by
rising interest rates. That decision was predicated on the
Company being able to absorb the losses and reposition the funds
in short-term U.S. Government obligations which should be less
subject to the volatility of market fluctuations in a rising
interest rate environment. The losses on securities
transactions in 1993 included a one-time writedown of $421,000
on certain securities experiencing extraordinary redemptions.
In 1992, gains on securities transactions resulted primarily
from repositioning a portion of the portfolio to minimize the
effects of low interest rates.
Noninterest expense in 1994 increased approximately $250,000
when compared to 1993. The increase was the result of increases
in salaries, wages and benefits, insurance premiums and legal
and professional fees. Those increases were offset somewhat by
a reduction of $345,000 in costs associated with OREO, OAO and
problem loans. The increase in 1993 as compared to 1992 was
primarily the result of booking an expense of $210,000 in
settlement of a disagreement concerning a participation in a
commercial loan acquired from another financial institution in
which First National agreed to reimburse the lead bank pro rata
for interest overpayments received from the customer by the lead
bank and then distributed to First National under the terms of
the participation.
NET INCOME
(In Thousands) 1994 1993 1992
Net Income Before
Income Taxes and
Extraordinary Item $ 1,901 $1,537 $1,120
Income Tax Expense (Credit) (3,979) (241) 334
Net Income Before
Extraordinary Item 5,880 1,778 786
Extraordinary Item -
Utilization of Net Operating
Loss Carryforwards - - 334
Cumulative Effect of
Change in Accounting
Principle - 340 -
Net Income $ 5,880 $2,118 $1,120
Consolidated net income was $5,880,000 in 1994. The $3,979,000
income tax asset credit in 1994 which resulted principally from
the reduction of a valuation allowance relating to its deferred
tax asset had a significant impact on the net income of the
Company. Excluding the impact of booking the nonrecurring
income tax credit of $3,979,000, the accounting for the $978,000
losses on securities transactions and the $500,000 credit
provision to the allowance for possible loan losses,
consolidated net income for the Company would have been
$2,379,000. Consolidated net income was $2,118,000 and
$1,120,000 in 1993 and 1992, respectively.
Management does not presently anticipate booking additional
income tax credits or additional credit provisions to the
allowance for loan losses in 1995. Securities transactions may
be made in 1995 and in subsequent periods in response to changes
in interest rates, prepayment risk, liquidity needs or other
factors. Management cannot predict the effect upon net income
of such transactions. Net income may be adversely impacted in
1995 and subsequent years as a result of the expiration in the
third quarter of 1995 of "teaser rates" on $5,857,000 of
derivative financial instruments in the Company's securities
portfolio and may be adversely impacted by interest rate caps
ranging from a low of 9.5 percent to a high of 24 percent on
some derivative financial instruments in the event that interest
rates rise above interest rate caps. See "Results of Operations
- - Net Interest Income" and "Asset Quality."
See Note 7 to the consolidated financial statements for a
discussion of the new accounting standard related to accounting
for income taxes and its impact on the Company's operations.
ASSET QUALITY
The primary assets of the Company which are subject to asset
quality risk are the loan and investment portfolios. The loan
portfolio is directly affected by the condition of the local
economy, while the investment securities portfolio is less
subject to effects of the local economy since it is more
geographically diversified.
The Company evaluates the credit risk of each loan customer on
an individual basis and, where deemed appropriate, collateral is
obtained. Collateral varies by individual loan customer but may
include accounts receivable, inventory, real estate, equipment,
deposits, personal and government guaranties, and general
security agreements. On an ongoing basis, the Company monitors
its collateral and the collateral value related to the loan
balance outstanding.
During 1994, nonaccruing loans decreased by $330,000 and
renegotiated loans still accruing increased by $1,567,000. This
resulted in a net increase in nonperforming loans of
approximately $1,034,000. Other real estate and other
foreclosed assets decreased by $1,436,000. For the year, total
nonperforming assets decreased by approximately $402,000.
Assets categorized as nonperforming at First National were as
follows:
(In Thousands) 1994 1993
Loans:
90 days or more past due,
but still accruing interest $ 64 $ 267
Renegotiated loans still accruing 2,444 877
Nonaccrual Loans 2,037 2,367
Total Nonperforming Loans 4,545 3,511
Other real estate, net of
allowance for possible losses 423 1,859
Total Nonperforming Assets $4,968 $5,370
The level of the allowance for possible loan losses at December
31, 1994, was considered adequate by management.
During 1994 and 1993, management expensed $39,000 and $718,000,
respectively, to account for declines in the values of other
real estate and other foreclosed assets.
On January 1, 1994, the Company adopted Statement No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. This Statement required securities to be classified
into one of three reporting categories (held-to-maturity,
available-for-sale, or trading). Securities classified as
held-to-maturity are carried at amortized cost. Those
classified as available-for-sale are carried at market value
with the unrealized gain or loss (net of income tax effect)
reflected as a component of shareholders' equity. Those
classified as trading are carried at market value with the
unrealized gain or loss reflected in the statement of income.
The securities portfolio is principally comprised of debt
instruments, of which approximately 95 percent are issued or
guaranteed by the U.S. Government and its agencies.
The state and municipal securities portfolio ratings at
December 31, 1994, were: 39.6 percent AAA, 30.1 percent AA and
30.3 percent A. The Company's investment policy dictates that
at least 50 percent of the municipal portfolio be rated AA or
better. At year-end the percentage of municipal securities
rated AA or better was 69.7 percent.
On January 1, 1994, the date the Company adopted FAS 115, the
Company reclassified $66,286,000 of its held-for-sale securities
portfolio to available-for-sale. As of that date, $20,655,000
were already classified as held-to-maturity. The rising
interest rate environment in 1994 caused a decline in the
estimated market values of the available-for-sale and
held-to-maturity portfolios. The Company reduced its investment
in derivative financial instruments in the fourth quarter of
1994 when it sold approximately $15,000,000 of the derivative
financial instruments from the available-for-sale portfolio at a
loss of $877,000 and is reinvesting the funds in short-term U.S.
Government obligations. In September and November 1994, the
Company also reclassified securities with an aggregate amortized
cost of $49,234,000 (the "Reclassified Securities") from the
available-for-sale portfolio to the held-to-maturity portfolio.
The difference between the estimated market value and the
aggregate amortized cost of the Reclassified Securities on the
dates of reclassification was $3,005,000 (the "Unrealized
Interim Loss"). The after-tax effect of the Unrealized Interim
Loss ($1,983,000) remained as an adjustment to shareholders'
equity and is being accreted back to shareholders' equity over
the remaining lives of the securities, which is currently
estimated to be an average of 16 years.
At December 31, 1994, the Company held $11,217,000 in
securities classified as available-for-sale. In accordance with
FAS 115, net unrealized losses in the securities remaining in
the available-for-sale portfolio at December 31, 1994, of
$87,000 (net of taxes of $29,000) were recorded as an adjustment
to shareholders' equity as of December 31, 1994. The remaining
$1,945,000 of the $2,003,000 in the net unrealized loss on
securities available-for-sale adjustment to shareholders' equity
as of December 31, 1994, represents the after-tax effect of the
unaccreted Unrealized Interim Loss on the Reclassified
Securities.
FAS 115 also mandates that investment securities classified as
held-to-maturity be carried at amortized cost. Securities
classified as held-to-maturity at December 31, 1994, had an
amortized cost of $59,757,000. These securities had gross
unrealized gains of $56,000 and gross unrealized losses of
$6,181,000 ($2,948,000 of which is the unaccreted amount of the
Unrealized Interim Loss with respect to the Reclassified
Securities).
During 1994, there were no securities classified as
held-for-trading purposes.
As of December 31, 1994, the Company's financial statements
reflect a securities portfolio of $67,939,000, of which
$44,666,000 are represented by derivative financial instruments
whose interest rates fluctuate based upon various indices. The
objective of purchasing these derivative financial instruments
was to maximize net interest income. In the fourth quarter of
1994, the Company sold approximately $15,000,000 of derivative
financial instruments from the available-for-sale portfolio at a
loss of $877,000. Of the $6,125,000 in net unrealized losses in
the securities classified as held-to-maturity and the $87,000 in
net unrealized losses in the securities classified as
available-for-sale, $5,673,000 are net unrealized losses with
respect to the derivative financial instruments. The Company
has classified $38,742,000 of the derivative financial
instruments as held-to-maturity and $5,924,000 as
available-for-sale. Accounting requirements severely limit the
Company's ability to sell, prior to maturity, securities
classified as held-to-maturity. At December 31, 1994, the
average life of the securities classified as held-to-maturity,
based upon contractual maturity, was approximately 15 years.
The Company has the intent and, in management's view, the
financial ability to hold the derivative financial instruments
in the held-to-maturity portfolio until maturity. Although the
derivative financial instruments have the potential to affect
adversely the Company's future liquidity, results of operations,
and capital ratios, management does not anticipate any such
effects, except for the reduction in net income that may result
from the expiration of "teaser rates" on $5,857,000 of
derivative financial instruments and that may result from the
interest rate caps ranging from a low of 9.5 percent to a high
of 24 percent on some derivative financial instruments in the
event that interest rates rise above interest rate caps. See
"Results of Operations - Net Interest Income" and "Results of
Operations - Net Income."
The amortized cost and estimated market value as of December
31, 1994, of those derivative financial instruments were as
follows (in thousands):
Estimated
Amortized Market
INDEX Cost Value
Prime $10,588 $10,116
LIBOR 928 875
Treasury Bill 349 335
Constant Maturing Treasury 7,359 6,808
11th District Cost of Funds 14,240 12,471
Constant Maturing Treasury
Minus LIBOR 8,004 5,816
Prime Minus LIBOR 3,000 2,612
Prime x 50 Percent 1,000 992
13 Percent Minus 11th District
Cost of Funds x 2 1,000 891
Constant Maturity
Treasury x 50 Percent 1,000 879
Total $47,468 $41,795
Management currently utilizes a computer model for stress
testing and sensitivity analysis to monitor the effects that
various rate changes will have on parameters established by
Company policy.
LIQUIDITY
The maintenance of adequate liquidity provides the Company with
the ability to meet its obligations to its depositors and fund
loans and allows the Company to pursue opportunities for future
growth and expansion as they become available.
The principal sources of liquidity for First National are core
deposits. Temporary sources of liquidity are federal funds
purchased and securities sold under repurchase agreements.
First National has placed, and continues to place, significant
emphasis on maintaining an adequate level of liquidity. First
National has none of its deposits brokered or purchased in the
national market. Time certificates of deposits of $100,000 or
more represented 13.0 percent and 11.4 percent of First
National's interest-bearing deposits at December 31, 1994 and
1993, respectively. Management believes that funding and
liquidity of First National is adequate to meet its current
financial commitments. The ratio of net liquid assets to net
liabilities at December 31, 1994, was 36.5 percent.
The Company is a bank holding company and its ability to fund
dividend payments is dependent upon its ability to receive funds
from First National. Due to prior years' operating losses, the
Company and the Bank were not in a position to pay dividends in
1993 and 1992. During 1994, the Bank received permission from
the OCC to transfer some of its equity, $302,000, to the Company
in the form of cash. In 1994, the Company also received
permission from the Federal Reserve Bank of Atlanta to use a
portion of that cash to pay a dividend of 10 cents per share.
The dividend was declared on December 29, 1994, and was payable
on January 25, 1995. At December 31, 1994, remaining cash is
sufficient to fund anticipated operating expenses during 1995.
CAPITAL
Capital adequacy is determined by many factors including asset
quality, liquidity, earnings history, management's philosophy
and the economic conditions in the market being served.
Management and regulators closely monitor the capital strength
of the Company and First National on a regular basis.
One measure of capital adequacy is the degree of risk inherent
in a company's assets. Effective December 31, 1990, the
Company, First National and all financial institutions became
subject to new regulatory risk-based capital guidelines. In the
risk-based capital computation, all assets including off-balance
sheet items, such as loan commitments and standby letters of
credit, are weighted based upon assigned risk factors. Capital
is separated into two categories, Tier 1 and Tier 2, which
combine for Total Capital. Tier 1 capital consists of common
stockholders' equity, perpetual preferred stock and minority
interest. Tier 2 capital consists of the allowance for possible
loan losses and subordinated debt, subject to certain
limitations. At year-end 1994, Total Capital must be 8 percent,
half of which must be Tier 1 capital.
In conjunction with the risk-based capital guidelines, the
regulators issued capital leverage ratio guidelines. The
leverage ratio consists of Tier 1 capital as a percent of total
assets. The minimum Tier 1 leverage ratio for the highest rated
banks and bank holding companies is 3 percent. Regulators may
require a 100 to 200 basis point higher minimum ratio dependent
upon the condition of the individual bank or bank holding
company. The 3 percent minimum was established to ensure that
all banks have a minimum capital level to support assets,
regardless of risk profile.
The Company's and the Bank's capital ratios were as follows at
December 31, 1994:
Company Bank
Shareholders' Equity to Total Assets 7.1% 7.1%
Regulatory:
- Tier 1 Leverage Ratio 6.2% 6.2%
- Tier 1 Risk-Based 11.4% 11.4%
- Total Risk-Based 12.6% 12.6%
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of
financial institutions such as the Company are primarily
monetary in nature. Therefore, interest rates have a more
significant effect on the Company's performance than the effect
of general levels of inflation on the price of goods and
services. While interest rates earned and paid by the Company
are affected to a degree by the rate of inflation, the Company
believes that the effects of inflation are generally manageable
through asset/liability management.
FUTURE CHANGES IN FINANCIAL ACCOUNTING
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of Certain Loans," which requires that a creditor
measure impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate or
its market value or fair value of the collateral if the loan is
collateral dependent. The Financial Accounting Standards Board
has also issued Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," which allows a creditor to use
existing methods for recognizing interest income on impaired
loans. The Company does not anticipate that the adoption of
these Statements will have a significant effect in 1995 on its
financial condition or results of operations.
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Condition - First National
Bankshares, Inc. and Subsidiaries - December 31, 1994 (Restated)
and December 31, 1993
Consolidated Statements of Income - First National Bankshares,
Inc. and Subsidiaries - Years ended December 31, 1994
(Restated), 1993 and 1992
Consolidated Statements of Changes in Shareholders' Equity -
First National Bankshares, Inc. and Subsidiaries - Years ended
December 31, 1994 (Restated), 1993 and 1992
Consolidated Statement of Cash Flows - First National
Bankshares, Inc. and Subsidiaries - Years ended December 31,
1994 (Restated), 1993 and 1992
Notes to Financial Statements - First National Bankshares, Inc.
and Subsidiaries
Report of Independent Auditor's - First National Bankshares, Inc.
and Subsidiaries - Years ended December 31, 1994 (Restated) and
1993
Report of Independent Public Accountants - First National
Bankshares, Inc. and Subsidiaries - Year ended December 31, 1992
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1994 1993
(AS RESTATED)
(In Thousands, Except Number of Shares and Per Share Data)
Assets
Cash and Due from Financial
Institutions (Note 2) $ 6,951 $ 7,262
Due from Financial Institutions -
Interest Bearing 16,004 -
Total Cash and Cash Equivalents 22,955 7,262
Securities Available-for-Sale
(Amortized Cost of $11,217) (Note 3) 11,130 -
Securities Held-for-Sale (Market
value of $66,442) (Note 3) - 66,286
Securities Held-to-Maturity (Market
value of $53,632 and $20,961
at December 31, 1994 and 1993,
respectively) (Note 3) 56,809 20,655
Federal Funds Sold and Securities
Purchased Under Agreements to Resell - 7,100
Loans, Less Allowance for Possible
Loan Losses of $2,855 and $2,835 at
December 31, 1994 and 1993,
respectively (Notes 1, 4 and 10) 90,808 79,783
Bank Premises and Equipment (Note 2) 5,732 5,884
Accrued Interest Receivable and
Other Assets 9,150 8,903
Other Real Estate (Notes 1 and 4) 423 1,859
Total Assets $197,007 $197,732
Liabilities
Noninterest-Bearing Deposits $ 27,310 $ 25,164
Interest-Bearing Deposits (Note 5) 150,898 159,053
Total Deposits 178,208 184,217
Federal Funds Purchased and
Securities Sold Under Repurchase
Agreements 3,634 2,180
Accrued Interest, Taxes and
Other Liabilities 951 998
Note Payable (Note 6) 89 302
Dividend Payable 202 -
Total Liabilities 183,084 187,697
Commitments and Contingencies
(Note 12) - -
Shareholders' Equity (Notes 6, 8, and 9)
Preferred Stock, No Par Value
Authorized - 2,000,000; Issued - None - -
Common Stock (Par Value $2.50) 5,044 5,044
Numbers of Shares Authorized: 10,000,000
Numbers of Shares Outstanding: 2,017,600
Additional Paid in Capital 16,454 16,454
Accumulated Deficit (5,483) (11,161)
Unrealized Loss on Securities
Available-for-Sale, Net (2,003) -
Note Payable Offset Associated with
Employee Stock Ownership Plan (89) (302)
Total Shareholders' Equity 13,923 10,035
Total Liabilities and Shareholders'
Equity $197,007 $197,732
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994 1993 1992
(AS RESTATED)
(In Thousands, Except Per Share Data)
Interest Income
Interest and Fees on Loans $ 8,000 $ 7,535 $ 7,331
Interest on Securities:
Taxable Securities 4,939 4,569 5,360
Tax-Exempt Securities 56 46 121
Interest on Funds Sold and
Securities Purchased under
Agreements to Resell 159 172 116
Interest on Deposits with Other
Financial Institutions 103 - 104
Total Interest Income 13,257 12,322 13,032
Interest Expense
Interest on Deposits 4,668 4,724 5,967
Interest on Funds Purchased 105 61 198
Total Interest Expense 4,773 4,785 6,165
Net Interest Income 8,484 7,537 6,867
Provision (Credit) for Possible
Loan Losses (Note 4) (500) 51 125
Net Interest Income After
Provision for Possible Loan
Losses 8,984 7,486 6,742
Noninterest Income
Service Charges on Deposit
Accounts 1,000 963 895
Other Operating Income 337 344 408
Security Gains (Losses), Net (978) (73) 82
Trust Services Income 317 329 326
Total Noninterest Income 676 1,563 1,711
Noninterest Expense
Salaries and Employee Benefits
(Note 9) 3,604 3,362 3,374
Net Occupancy Expense 681 655 672
Other Real Estate Expenses
(Note 4) 274 619 649
Other Operating Expenses (Note 14) 3,200 2,876 2,638
Total Noninterest Expense 7,759 7,512 7,333
Income Before Income Taxes 1,901 1,537 1,120
Income Taxes (Credits) (Note 7) (3,979) (241) 334
Net Income Before Extraordinary
Item and Cumulative Effect of
Change in Accounting Principle 5,880 1,778 786
Extraordinary Item - Income Tax
Benefit of Net Operating Loss
Carryforward (Note 7) - - 334
Cumulative Effect of Change in
Accounting Principle (Note 7) - 340 -
Net Income $5,880 $2,118 $1,120
Earnings Per Share (Note 8)
Net Income Before Extraordinary
Item and Cumulative Effect of
Change in Accounting Principle $2.91 $ .88 $.39
Extraordinary Item - - .17
Cumulative Effect of Change in
Accounting Principle - .17 -
Net Income $2.91 $1.05 $.56
See .Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized
Loss on
Securities ESOP
Additional Available- Note
Common Paid In Accumulated for- Payable
Stock Capital Deficit Sale,Net (Note 6) Total
(In Thousands)
BALANCE,
JANUARY 1, 1992 $5,044 $16,454 $(14,399) $_ $(728) $6,371
Net Income - - 1,120 - - 1,120
Decrease in ESOP
Note Payable - - - - 213 213
BALANCE,
DECEMBER 31, 1992 5,044 16,454 (13,279) - (515) 7,704
Net Income - - 2,118 - - 2,118
Decrease in
ESOP Note Payable - - - - 213 213
BALANCE,
DECEMBER 31, 1993 5,044 16,454 (11,161) - (302) 10,035
Net Income
(AS RESTATED) - - 5,880 - - 5,880
Decrease in
ESOP Note Payable - - - - 213 213
Dividends Declared:
$.10 per share - - (202) - - (202)
Unrealized Loss
on Securities - - - (2,003) - (2,003)
BALANCE,
DECEMBER 31, 1994
(AS RESTATED) $5,044 $16,454 $(5,483) $(2,003) $(89) $13,923
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 1993 1992
(AS RESTATED)
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,880 $ 2,118 $ 1,120
Adjustments to Reconcile
Net Income to Net Cash
Provided by Operating
Activities:
Depreciation, Amortization
and Accretion 607 689 485
Provision For Possible
Loan Losses (500) 51 125
Provision For Losses on
Other Real Estate 39 718 681
Realized (Gains) Losses
on Investment Securities 978 73 (82)
Deferred Income Taxes (4,029) (600) _
(Gains) Losses on
Sale of Property 151 (425) (67)
(Increase) Decrease in
Accrued Interest
Receivable (476) (265) 193
Increase (Decrease) in
Accrued Interest Payable 91 (67) (236)
(Increase) Decrease in
Other Assets (350) 83 (251)
Increase (Decrease) in
Other Liabilities (138) 171 (434)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,253 2,546 1,534
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of
Securities Available-for-Sale 47,219 - -
Proceeds From Sales of
Investment Securities - 36,064 26,025
Proceeds From Maturities and
Calls of Securities 40,709 40,260 67,201
Purchase of Securities (67,277) (79,000) (89,717)
Loans Purchased (7,357) (13,740) (7,041)
Loans Sold 1,130 10,188 1,637
Net (Increase) Decrease
in Loans (3,993) 4,586 (776)
Net (Increase) Decrease
in Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 7,100 (2,570) 3,477
Proceeds From Sale of
Premises, Equipment and
Other Real Estate 856 2,103 1,259
Purchases of Premises
and Equipment (392) (348) (355)
NET CASH PROVIDED BY
(USED IN) INVESTING ACTIVITIES 17,995 (2,457) 1,710
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net Increase (Decrease) in
Noninterest Bearing Deposits 2,146 (6,418) 10,725
Net Increase (Decrease) in
Interest Bearing Deposits
Other Than Certificates
of Deposits (15,605) 8,773 10,791
Net Increase (Decrease)
in Certificates of Deposit 7,450 (3,479) (11,663)
Net Increase (Decrease) in
Federal Funds Purchased and
Securities Sold Under
Repurchase Agreements 1,454 628 (11,040)
NET CASH USED BY
FINANCING ACTIVITIES (4,555) (496) (1,187)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 15,693 (407) 2,057
Cash and Cash Equivalents
at Beginning of Year 7,262 7,669 5,612
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 22,955 $ 7,262 $ 7,669
CASH INTEREST EXPENSE PAID $ 4,683 $ 4,852 $ 6,401
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CURRENT OPERATING ENVIRONMENT AND RISK FACTORS
First National Bankshares, Inc. (the Company) is a bank holding
company whose principal subsidiary is First National Bank of
Houma (First National or the Bank). Effective November 8, 1989,
First National entered into a Memorandum of Understanding (MOU)
with the Office of the Comptroller of the Currency (OCC). In
September 1993, the OCC concluded that the MOU was no longer
necessary and directed that the MOU be terminated.
The Company places considerable emphasis on each of the
critical issues discussed below (Operations and Loan
Concentrations, Nonperforming Assets, Parent Company Liquidity
and First National Funding and Liquidity). This emphasis is
designed to further improve the Company's financial position,
preserve capital and maintain adequate liquidity.
OPERATIONS AND LOAN CONCENTRATIONS
The Company earned $5,880,000, $2,118,000 and $1,120,000 for
years ended December 31, 1994, 1993 and 1992, respectively.
The composition of the loan portfolio was as follows (in
thousands):
December 31, 1994 1993
Type
Commercial, Financial and
Agricultural $43,792 $43,378
Real Estate - Construction 1,233 1,061
Real Estate - Mortgage 13,049 12,009
Consumer 35,440 25,033
Other 149 1,137
Total Loans $93,663 $82,618
As a percent of total loans at December 31, 1994, the Company
has loans to the oil and gas industry and related service
companies of approximately 13.1 percent.
The Company evaluates the credit risk of each customer on an
individual basis and, where deemed appropriate, collateral is
obtained. Collateral varies by individual loan customer but may
include accounts receivable, inventory, real estate, equipment,
deposits, personal and government guaranties, and general
security agreements. On an ongoing basis, the Company monitors
its collateral and the collateral value related to the loan
balance outstanding.
NONPERFORMING ASSETS
Nonperforming assets were as follows (in thousands):
December 31, 1994 1993
Loans:
90 days or more past due, but
still accruing interest $ 64 $ 267
Renegotiated loans
still accruing 2,444 877
Nonaccrual loans 2,037 2,367
Total Nonperforming Loans 4,545 3,511
Other Real Estate, net of
allowance for possible losses 423 1,859
Total Nonperforming Assets $4,968 $5,370
December 31, 1994 1993
Nonperforming loans as a
percentage of total loans 4.9% 4.2%
Nonperforming assets as a
percentage of total loans
and other real estate
before allowance
for possible losses 5.3% 6.5%
Renegotiated loans are loans whose interest rates have been
reduced and/or maturity dates extended. The amount of foregone
interest on renegotiated loans still accruing was $11,000,
$47,000 and $51,000 in 1994, 1993 and 1992, respectively. The
increase in the balance of renegotiated loans still accruing is
the result of a single loan being placed in this category. This
loan is 90% guaranteed by Farmers Home Administration as to
principal and interest.
Nonaccrual loans at December 31, 1994, include $1,160,000 in
loans to borrowers who are not meeting contractual terms but are
making periodic payments. Net foregone interest on nonaccrual
loans was approximately $183,000, $153,000 and $146,000 in 1994,
1993 and 1992, respectively. Interest collected on a cash
basis was $233,000, $6,000 and $138,000 in 1994, 1993 and 1992,
respectively.
In addition to the nonperforming loans, the Company has
identified certain loans which, although currently performing,
have credit weaknesses such that doubt exists as to the
borrower's future ability to comply with present terms. At
December 31, 1994, these loans totaled approximately $794,000.
Other real estate is summarized by category in the following
table (in thousands):
December 31, 1994 1993
Land and land development $150 $ 535
Seafood processing plants - 330
Commercial buildings 254 588
Other 34 514
Total, gross 438 1,967
Less: Allowance for possible losses (15) (108)
Total, net $423 $1,859
At December 31, 1994, before the allowance for possible losses,
the highest carrying value of a single property was $117,000.
The Bank has made substantial progress in its credit risk
management process. Loan policies, loan review and real estate
appraisal review processes have solidified the lending function.
The methodology for determining the adequacy of the loan loss
reserve is continually reviewed and fine-tuned. The Company's
allowance for possible losses are as follows:
December 31, 1994 1993
Allowance for possible
loan losses (in thousands) $2,855 $2,835
Allowance for possible loan
losses as a percentage of:
- total loans 3.0% 3.4%
- total nonperforming loans 62.8% 80.7%
Allowance for possible loan
losses plus allowance for
other real estate losses as a
percentage of total
nonperforming assets
before allowances 57.6% 53.7%
PARENT COMPANY LIQUIDITY
The Company is a holding company, and its ability to fund
dividend payments is dependent in large part on its ability to
receive funds from First National through dividends. Banking
regulations preclude the Company from paying dividends without
regulatory permission.
Principal and interest payments due on the note payable are
funded by contributions from First National to the First
National Bank of Houma Employee Stock Ownership Trust. These
contributions are included in Salaries and Employee Benefits on
the Consolidated Statements of Income.
FIRST NATIONAL FUNDING AND LIQUIDITY
The principal source of liquidity for First National is core
deposits. First National has none of its deposits brokered or
purchased in the national market. Management believes that
funding and liquidity at First National is more than adequate to
meet its current financial commitments. During 1994, First
National had average net funds sold of $3,015,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant
accounting policies:
CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, First National.
Intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND DUE FROM FINANCIAL INSTITUTIONS
The Company's banking subsidiary is required to maintain a
noninterest-bearing balance with the Federal Reserve Bank to
fulfill its reserve requirement. The average balance in this
account was $859,000 in 1994 and $1,140,000 in 1993.
SECURITIES
Securities are being accounted for in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." SFAS No.
115, which was adopted effective January 1, 1994, requires the
classification of securities into one of three categories:
Trading, Available-for-Sale, or Held-to-Maturity.
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates this
classification periodically. Trading account securities are
held for resale in anticipation of short-term market movements.
Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the
securities to maturity. Securities not classified as held to
maturity or trading are classified as available-for-sale. The
Company had no trading account securities at December 31, 1994.
Held-to-maturity securities are stated at amortized cost.
Available-for-sale securities are stated at market value, with
unrealized gains and losses, net of income taxes, reported as a
separate component of stockholders' equity until realized.
Transfers from securities available-for-sale to securities
held-to-maturity are recorded at market value at the date of
transfer and any unrealized gain or loss at the date of transfer
continues to be reported as a separate component of
shareholders' equity and is accreted back to equity over the
life of the security transferred. Securities classified as
held-for-sale at December 31, 1993, were recorded at the lower
of cost or market value.
The amortized cost of debt securities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity
or, in the case of mortgage-backed securities, over the
estimated life of the security. Amortization, accretion and
accruing interest are included in interest income on securities.
Realized gains and losses, and declines in value judged to be
other than temporary, are included in net securities gains.
Gains and losses on the sale of securities available-for-sale
are determined using the specific-identification method. The
related income tax credit on security losses was $333,000 in
1994.
LOANS
Interest on loans, other than discount (add-on) loans, is
recognized as income based on the principal balance outstanding.
Interest on discounted loans, all of which have terms of less
than 60 months, is recognized as income over the term of the
loan using the sum-of-the-months' digits method, which does not
differ materially from the result obtained using the effective
interest method.
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of Certain Loans," which requires that a creditor
measure impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate or
its market value or fair value of the collateral if the loan is
collateral dependent. The Financial Accounting Standards Board
has also issued Statement of Financial Accounting Standards No.
118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures," which allows a creditor to use
existing methods for recognizing interest income on impaired
loans. The Company does not anticipate that the adoption of
these Statements in 1995 will have a significant effect on its
financial condition or results of operations.
NONPERFORMING ASSETS
Nonperforming assets include loans 90 days or more past due but
still accruing interest, renegotiated loans, nonaccrual loans
and other real estate. Nonaccrual loans are loans on which the
accrual of interest income has been discontinued because the
borrower's financial condition has deteriorated to the extent
that the collection of principal and/or interest is uncertain.
Until the loan is returned to performing status, generally as
the result of the full payment of all past due principal and
interest plus an acceptable period of performance, interest
income may be recorded on the cash basis.
Other real estate is reported at the estimated fair value, net
of the costs of disposal. Estimated fair value is the
anticipated sales price of the property, based upon independent
appraisals or other relevant factors. When a reduction to fair
value is required at the time the loan is reclassified to a
foreclosed asset, the difference is charged to the allowance for
possible loan losses. Any subsequent reductions are charged to
other real estate expense. Expenses and gains or losses from
sales related to these properties, net of related income, are
included in other real estate expense. An allowance for
possible losses is maintained to provide for temporary
reductions in values of specific properties. Other real estate
is shown net of this allowance.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is established by
charges to income. The allowance is an amount which management
believes will be adequate to absorb possible losses on existing
loans that may become uncollectible. The level of the allowance
is based on a number of factors, including the collection
history of loans and the evaluation of underlying collateral
values, loss experience, identification and review of problem
loans, quality of the portfolio, and current business and
economic conditions. The adequacy of the reserve is
periodically reviewed and approved by the Board of Directors.
Ultimate losses, however, may differ from the current estimates.
To the extent that adjustments to the allowance for possible
loan losses become necessary, they are reported in earnings in
the periods in which they become known. It is the Company's
policy to charge off any loan or portion thereof when it is
deemed uncollectible in the ordinary course of business. Loan
losses and recoveries are charged or credited directly to the
allowance.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less
accumulated depreciation of $7,241,000 and $6,846,0000 at
December 31, 1994, and 1993, respectively. Depreciation
expense is computed principally on a straight-line basis over
the estimated useful lives of the depreciable assets.
INCOME TAXES
Income taxes were accounted for using the liability method in
1994 and 1993. In prior years, income taxes were accounted for
using the deferred method.
STATEMENTS OF CASH FLOWS
For the purpose of reporting cash flows, cash and cash
equivalents include cash on hand and amounts due on demand from
banks and other financial institutions.
3. SECURITIES
A comparison of the amortized cost and market values of
securities classified as held-to-maturity at December 31, 1994,
and as investment securities at December 31, 1993, were as
follows (in thousands):
Amortized Estimated Gross Gross
Cost/Book Market Unrealized Unrealized
December 31, 1994 Value Value Gains Losses
U.S. Government Obligations:
- Collateralized Mortgage
Obligations $31,402 (1) $28,643 $ - $(2,759)
- Other 25,691 (1) 22,626 55 (3,120)
State and Municipal
Obligations 673 (1) 622 1 (52)
Other Securities 1,991 (1) 1,741 - (250)
59,757 (1) 53,632 56 (6,181)
Unrealized Losses on
Securities Transferred
from Available-for-Sale 2,948 - - 2,948
Total $56,809 (2) $53,632 $56 $(3,233)
(1) Amortized Cost
(2) Book Value
Estimated Gross Gross
Amortized Market Unrealized Unrealized
December 31, 1993 Cost Value Gains Losses
U.S. Government Obligations:
- Collateralized Mortgage
Obligations $ 1,461 $ 1,447 $ - $(14)
- Other 17,877 18,261 386 (2)
State and Municipal
Obligations 864 800 5 (69)
Other Securities 453 453 - -
Total $20,655 $20,961 $391 $(85)
The amortized cost and estimated market value of securities
classified as held-to-maturity at December 31, 1994, by
contractual maturity were as follows (in thousands):
Estimated
Amortized Market
Cost Value
December 31, 1994
Within One Year $ 114 $ 114
One to Five Years 8,973 8,295
Five to Ten Years 9,548 8,024
After Ten Years 41,122 37,199
Total $59,757 $53,632
A comparison of the book and market values of securities
classified as available-for-sale at December 31, 1994, and
held-for-sale at December 31, 1993, were as follows (in
thousands):
Estimated Gross Gross
Amortized Market Unrealized Unrealized
December 31, 1994 Cost Value Gains Losses
U.S. Government Obligations:
- Collateralized Mortgage
Obligations $ - $ - $- $ -
- Other 9,903 9,819 - (84)
Other Securities 1,314 1,311 - (3)
Total $11,217 $11,130 $- $(87)
Estimated Gross Gross
Amortized Market Unrealized Unrealized
December 31, 1993 Cost Value Gains Losses
U.S. Government Obligations:
- Collateralized Mortgage
Obligations $34,625 $34,682 $127 $ (70)
- Other 28,882 28,974 260 (168)
Other Securities 2,779 2,786 22 (15)
Total $66,286 $66,442 $409 $(253)
The amortized cost and estimated market value of the securities
available-for-sale at December 31, 1994, by contractual maturity
were as follows (in thousands):
Estimated
Amortized Market
Cost Value
December 31, 1994
Within One Year $ 2,986 $ 2,974
One to Five Years 1,993 1,941
Five to Ten Years 321 316
After Ten Years 5,917 5,899
Total $11,217 $11,130
Approximately half of the Company's Collateralized Mortgage
Obligations (CMOs) at December 31, 1994, consist of first and
second tranche sequential pay and/or planned amortization class
instruments, and the balance consist of support and other
tranches. The balances of CMOs are categorized as U.S.
Government Obligations due to guarantees of the underlying
mortgages by agencies of the U.S. Government.
During 1994, proceeds from redemptions, calls and paydowns were
$15,581,000. Proceeds from sales of securities classified as
available-for-sale were $47,219,000. Gains of $8,000 and losses
of $986,000 were realized on those security transactions. There
were no securities classified as held-to-maturity sold during
1994.
At December 31, 1993, the Company reclassified securities with
an amortized cost of $66,286,000 from investment securities to
securities held-for-sale. On January 1, 1994, the Company
reclassified these same securities to securities
available-for-sale which resulted in an increase in
shareholders' equity of $306,000 at that date.
During 1994, the Company reclassified securities with an
amortized cost of $49,234,000 and an unrealized loss of
$3,005,000 from securities available-for-sale to securities
held-to-maturity. This unrealized loss is being accreted to
equity over the remaining lives of the securities which are
currently estimated to be 16 years.
During 1993, proceeds from redemptions, calls and paydowns of
securities were $34,740,000, and proceeds from sales of
securities were $36,064,000. Gains of $403,000 and losses of
$55,000 were realized on those security transactions. In
addition, during 1993 the Company wrote down certain securities
experiencing extraordinary redemptions by $421,000.
During 1992, proceeds from redemptions, calls and paydowns of
securities were $19,288,000, and proceeds from the sales of
securities were $26,025,000. Gains of $240,000 and losses of
$158,000 were realized on those security transactions.
At December 31, 1994 and 1993, securities with a par value of
$58,815,000 and $45,531,000, respectively, were pledged to
secure public and trust deposits and for other purposes as
required or permitted by law.
4. ALLOWANCE FOR POSSIBLE LOAN AND OTHER REAL ESTATE LOSSES
Changes in the allowance for possible loan losses were as
follows (in thousands):
1994 1993 1992
Balance, January 1, $2,835 $2,434 $2,490
Additions and
(Deductions):
Provision Charged (Credited)
to Operating Expense (500) 51 125
Loans Charged Off (185) (387) (486)
Recoveries of Loans
Previously
Charged Off 705 737 305
Balance, December 31, $2,855 $2,835 $2,434
The Company has established an allowance for possible losses on
other real estate. These allowances are netted against other
real estate in the accompanying statements of condition.
Changes in the allowance for possible losses on other real
estate were as follows (in thousands):
1994 1993 1992
Balance, January 1, $ 108 $217 $ 72
Provision Charged to
Operating Expense 39 718 681
Assets Charged Off (132) (827) (536)
Balance, December 31, $ 15 $108 $ 217
5. INTEREST-BEARING DEPOSITS
A summary of interest-bearing deposits is as follows:
December 31, 1994 1993
Demand and Savings Deposits $ 79,780 $ 95,577
Certificates of Deposit 64,420 56,970
Other Time Deposits 6,698 6,506
Total Interest-Bearing Deposits $150,898 $159,053
The decrease in demand and savings deposits resulted from a
1993 year end deposit of approximately $13,000,000 of property
tax revenue by the local tax collector. The funds were
distributed to other financial institutions in early 1994.
6. NOTE PAYABLE
The note payable of $89,000 and $302,000 at December 31, 1994
and 1993, respectively, consisted of the note payable of the
First National Bank of Houma's Employee Stock Ownership Plan
(the ESOP) (Note 9). The interest rate was 6.8 percent at
December 31, 1994. The average interest rate on the note
payable was 5.7 percent and 4.8 percent during 1994 and 1993,
respectively.
The ESOP purchased its shares of the Company's stock by
borrowing $2,131,000 from an unaffiliated bank. Principal and
interest (at 80 percent of the lender's prime rate) are payable
monthly through May 1995. This note is secured by 12,074
shares of the Company's common stock and a $113,000 U.S.
Government Obligation. The note is guaranteed by the Company,
and, therefore, the balance of the note is shown in notes
payable and deducted from shareholders' equity as Note Payable
Offset Associated with Employee Stock Ownership Plan in the
accompanying consolidated statements of condition. Because the
note payable has a net effect of zero on the Company's
consolidated statement of condition, no fair value has been
estimated. The note is due in 1995.
7. INCOME TAXES
Effective January 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method as required by Statement of Financial
Accounting Standard No. 109. Prior years have not been
restated. The cumulative effect of this accounting change as of
January 1, 1993, amounted to $340,000 and is reflected in the
1993 Statement of Income.
During the third quarter of 1994, the Company reviewed its
recent operating performance and its projections for the future
and determined that a reduction of the previously established
valuation allowance against its deferred tax asset was
appropriate at that time. The valuation allowance had been
established in 1993 with respect to the likelihood of its future
utilization of prior years' net operating loss carryforwards.
As a result of this review, the Company reduced this valuation
allowance by approximately $3,800,000 in the third quarter of
1994. The total credit for income taxes in 1994 was $3,979,000.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities as of December 31,
1994 and 1993, are as follows (in thousands):
1994 1993
(AS RESTATED)
Deferred Tax Assets:
Net Operating Loss
Carryforward $5,721 $ 6,424
Reserve for Loan Losses Not
Currently Deductible - 85
Reserve for Other Real Estate
Not Currently Deductible 175 789
Excess Tax Basis
of Securities 911 142
Other 408 78
Total Deferred Tax Assets 7,215 7,518
Deferred Tax Liabilities:
Reserves for Loan Losses (440) -
Tax Over Book Depreciation (194) (144)
Other (25) (9)
Total Deferred Tax Liabilities (659) (153)
Deferred Tax Asset 6,556 7,365
Valuation Allowance (895) (6,765)
Net Deferred Tax Asset $5,661 $ 600
Income taxes (credit) consist of the following components (in
thousands):
Years Ended December 31, 1994 1993 1992
Currently Payable $ 50 $ 19 $ -
Deferred (4,029) (260) -
Charge in Lieu of
Income Taxes - - 334
Total Income Taxes (Credit) $(3,979) $(241) $334
Deferred income taxes resulted from the following (in
thousands):
Years Ended December 31, 1992
Accelerated Depreciation $ (20)
Provision for Possible Loan and
Other Real Estate Losses 298
Deferred Taxes Not Recognized Due to
Net Operating Loss Carryforward (319)
Other Items, Net 41
Total Deferred Income Tax Benefit $ -
The table below shows that the Company's effective income tax
rate was less than the statutory Federal income tax rate:
Years Ended December 31, 1994 1993 1992
Federal Income Tax Rate 34.0% 34.0% 34.0%
Adjustments in Rate
Resulting from:
Nontaxable Income and
Gains on Securities (.9) (1.0) (4.2)
Benefit from Net Operating
Loss Carryforward (33.1) (33.0) -
Change in Valuation
Allowance (211.9) (16.9) -
Other, Net 2.6 1.2 -
Actual Effective Tax Rate (209.3%) (15.7%) 29.8%
During 1992, the Company realized the tax benefit of prior
period net operating losses. Under the deferred method of
accounting the benefit realized has been reflected as an
extraordinary item in the accompanying 1992 statement of income.
Under the liability method, adopted in 1993, such benefits are
reflected as a component of income tax expense.
At December 31, 1994, the Company had regular tax net operating
loss carryforwards of approximately $16,800,000 to offset future
taxable income. These carryforwards expire as follows:
$2,537,000 in 1995, $2,170,000 in 2002, $804,000 in 2003,
$3,126,000 in 2005, $5,348,000 in 2006 and $2,815,000 in 2009.
At December 31, 1994, the Company had alternative minimum tax
net operating loss carryforwards of approximately $15,800,000
expiring in substantially the same ratio as the regular tax loss
carryforwards.
8. SHAREHOLDERS' EQUITY
Earnings per share were calculated by dividing net income by
the average number of shares outstanding, which was 2,017,600 in
1994, 1993 and 1992.
The Company's shareholders' equity ratio, computed in
accordance with generally accepted accounting principles, at
December 31, 1994, was as follows:
Equity to Assets 7.1%
Regulators limit the amount of deferred taxes that banks and
bank holding companies can include in regulatory capital to the
lesser of 10 percent of Tier 1 capital or to the amount of
deferred tax assets that is expected to be realized within one
year. Additionally, regulators exclude from regulatory capital
the amount of net unrealized gains and losses on
available-for-sale securities.
The Company is required to maintain certain regulatory minimum
capital levels. At December 31, 1994, the Company was in
compliance with regulatory minimum capital requirements.
Following is a summary of the minimum required capital levels
and the actual ratios at December 31, 1994.
Required Minimum Actual
Tier 1 Leverage 3.0% - 5.0% 6.2%
Tier 1 Risk-Based 4.0% 11.4%
Total Risk-Based 8.0% 12.6%
The minimum Tier 1 leverage ratio for the highest rated banks
and bank holding companies is 3 percent. Regulators may require
a 100 to 200 basis point higher minimum ratio dependent upon the
condition of the individual bank or bank holding company.
9. EMPLOYEE BENEFIT PLANS
Employees of First National are eligible to participate in the
First National Bank of Houma Employee Stock Ownership Plan (the
ESOP). To be eligible to participate, an employee must be at
least 21 years of age and be credited with 1,000 hours of
service annually. The assets of the ESOP are held by the
Employee Stock Ownership Trust, the Trustee of which is First
National. The ESOP purchased its shares of Company stock by
obtaining the loan described in Note 6. First National makes
contributions to the ESOP, as necessary, to fund the monthly
installments due on the note. These contributions were
$224,000, $237,000 and $245,000 for 1994, 1993 and 1992,
respectively; which consist of $11,000, $24,000 and $32,000 of
interest payments, respectively, and $213,000 of principal
payments each year.
A Salary Savings Plan (the Savings Plan) was established
January 1, 1991, for the benefit of the employees of First
National. Under the terms of the Savings Plan, employees who
are 20.5 years of age and who have been employed by First
National for six months are eligible to participate. Employees
who elect to participate contribute from 1 to 12 percent of
their salary on a pretax basis, by deferring a portion of their
salaries. First National can elect, but is not required, to
make a matching contribution. The percentage of First
National's contribution is determined each year by the
Retirement & Employee Benefits Committee of the Board of
Directors. First National's matching contributions for 1994,
1993 and 1992 were $28,000, $45,000 and $29,000, respectively.
Vesting in matching employer's contributions is based upon the
five-year cliff method.
The Company has allowed retired employees to participate in the
Company's health care plan. These benefits are subject to
deductibles, copayment provisions and other limitations. The
Company reserves the right to change or terminate the benefits
at any time. In order to participate in the health care plan,
retirees must share in the cost of funding the health care plan.
The cost to the Company of providing these benefits to retirees
is the cost of their approved claims less the amount funded by
retirees. The net cost of these postretirement benefits charged
(credited) to expense were $(6,000), $(1,500) and $(150) for
1994, 1993 and 1992, respectively.
10. RELATED PARTY TRANSACTIONS
In the ordinary course of business, directors, executive
officers, principal shareholders and related parties of the
Company and its subsidiaries maintain a variety of banking
relationships with the Company's banking subsidiary. An
analysis of activity during 1994 with respect to loans to
directors, executive officers, principal shareholders and
related parties of the Company and its subsidiaries was as
follows (in thousands):
Balance, January 1, 1994 $ 1,539
New Loans 3,960
Repayments (3,732)
Other* 163
Balance, December 31, 1994 $ 1,930
*Other represents the balance of loans to directors and related
parties at the date elected.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it
is practicable to estimate that value:
Cash and Due From Financial Institutions and Federal Funds
Sold_ For those short-term instruments, the carrying amount is a
reasonable estimate of fair value.
Securities_For securities, fair value equals quoted market
price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar
securities.
Loans_The fair value of loans is estimated by discounting the
future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for
the same remaining maturities.
Deposits_The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on
demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
Federal Funds Purchased_For those short-term liabilities, the
carrying amount is a reasonable estimate of fair value.
Commitments_The fair value of commitments to extend credit was
not significant.
The estimated fair values of the Company's financial
instruments are as follows at December 31, 1994 and 1993 (in
thousands):
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
$ $ $ $
Financial assets:
Cash and due from
financial institutions
and federal funds
sold, etc. 22,955 22,955 14,362 14,362
Securities available-
for-sale 11,130 11,130 66,286 66,442
Securities held-to-
maturity 56,809 53,632 20,655 20,961
Loans 93,663 94,245 82,618 83,700
Less reserve for
loan losses (2,855) (2,855) (2,835) (2,835)
Loans, net of
reserve 90,808 91,390 79,783 80,865
Financial liabilities:
Deposits 178,208 178,614 184,217 186,941
Federal Funds
purchased, etc. 3,634 3,634 2,180 2,180
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, various commitments and
contingent liabilities are outstanding which are not reflected
in the financial statements. The Company does not anticipate
any material losses as a result of these transactions. At
December 31, 1994 and 1993, standby letters of credit were
$108,400 and $840,000, respectively, under which the Company has
agreed, subject to the terms of the agreement between the
Company and the customer, to guarantee performance of the
customer's obligation to a third party.
Loan commitments are single-purpose commitments to lend which
will be funded and reduced according to specified repayment
schedules. Most of these commitments have maturities of less
than one year. Total loan commitments outstanding at December
31, 1994 and 1993, were approximately $2,939,000 and $1,153,000,
respectively. Lines of credit are commitments to lend up to a
specified amount. Amounts outstanding under lines of credit
fluctuate because they are generally used to finance short-term,
seasonal working capital needs of the borrower. Total unfunded
lines of credit outstanding as of December 31, 1994 and 1993,
were approximately $7,986,000 and $8,520,000, respectively.
Substantially all of these loans and line of credit commitments
are at variable rates.
First National uses the same credit policies in making
commitments and issuing standby letters of credit as it does for
on-balance-sheet instruments. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained if deemed necessary by the Bank upon
extension of credit is based on management's credit evaluation
of the counterparty. Collateral held varies but may include
certificates of deposit, accounts receivable, inventory,
property, plant and equipment, and income-producing properties.
There are no commitments which present an unusual risk to the
Bank, and no material losses are anticipated as a result of
these transactions.
The Company and First National are parties to various legal
proceedings arising in the ordinary course of business. In the
opinion of management based upon the advice of legal counsel,
the ultimate resolution of these legal proceedings will not have
a material adverse effect on the Company's financial condition
or results of operations.
13. PARENT COMPANY FINANCIAL STATEMENTS
Summarized financial statements of First National Bankshares,
Inc. (Parent Company Only) follow (in thousands):
Statements of Condition
December 31, 1994 1993
Investment in Subsidiaries $13,899 $10,208
Cash and Cash Equivalents 319 133
Total Assets $14,218 $10,341
Dividends Payable and
Other Liabilities $ 206 $ 4
Notes Payable 89 302
Shareholders' Equity 13,923 10,035
Total Liabilities and
Shareholders' Equity $14,218 $10,341
Statements of Income
Years Ended December 31, 1994 1993 1992
Income:
Dividends Received
from Subsidiary $ 302 $ - $ -
Interest from
Subsidiary 3 3 5
Total Income 305 3 5
Expenses:
Directors Fees 4 4 4
Legal and Professional
Fees 90 22 12
Other 25 1 1
Total Expenses 119 27 17
186 (24) (12)
Equity in Undistributed
Income of Subsidiaries 5,694 2,142 1,132
Net Income $5,880 $2,118 $1,120
Statements of Cash Flows
Year Ended December 31 1994 1993 1992
Operating Activities
Net Income $ 5,880 $ 2,118 $ 1,120
Adjustment to Reconcile
Net Income to Net Cash
Provided by (Used in)
Operating Activities:
Other - - 1
Undistributed Income
of Subsidiaries (5,694) (2,142) (1,132)
Net Cash Provided by
(Used in) Operating
Activities 186 (24) (11)
Cash and Cash Equivalents
at Beginning of Year 133 157 168
Cash and Cash Equivalents
at End of Year $ 319 $ 133 $ 157
14. OTHER OPERATING EXPENSES
The components of other operating expenses were (in thousands):
December 31, 1994 1993 1992
Legal and
Professional Fees $ 452 $ 318 $ 353
Stationery and Supplies 178 168 170
Equipment Expense 591 571 590
FDIC Assessment 470 506 389
Other Expenses 1,509 1,103 1,136
Compromise Settlement - 210 -
Total $3,200 $2,876 $2,638
15. RESTATEMENT
Subsequent to the issuance of the Company's 1994 consolidated
financial statements, the Company discovered that an error had
been made in the calculation of the valuation allowance against
its deferred tax asset as of December 31, 1994. As a result,
the 1994 consolidated financial statements have been restated
from the amounts previously reported to reflect the revised
valuation allowance.
A summary of the significant effects of the restatement, in
thousands except for per share amounts, is as follows:
As
Previously As
Reported Restatement Restated
For the year ended
December 31, 994:
Income Tax Credits ($4,504) $525 ($3,979)
Net Income $6,405 ($525) $5,880
Net Income Per Share $3.17 ($.26) $2.91
As of December 31, 1994:
Accrued Interest
Receivable and
Other Assets $ 9,675 ($525) $ 9,150
Shareholders' Equity $ 14,448 ($525) $13,923
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
First National Bankshares, Inc.
Houma, Louisiana
We have audited the accompanying consolidated statements of
condition of First National Bankshares, Inc. and subsidiaries as
of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity and cash
flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits. The consolidated financial
statements of First National Bankshares, Inc. and subsidiaries
for the year ended December 31, 1992 were audited by other
auditors whose report, dated January 26, 1993, expressed an
unqualified opinion on those consolidated statements and
included an emphasis paragraph that described the Memorandum of
Understanding discussed in Note 1 to the consolidated financial
statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such 1994 and 1993 consolidated financial
statements present fairly, in all material respects, the
financial position of First National Bankshares, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting
principles.
As discussed in Notes 2 and 7 to the consolidated financial
statements, in 1994 the Company changed its method of accounting
for securities to conform with Statement of Financial Accounting
Standards No. 115 and in 1993 the Company changed its method of
accounting for income taxes to conform with Statement of
Financial Accounting Standards No. 109.
As discussed in Note 15, the accompanying 1994 consolidated
financial statements have been restated.
Deloitte & Touche LLP
New Orleans, Louisiana
January 26, 1995, except for Note 15, as to which the date is
December 28, 1995
Report of Independent Public Accountants
To the Shareholders and Board of Directors of First National
Bankshares, Inc.:
We have audited the accompanying consolidated statement of
condition of First National Bankshares, Inc. (a Louisiana
Corporation) and subsidiaries as of December 31, 1992, not
presented separately herein, and the related consolidated
statements of income, cash flows and changes in shareholders'
equity for the year ended December 31, 1992. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provide a reasonable basis for our opinion.
As discussed in Notes 1, during 1989 the Company's subsidiary,
First National Bank of Houma (the Bank) entered into a
Memorandum of Understanding (the MOU) with the Office of the
Comptroller of the Currency (the OCC), which requires, among
other things, that the Bank maintain an equity ratio of 4.5
percent. The MOU requires annual submission of a three year
capital plan (the Plan) to demonstrate the Bank's strategy to
strengthen the Bank's capital. The ratios projected in the Plan
superseded the 4.5 percent equity requirement required by the
MOU provided the Bank meets the terms of the Plan. As required
by the MOU, the Bank filed an update to the Plan (the Revised
Plan) in November 1992, which has been approved by the OCC. The
Company has also, as required, submitted its Plan to the Federal
Reserve Bank and expects approval. The Company and the Bank
have consistently met the net income and equity projections in
their Plans and expect to continue to place emphasis on managing
the key risk areas discussed in Note 1 to maintain compliance.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of First National Bankshares, Inc. and
subsidiaries as of December 31, 1992, and the results of their
operations and cash flows for the year ended December 31, 1992,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
January 26, 1993
SIGNATURES
Pursuant to the requirements of Section 13 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, INC.
(Registrant)
DATE 02/02/96
BY /s/ James J. Buquet, Jr.
JAMES J. BUQUET, JR.
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
DATE DATE 02-02-96
BY BY /s/ Calvin J. Ortego
KAMAL ABDELNOUR CALVIN J. ORTEGO
DIRECTOR DIRECTOR
DATE 02/02/96 DATE 02/02/96
BY /s/ James J. Buquet, Jr. BY /s/ Hilton J. Michel, Jr.
JAMES J. BUQUET, JR. HILTON J. MICHEL, JR.
DIRECTOR DIRECTOR
DATE 02/02/96 DATE 02/02/96
BY /s/ Russell Blanchard BY /s/ Jerome H. Mire
RUSSELL BLANCHARD JEROME H. MIRE
PRINCIPAL FINANCIAL AND PRESIDENT, CHIEF EXECUTIVE
ACCOUNTING OFFICER OFFICER AND DIRECTOR