UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 2-76198
FIRST NATIONAL BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Organized in Louisiana 72-0807084
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
600 East Main Street, Houma, Louisiana 70360
(Address of principal executive offices - Zip Code)
(504) 868-1660
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding
Common Stock ($2.50 par value) 2,017,600 shares
FIRST NATIONAL BANKSHARES, INC.
FORM 10-Q
INDEX
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995
Consolidated Statements of Income - Three
months ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for
three months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Part II. Other Information:
Item 4. Submission of Matters to a Vote
of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) 03-31-96 12-31-95*
ASSETS
Cash and due from banks $ 8,619 $ 10,484
Due from financial institutions - Interest-bearing 4,540 11,055
Securities held-to-maturity (market value of
$10,779 and $10,325 at March 31, 1996 and
December 31, 1995, respectively) 10,726 10,651
Securities available-for-sale at market value
(amortized cost of $72,858 and $66,883 at
March 31, 1996 and December 31, 1995,
respectively) 72,592 66,615
Loans 107,063 109,976
Less: Allowance for possible loan losses (2,231) (2,142)
Net Loans 104,832 107,834
Federal funds sold 200 0
Premises and equipment 5,376 5,340
Other real estate and foreclosed assets, net 1,010 992
Other assets 8,298 7,518
TOTAL ASSETS $216,193 $220,489
LIABILITIES
Deposits:
Non interest-bearing deposits $ 28,534 $ 30,685
Interest-bearing deposits 165,890 170,155
Total deposits 194,424 200,840
Federal funds purchased & securities sold
under repurchase agreements 2,992 1,497
Accrued interest, taxes and other liabilities 1,139 1,028
Dividends payable 141 121
TOTAL LIABILITIES 198,696 203,486
SHAREHOLDERS' EQUITY
Common stock 5,044 5,044
Par value ................................$2.50
Number of shares authorized .........10,000,000
Number of shares outstanding ........ 2,017,600
Additional paid in capital 16,454 16,454
Accumulated deficit (2,958) (3,413)
Net unrealized losses on securities available-for-sale (1,043) (1,082)
TOTAL SHAREHOLDERS' EQUITY 17,497 17,003
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $216,193 $220,489
*The Balance Sheet at December 31, 1995 has been taken from
the audited Balance Sheet at that date.
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
(In thousands, except per share data) 03-31-96 03-31-95
INTEREST INCOME
Interest and fees on loans $2,527 $2,242
Interest on securities:
U.S. government securities 943 1,105
Mortgage-backed securities 136 97
State and municipal securities 16 14
Other securities 49 49
Interest on funds sold 0 48
Interest on deposits due from financial institutions 166 147
Total interest income 3,837 3,702
INTEREST EXPENSE
Interest on deposits 1,636 1,338
Interest on funds purchased 10 20
Total interest expense 1,646 1,358
Net interest income 2,191 2,344
Provision for possible loan losses 0 0
Net interest income after provision
for possible loan losses 2,191 2,344
NON-INTEREST INCOME
Service charges on deposit accounts 252 247
Other commissions and fees 89 75
Other operating income 26 70
Securities gains (losses) 5 (1)
Trust services income 108 81
Total non-interest income 480 472
NON-INTEREST EXPENSE
Salaries 583 716
Employee benefits 178 201
Net occupancy expense 173 162
Equipment expense 149 161
Expense associated with OREO and problem loans 80 26
Other operating expense 612 679
Total non-interest expense 1,775 1,945
Income before income taxes 896 871
Income taxes 300 292
Net income $ 596 $ 579
Per share data (based on the weighted average shares
outstanding, 2,017,600, during the periods):
Net income $.30 $.29
Cash dividends declared $.07 $.00
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
(In Thousands) 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 596 $ 579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 52 83
Provision for loan losses 0 0
Provision for losses on other real estate 0 4
Deferred income taxes 278 288
Realized (gains) losses on securities (5) 1
(Gains) losses on sale of property (8) (40)
(Increase) Decrease in accrued interest receivable 22 (109)
Increase in accrued interest payable 152 125
Increase in other assets (1,049) (203)
Decrease in other liabilities (95) (18)
NET CASH PROVIDED BY OPERATING ACTIVITIES (57) 710
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available-for-sale 28,118 0
Proceeds from maturities and calls of securities -
Held-to-maturity 0 733
Available-for-sale 9,201 6,062
Purchase of securities -
Held-to-maturity 0 0
Available-for-sale (43,220) (14,911)
Loans purchased (2,547) 0
Loans sold 0 0
Net (increase) decrease in loans 5,420 (4,640)
Net (increase) decrease in short-term investments (200) 9,496
Proceeds from sale of premises, equipment &
foreclosed property 118 98
Purchases of premises and equipment (174) (27)
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (3,284) (3,189)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest
bearing deposits (1,899) 3,925
Net decrease in interest bearing deposits
other than certificates of deposits (3,965) (2,360)
Increase (decrease) in certificates of deposits (550) 3,338
Increase (decrease) in short-term borrowings 1,495 (1,967)
Dividends paid (121) (202)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (5,040) 2,734
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (8,381) 255
Cash and cash equivalents at beginning of period 21,539 6,951
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,158 $ 7,206
CASH INTEREST INCOME RECEIVED $ 3,860 $ 3,593
CASH INTEREST EXPENSE PAID $ 1,494 $ 1,233
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
March 31, 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: First National Bankshares, Inc. (the Company) is a bank
holding company whose principal subsidiary is the First National
Bank of Houma (First National).
NOTE 2: The Company adopted Statement of Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a
Loan," effective January 1, 1995. SFAS No. 114 requires the
measurement of impaired loans be based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or the
fair value of its collateral. SFAS No. 114 does not apply to
large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment. For the Company, loans
collectively evaluated for impairment include all single family
mortgage loans, loans to individuals for household, family and
other consumer expenditures and commercial, industrial, and real
estate loans under a certain dollar amount, excluding loans
which have entered the workout process. The adoption of SFAS
No. 114 did not result in additional provisions for losses due
to the Company's continuing policy of measuring loan impairment
based on methods prescribed in SFAS No. 114.
The Company considers a loan to be impaired when, based upon
current information and events, doubt exists that the Company
will be able to collect all amounts due according to the
contractual terms of the loan agreement. The Company's impaired
loans within the scope of SFAS No. 114 include certain troubled
debt restructurings, and performing and nonperforming major
loans in which full payment of principal or interest is doubtful.
The Company also adopted Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures", effective January 1,
1995. This Statement allows a creditor to use existing methods
for recognizing interest income on impaired loans and thus the
adoption of SFAS No. 114 did not result in any change in the
amount of interest income reported.
The Company's impaired loans amounted to approximately
$2,243,000 and $3,148,000 at March 31, 1996 and December 31, 1995,
respectively. The related allowance for these loans was
$673,000 at March 31, 1996 and $494,000 at December 31, 1995.
NOTE 3: The accompanying unaudited interim financial statements
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures required by generally accepted accounting
principles for complete financial statements have been omitted.
It is suggested that these interim statements be read in
conjunction with the financial statements and notes thereto
included in the 1995 Annual Report on Form 10-K of First
National Bankshares, Inc.
In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary for a fair
presentation of the information shown have been included.
The foregoing three months interim results of 1996 are not
necessarily indicative of the results of operations of the full
year 1996.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION AND OVERVIEW
First National Bankshares, Inc. (the Company) is a bank holding
company based in Houma, Louisiana operating a single active
wholly-owned subsidiary, First National Bank of Houma (First
National or the Bank). The Company is also the sole owner of an
inactive subsidiary, First Export Corporation. The Company's
business strategy is to provide quality, tailored financial
products and services to retail and commercial customers in the
southern parishes of Louisiana.
The following discussion and analysis of operations for the
quarter ending March 31, 1996 highlight the changes in financial
position and results of operations of the Company. The
financial position and results of operations for the period
indicated were primarily attributable to the Bank which
comprises the substantial majority of the assets and liabilities
of the Company. Management's discussion should be read in
conjunction with the consolidated financial statements and
accompanying notes included in this quarterly report.
In late 1995, the Company discovered an error in the
calculation of a reduction in the latter part of 1994 of the
valuation allowance against the Company's deferred income tax
asset. To correct the error, the Company restated 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
a discussion of the impact of the restatement and for restated
financial statements for those periods, refer to the amended
periodic filings for those periods.
RESULTS OF OPERATIONS
Net Interest Income
The Company's primary source of revenue is net interest income,
which is the difference between interest income received on
interest-earning assets and the interest expense paid on
interest-bearing liabilities. Net interest income after
provision for possible loan losses was $2,191,000 in the first quarter
of 1996, a 6.5 percent decrease over the same period in 1995. Net
interest income was affected by changes in the amount and mix of
interest-earning assets and interest-bearing liabilities
referred to as "volume change." It was also affected by changes
in yields on interest-earning assets and rates paid on
interest-bearing deposits and short-term borrowings referred to
as "rate change."
Noninterest Income and Noninterest Expense
Noninterest income before securities gains and losses increased
$8,000 or 1.7 percent in the first quarter of 1996 as compared
to the same period in 1995. This increase reflects increased
fees for trust services, commissions, exchange and other fees.
Noninterest expense in the first quarter of 1996 decreased
approximately $170,000 or 8.7 percent when compared to the same
period in 1995. The decrease was primarily attributable to a
reduction in personnel costs, the result of an organizational
restructuring process started in 1995, and a reduction in
Federal Deposit Insurance Corporation (FDIC) insurance premiums,
a result of a decision by the FDIC in 1995 to reduce premiums
for all well capitalized insured financial institutions.
Net Income
Consolidated income before income taxes for the three month
period increased $25,000, or 2.9 percent. Consolidated net
income for the same period increased $17,000 also a 2.9 percent
increase.
During the first quarter of 1996, the Company continued
utilizing its net operating loss carryforwards and reduced
deferred income tax assets by $278,000. The total provision for
income taxes at March 31, 1996 was $300,000 as compared to
$292,000 at March 31, 1995.
BALANCE SHEET ANALYSIS
Loan Portfolio
The Company offers a wide variety of lending products to both
commercial and consumer customers located within its target
market. The Company also purchases loans from other financial
institutions both within and outside of the target market area
to enhance earning-asset yields and diversify the total loan
portfolio. Interest rates charged for loans made by the Company
vary with the degree of risk, the size and maturity of loans,
the borrower's depository relationships with the Company and
prevailing market interest rates. During the first quarter of
1996, loans decreased $2,913,000 or 2.7 percent from year-end
1995.
Credit Risk Management and Asset Quality
Nonperforming assets decreased $909,000 or 19.4 percent at
March 31, 1996 as compared to December 31, 1995. Shown below is
a schedule of the Company's nonperforming assets (in thousands):
03-31-96 12-31-95
Loans:
90 days or more past due, but still
accruing interest $ 59 $ 66
Renegotiated loans still accruing 464 479
Nonaccruing 2,243 3,148
Total nonperforming loans 2,766 3,693
Other real estate and foreclosed
property (net of reserves) 1,010 992
Total nonperforming assets $3,776 $4,685
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 existing terms and
conditions. At March 31, 1996 these loans totaled approximately
$274,000. This represents a decrease of $162,000 or 37.2 percent
from the $436,000 balance on December 31, 1995.
Allowance for Possible Loan Losses
Based on information available at March 31, 1996, management
believes the allowance for possible loan losses of $2,231,000,
which comprised 2.1 percent of total loans, is adequate as an
allowance against possible future losses. The allowance for
possible loan losses increased $89,000 or 4.2 percent from the
2.0 percent of total loans at December 31, 1995. This increase
was primarily due to the decreased size of the loan portfolio,
the recovery of losses previously charged off and the maintained
quality of the existing loan portfolio.
Investment Securities
At March 31, 1996, investment securities totaled $83,318,000, a
$6,052,000 or 7.8 percent increase over the $77,266,000 recorded
at December 31, 1995. Securities classified available-for-sale
increased $5,977,000 or 9.0 percent while securities classified
as held-to-maturity incurred no significant change in book
value. The increase in securities resulted from increases in
liquidity from the pay downs of loans and a reduction in interest
bearing balances due from financial institutions. Available-for-sale
securities are recorded at market value with variances between
market value and book value recognized as an adjustment to
shareholder's equity. Held-to-maturity securities
are recorded at book value. However, due to the transfer of
securities between available-for-sale and held-to-maturity which
occurred in 1994, certain unrealized losses attributable to the
held-to-maturity portfolio are recorded in shareholder's equity
as well. The impact on equity as a result of these unrealized
losses reflects little change as of March 31, 1996 as compared
to December 31, 1995.
Deposits
The Company primarily attracts deposits from local businesses
and professionals, or governmental bodies, and through retail
certificates of deposit, savings and checking accounts.
Maintaining steady and growing levels of deposits is an
important objective to the Company as part of an overall
management program to obtain funding sources for earning assets
and maintain adequate levels of liquidity. The Company did not
have any brokered accounts during the first quarter of 1996 and
1995 due to the Company's policy not to purchase such accounts.
The Company has no foreign deposits.
Total deposits decreased $6,416,000 or 3.2 percent to
$194,424,000 as of March 31, 1996, from $200,840,000 at December
31, 1995. Non interest bearing deposits decreased $2,151,000,
or 7.0 percent, as of March 31, 1996 from year end 1995.
Interest bearing deposits also experienced a decline of
$4,265,000 or 2.5 percent for the same period. These expected
decreases were primarily the result of decreases in public
fund deposits resulting from year end 1995 property tax
collections which were distributed to various government
agencies in early January 1996 and seasonal fluctuations in
each deposit category.
Capital
Shareholders' equity increased $494,000 to $17,497,000 at March
31, 1996 from December 31, 1995, due to earnings for the period
of $596,000 less dividends declared.
The Company and First National are subject to the regulatory
risk-based capital guidelines. The applicable risk-based
capital ratios are as follows:
First National Bankshares, Inc. 03-31-96 12-31-95 Regulatory Minimums
Tier 1 Capital/Risk Weighted
Assets Ratio 14.97% 14.14% 4.00%
Total Capital/Risk Weighted
Assets Ratio 16.22% 15.39% 8.00%
Leverage Ratio 8.03% 8.04% 3.00%
First National Bank of Houma 03-31-96 12-31-95 Regulatory Minimums
Tier 1 Capital/Risk Weighted
Assets Ratio 14.90% 14.02% 4.00%
Total Capital/Risk Weighted
Assets Ratio 16.15% 15.27% 8.00%
Leverage Ratio 8.00% 7.98% 3.00%
In January of 1996, the Company paid a dividend declared in
December of 1995, of $.06 per common share. In February of
1996, the Company declared a dividend of $.07 per common share
payable in April of 1996. As noted previously, shareholders'
equity increased or decreased due to changes in the carrying
value of investment securities classified as available-for-sale
net of applicable income taxes. During the first quarter of
1996, there was little change in the unrealized loss amount as
recorded at December 31, 1995.
LIQUIDITY AND ASSET LIABILITY MANAGEMENT
The Company has positioned itself to meet the demands of the
changing economic conditions with a high ratio of net liquid
assets to net liabilities. At year-end 1995, this ratio stood
at 33.7 percent and on March 31, 1996, 36.1 percent. The
Company has identified approximately $72,592,000 in securities
which it classified as Available-for-Sale under the provisions
of SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities" which are carried in the statement of
condition at net realizable value. In management's opinion,
these securities, in conjunction with other liquid assets and
arranged borrowing lines with financial institutions is adequate
to meet all potential funding needs of the Company.
The Company recognizes the potential impact of earnings given
changes in market interest rate conditions. This interest
sensitivity is monitored closely by management. A schedule of
the Company's interest sensitivity/GAP analysis follows:
INTEREST SENSITIVITY/GAP ANALYSIS(in thousands)
March 31, 1996 INTEREST RATE SENSITIVITY PERIOD
0-3 Months 4-12 Months 1-5 Years Over 5 Years TOTAL
ASSETS:
Loans $25,158 $15,392 $40,583 $23,699 $104,832
Investments 34,665 23,745 15,966 8,942 83,318
Other 4,739 0 0 0 4,739
Total assets $64,562 $39,137 $56,549 $32,641 $192,889
FUNDING SOURCES:
Interest-bearing
deposits $70,526 $34,162 $47,870 $13,332 $165,890
Short-term funds 2,992 0 0 0 2,992
Long-term debt 0 0 0 0 0
Total funding
sources $73,518 $34,162 $47,870 $13,332 $168,882
REPRICING/MATURITY GAP:
Period $(8,956) $4,975 $8,679 $19,309
Cumulative $(8,956) ($3,981) $4,698 $24,007
Period gap/
total assets (4.6%) 2.6% 4.5% 10.0%
Cumulative gap/
total assets (4.6%) (2.1%) 2.4% 12.4%
Amounts stated include only fixed and variable rate instruments
in the balance sheet that are still accruing interest. Variable
rate instruments are included in the next period in which they
are subject to 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 traditionally lag
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 the remaining balance prorated to periods
of one (1) year or greater.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
NONE
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST NATIONAL BANKSHARES, INC.
(Registrant Company)
DATE: May 14, 1996 BY /s/ Jerome H. Mire
JEROME H. MIRE
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
DATE: May 14, 1996 BY /s/ Russell Blanchard
RUSSELL BLANCHARD
CHIEF FINANCIAL OFFICER AND
COMPTROLLER