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 June 30, 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
June 30, 1996 and December 31, 1995
Consolidated Statements of Income - Three
and six month periods ended June 30,
1996 and 1995
Consolidated Statements of Cash Flows for
six months ended June 30, 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
(In thousands)
(Unaudited)
06-30-96 12-31-95*
ASSETS
Cash and due from financial institutions -
Non Interest Bearing $ 6,056 $ 10,484
Interest-bearing deposits with financial
institution 2,722 11,055
Securities held-to-maturity (market value of
$10,270 and $10,325 at June 30, 1996 and
December 31, 1995, respectively) 10,799 10,651
Securities available-for-sale at market value
(amortized cost of $66,623 and $66,883 at
June 30, 1996 and December 31, 1995,
respectively) 65,606 66,615
Loans 112,979 109,976
Less: Allowance for possible loan losses (1,948) (2,142)
Net Loans 111,031 107,834
Premises and equipment 5,280 5,340
Other real estate and foreclosed assets, net 979 992
Other assets 7,444 7,518
TOTAL ASSETS $209,917 $220,489
LIABILITIES
Deposits:
Non interest-bearing deposits $ 28,106 $ 30,685
Interest-bearing deposits 161,515 170,155
Total deposits 189,621 200,840
Federal funds purchased & securities sold
under repurchase agreements 1,502 1,497
Accrued interest, taxes and other liabilities 1,181 1,028
Dividends payable 141 121
TOTAL LIABILITIES 192,445 203,486
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 (2,527) (3,413)
Net unrealized losses on securities
available-for-sale (1,499) (1,082)
TOTAL SHAREHOLDERS' EQUITY 17,472 17,003
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $209,917 $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)
(In thousands, except per shre data)
Three months ended Six months ended
06-30-96 06-30-95 06-30-96 06-30-95
INTEREST INCOME
Interest on deposits with
financial institutions $ 58 $ 64 $ 224 $ 211
Interest on securities:
U.S. government securities 899 1,153 1,842 2,258
Mortgage-backed securities 264 92 400 189
State and municipal securities 14 15 30 29
Other securities 15 52 64 101
Interest and fees on loans 2,444 2,471 4,971 4,713
Interest on funds sold 35 1 35 49
Total interest income 3,729 3,848 7,566 7,550
INTEREST EXPENSE
Interest on deposits 1,582 1,476 3,218 2,814
Interest on funds purchased 21 11 31 31
Total interest expense 1,603 1,487 3,249 2,845
Net interest income 2,126 2,361 4,317 4,705
Provision for possible loan losses 25 0 25 0
Net interest income after
provision for possible loan
losses 2,101 2,361 4,292 4,705
NON-INTEREST INCOME
Service charges on deposit
accounts 260 247 512 494
Other commissions and fees 109 76 198 151
Other operating income 18 14 44 84
Securities gains (losses) (1) (2) 4 (3)
Trust services income 108 107 216 188
Total non-interest income 494 442 974 914
NON-INTEREST EXPENSE
Salaries 640 744 1,223 1,460
Employee benefits 111 180 289 381
Net occupancy expense 173 153 346 315
Equipment expense 154 164 303 325
Expense associated with OREO
and problem loans 33 57 113 83
Other operating expense 608 744 1,220 1,423
Total non-interest expense 1,719 2,042 3,494 3,987
Income before income taxes 876 761 1,772 1,632
Income taxes 304 256 604 548
Net income $ 572 $ 505 $1,168 $1,084
Per share data (based on the weighted
average shares outstanding,
2,017,600, during the periods:)
Net income $.28 $.25 $.58 $.54
Cash dividends declared $.07 $.05 $.14 $.05
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six months ended June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,168 $ 1,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 241 181
Provision for loan losses 25 0
Provision for losses on other real estate 0 1
Deferred income taxes 564 538
Realized (gains) losses on securities (4) 3
Gains on sale of property (4) (44)
Increase in accrued interest receivable (178) (398)
Increase in accrued interest payable 99 89
(Increase) decrease in other assets (62) 776
Increase (decrease) in other liabilities 17 (112)
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,866 2,118
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities
available-for-sale 37,065 0
Proceeds from maturities and calls of securities -
Held-to-maturity 0 1,805
Available-for-sale 16,435 8,256
Purchase of securities -
Held-to-maturity 0 0
Available-for-sale (53,226) (14,956)
Loans purchased (2,547) 0
Loans sold 1,005 0
Net increase in loans (1,910) (13,432)
Net (increase) decrease in short-term investments 0 10,430
Proceeds from sale of premises, equipment &
foreclosed property 248 188
Purchases of premises and equipment (222) (74)
NET CASH (USED) PROVIDED BY INVESTING ACTIVITIES (3,152) (7,783)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest
bearing deposits (2,578) 776
Net decrease in interest bearing deposits
other than certificates of deposits (6,839) (3,099)
Increase (decrease) in certificates of deposits (1,802) 11,039
Increase (decrease) in short-term borrowings 6 (2,467)
Dividends paid (262) (202)
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (11,475) 6,047
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,761) 382
Cash and cash equivalents at beginning of period 21,539 6,951
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,778 $ 7,333
CASH INTEREST EXPENSE PAID $ 3,150 $ 2,757
The accompanying notes are an integral part of these statements.
FIRST NATIONAL BANKSHARES, INC. AND SUBSIDIARIES
June 30, 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's impaired loans amounted to approximately
$2,020,000 and $3,148,000 at June 30, 1996 and December 31,
1995, respectively. The related allowance for these loans was
$427,000 at June 30, 1996 and $494,000 at December 31, 1995.
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. The adoption
of SFAS No. 118 did not result in any change in the amount of
interest income reported by the Company.
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 six months interim results of 1996 are not
necessarily indicative of the results of operations expected for
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 six
month period and quarter ending June 30, 1996 highlight the
changes in financial position and results of operations of the
Company. The financial position and results of operations for
the periods 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 ended December 31, 1994, March 31,
1995, June 30, 1995, and September 30, 1995 and filed 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 $4,292,000 in the first
six months of 1996, an 8.8 percent decrease over the same period
in 1995. For the three month period ended June 30, 1996, net
interest income was $2,101,000, an 11.0 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 increased $60,000 or 6.6 percent in the
first six months of 1996 and $52,000 or 11.8 percent in the
second quarter of 1996 as compared to the same periods in 1995.
These increases reflect increased service charges on deposit
accounts, fees for trust services, commissions, exchange and
other fees.
Noninterest expense decreased $493,000 or 12.4 percent and
$323,000 or 15.8 percent in the first six months and second
quarter, respectively, when compared to the same periods 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 of $3,494,000 for the
six month period increased $140,000, or 8.6 percent and $115,000
or 15.1 percent to $1,719,000 for the second quarter.
Consolidated net income for these same periods increased $84,000
or 7.7 percent to $1,168,000 and $67,000 or 13.3 percent
to $572,000, respectively.
The total provision for income taxes for the six month period
ended June 30, 1996 was $604,000 as compared to $548,000 for the
six month period ended June 30, 1995 and remained relatively
constant as a percent of income before income taxes.
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 six months
of 1996, loans increased $3,003,000 or 2.7 percent from year-end
1995.
Credit Risk Management and Asset Quality
Nonperforming assets decreased $1,407,000 or 30.0 percent to
$3,278,000 at June 30, 1996 as compared to December 31, 1995.
The decrease was primarily attributable to reimbursement by a
U.S. Government agency of their guaranteed portion of these
loans. Shown below is a schedule of the Company's nonperforming
assets (in thousands):
06-30-96 12-31-95
Loans:
90 days or more past due, but still
accruing interest $ 152 $ 66
Renegotiated loans still accruing 493 479
Nonaccruing 1,654 3,148
Total nonperforming loans 2,299 3,693
Other real estate and foreclosed
property (net of reserves) 979 992
Total nonperforming assets $3,278 $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 June 30, 1996 these loans totaled approximately
$265,000. This represents a decrease of $171,000 or 39.2
percent from the $436,000 balance on December 31, 1995.
Allowance for Possible Loan Losses
Based on information available at June 30, 1996, management
believes the allowance for possible loan losses of $1,948,000,
which comprised 1.7 percent of total loans, is adequate as an
allowance against possible future losses. At June 30, 1996, the
allowance for possible loan losses decreased $194,000 from the
$2,142,000 recorded at December 31, 1995. This decrease was, in
part, due to the net charge off of $219,000 in loans deemed
uncollectible.
During the second quarter of 1996, the Company recorded a
$25,000 provision for possible loan losses, the first such
provision for possible loan losses recorded by the Company in
1996 and 1995. The provision was deemed appropriate by
management due to the increasing volume of loans recorded by the
Bank. The amount of provision for possible loan losses is
dependent on a variety of factors, including size of the loan
portfolio, actual or expected loan losses and recoveries of
prior losses.
Investment Securities
At June 30, 1996, investment securities totaled $76,405,000, a
$861,000 or 1.1 percent decrease over the $77,266,000 recorded
at December 31, 1995. Securities classified available-for-sale
decreased $172,000 or 0.3 percent while securities classified as
held-to-maturity incurred no significant change in book value.
The decrease in securities resulted from increased demand for
liquidity to fund loan growth. Available-for-sale securities
are recorded at market value with variances between market value
and book value recognized as an adjustment to shareholders'
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 have been recorded in shareholders' equity as well,
resulting in a $417,000 increase in net unrealized losses in
securities available-for-sale as of June 30, 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 two quarters of 1996
and 1995 due to the Company's policy against such accounts. The
Company has no foreign deposits.
Total deposits decreased $11,219,000 or 5.6 percent to
$189,621,000 as of June 30, 1996, from $200,840,000 at December
31, 1995. Non interest bearing deposits decreased $2,579,000,
or 8.4 percent, as of June 30, 1996 from year end 1995.
Interest bearing deposits also experienced a decline of
$8,640,000 or 5.1 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 $469,000 to $17,472,000 at June
30, 1996 from December 31, 1995, due to earnings for the period
of $1,168,000 less $282,000 in dividends declared and a $417,000
adjustment to the unrealized losses on securities available for
sale.
The Company and First National are subject to the regulatory
risk-based capital guidelines. The applicable risk-based
capital ratios are as follows:
Regulatory
First National Bankshares, Inc. 06-30-96 12-31-95 Minimums
Tier 1 Capital/Risk Weighted
Assets Ratio 14.89% 14.14% 4.00%
Total Capital/Risk Weighted
Assets Ratio 16.14% 15.39% 8.00%
Leverage Ratio 8.13% 8.04% 3.00%
Regulatory
First National Bank of Houma 06-30-96 12-31-95 Minimums
Tier 1 Capital/Risk Weighted
Assets Ratio 14.84% 14.02% 4.00%
Total Capital/Risk Weighted
Assets Ratio 16.09% 15.27% 8.00%
Leverage Ratio 8.10% 7.98% 3.00%
In January of 1996, the Company paid a $.06 per common share
dividend previously declared in December of 1995. In February
of 1996, the Company declared a $.07 per common share dividend
paid in April of 1996. In May of 1996 the Company declared an
additional dividend of $.07 per common share payable in July 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 six months of 1996, the Company
recorded $417,000 in additional losses in the unrealized loss
amount as compared to the December 31, 1995.
LIQUIDITY AND ASSET LIABILITY MANAGEMENT
The Company has identified approximately $65,000,000 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,
the combination of these investment 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 on 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)
June 30, 1996 INTEREST RATE SENSITIVITY PERIOD
0-3 Months 4-12 Months 1-5 Years Over 5 Years TOTAL
ASSETS:
Loans $ 26,815 $15,318 $41,190 $29,656 $112,979
Investments 34,455 25,902 15,170 878 76,405
Other 2,722 0 0 0 2,722
Total assets $ 63,992 $41,220 $56,360 $30,534 $192,106
FUNDING SOURCES:
Interest-bearing
deposits $110,420 $28,140 $20,103 $ 2,852 $161,515
Short-term funds 1,502 0 0 0 1,502
Long-term debt 0 0 0 0 0
Total funding
sources $111,922 $28,140 $20,103 $ 2,852 $163,017
REPRICING/MATURITY GAP:
Period $(47,930) $ 13,080 $36,257 $27,682
Cumulative $(47,930) $(34,850) $ 1,407 $29,089
Period gap/
total assets (24.9%) 6.8% 18.9% 14.4%
Cumulative gap/
total assets (24.9%) (18.1%) 0.7% 15.1%
Amounts stated include only fixed and variable rate instruments
in the balance sheet. 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.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on
May 14, 1996, five directors were elected to hold office until
the next Annual Meeting and until their successors shall have
been duly elected and qualified. The name of each nominee
elected as a director and the number of votes cast for or
withheld from voting for such nominee is set forth below:
Nominee Votes For Votes Withheld
James J. Buquet, Jr. 1,367,614 9,148
Jerome H. Mire 1,367,644 9,118
Kamal Abdelnour 1,362,583 14,179
Hilton J. Michel, Jr. 1,369,506 7,256
Calvin J. Ortego 1,367,726 9,036
Certain proxies marked by hand to "abstain" from voting were
treated as withholding authority to vote for any nominee. There
were no broker non-votes for directors.
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: August 14, 1996 BY /s/ Jerome H. Mire
JEROME H. MIRE
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
DATE: August 14, 1996 BY /s/ Russell Blanchard
RUSSELL BLANCHARD
CHIEF FINANCIAL OFFICER AND
COMPTROLLER