UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------------------------
Commission File Number: 33-14252
FIRST NATIONAL BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
West Virginia 62-1306172
------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
One Cedar Street, Ronceverte, West Virginia 24970
--------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(304) 647-4500
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- ----------
The number of shares outstanding of the issuer's classes of common stock as of
November 1, 2002:
Common Stock, $1 par value -- 981,780 shares
THIS REPORT CONTAINS 24 PAGES
FIRST NATIONAL BANKSHARES CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 2002
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Income -
Three Months Ended September 30, 2002 and 2001 and
Nine Months Ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Shareholders' Equity -
Three Months Ended September 30, 2002 and 2001 and
Nine Months Ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except per share data)
Sept. 30, Dec. 31,
2002 2001
--------------- ---------------
ASSETS
Cash and due from banks $ 3,533 $ 3,570
Interest-bearing deposits with other banks 209 2,139
Federal funds sold 3,783 13
Securities available for sale 24,106 11,161
Securities held to maturity (estimated fair value
of $5,213 and $7,291, respectively) 5,016 7,166
Loans, less allowance for loan losses of $1,012 and
$837, respectively 106,065 102,801
Premises and equipment, net 2,801 2,456
Accrued interest receivable 822 711
Other real estate owned - 796
Other assets 508 506
--------------- ---------------
Total assets $ 146,843 $ 131,319
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing $ 15,742 $ 15,536
Interest-bearing 114,712 99,084
--------------- ---------------
Total deposits 130,454 114,620
Short-term borrowings 3,143 3,401
Other liabilities 898 1,034
Long-term borrowings - 442
--------------- ---------------
Total liabilities 134,495 119,497
--------------- ---------------
Shareholders' equity
Common stock, $1.00 par value, authorized
10,000,000 shares, issued 981,780 shares, respectively 982 982
Capital surplus 1,188 1,188
Retained earnings 10,054 9,640
Accumulated other comprehensive income 124 12
--------------- ---------------
Total shareholders' equity 12,348 11,822
--------------- ---------------
Total liabilities and shareholders' equity $ 146,843 $ 131,319
=============== ===============
(1) Extracted from December 31, 2001 audited financial statements.
See Notes to Condensed Consolidated Financial Statements
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In thousands of dollars, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------------ ----------- ----------- -----------
Interest income
Interest and fees on loans $ 1,929 $ 2,014 $ 5,775 $ 5,984
Interest and dividends on securities:
Taxable 218 201 573 711
Tax-exempt 30 41 118 119
Interest on Federal funds sold and interest-bearing deposits 23 66 68 192
------------ ----------- ----------- -----------
Total interest income 2,200 2,322 6,534 7,006
------------ ----------- ----------- -----------
Interest expense
Deposits 706 956 2,186 3,012
Short-term borrowings 12 47 43 233
Long-term borrowings 10 6 23 20
------------ ----------- ------------ -----------
Total interest expense 1,009 728 2,252 3,265
------------ ----------- ------------ -----------
Net interest income 1,472 1,313 4,282 3,741
Provision for loan losses 30 81 239 151
Net interest income after provision for loan losses 1,442 1,232 4,043 3,590
------------ ----------- ------------ -----------
Non-interest income
Service fees 114 115 339 318
Secondary loan market fees 66 27 220 73
Security gains 3 - 3 -
Other income 34 29 89 76
------------ ----------- ------------ -----------
Total non-interest income
217 171 651 467
------------ ----------- ------------ -----------
Non-interest expense
Salaries and employee benefits 549 462 1,668 1,339
Net occupancy expense 81 68 248 214
Equipment rental, depreciation and maintenance 99 85 309 240
Data processing 101 81 286 250
Advertising 36 26 99 72
Professional and legal 31 30 96 99
Mailing and postage 35 22 92 65
Directors' fees and shareholder expenses 25 26 93 84
Stationary and supplies 30 27 105 83
Loss on foreclosed real estate 4 - 266 -
Other operating expenses 118 120 359 327
------------ ----------- ------------ -----------
Total non-interest expense 1,109 947 3,621 2,773
------------ ----------- ------------ -----------
Income before income taxes
550 456 1,073 1,284
Income tax expense 191 147 345 412
------------ ----------- ------------ -----------
Net income $ 359 $ 309 $ 728 $ 872
============ =========== ============ ===========
Basic earnings per common share $ 0.37 $ 0.32 $ 0.74 $ 0.90
============ =========== ============ ===========
Diluted earnings per common share $ 0.36 $ 0.31 $ 0.74 $ 0.89
============ =========== ============ ===========
See Notes to Condensed Consolidated Financial Statements
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In thousands of dollars, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---------- ----------- ----------- -----------
Balance, beginning of period $ 12,012 $ 11,397 $ 11,822 $ 10,986
Comprehensive income
Net income 359 309 728 872
Other comprehensive income, net of deferred
income taxes of $29 and $24 for the three month
periods; $72 and $57 for the nine month periods:
Unrealized gains on securities 45 37 112 88
---------- ----------- ----------- -----------
Total comprehensive income 404 346 840 960
---------- ----------- ----------- -----------
Cash dividends declared ($0.07 and $0.14 per
share for the three month periods; $0.32
and $0.39 per share for the nine month periods) (68) (136) (314) (379)
Issuance of common stock pursuant to stock option exercises - 43 - 83
---------- ----------- ----------- -----------
Balance, end of period $ 12,348 $ 11,650 $ 12,348 $ 11,650
========== =========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
FIRST NATIONAL BANKSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
(In thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001
------------- --------------
Net income $ $
728 872
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 242 179
Loss on disposal of premises and equipment 3 1
Loss (Gain) on sale of other real estate owned 266 (4)
Gains on premium calls of securities held to maturity (3) -
Provision for loan losses 239 151
Deferred income tax benefit (16) (46)
Net amortization (accretion) of security premiums and discounts 46 (96)
(Increase) decrease in accrued interest receivable (111) 157
(Increase) decrease in other assets (59) 15
(Decrease) increase in other liabilities (58) 124
------------- --------------
Net cash provided by operating activities 1,277 1,353
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of securities held to maturity 3,043 108,965
Proceeds from maturities and calls of securities available for sale 14,783 19,125
Purchases of securities held to maturity (881) (105,254)
Purchases of securities available for sale (27,599) (19,186)
Net increase in loans (3,503) (10,759)
Purchases of premises and equipment (589) (529)
Proceeds from sale of bank premises and equipment - 5
Proceeds from sale of other real estate owned 530 204
Lease payments collected on other real estate owned - 17
------------- -------------
Net cash used in investing activities (14,216) (7,412)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits savings accounts 15,457 16,048
Net increase in certificates of deposit 377 197
Proceeds from stock option exercises - 83
Net decrease increase in short-term borrowings (258) (2,211)
Principal payments on long-term borrowings (442) (12)
Dividends paid (392) (408)
------------- -------------
Net cash provided by financing activities 14,742 13,697
------------- -------------
Increase in cash and cash equivalents 1,803 7,638
Cash and cash equivalents:
Beginning 5,722 2,053
------------- -------------
Ending $ 7,525 $ 9,691
============= =============
See Notes to Condensed Consolidated Financial Statements
FIRST NATIONAL BANKSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accounting and reporting policies of First National Bankshares Corporation,
(the "Company" or "First National"), and its wholly owned subsidiaries, First
National Bank and FNB Insurance, LLC, conform to accounting principles generally
accepted in the United States and to general policies within the financial
services industry. The preparation of such financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
The condensed consolidated statements include the accounts of the Company and
its wholly owned subsidiaries, First National Bank and FNB Insurance, LLC. All
significant intercompany balances and transactions have been eliminated. The
information contained in the condensed consolidated financial statements is
unaudited. In the opinion of management, all adjustments for a fair presentation
of the results of the interim periods have been made. All such adjustments were
of a normal, recurring nature. The results of operations for the nine months
ended September 30, 2002 are not necessarily indicative of the results to be
expected for the full year. The condensed consolidated financial statements and
notes included herein should be read in conjunction with the Company's 2001
audited financial statements and Form 10-K.
Certain amounts in the condensed consolidated financial statements for the prior
year, as previously presented, have been reclassified to conform to current year
classifications.
Note 2. Securities
The amortized cost, unrealized gains, unrealized losses and estimated fair
values of securities at September 30, 2002 and December 31, 2001 are summarized
as follows (in thousands):
September 30, 2002
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ----------------- ----------------- -----------------
Available for Sale
Taxable:
U.S. Government agencies and corporations $ 23,377 $ 206 $ 2 $ 23,581
Federal Reserve Bank stock 57 - - 57
Federal Home Loan Bank stock 444 - - 444
Other equities 22 - - 22
----------------- ----------------- ----------------- -----------------
Total taxable 23,900 206 2 24,104
Tax-exempt:
Federal Reserve Bank stock 2 - - 2
----------------- ----------------- ----------------- -----------------
Total Securities Available for Sale $ 23,902 $ 206 $ 2 $ 24,106
================= ================= ================= =================
Held to maturity:
Taxable:
U.S. Government agencies and corporations $ 1,000 $ 43 $ - 1,043
State and political subdivisions 455 - - 455
----------------- ----------------- ----------------- -----------------
Total taxable 1,455 43 - 1,498
Tax-exempt:
State and political subdivisions 3,561 154 - 3,715
----------------- ----------------- ----------------- -----------------
Total securities held to maturity $ 5,016 $ 197 $ - $ 5,213
================= ================= ================= =================
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ----------------- ----------------- ----------------
Available for Sale
Taxable:
U.S. Government agencies and corporations $ 10,414 $ 62 $ 42 $ 10,434
Federal Reserve Bank stock 57 - - 57
Federal Home Loan Bank stock 646 - - 646
Other equities 22 - - 22
----------------- ----------------- ----------------- ----------------
Total taxable 11,139 62 42 11,159
Tax-exempt:
Federal Reserve Bank stock 2 - - 2
----------------- ----------------- ----------------- ----------------
Total Securities Available for Sale $ 11,141 $ 62 $ 42 $ 11,161
================= ================= ================= ================
Held to maturity:
Taxable:
U.S. Government agencies and corporations $ 2,985 $ 42 $ - $ 3,027
State and political subdivisions 470 14 - 484
----------------- ----------------- ----------------- ----------------
Total taxable 3,455 56 - 3,511
Tax-exempt:
State and political subdivisions 3,711 70 1 3,780
----------------- ----------------- ----------------- ----------------
Total securities held to maturity $ 7,166 $ 126 $ 1 $ 7,291
================= ================= ================= ================
The maturities, amortized cost and estimated fair values of the Company's
securities at September 30, 2002 are summarized as follows (in thousands):
Held to Maturity Available for Sale
----------------------------------- -----------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------- ----------------- ------------------ ----------------
Due within 1 year $ 370 $ 374 $ 4,906 $ 4,942
Due after 1 but within 5 years 3,074 3,206 18,471 18,639
Due after 5 but within 10 years 487 515 - -
Due after 10 years 1,085 1,118 - -
Equity securities - - 525 525
----------------- ----------------- ----------------- ----------------
$ 5,016 $ 5,213 $ 23,902 $ 24,106
================= ================= ================= ================
The Company's Federal Reserve Bank stock and Federal Home Loan Bank stock are
equity securities that are included in securities available for sale in the
accompanying condensed consolidated financial statements. Such securities do not
have a stated maturity date, and are carried at cost, since they may only be
sold back to the respective issuer or another member at par value.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Loans
Total loans are summarized as follows (in thousands):
Sept. 30, Dec. 31,
2002 2001
------------------- ------------------
Commercial, financial and agricultural $ 45,287 $ 42,541
Real estate - construction 1,101 1,163
Real estate - mortgage 44,024 44,399
Installment loans to individuals 14,422 13,236
Other 2,250 2,299
------------------- ------------------
Total loans 107,084 103,638
Net deferred loan origination costs (7) -
------------------- ------------------
Total loans net of deferred origination costs 107,077 103,638
Less allowance for loan losses 1,012 837
------------------- ------------------
Loans, net $ 106,065 $ 102,801
=================== ==================
Note 4. Allowance for Credit Losses An analysis of the allowance for loan losses
is presented below (in thousands) for the nine month periods ended September 30,
2002 and 2001 and for the year ended December 31, 2001:
Dec. 31,
2002 2001 2001
------------------ ------------------- ------------------
Balance, beginning of period $ 837 $ 619 $ 619
Loans charged off 78 37 56
Recoveries 14 15 17
------------------ ------------------- ------------------
Net losses 64 22 39
------------------ ------------------- ------------------
Provision for loan losses 239 151 257
------------------ ------------------- ------------------
Balance, end of period $ 1,012 $ 748 $ 837
================== =================== ==================
The Company's total recorded investment in impaired loans at September 30, 2002
approximated $149,000, for which the related allowance for credit losses
determined in accordance with accounting principles generally accepted in the
United States approximated $0. All impaired loans at September 30, 2002 were
collateral dependent, and accordingly, the fair value of the loan's collateral
was used to measure the impairment of each loan.
Note 5. Commitments and Contingencies In the ordinary course of business, the
Company's subsidiary bank is party to financial instruments with off-balance
sheet risk. These financial instruments include standby letters of credit and
commitments to extend credit. The unused portions of existing lines of credit at
September 30, 2001 and December 31, 2001, and the contractual amount of
commitments to lend are as follows, in thousands of dollars:
Sept. 30, Dec. 31,
2002 2001
------------- -------------
Total loan commitments $ 15,726 $ 15,372
============= =============
Management is not aware of any commitments or contingencies that may reasonably
be expected to have a material impact on operating results, liquidity or capital
resources. The Company continues to be involved in various legal actions and
contractual matters arising in the normal course of business.
Note 6. Earnings per share Diluted earnings per share amounts assume the
conversion, exercise or issuance of all potential common stock instruments
unless the effect is to reduce the loss or increase the income per common share
from continuing operations. For purposes of computing basic earnings per share,
weighted average shares outstanding were 981,780 and 975,354 for the quarters
ended September 30, 2002 and 2001 and 981,780 and 973,868 for the nine months
ended September 30, 2002 and 2001. The dilutive effect of stock options
approximated 2,824 shares and 5,705 shares for the quarters ended September 30,
2002 and 2001 and 3,121 shares and 6,329 shares for the nine months ended
September 30, 2002 and 2001.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Other Real Estate Owned During the third quarter, the Company completed
the sale of commercial property it held as other real estate owned at June 30,
2002. A charge to earnings of $262,000 was recognized in the second quarter of
2002 in order to reduce the carrying value of the property to its net realizable
value. Additional closing and selling expenses of $4,000 were recognized during
the third quarter.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis focused on significant changes in the
financial condition and results of operations of First National Bankshares
Corporation (the "Company" or "Bankshares"), and its wholly owned subsidiaries,
First National Bank and FNB Insurance, LLC, for the periods indicated. This
discussion and analysis should be read in conjunction with the Company's 2001
consolidated financial statements and notes included in its Annual Report to
Shareholders and Form 10-K.
The Private Securities Litigation Act of 1995 indicates that the disclosure of
forward-looking information is desirable for investors and encourages such
disclosure by providing a safe harbor for forward-looking statements by
corporate management. This Quarterly Report on Form 10-Q contains
forward-looking statements that involve risk and uncertainty. In order to comply
with the terms of the safe harbor, the corporation notes that a variety of
factors could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in those
forward-looking statements.
EARNINGS SUMMARY
Nine Months Ended September 30, 2002 vs. 2001
The Company reported consolidated net income of $728,000, or $0.74 per diluted
share for the nine months ended September 30, 2002, compared to consolidated net
income of $872,000, or $0.89 per diluted share, for the same period of 2001. The
Company's annualized return on average assets (ROA) was 0.69% and 0.92% for the
nine-month periods ended September 30, 2002 and 2001, respectively, while the
annualized return on average shareholders' equity (ROE) was 8.1% and 10.3% for
the nine months ended September 30, 2002 and 2001, respectively.
Improvements in net interest income and non-interest income were mitigated by a
greater provision for loan losses and higher non-interest expenses following the
Company's opening of a de novo branch in Covington, Virginia in February 2002.
In addition, a $266,000 pre-tax loss was recognized on the sale of other real
estate owned.
An analysis of the major components of the statement of income and expense on a
basic earnings per share basis is presented below for the three-month and for
the nine-month periods ended September 30, 2002 and 2001.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------- -------------------------------------------
Increase Increase
2002 2001 (Decrease) 2002 2001 (Decrease)
-------------- ------------- ------------ -------------- ------------- --------------
Interest income $ 2.24 $ 2.38 $ (0.14) $ 6.65 $ 7.19 $ (0.54)
Interest expense 0.74 1.04 (0.30) 2.29 3.35 (1.06)
-------------- ------------ ------------ -------------- ------------- --------------
Net interest income 1.50 1.34 0.16 4.36 3.84 0.52
Provision for loan losses 0.03 0.08 (0.05) 0.24 0.16 0.08
-------------- ------------- ------------ -------------- ------------- --------------
Net interest income after
provision for loan losses 1.47 1.26 0.21 4.12 3.68 0.44
-------------- ------------- ------------ -------------- ------------- --------------
Non-interest income 0.22 0.18 0.04 0.66 0.48 0.18
Non-interest expense 1.13 0.97 0.16 3.69 2.84 0.85
-------------- ------------- ------------ -------------- ------------- --------------
Income before income taxes 0.56 0.47 0.09 1.09 1.32 (0.23)
Income tax expense 0.19 0.15 0.04 0.35 0.42 (0.07)
-------------- ------------- ------------ -------------- ------------- --------------
Net income $ 0.37 $ 0.32 $ 0.05 $ 0.74 $ 0.90 $ (0.16)
============== ============= ============ ============== ============= ==============
Three Months Ended September 30, 2002 vs. 2001
The Company reported consolidated net income of $359,000, or $0.36 per diluted
share for the three months ended September 30, 2002, compared to consolidated
net income of $309,000, or $0.31 per diluted share, for the same period of 2001.
The Company's annualized return on average assets (ROA) was 0.98% and 0.96% for
the three-month periods ended September 30, 2002 and 2001, respectively, while
the annualized return on average shareholders' equity (ROE) was 11.8% and 10.9%
for the same periods, respectively.
On a quarter-to-quarter basis, the Company experienced a favorable variance in
net interest income and non-interest income. As more fully discussed in the NET
INTEREST INCOME section below, the growth in the Company's interest-bearing
assets relative to its growth in interest-bearing liabilities equated to a
positive impact on the Company's net interest income. Likewise, an increase in
the volume of fee-related services has aided in enhancing non-interest income by
26.9%. Earnings also improved due to a decline in the loan loss provision.
Slower loan demand coupled with a decline in the outstanding loans during the
current quarter curbed the need for a comparative loan loss provision. As
discussed above in the year to date summary, non-interest expense has increased
dramatically due to the new branch in Covington. As expected, the expenses are
currently exceeding the revenues generated by the office, however, each
succeeding monthly result is steadily improving as the office tracks towards a
breakeven asset base.
NET INTEREST INCOME
The most significant component of the Company's net earnings is net interest
income, which represents the excess of interest income earned on earning assets
over the interest expense paid for sources of funds. Net interest income is
affected by changes in volume resulting from growth and alteration of the
balance sheet's composition, as well as by fluctuations in market interest rates
and maturities of sources and uses of funds. For purposes of this discussion,
net interest income is presented on a fully tax-equivalent basis to enhance the
comparability of the performance of tax-exempt to fully taxable earning assets.
For the nine-month periods ended September 30, 2002 and 2001, the tax-equivalent
adjustment was $61,000.
Over the first nine months of 2002, the Company's net interest income has
improved $548,000 or 14.4%. As shown in Table II, the majority of the
improvement is volume related. Average interest-bearing assets were $134,000,000
in 2002 compared to $120,000,000 in 2001, an increase of 11.1%. The increased
volume equated to an incremental increase in interest income of $830,000.
Likewise, the growth in interest-bearing liabilities ($11,000,000) equated to an
incremental increase in interest expense of $158,000. Overall, the net impact of
the volume variance was an increase in net interest income of $672,000.
Interest rates have steadily declined over the past several months with many
indices and benchmarks at or near historical lows. As a result of variable
interest rate provisions, maturities and prepayments, a significant portion of
the Company's interest-earning assets have repriced at lower interest rates
during 2002. As a result, the net yield on interest-earning assets has declined
from 7.82% to 6.57%, or 125 basis points. Similarly, interest-bearing
liabilities repriced during 2002, resulting in a 161 basis point decrease in the
average interest rate paid on the liabilities. Overall, the net impact of change
in interest rates resulted in a net decrease in net interest income of $124,000.
An important component to any financial institution's financial success is its
ability to effectively manage its net yield on interest-earning assets or
"margin." Despite the falling rate environment, the Company was able to improve
its margin by 13 basis points from the prior year (4.33% versus 4.20%). The
improvement in the margin is a result of the loan growth over the past year
(loans are the Company's highest yielding asset) and the incremental benefit
derived from funding a portion of the growth in interest-earning assets with
non-interest bearing deposits and internal capital (approximately $3,000,000).
Going forward, the Company will continue to face a multitude of obstacles
lowering its margin - fluctuations in interest rates, competition for loans,
prepayments and others. Unfortunately, the current trend of slower loan demand
will likely have a negative impact on the Company's margin in the fourth
quarter. To combat the potential impact of the lower yield on its assets, the
Company will be less aggressive with its funding prices, thereby better managing
the asset growth of the Company.
Further analysis of the Company's yields on interest-earning assets and
interest-bearing liabilities and changes in net interest income as a result of
changes in average volume and interest rates are presented in Tables I and II.
NON-INTEREST INCOME
Non-interest income includes revenues from all sources other than interest
income and yield related loan fees from loans held in the Company's portfolio.
On a quarter-to-quarter basis, non-interest income improved $46,000, or 26.9%,
while for the nine month period ended September 30, 2002, it improved $184,000,
or 39.4%. As a percentage of average assets, annualized non-interest income was
0.61% and 0.49% for the nine-month periods ended September 31, 2002 and 2001,
respectively.
The improvement in the quarter and year to date non-interest income totals is
attributed to the Company's secondary market loan program. A favorable interest
rate environment coupled with the allocation of additional resources to the
program relative to the prior year, has led to a $39,000 and $147,000
improvement in the quarter and year-to-date totals, respectively. Management
expects to further capitalize on its secondary market loan activity for the
balance of the year.
NON-INTEREST EXPENSE
Non-interest expense includes overhead costs that are not related to interest
expense or to losses from loans or securities. As of September 30, 2002, the
Company's non-interest expense totaled $3,621,000, an increase of $848,000, or
30.5%, over total non-interest expense incurred for the nine months ended
September 30, 2001. On a quarter-to-quarter basis, other non-interest expense
increased to $162,000, or 17.1%, for the third quarter of 2002. Expressed as a
percentage of average assets, annualized non-interest expense was 3.4% and 2.9%
for the nine months ended September 30, 2002 and 2001, respectively.
====================================================================================================================================
TABLE I
AVERAGE BALANCE SHEET AND
NET INTEREST INCOME ANALYSIS
(In thousands of dollars)
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
Average Interest Yield/ Average Interest Yield/
Balance (1) Rate Balance (1) Rate
------------- ---------- ------- ------------ ---------- ---------
INTEREST-EARNING ASSETS
Loans, net of deferred origination costs $ 106,360 $ 5,775 7.24% $ 92,818 $ 5,984 8.60%
Securities:
Taxable 19,124 573 3.99% 17,844 704 5.26%
Tax-exempt (1) 3,683 179 6.47% 3,339 180 7.19%
------------- --------- -------- ----------- --------- -------
Total securities 22,807 752 4.40% 21,183 884 5.56%
------------- --------- -------- ----------- --------- -------
Federal funds sold and interest-bearing deposits 4,622 68 1.96% 6,358 192 4.03%
with other banks ------------- --------- -------- ----------- --------- -------
Total interest-earning assets 133,789 6,595 6.57% 120,359 7,060 7.82%
------------- --------- -------- ----------- --------- --------
NON-INTEREST-EARNING ASSETS
Cash and due from banks 3,648 2,812
Bank premises and equipment 2,793 1,611
Other assets 2,057 2,333
Allowance for loan losses (951) (668)
------------- ------------
Total assets $ 141,336 $ 126,447
============= ============
INTEREST-BEARING LIABILITIES
Demand deposits $ 18,556 99 0.71% $ 15,257 185 1.62%
Savings deposits 55,500 1,079 2.59% 41,365 1,212 3.91%
Time deposits 34,658 1,008 3.88% 38,136 1,615 5.65%
------------- --------- ------- ----------- --------- -------
Total interest-bearing deposits 108,714 2,186 2.68% 94,758 3,012 4.24%
------------- --------- ------- ----------- --------- -------
Short-term borrowings 3,532 43 1.62% 6,539 233 4.75%
Long-term borrowings 356 23 8.61% 452 20 5.90%
------------- --------- ------- ----------- --------- -------
Total other interest-bearing liabilities 3,888 66 2.26% 6,991 253 4.83%
------------- --------- ------- ----------- --------- -------
Total interest-bearing liabilities 112,602 2,252 2.67% 101,749 3,265 4.28%
------------- --------- ------- ----------- --------- -------
NON-INTEREST-BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY
Demand deposits 15,579 12,219
Other liabilities 1,128 1,149
Shareholders' equity 12,027 11,330
------------- -----------
Total liabilities and shareholders' equity $ 141,336 $ 126,447
============= ===========
NET INTEREST-EARNINGS $ 4,343 $ 3,795
========= =========
NET YIELD ON INTEREST-EARNING ASSETS 4.33% 4.20%
======= =======
(1) - Calculated on a fully tax-equivalent basis using the rate of 34% for 2002
and 2001.
(2) - For purposes of these computations, non-accrual loans are included in the
amounts of average loans outstanding. Included in interest are loan fees of
$93,000 and $97,000 for 2002 and 2001, respectively.
====================================================================================================================================
====================================================================================================================================
TABLE II
CHANGES IN INTEREST INCOME AND EXPENSE
DUE TO CHANGES IN AVERAGE VOLUME AND INTEREST RATES
(In thousands of dollars)
Nine Months Ended
Sept. 30, 2002 versus Sept. 30, 2001
Increase (Decrease)
Due to Changes In:
Volume (1) Rate (1) Total
---------------------------------------------------
INTEREST-EARNING ASSETS
Loans $ 807 $ (1,016) $ (209)
Securities:
Taxable 48 (179) (131)
Tax-exempt (2) 18 (19) (1)
----------------- --------------- ---------------
Total securities 66 (198) (132)
----------------- --------------- ---------------
Federal funds sold and interest-bearing deposits (43) (81) (124)
with other banks
Total interest-earning assets 830 (1,295) (465)
----------------- --------------- ---------------
INTEREST-BEARING LIABILITIES
Demand deposits 34 (120) (86)
Savings deposits 344 (477) (133)
Time deposits (137) (470) (607)
Short-term borrowings (78) (112) (190)
Long-term borrowings (5) 8 3
----------------- --------------- ---------------
Total interest-bearing liabilities 158 (1,171) (1,013)
----------------- --------------- ---------------
NET INTEREST-EARNINGS $ 672 $ (124) $ 548
================= =============== ===============
(1) - The change in interest due to both rate and volume has been allocated
between the factors in proportion to the relationship of the absolute dollar
amounts of the change in each. (2) - Calculated on a fully tax-equivalent basis
using the rate of 34%.
====================================================================================================================================
The increase in both the quarter and year to date expenses from the prior year
is due in part to the incremental operating expenses associated with the new
Covington branch. Nearly all-major expense line items reported in the
Consolidated Statements of Income in Item 1 are up from the prior year due to
the de novo branch. Direct operating expenses attributed to the new location
totaled $112,000 and $356,000, respectively for the quarter and nine months
ended September 30, 2002. Salaries and employee benefits account for the
majority of the incremental expenses, which are derived from the six full-time
staff employed by the branch. A portion of the expenses incurred during the
first nine months are nonrecurring and therefore are not indicative of the
future ongoing expense of the branch. Subsequent to September 30, 2002, the
Company hired a new executive, who will be largely responsible for spearheading
the business development of the Covington branch. Therefore, non-interest
expense is expected to increase in the fourth quarter.
Included in non-interest expense is a $266,000 loss recorded on other real
estate owned.
INCOME TAXES
The Company's provisions for state and federal income taxes during the third
quarters of 2002 and 2001 were $191,000 and $147,000, respectively. For the
year-to-date period, income tax expense was $345,000 in 2002 and $412,000 in
2001 representing effective tax rates of 32.2% and 32.1%, respectively.
CHANGES IN FINANCIAL CONDITION
The Company's total assets were $146,843,000 at September 30, 2002, compared to
$131,319,000 at December 31, 2001, an increase of $15,524,000 or 11.8%. Average
total assets were $141,336,000 during the nine month period ended September 30,
2002. Details concerning changes in the Company's major balance sheet items and
changes in financial condition follow.
Securities and Federal Funds Sold
At September 30, 2002, the Company's securities position totaled $29,122,000, an
increase of $10,795,000 or 58.9% from December 31, 2001. During the first nine
months of 2002, the deposit growth has outpaced loan growth by nearly 5 to 1. As
a result, additional funds were available for investing in the security
portfolio. The ratio of securities designated as Available for Sale ("AFS")
versus Held to Maturity ("HTM") continues to shift towards AFS. With this
designation, the Company can more adequately meet its liquidity demands, should
the need arise. Future designations of HTM will likely be limited to the
purchase of small blocks of municipal securities. A more detailed discussion of
the securities portfolio may be found in Note 2 of the condensed consolidated
financial statements found in Item I.
It is the Bank's philosophy to minimize its involvement in the overnight funds
market, however due to liquidity reasons (i.e. fluctuations in loan and deposit
balances), the bank may buy or sell funds on an overnight basis. On average, its
position in the overnight market in 2002 has been $4,622,000 (this figure
includes interest-bearing deposits with other banks) compared to $6,358,000 in
the prior year.
Loan Portfolio
At September 30, 2002, gross loans totaled $107,084,000, an increase of 3.3%
from December 31, 2001, while on average, gross loans totaled $106,360,000
during the first nine months of 2002. Loan demand has been markedly slower in
2002 in comparison to the prior year. A portion of the slow down is a result of
the current economic conditions. Uncertainty has prompted many small businesses
to delay expansion or in some cases, employ a retraction strategy. In addition,
competition for high quality loans remains keen, particularly in the Company's
primary market area (Greenbrier County, WV). The low interest rate environment
has put tremendous pressure on the Company to remain competitive with its
pricing and service. Prepayment risk in a falling rate environment continues to
play a significant role in the volume of loans the Company must generate in
order to maintain a flat growth trend. In the third quarter, total loan
outstandings declined $928,000 due to these same competitive factors. In order
to combat the current trend, the Company has and will continue to make interest
rate concessions to loan customers so long as the decisions support the
Company's long-term financial goals and are supported by the Company's
asset/liability policies and interest rate risk guidelines. Additionally, the
Company will focus efforts on its newest market - Covington, Virginia. Of the
Company's $3,446,000 growth in loans during the first nine months of 2002,
Covington contributed approximately $2,000,000 of the growth. As mentioned in
the NON-INTEREST EXPENSE section, the Company has hired an additional executive
who will be largely responsible for business development in the Covington
market. As a result, management expects the majority of the future loan growth
to come from the Covington location, while loan growth at will be moderate to
flat in the other markets. See Note 3 of the condensed consolidated financial
statements for further information on the loan portfolio.
Allowance and Provision for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably estimated. On a quarterly basis,
management performs a comprehensive evaluation of the adequacy of the allowance
that encompasses evaluating problem credits and their potential loss, if any. In
addition, management considers historical loan loss experience, new loan volume,
portfolio composition, levels of non-performing and past due loans and current
and anticipated economic conditions in evaluating the adequacy of the allowance
for loan losses. When determined necessary, a provision for loan losses is
charged to earnings in order to maintain an adequate allowance for probable loan
losses. During the third quarter of 2002, the Company made a $30,000 provision
for loan losses compared to $81,000 during the third quarter of 2001. For the
nine months ended September 30, 2002 and 2001, respectively, the provision for
loan losses was $239,000 and $151,000. At September 30, 2002, the allowance for
loan losses was $1,012,000 compared to $837,000 at December 31, 2001. Expressed
as a percentage of loans, the allowance for loan losses was 0.95% and 0.81% at
September 30, 2002 and December 31, 2001, respectively. In management's opinion,
the allowance for loan losses is adequate to absorb the current estimated risk
of loss in the existing portfolio. See Note 4 of the condensed consolidated
financial statements for an analysis of the activity in the Company's allowance
for loan losses for the nine-month periods ended September 30, 2002 and 2001,
and for the year ended December 31, 2001.
Asset quality trends represent an important factor in evaluating the adequacy of
the allowance for loan losses. A summary of the Company's past due loans and
non-performing assets is provided in the following table:
SUMMARY OF PAST DUE LOANS AND NON-PERFORMING ASSETS
(in thousands of dollars)
Sept. 30, Sept. 30, Dec. 31,
2002 2001 2001
------------------ ------------------ ------------------
Loans past due 90 or more days still accruing $ - $ - $ -
Non-accrual loans 328 239 294
------------------ ------------------ ------------------
Total non-performing loans 328 239 294
Other real estate owned and repossessed assets 2 796 796
------------------ ------------------ ------------------
Total non-performing assets $ 330 $ 1,035 $ 1,090
================== ================== ==================
Non-performing assets as a % of total assets 0.2% 0.8% 0.8%
================== ================== ==================
Allowance for loan losses as a % of non-performing loans 308.5% 313.0% 284.7%
================== ================== ==================
Total non-performing assets at September 30, 2002 decreased $760,000 from
December 31, 2001. As more fully discussed in Note 7 of the Consolidated
Financial Statements included in Item 1, the Company completed the sale of other
real estate owned in the third quarter, which had a carrying amount of $796,000
at December 31, 2001.
Deposits and Other Funding Sources
Total deposits at September 30, 2002 increased $15,834,000 or 13.8% from
December 31, 2001. On average, deposits totaled $124,293,000 during the nine
months ended September 30, 2002, which is an 8.4% increase over the 2001
year-end deposit balance. The following table summarizes the quarter-end and
average year to date deposit mix for September 30, 2002 as compared to December
31, 2001:
Avg. YTD % Increase/(Decrease) Since
Balance Dec. 31, 2001 as Compared To:
-----------------------------------
Sept. 30, Sept. 30, Sept. 30, Avg. YTD
2002 2002 2002 2002
-------------- ------------- -----------------------------------
Demand deposits $ 35,692 $ 34,135 14.0% 9.0%
Savings 60,407 55,500 22.5% 12.5%
Certificates of deposit 34,355 34,658 1.1% 2.0%
-------------- --------------
Total deposits $ 130,454 $ 124,293 13.8% 8.4%
============== ==============
The opening of the Covington branch has had a significant impact on the
Company's deposit growth. This location was responsible for $11,073,000 or
nearly 70.0% of the total growth experienced in the first nine months of 2002.
The deposit mix at the new location is similar to the consolidated mix shown in
the above table. Deposit growth from the Company's other locations has slowed
following a rapid increase over an 18-month period. Because of the slower loan
demand, management has opted to be less aggressive with its deposit pricing. As
a result, deposit growth has been flat in all markets with the exception of
Covington. The Company will remain highly competitive in this market in order to
build its book of business.
Over the past year and coinciding with the fall in interest rates, there has
been a distinct trend for depositor preference in short-term, liquid deposits,
which yield a competitive return. This preference has led to significant growth
in the Company's savings balance relative to other deposit products. As
illustrated above, savings deposits have grown 22.5% since December 31, 2001.
This trend is likely to continue should interest rates remain at their low
levels and should equity markets continue to be highly volatile.
The Company's use of short-term borrowings during the nine-months ended
September 30, 2002 consisted entirely of repurchase agreements entered into with
various customers and on average did not materially differ from the December 31,
2001 balance.
LIQUIDITY
Liquidity is a measure of the Company's ability to ensure the availability of
adequate funds to meet loan commitments and deposit withdrawals, as well as to
provide for other Company transactional requirements. Liquidity is provided
primarily by funds invested in cash and due from banks, Federal funds sold and
interest-bearing deposits with other banks, which totaled $7,525,000 at
September 30, 2002 versus $5,722,000 at December 31, 2001. The Company's
liquidity is further enhanced by the availability of $5,276,000 (amortized cost)
in debt securities maturing within the succeeding one year. Also, the Company
has classified additional debt securities with an estimated fair value at
September 30, 2002 of $18,639,000 as available for sale in the event of
unforeseen need for liquidity. Additionally, the Company has approximately
$49,000,000 in available lines of credit with various correspondent banks should
the need arise.
Management's Asset/Liability Committee (ALCO) meets on a regular basis to review
the Company's sources and uses of funds for the succeeding (30), (60) and (90)
day time frames. In addition, projected balance sheets for the succeeding (12)
month time frame are prepared and reviewed in order to ensure that liquidity is
within policy guidelines, and if not, that appropriate strategies are
formulated, implemented and measured for effectiveness in order to bring
liquidity risk within policy guidelines. Management is not aware of any trends,
commitments, events or uncertainties that have resulted in or are reasonably
likely to result in a material change in the Company's liquidity.
CAPITAL RESOURCES
Maintenance of a strong capital position is a continuing goal of the Company.
Through management of its capital resources, the Company seeks to provide an
attractive financial return to its shareholders while retaining sufficient
capital to support future growth. Total shareholders' equity at September 30,
2002 was $12,348,000 compared to $11,822,000 at December 31, 2001, an increase
of $526,000. A reconciliation of the increase is reported in the Condensed
Consolidated Statement of Shareholders' Equity included in Item I. Average total
shareholders' equity expressed as a percentage of average total assets was
approximately 8.5% at September 30, 2002 compared to December 31, 2001's level
of 9.0%.
Cash dividends totaling $314,000, or $0.32 per share were declared during the
first nine months of 2002 compared to $379,000 or $0.39 per share declared in
comparable period of 2001. These payout levels represented approximately 43.1%
and 43.5% of the Company's year-to-date earnings for the nine-month periods
ended September 30, 2002 and 2001, respectively. The Company has a dividend
policy whereby the dividend payout level may not exceed 40% of the Company's
annual net income. Accordingly, future declarations may be limited to the
amounts that would be available under the policy directive.
The Company has experienced rapid growth over the past two years, and
accordingly, the Company's leverage ratio (equity to assets) has decreased.
Although the Company continues to report capital ratios well above minimum
guidelines as discussed in the following section, it has become prudent for the
Company to manage the dividend growth rate in order to preserve capital for
future internal asset growth and to build a capital position that will allow the
Company to react in a timely manner to external growth opportunities should they
present themselves. As a result, the board and management have opted to maintain
a flat dividend rate with 2001's regular dividends as the "base year," provided
year-to-date earnings support the divided policy mandate described above.
REGULATORY RESTRICTIONS ON CAPITAL AND DIVIDENDS
The primary source of funds for the dividends paid by First National Bankshares
Corporation is dividends received from its subsidiary bank. Dividends paid by
the subsidiary bank are subject to restrictions by banking regulations. The most
restrictive provision requires approval by the regulatory agency if dividends
declared in any year exceed the year's net income, as defined, plus the net
retained profits of the two preceding years. Management does not anticipate any
such restriction on its dividends in 2002.
Quantitative measures established by regulation to ensure capital adequacy
require the subsidiary bank to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier capital (as defined) to average
assets (as defined). Management believes, as of September 30, 2002, that the
subsidiary bank meets all capital adequacy requirements to which it is subject,
as evidenced by the following table:
RISK-BASED CAPITAL RATIOS
September 30, 2002
Actual Minimum
Requirement
--------- -------------
Tier 1 risk-based capital ratio 11.16% 4.00%
Total risk-based capital ratio 12.17% 8.00%
Leverage ratio 7.67% 3.00%
Improved operating results and a consistent dividend program, coupled with an
effective management of credit and interest rate risk will be the key elements
towards the Company continuing to maintain its present strong capital position
in the future.
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The following table represents the results of the Company's interest sensitivity
simulation analysis as of September 30, 2002 and December 31, 2001. Key
assumptions in the preparation of the table include changes in market conditions
including interest rates, loan volumes, and pricing; deposit sensitivity;
customer preferences; and capital plans. To attempt to quantify the potential
change in net interest income, given a change in interest rates, various
interest rate scenarios are applied to projected balances, maturities and
repricing opportunities. The resulting change in net interest income reflects
the level of sensitivity that net interest income has in relation to changing
interest.
Annualized Hypothetical %
Change in Net Interest Income
Sept. 30, Dec. 31,
Interest rate scenario 2002 2001
------------------ ----------------
Up 100 basis points -2.3 -4.8
Down 100 basis points 1.8 4.8
As reported above, a sharp increase or decrease in interest rates would have a
significant impact on the Company's earnings. Modest changes in the interest
rate environment would not have as dramatic an impact.
ITEM 4
CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this quarterly report has
been made known to them in a timely fashion. There have been no significant
changes in internal controls, or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive Officer and Chief
Financial Officer completed their evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Various legal proceedings are presently pending in which the Bank is a
named party. These proceedings involve routine litigation incidental
to the Bank's business. In Management's opinion, based upon advice of
counsel, the resolution of such proceedings will not have a material
impact on the Bank's financial position.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) All exhibits included with this filing follow the signature
page. 1. Exhibit 11, Computation of Per Share Earnings, is
included on page 22.
2. Exhibit 99.1, Certification of Chief Executive Officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
3. Exhibit 99.2, Certification of Chief Financial Officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
b). The Company did not file any Form 8-K, Current Reports during
the quarter ended September 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST NATIONAL BANKSHARES CORPORATION
By /s/ L. Thomas Bulla
L. Thomas Bulla
President and Chief Executive Officer
By /s/ Matthew L. Burns
Matthew L. Burns, CPA
Chief Financial Officer, First National Bank
(Principal Financial and Accounting Officer)
Date: November 14, 2002
CERTIFICATION
I, L. Thomas Bulla, President and CEO, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First National
Bankshares Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By /s/ L. Thomas Bulla
L. Thomas Bulla
President and Chief Executive Officer
Date: November 14, 2002
CERTIFICATION
I, Matthew L. Burns, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First National
Bankshares Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By /s/ Matthew L. Burns
Matthew L. Burns, CPA
Chief Financial Officer, First National Bank
(Principal Financial and Accounting Officer)
Date: November 14, 2002
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
Earnings Per Share
Basic Earnings per Share is calculated based upon the Company's net income
after income taxes, divided by the weighted average number of shares
outstanding during the fiscal period.
Diluted Earnings Per Share is calculated based upon the Company's net
income after income taxes, divided by the weighted average number of shares
outstanding during the period plus the conversion, exercise or issuance of
all potential common stock instruments unless the effect is to increase the
income per common share from continuing operations.
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First National Bankshares Corporation
("First National") on Form 10-Q for the period ending September 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, L. Thomas Bulla, President and Chief Executive Officer of First
National, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of First National.
By /s/ L. Thomas Bulla
L. Thomas Bulla
President and Chief Executive Officer
Date: November 14, 2002
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First National Bankshares Corporation
("First National") on Form 10-Q for the period ending September 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Matthew L. Burns, Chief Financial Officer of First National,
certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13 (a) or 15 (d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of First National.
By /s/ Matthew L. Burns
Matthew L. Burns, CPA
Chief Financial Officer, First National Bank
Date: November 14, 2002