10-Q 1 q063002.txt 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 June 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 August 1, 2002: Common Stock, $1 par value -- 981,780 shares THIS REPORT CONTAINS 23 PAGES 18 FIRST NATIONAL BANKSHARES CORPORATION FORM 10-Q For the Quarter Ended June 30, 2002 INDEX

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRST NATIONAL BANKSHARES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands of dollars, except per share data)

See Notes to Condensed Consolidated Financial Statements

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 could differ from those estimates. The condensed consolidated statements include the accounts of the Company and its wholly owned subsidiaries, First National Bank and FNB Insurance, LLC. All significant intercompany balances and transactions have been eliminated. The information contained in the condensed consolidated financial statements is unaudited. In the opinion of management, all adjustments for a fair presentation of the results of the interim periods have been made. All such adjustments were of a normal, recurring nature. The results of operations for the six months ended June 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. Note 2. Securities The amortized cost, unrealized gains, unrealized losses and estimated fair values of securities at June 30, 2002 and December 31, 2001 are summarized as follows (in thousands):

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Company's total recorded investment in impaired loans at June 30, 2002 approximated $208,000, for which the related allowance for credit losses determined in accordance with generally accepted accounting principles in the United States approximated $8,000. All impaired loans at June 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 June 30, 2002 and December 31, 2001, and the contractual amount of commitments to lend are as follows, in thousands of dollars: June 30, Dec. 31, 2002 2001 ------------- -------------- Total loan commitments $ 14,858 $ 15,372 ============= ============== Management is not aware of any commitments or contingencies that may reasonably be expected to have a material impact on 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. For purposes of computing basic earnings per share, weighted average shares outstanding were 981,780 and 974,940 for the quarters ended June 30, 2002 and 2001 and 981,780 and 973,113 for the six months ended June 30, 2002 and 2001. The dilutive effect of stock options approximated 3,121 shares and 5,928 shares for the quarters ended June 30, 2002 and 2001 and 3,121 shares and 6,646 shares for the six months ended June 30, 2002 and 2001. Note 7. Other Real Estate Owned On July 20, 2002, the Company entered into an agreement to sell the commercial property it held as other real estate owned on June 30, 2002. The property, which has a carrying amount of $796,000, was sold for $534,000, net of selling expenses. As a result of the sale, the Company charged earnings for $262,000 in the second quarter of 2002 in order to establish a valuation allowance against the carrying amount of the asset and to reduce the asset to its revised estimated net realizable value. The net impact on earnings after income taxes approximated $160,000. Pending various pre-closing proceedings, including the buyer securing third party financing, the transaction is expected to close in August 2002. 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 The Company reported net income of $144,000 for the three months ended June 30, 2002 compared to net income of $305,000 for the quarter ended June 30, 2001, a decrease of 52.8%. For the six-month period ended June 30, 2002, the Company's net income of $369,000 decreased $194,000 from the $563,000 reported for the same period of 2001, a decrease of 34.4%. An increase in net interest income and noninterest income was mitigated by an increase in the provision for loan losses, a charge to earnings due to the write-down of other real estate owned to its estimated net realizable value, and higher operating costs following the opening of a de novo branch in Covington, Virginia. Basic earnings per common share was $0.15 the quarter ended June 30, 2002 compared with $0.31 in 2001. For the six-month period ended June 30, 2002, basic earnings per common share totaled $0.38 compared with $0.58 for the same period of 2001. An analysis of the major components of the statement of income and expense on a per share basis is presented below for the three month and for the six-month periods ended June 30, 2002 and 2001.

The Company's annualized return on average assets (ROA) for the second quarter of 2002 was 0.41% compared to 0.98% for the second quarter of 2001. This compares with an ROA of 0.53% and 0.90% for the six-month periods ended June 30, 2002 and 2001, respectively. Annualized return on average shareholders' equity (ROE) was 4.8% for the second quarter of 2002 compared to 10.8% in the second quarter of 2001, while year to date ROE was 6.2% and 10.0% as of June 30, 2002 and 2001, respectively. NET INTEREST INCOME The most significant component of the Company's net earnings is net interest income, which represents the excess of interest income earned on earning assets over the interest expense paid for sources of funds. Net interest income is affected by changes in volume resulting from growth and changes in 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 six-month periods ended June 30, 2002 and 2001, the tax-equivalent adjustment was $45,000 and $40,000, respectively. For the six months ended June 30, 2002, the Company's net interest income outperformed the prior year's net interest income by $390,000, which equates to a 15.8% improvement. As shown in Table II, growth in the Company's interest-bearing assets and liabilities had a significant impact on net interest income. Volume variances from the prior year equated to a net improvement in net interest income of $443,000, or 18.0% of prior year's net interest income. The difference in net interest income due to a change in interest rates was marginal, negatively impacting net interest income by $53,000. The Company's net yield on interest-earning assets improved to 4.36% in 2002 as compared to 2001's 4.14%, nearly a quarter point difference. Despite a decline in the interest rate environment, the Company achieved a higher net interest margin due to the growth in loans, the Company's highest yielding asset, relative to other interest-bearing assets. At June 30, 2002, average loans comprised 80.8% of total interest-earning assets compared to 2001's 76.6%. Improving or even maintaining the Company's net interest margin will be a challenge for the remainder of the year. Slower loan demand coupled with continued deposit growth will likely result in growth of lower-yielding assets, such as overnight investments and securities, therefore decreasing the net interest margin. In addition, the Company faces a fair amount of prepayment risk in its loan and securities portfolio due to the lower interest rate environment. In order to combat this trend, the Company will likely be less aggressive on its deposit pricing with the exception of the Covington market. 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. PROVISION FOR LOAN LOSSES The provision for loan losses represents charges to earnings necessary to maintain an adequate allowance for probable loan losses. Management's determination of the appropriate level of the allowance is based upon an ongoing analysis of credit quality and loss potential in the loan portfolio, actual loan loss experience relative to the size and characteristics of the loan portfolio, change in the composition and risk characteristics of the loan portfolio and the anticipated influence of national and local economic conditions. The adequacy of the allowance for loan losses is reviewed quarterly and adjustments are made as considered necessary. During the second quarter of 2002, the Bank made a $104,000 provision for loan losses compared to $40,000 during the second quarter of 2001. For the six months ended June 30, 2002 and 2001, respectively, the provision for loan losses was $209,000 and $70,000. For additional discussion of these factors and the related allowance for loan losses account, refer to the Loan and Related Risk Elements section of this discussion. NONINTEREST INCOME Noninterest income includes revenues from all sources other than interest income and yield related loan fees. For the second quarter, noninterest income increased $60,000 over the second quarter of 2001, a 32.6% increase. Similarly, noninterest income for the six-month period ended June 30, 2002 totaled $434,000, an increase of $135,000 or 45.2% from the $299,000 recorded during the same period of 2001. As a percentage of average assets, annualized noninterest income was 0.62% and 0.48% for the six-month periods ended June 31, 2002 and 2001, respectively. The improvement in the quarter and year to date noninterest 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, consisting principally of two full-time staff responsible for marketing the program has led to a $55,000 and $108,000 improvement in the quarter and year-to-date totals, respectively. Given that leading economists are not projecting a significant rise in interest rates over the next twelve months, management expects to further capitalize on its secondary market loan activity for the balance of the year. NONINTEREST EXPENSE Noninterest expense includes overhead costs that are not related to interest expense or to losses from loans or securities. As of June 30, 2002, the Company's noninterest expense totaled $2,512,000, an increase of $686,000, or 37.6%, over total noninterest expense incurred for the six months ended June 30, 2001. On a quarter-to-quarter basis, other noninterest expense increased to $436,000, or 46.6%, for the second quarter of 2002. Expressed as a percentage of average assets, annualized noninterest expense was 3.6% and 2.9% for the six months ended June 30, 2002 and 2001, respectively. ================================================================================ TABLE I AVERAGE BALANCE SHEET AND NET INTEREST INCOME ANALYSIS (In thousands of dollars)

================================================================================ 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 $135,000 and $244,000, respectively for the quarter and six months ended June 30, 2002. Salaries and employee benefits account for the majority of the incremental expenses (51.6%), which is derived from the six full-time staff employed by the branch. A portion of the expenses incurred during the first six months are nonrecurring and therefore are not necessarily indicative of the future ongoing expense of the branch. As more fully discussed in Note 7 of the Consolidated Financial Statements included in Item 1, the Company has entered into an agreement to sell the property held as other real estate owned at June 30, 2002, which has a carrying amount of $796,000. As a result of the pending sale, the Company charged earnings for $262,000 ($160,000 after tax) in the second quarter to reduce the asset to its revised net realizable value. INCOME TAXES The Company's income tax expense, which includes both federal and state income taxes, totaled $154,000 for the six-month period ended June 30, 2002 compared to $265,000 for same period of 2001. The effective tax rate approximated 25.8% and 32.1% for the three-months ended June 30, 2002 and 2001 and 29.4% and 32.0% for the six-months ended June 30, 2002 and 2001. The reduction in the effective tax rates for 2002 is due to the company's increase in tax exempt income relative to its decrease in income before taxes. CHANGES IN FINANCIAL CONDITION The Company's total assets were $142,597,000 at June 30, 2002, compared to $131,319,000 at December 31, 2001, representing an increase of $11,278,000 or 8.6%. Average total assets were $139,007,000 during the six month period ended June 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 June 30, 2002, the Company's securities position totaled $26,618,000, an increase of $8,291,000 or 45.2%. During the first six months of 2002, the incremental deposit growth has outpaced the incremental loan growth by nearly 3 to 1. As a result, additional funds were available for investing in the security portfolio, relative to other interest-bearing assets. 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 $4,435,000 (this figure includes interest-bearing deposits with other banks) compared to $5,969,000 in the prior year. Loan Portfolio and Asset Quality At June 30, 2002, gross loans totaled $108,012,000, an increase of 4.2% from December 31, 2001, while on average, gross loans totaled $105,903,000 during the first six months of 2002. Over the first six months of 2002, loan demand has been markedly slower as compared to the prior year. Based upon the current annualized growth rate, loan growth in 2002 is approximately one-half of 2001's growth rate. Although interest rates are at their lowest in recent history, current economic conditions and uncertainty have curbed loan demand. Loan growth has been buoyed in part by the continued migration of customers from competitors due to operating style differences highlighted following their entry into the primary market area (Greenbrier County, WV) via acquisition, although this impact has been less of a factor in 2002 than in 2001. Additionally, loan growth has been supplemented in part by loans originated by the Covington branch. Of the Company's $4,374,000 growth in loans during the first six months of 2002, Covington contributed $3,600,000 or 82.3% of the growth. Management expects the current trend in loan growth to continue for the balance of the year with the majority of the growth coming from the Covington market as new relationships are forged and its market position matures. See Note 3 of the condensed consolidated financial statements for further information on the loan portfolio. The allowance for loan losses was $1,003,000 at June 30, 2002 compared to $837,000 at December 31, 2001. Expressed as a percentage of loans, the allowance for loan losses was 0.93% and 0.81% at June 30, 2002 and December 31, 2001, respectively. 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 nonperforming and past due loans and current and anticipated economic conditions in evaluating the adequacy of the allowance for loan losses. In management's opinion, the allowance for loan losses is adequate to absorb the current estimated risk of loss in the existing 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 six-month periods ended June 30, 2002 and 2001, and for the year ended December 31, 2001. A summary of the Company's past due loans and nonperforming assets is provided in the following table:

The opening of the Covington branch had a significant impact on the Company's deposit growth. This location was responsible for $6,517,000 or 55.4% of the total growth experienced in the first six 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. Competition for deposits remains acute in Greenbrier County, West Virginia where the majority of the growth was previously experienced. Overall, Management remains confident that further penetration into the Covington market will augment slower deposit growth in the Company's other markets. 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 14.9% 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 six-months ended June 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, which totaled $4,053,000 at June 30, 2002 versus $5,722,000 at December 31, 2001. The Company's liquidity is further enhanced by the availability of $4,753,000 (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 June 30, 2002 of $16,674,000 as available for sale in the event of unforeseen need for liquidity. Additionally, the Company has approximately $48,000,000 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, appropriate strategies are formulated, implemented and measured for effectiveness in order to bring liquidity risk within acceptable levels as defined by policy. 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 June 30, 2002 was $12,012,000 compared to $11,822,000 at December 31, 2001, an increase of $190,000. 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 8.6% at June 30, 2002 compared to December 31, 2001's level of 9.0%. Cash dividends totaling $246,000, or $0.25 per share were declared during the first half of 2002, which is the same dividend rate declared in 2001. These payout levels represented approximately 66.7% and 43.2% of the Company's year-to-date earnings for the six-month periods ended June 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. Therefore, future dividend declarations are expected to be maintained at the same level as the prior year. 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 restrictions 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 June 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 June 30, 2002 Actual Minimum Requirement -------------------------- Tier 1 risk-based capital ratio 11.02% 4.00% Total risk-based capital ratio 12.02% 8.00% Leverage ratio 7.78% 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 QUALITATTIVE DISCLOSURES ABOUT MARKET RISK The following table represents the results of the Company's interest sensitivity simulation analysis as of June 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 rates. Annualized Hypothetical % Change in Net Interest Income June 30, Dec. 31, Interest rate scenario 2002 2001 ----------------- ----------------- Up 300 basis points -14.7 -12.9 Up 100 basis points -5.3 -4.8 Down 100 basis points 7.1 4.8 Down 300 basis points 13.7 9.8 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. 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 The annual meeting of shareholders of First National Bankshares Corporation was held on April 25, 2002. A total of 744,720 shares, or 75.9% of outstanding shares, were voted with 719,825 represented by proxy and 24,895 represented in person. At this meeting, the following business was transacted: a) The following nominees were elected to serve as Company directors for a three-year term expiring in the year 2005. For Withheld ---------------------- Nominees selected by the Board of Directors Michael G. Campbell 744,720 - Richard E. Ford 739,370 5,350 Ronald. B. Snyder 740,120 4,600 Nominees from the Floor None b) The 1996 First National Bankshares Corporation Incentive Stock Option Plan was amended so as to increase the number of shares issuable under the plan from 48,125 to 98,125 with 637,313 shares voting for this amendment, 60,241 shares voting against the amendment, 9,850 shares abstaining and 37,316 nonvoters. c) Ernst & Young LLP of Charleston, WV was approved by the shareholders as the Company's independent auditing firm with 716,416 shares voting for the appointment, 21,047 shares voting against the motion and 7,257 shares abstaining. d) No other matters were voted upon by the shareholders at this meeting. Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K a) All exhibits included with this filing follow the signature page. Exhibit 11, Computation of Per Share Earnings, is filed herewith. Exhibit 99.1, Certification of Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. 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 June 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/Charles A. Henthorn ----------------------------------------------- Charles A. Henthorn Secretary/Treasurer, First National Bankshares Corporation Chief Operating Officer, First National Bank By /s/Matthew L. Burns ------------------------------------------------ Matthew L. Burns Chief Financial Officer, First National Bank Date: August 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 June 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: August 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 June 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 Chief Financial Officer, First National Bank Date: August 14, 2002

FIRST NATIONAL BANKSHARES CORP 10-Q