<PAGE> 1
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
COMMISSION FILE NUMBER: 1-13472
* * * * * *
NATIONAL BANCSHARES CORPORATION OF TEXAS
(Exact name of small business issuer as specified in its charter)
TEXAS 74-1692337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
104 EAST MANN ROAD, LAREDO, TEXAS 78042
(Address of principal executive offices)
(210) 724-2424
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 4,658,734 shares of Common
Stock, $.001 par value, as of May 6, 1997.
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
===============================================================================
<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 15,496 $ 17,305
Interest-bearing accounts 4,726 529
Federal funds sold 17,705 22,650
Investment securities available for sale 91,504 88,193
Investment securities held to maturity 76,659 72,649
Loans, net of discounts 112,814 113,258
Allowance for possible loan losses (2,431) (2,408)
Bank premises and equipment, net 7,103 6,978
Other assets 9,539 8,764
--------- ---------
Total Assets $ 333,115 $ 327,918
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Demand deposits, non-interest bearing $ 47,412 $ 46,617
Interest-bearing transaction accounts (NOW) 39,399 39,708
Savings and money market accounts 58,188 58,163
Certificates and time deposits under $100,000 84,619 82,616
Certificates and time deposits $100,000 and over 55,238 52,651
--------- ---------
Total Deposits 284,856 279,755
--------- ---------
Accrued interest, taxes and other liabilities 1,278 1,259
Short term notes payable 2,500 3,639
Long term notes payable 354 356
--------- ---------
Total Liabilities 288,988 285,009
Stockholders' Equity:
Common Stock, $.001 par value, 100,000,000 shares authorized, issued and
outstanding: 4,658,734 at March 31, 1997 and December 31,1996 5 5
Surplus - Common Stock 16,341 16,341
Retained earnings 27,937 25,321
Unrealized (loss) gain on securities available for sale, net of tax (156) 1,242
--------- ---------
Total Stockholders' Equity 44,127 42,909
--------- ---------
Total Liabilities and Stockholders' Equity $ 333,115 $ 327,918
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 2,947 $ 2,456
Interest on investment securities 2,498 2,084
Interest on federal funds sold 322 283
Interest on deposits in banks 7 3
--------------- ---------------
Total interest income 5,774 4,826
Interest Expense:
Interest on deposits 2,301 1,890
Interest on debt 71 6
--------------- ---------------
Total interest expense 2,372 1,896
Net Interest Income 3,402 2,930
Less: Provision for possible loan losses 25 20
--------------- ---------------
Net Interest Income after Provision for Possible Loan Losses 3,377 2,910
Non-interest income:
Service charges and fees 630 595
Net realized gains on sales of securities 1,091 --
Net gains on sales of other real estate and assets 7 --
Miscellaneous income 126 144
--------------- ---------------
Total non-interest income 1,854 739
Non-interest expense:
Salaries and employee benefits 1,368 1,153
Occupancy and equipment expenses 418 355
Other expenses 767 727
--------------- ---------------
Total non-interest expense 2,553 2,235
Income before federal income taxes 2,678 1,414
Federal income tax expense 61 53
--------------- ---------------
Net income $ 2,617 $ 1,361
=============== ===============
Net income per common and common-equivalent share $ .55 $ 0.29
=============== ===============
Weighted Average Number of Common and Common-
Equivalent Shares Outstanding 4,728,090 4,713,739
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK (A) GAIN (LOSS)
--------------------------------------- ON AVAILABLE
NUMBER RETAINED FOR SALE
OF SHARES PAR VALUE SURPLUS EARNINGS SECURITIES TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 4,530 $ 4 $ 15,619 $ 19,610 $ 743 $ 35,977
Net income -- -- -- 5,710 -- 5,710
Conversion of series B
preferred to Common Stock 128 1 714 -- -- 715
Stock options exercised 1 -- 8 -- -- 8
Net value change -- -- -- -- 499 499
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 4,659 $ 5 $ 16,341 $ 25,320 $ 1,242 $ 38,011
Net income -- -- -- 2,617 -- 2,617
Net value change -- -- -- -- (1,398) (1,398)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1997 4,659 $ 5 $ 16,341 $ 27,937 $ (156) $ 44,127
=========== =========== =========== =========== =========== ===========
</TABLE>
(A) Common Stock with a par value of $0.001 per share, 100,000,000 shares
authorized.
(B) Net unrealized holding gains (losses) on securities available
for sale, net of tax effect.
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,617 $ 1,361
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 206 269
Credit for deferred federal income taxes 57 48
Provision to allowance for possible loan losses 25 20
Net realized gains on securities available for sale (1,091) --
Direct write-downs of other real estate owned -- 3
Gain on sale of other real estate owned and other assets (7) --
Increase in accrued interest receivable and other assets (897) (409)
Increase (decrease) in accrued interest payable and other
liabilities 17 (35)
------------ ------------
Net cash provided by operating activities 927 1,257
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 4,945 5,705
Net (increase) decrease in interest-bearing accounts (4,197) 3
Net decrease in loans 348 1,241
Purchases of securities available for sale (10,688) (17,385)
Proceeds from sales of securities available for sale 4,676 --
Proceeds from maturities of securities available for sale 2,143 2,034
Purchases of securities held to maturity (8,120) (5,125)
Proceeds from maturities of securities held to maturity 4,114 5,663
Capital expenditures (319) (240)
Proceeds from sale of other real estate owned 401 --
------------ ------------
Net cash used in investing activities (6,697) (8,104)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts,
savings and money-market accounts 511 1,299
Net increase in certificates of deposit and time deposits 4,591 3,825
Proceeds from advances on other debt 3,000 --
Principal payments on other debt (4,141) (3)
Proceeds from exercise of common stock options -- 4
------------ ------------
Net cash provided by financing activities 3,961 5,125
Net decrease in cash and due from banks (1,809) (1,722)
Cash and due from banks at beginning of period 17,305 14,707
============ ============
Cash and due from banks at end of period $ 15,496 $ 12,985
============ ============
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 2,312 $ 1,868
Federal Income Taxes Paid $ 35 $ --
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of National
Bancshares Corporation of Texas and its wholly-owned subsidiaries have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q of
Regulation S-K. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The consolidated financial statements include the
accounts of the parent company and all subsidiaries, and all significant
intercompany balances and transactions have been eliminated. Certain items in
prior year's financial statements have been reclassified in conformity with the
current year's presentation. The consolidated financial statements are
unaudited, but include all adjustments (consisting primarily of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair statement of the results of the periods presented. The results of
operations for the three month period ended March 31, 1997 are not necessarily
indicative of the results that may be reported for the entire year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Form 10-K for the year ended December 31,
1996.
NOTE 2 - SUBSIDIARIES
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, NBT of Delaware, Inc. and the accounts of NBT of
Delaware, Inc.'s wholly-owned subsidiaries NBC Bank, N.A., Eagle Pass, Texas;
NBC Bank - Laredo, N.A., Laredo, Texas; NBC Bank - Rockdale, Rockdale, Texas;
The First National Bank in Luling, Luling, Texas; and NBC Holdings - Texas,
Inc, Laredo, Texas.
NOTE 3 - INVESTMENT SECURITIES
The following tables present the amortized cost and approximate fair value of
the investment securities portfolio as of March 31, 1997 and December 31, 1996
(Dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 88,247 $ 309 $ (504) $ 88,052
U. S. Government agency and mortgage-backed securities 25 -- 2,473
2,448
Equity securities including Federal Reserve Bank stock 1,023 -- (44) 979
--------- --------- --------- ---------
Total $ 91,718 $ 334 $ (548) $ 91,504
========= ========= ========= =========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 73,327 $ 369 $ (172) $ 73,524
U. S. Government agency and mortgage-backed securities 25 -- 3,093
3,068
Corporate bonds -- -- 200
200
Foreign debt securities -- (11) 53
64
--------- --------- --------- ---------
Total $ 76,659 $ 394 $ (183) $ 76,870
========= ========= ========= =========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 80,199 $ 645 $ 198 $ 80,646
U.S. Government agency and mortgage-backed securities 2,586 33 -- 2,619
Equity securities including Federal Reserve Bank stock 3,983 945 -- 4,928
---------- ---------- ---------- ----------
Total $ 86,768 $ 1,623 $ 198 $ 88,193
========== ========== ========== ==========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 69,201 $ 756 $ 58 $ 69,899
U.S. Government agency and mortgage-backed securities
3,184 25 -- 3,209
Other securities
264 -- 10 254
---------- ---------- ---------- ----------
Total $ 72,649 $ 781 $ 68 $ 73,362
========== ========== ========== ==========
</TABLE>
Unrealized gains and losses on investment securities held at March 31, 1997 and
December 31, 1996 have been judged to be temporary market fluctuations with no
material financial impact on the Company.
The following table shows the maturity schedule of the Company's investment
portfolio as of March 31, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
------------------------------- -------------------------------
AMORTIZED APPROXIMATE AMORTIZED APPROXIMATE
COST FAIR VALUE COST FAIR VALUE
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ 24,498 $ 24,659 $ 18,700 $ 18,729
Due in one year to five years 66,079 65,740 54,839 55,005
Due from five to ten years -- -- 52 43
Due after ten years 1,141 1,105 3,068 3,093
------------- ---------------- ------------- ----------------
Totals $ 91,718 $ 91,504 $ 76,659 $ 76,870
============= ================ ============= ================
</TABLE>
The carrying value of investment securities pledged to secure public funds
amounted to approximately $38,024,000 at March 31, 1997 and $35,634,000 at
December 31, 1996.
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses for the three months
ended March 31, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
MARCH 31, 1997 MARCH 31, 1996
----------------------------------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period $ 2,408 $ 1,906
Provisions to allowance for possible loan losses 25 20
Losses charged to the allowance (53) (39)
Recoveries credited to the allowance
51 74
---------------- -----------------
Net (charge-offs) recoveries (2) 35
---------------- -----------------
Balance at end of period $ 2,431 $ 1,961
================ =================
</TABLE>
7
<PAGE> 8
NOTE 5 - NOTES PAYABLE
On September 30, 1996, the Company executed a $16 million line of credit with
Texas Independent Bank in Dallas. The line bears a variable interest rate at
New York prime (8.5% at March 31, 1997). Interest is due quarterly with
principal due at maturity. The line matures on September 30, 1997. The line of
credit is collateralized by the common stock of NBT of Delaware, Inc. and the
stock of the subsidiary banks. At March 31, 1997, the outstanding balance on
the line of credit was $2,500,000.
In May 1994 and July 1995, a subsidiary Bank borrowed $200,000 and $175,000,
respectively, from the Federal Home Loan Bank of Dallas. The notes bear
interest rates of 7.49% and 6.393%, respectively. The maturity dates of the
notes are June 1999 and August 2015, respectively. Principal and interest
payments are due monthly in the approximate amount of $2,900 per month in the
aggregate with the remaining balances due at maturity. Both of these loans are
secured by a certain block of fixed rate mortgage loans carried by the
subsidiary Bank.
NOTE 6 - INCOME TAX EXPENSE
The provision for Federal income tax expense is less than that computed by
applying the federal statutory rate of 34% as indicated in the following
analysis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
MARCH 31, 1997 MARCH 31, 1996
------------------ -------------------
<S> <C> <C>
Tax based on statutory rate $ 911 $ 481
Decrease in deferred tax asset valuation allowance (904) (475)
Alternative minimum tax
56 27
Other, net (2) 20
----- ------
Federal income tax expense $ 61 $ 53
===== ======
</TABLE>
The Company had approximately $107 million in net operating loss carryforwards
at March 31, 1997 which will be available to reduce tax liabilities through the
year 2006. The net operating loss carryforwards, along with certain other
items, create deferred tax assets. A valuation allowance has been created to
reduce deferred tax assets to an amount more likely than not to be realized.
During the three months ended March 31, 1997 and 1996, the valuation allowance
has been reduced to adjust the recorded deferred tax asset to the realizable
amount. Pursuant to Statement of Financial Accounting Standards No, 109,
"Accounting for Income Taxes", reductions to the valuation allowance are
recorded as decreases in current period income tax expense.
NOTE 7 - ACQUISITION
On September 30, 1996, the Company acquired Luling Bancshares, Inc., including
its subsidiary, The First National Bank in Luling in Luling, Texas. The
transaction was accounted for as a purchase. The Corporation acquired
approximately $26 million in total assets and assumed liabilities of
approximately $24 million. The Company paid a premium of approximately $2
million over the book value of the net assets. The Company paid approximately
$1.2 million in cash and executed notes payable of $3.6 million for the
remainder of the purchase price.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Company analyzes the major elements of the
Company's consolidated balance sheets and statements of income. This discussion
should be read in conjunction with the Consolidated Financial Statements,
accompanying notes, and selected financial data appearing elsewhere in this
Report.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $2.6 million
or $.55 per common share compared with $1.4 million or $.29 per common share
for the three months ended March 31, 1996. 1997 included a non-recurring gain
on the sale of equity securities in the amount of $1.1 million, net of tax.
With the exclusion of the gain, net income for the first quarter of 1997 would
be $1.6 million or $.33 per common share, an increase of 14% over the prior
year. Net interest income for the three months ended March 31, 1997 improved
$472,000 over the same period of 1996 of which $314,000 is due to the
acquisition of Luling Bancshares in September of 1996 with the remaining
$158,000 due to internal growth in the loan and investment securities
portfolios. Non-interest expenses were up $318,000, or 14%, of which $221,000
was due to the addition of Luling Bancshares and the balance primarily due the
increase in salaries and benefits.
For the three months ended March 31, 1997, the Company's return on
average assets was 3.21%, or 1.87% deducting the non-recurring gain on
securities, compared to 2.00% for the three months ended March 31, 1996. The
Company's return on average equity for the three months ended March 31, 1997
was 24.63% , or 14.36% deducting the gain on securities, compared to 14.95% for
the three months ended March 31, 1996. The ratio of average stockholders'
equity to total average assets was 13.0% and 13.4% for the three months ended
March 31, 1997 and 1996, respectively.
NET INTEREST INCOME
Net interest income constitutes the principal source of income for the
Banks and represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The increase of
$472,000 or 16.1% in net interest income for the three months ended March 31,
1997 compared to the same period in 1996 was due primarily to the acquisition
of Luling Bancshares which accounts for $314,000 of the increase and a 16% and
8% increase in the investment securities and loan portfolios,respectively. On
an average basis, other debt at March 31, 1997 increased $3 million for the
Luling Bancshares acquisition. The net interest margin for the three months
ended March 31,1997 was 4.57% compared to 4.74% as of March 31, 1996. The net
interest margin is the net return on earning assets which is computed by
dividing taxable equivalent net interest income by average total earning
assets.
The net interest spread decreased 17 basis points to 3.76% at March
31, 1997 from 3.93% at March 31, 1996. The decrease in the net interest spread
is primarily due to the increase in other debt in 1997.
9
<PAGE> 10
INTEREST EARNED/INCURRED AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
-------------------------------------- ------------------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------------------------------- ------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE YIELD/RATE BALANCE EXPENSE YIELD/RATE
- ------------------------------------------ ---------- ----------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing accounts $ 696 $ 7 4.22% $ 194 $ 3 5.31%
Federal funds sold 23,505 322 5.55% 20,252 283 5.61%
Investment securities:
US Treasuries 154,682 2,373 6.22% 131,294 1,995 6.10%
US Government agencies 5,616 95 6.89% 4,443 77 6.96%
States and political subdivisions -- -- -- 58 1 7.01%
Other 4,869 29 2.38% 1,380 11 3.15%
--------- ---------- ---------- --------- --------- -------
Total investment securities 165,167 2,497 6.13% 137,175 2,084 6.10%
Loans, net of discounts (A) 112,720 2,951 10.62% 90,861 2,461 10.86%
--------- ---------- ---------- --------- --------- -------
Total interest-earning assets 302,088 5,778 7.76% 249,847 4,831 7.80%
NON-INTEREST BEARING ASSETS:
Cash and due from banks 14,527 12,232
Allowance for possible loan losses (2,412) (1,936)
Other assets 16,701 13,544
--------- ---------
Total assets $ 330,904 $ 272,322
========= =========
INTEREST-BEARING LIABILITIES:
Interest bearing transaction accounts 40,816 293 2.91% 83,346 606 2.92%
Time deposits 196,350 2,008 4.15% 113,025 1,284 4.56%
Other debt 3,362 71 8.61% 365 6 7.19%
--------- ---------- ---------- --------- --------- -------
Total interest-bearing 240,528 2,372 4.00% 196,736 1,896 3.87%
liabilities
NON-INTEREST BEARING LIABILITIES:
Demand deposits 45,623 37,663
Other liabilities 1,655 1,185
--------- ---------
Total liabilities 287,806 235,584
Redeemable preferred stock -- 214
STOCKHOLDERS' EQUITY (F) 43,098 36,524
--------- ---------
Total liabilities and $ 330,904 $ 272,322
========= =========
Taxable-equivalent net interest income $ 3,405 $ 2,935
Less: taxable-equivalent adjustment 4 5
---------- ----------
et interest income $ 3,402 $ 2,930
=========== ==========
Net interest spread (B) 3.76% 3.93%
========== =======
Net interest margin (C) 4.57% 4.74%
========== =======
SELECTED OPERATING RATIOS:
Return on average assets (D) 3.21% 2.00%
========== =======
Return on average equity (E) 24.63% 14.95%
========== =======
</TABLE>
- ----------------------
(A) Non-accrual loans are included in the average balances used in calculating
this table.
(B) The net interest spread is the difference between the average rate on
total interest-earning assets and interest-bearing liabilities.
(C) The net interest margin is the taxable-equivalent net interest income
divided by average interest-earning assets.
(D) The return on assets ratio was computed by dividing net income by average
total assets.
(E) The return on equity ratio was computed by dividing net income by average
total stockholders' equity.
(F) The average balance has been adjusted to exclude the effect of the
unrealized gain or loss on securities available for sale.
10
<PAGE> 11
The following table analyzes the increase in taxable-equivalent net
interest income stemming from changes in interest rates and from asset and
liability volume, including mix, for the three months ended March 31, 1997 and
1996. Non-accruing loans have been included in assets for calculating this
table, thereby reducing the yield on loans. The changes in interest due to both
rate and volume in the table below have been allocated to volume or rate change
on a pro-rata basis.
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
<TABLE>
<CAPTION>
March 31, 1997 vs. March 31, 1996
----------------------------------------
Increase Due to Changes in
--------------------------
(Decrease) Rates Volume
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
TAXABLE-EQUIVALENT INTEREST INCOME:
Interest-bearing accounts $ 4 $ (4) $ 8
Federal funds sold 39 (3) 42
Investment securities 413 16 397
Loans, net of discounts 490 (69) 559
----------- ----------- -----------
Total taxable-equivalent interest income 946 (60) 1,006
INTEREST EXPENSE:
Interest-bearing deposits 411 (202) 613
Other debt 65 17 48
----------- ----------- -----------
Total interest expense 476 (185) 661
----------- ----------- -----------
TAXABLE-EQUIVALENT NET INTEREST INCOME 470 125 345
=========== =========== ===========
</TABLE>
Taxable-equivalent net interest income for the three months ended
March 31,1997 increased $470,000 or 16% over the same period in 1996. The
increase is reflected in the volume of earning assets and in the decrease in
the market rates of interest bearing liabilities.
11
<PAGE> 12
INTEREST RATE SENSITIVITY
Management seeks to maintain consistent growth of net interest income
through periods of changing interest rates by avoiding fluctuating net interest
margins. Interest rate sensitivity is the relationship between changes in
market interest rates and changes in net interest income due to repricing
characteristics of interest earning assets and liabilities.
The following table indicates the Company's interest rate sensitivity
position at March 31, 1997:
<TABLE>
<CAPTION>
INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES
(Dollars in thousands)
NON-RATE
RATE SENSITIVE SENSITIVE
----------------------------------------------------- ------------
IMMEDIATELY WITHIN WITHIN OVER
0-30 DAYS 90 DAYS ONE YEAR TOTAL ONE YEAR TOTAL
--------------- ----------- ------------ ---------- ------------ -----------
Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans, net of discounts $ 47,535 $ 6,224 $ 23,085 $ 76,844 $ 35,970 $ 112,814
Investment securities 2,202 5,011 36,056 43,269 124,894 168,163
Federal funds sold 17,705 -- -- 17,705 -- 17,705
Interest-bearing accounts 4,330 -- 396 4,726 -- 4,726
--------- --------- --------- --------- --------- ---------
Total earning assets $ 71,772 $ 11,235 $ 59,537 $ 142,544 $ 160,864 $ 303,408
========= ========= ========= ========= ========= =========
Interest-bearing liabilities:
Interest-bearing
transaction,
savings and money market 97,587 -- -- 97,587 -- 97,587
Certificates and time 22,931 38,174 70,754 131,859 7,998 139,857
deposits
Debt 2,502 2 8 2,512 342 2,854
--------- --------- --------- --------- --------- ---------
Total
interest-bearing
liabilities $ 123,020 $ 38,176 $ 70,762 $ 231,958 $ 8,340 $ 240,298
========= ========= ========= ========= ========= =========
Interest sensitivity gap $ (51,248) $ (26,941) $ (11,225) $ (89,414)
========= ========= ========= =========
Cumulative gap $ (51,248) $ (78,189) $ (89,414) $ (89,414)
========= ========= ========= =========
Ratio of earning assets to
interest-bearing 58.3% 29.4% 84.1% 61.5%
liabilities
</TABLE>
The interest rate sensitivity table reflects a cumulative liability
sensitive position during the one year period shown. Generally, this indicates
that the liabilities reprice more quickly than the assets in a given period,
and that a decline in market rates will benefit net interest income. An
increase in market rates would have the opposite effect.
12
<PAGE> 13
NON-INTEREST INCOME
The major components of non-interest income are service charges and
fees earned on deposit accounts. The following table summarizes changes in
non-interest income for the three months ended March 31, 1997 and 1996:
NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1997/1996
--------------------------------- ----------------------------------
MARCH 31, 1997 MARCH 31, 1996 $ CHANGE % CHANGE
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Service charges and fees $ 630 $ 595 $ 35 $ 5.9%
Net realized gains on sales of securities 1,091 -- 1,091 100.0%
Net gains on sales of other real estate owned 7 -- 7 100.0%
Miscellaneous income 126 144 (18) -12.5%
-------------- --------------- --------------- ---------------
Total non-interest income $ 1,854 $ 739 $ 1,115 $ 150.9%
============== =============== =============== ===============
</TABLE>
The $1,115,000 or 150.9% increase in non-interest income for the three
months ended March 31, 1997 is due primarily to the $1,091,000 gain realized on
the sale of certain equity securities. Excluding this nonrecurring gain,
non-interest income increased $24,000 or 3.2% over 1996.
NON-INTEREST EXPENSE
Non-interest expense includes all expenses of the Company other than
interest expense, loan loss provision and income tax expense. The following
table summarizes the changes in non-interest expense for the three months ended
March 31, 1997 and 1996:
NON-INTEREST EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1997/1996
--------------------------------- ----------------------------------
MARCH 31, 1997 MARCH 31, 1996 $ CHANGE % CHANGE
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 1,368 $ 1,153 $ 215 18.7%
Occupancy and equipment expenses 418 355 63 17.7%
Data processing fees 72 93 (21) -22.6%
FDIC insurance 7 2 5 250.5%
Insurance 25 28 (3) -10.7%
Office supplies 101 90 11 12.2%
Postage and courier 104 94 10 10.6%
Professional fees 152 167 (15) -9.0%
Goodwill 7 -- 7 100.0%
Miscellaneous other expenses 299 253 46 18.2%
-------------- --------------- --------------- ---------------
Total non-interest expense $ 2,553 $ 2,235 $ 312 14.2%
============== =============== =============== ===============
</TABLE>
Total non-interest expense for the three months ended March 31,1997
increased $318,000 or 14.2% over 1996. However, as a percentage of average
assets, non-interest expense declined slightly from 3.27% in 1996 to 3.01% in
1997. Salaries and benefits rose $215,000 or 18.7% in 1997. $115,000 of the
increase is related to the acquisition of Luling Bancshares in September of
1996. The $63,000 or 17.7% increase in occupancy and equipment expenses is in
part due to the Luling acquisition and the remainder to the updating of
computer equipment. Data processing fees declined $21,000 or 22.6% due to the
Bank's changing from an outside data processor to an in-house computer system.
Some of the increase reflected in occupancy and equipment and salaries and
benefits offset this decline.
13
<PAGE> 14
INCOME TAXES
The Company recognized income tax expense of $61,000 for the three
months ended March 31, 1997 compared to $53,000 for the three months ended
March 31, 1996. At March 31, 1997, the Company had approximately $107 million
in net operating loss carryforwards that will be available to reduce income tax
liabilities in future years. If unused, approximately $103 million of such
carryforwards will expire in 2005, with the remaining approximately $4 million
expiring in 2006.
LOANS
The following table presents the composition of the Company's loan
portfolio by type of loan:
LOAN PORTFOLIO
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, % OF DECEMBER 31, MARCH 31,
1997 TOTAL 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial $ 19,731 17.5% $ 23,992 $ 12,563
Real estate construction 6,990 6.2% 6,324 13,035
Real estate mortgage 68,635 60.8% 65,556 50,589
Consumer installment loans,
net of unearned discount 17,458 15.5% 17,386 14,184
---------- ---------- ---------- ----------
Total loans $ 112,814 100.0% $ 113,258 $ 90,371
========== ========== ========== ==========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through charges to
operations in the form of a provision for loan losses. Loans, or portions
thereof, which are considered to be uncollectible are charged against the
allowance and subsequent recoveries, if any, are credited to the allowance. The
allowance represents the amount, which in the judgment of each subsidiary
Bank's management, will be adequate to absorb possible losses. The adequacy of
the allowance is determined by management's continuous evaluation of the loan
portfolio and by the employment of third party loan review consultants.
Industry concentrations, specific credit risks, past loan loss experience,
delinquency ratios, current loan portfolio quality and projected economic
conditions in the Bank's market areas are pertinent factors in determining the
adequacy of the allowance for loan losses. Loans identified as losses by
management, external loan review or bank examiners are charged-off.
The Company recorded net charge-offs of $2,000 for the three months
ended March 31, 1997 compared to net recoveries of $35,000 for the three months
ended March 31, 1996.
14
<PAGE> 15
The following table summarizes, for the periods presented, the
activity in the allowance for loan losses arising from provisions credited to
operations, loans charged off and recoveries of loans previously charged off.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months ended March 31,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Average loans outstanding $ 112,720 $ 90,861
Balance of allowance for loan losses at beginning of year $ 2,408 $ 1,906
Provision for loan losses
25 20
Charge-Offs:
Commercial 18 2
Real estate construction -- --
Real estate mortgage 1 --
Consumer installment 34 37
------------- -------------
Total charge-offs 53 39
------------- -------------
Recoveries:
Commercial 8 12
Real estate construction -- --
Real estate mortgage 11 15
Consumer installment 32 47
------------- -------------
Total recoveries 51 74
------------- -------------
Net charge-offs (recoveries) 2 (35)
------------- -------------
Balance of allowance for loan losses at end of period $ 2,431 $ 1,961
============= =============
Net charge-offs (recoveries) as a percentage
of average loans outstanding 0.00% -0.04%
============= =============
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans, net of unearned discount 2.16% 2.17%
============= =============
Non-performing assets 154.55% 86.92%
============= =============
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans and foreclosed real
estate. Loans to a customer whose financial condition has deteriorated are
considered for non-accrual status whether or not the loan is ninety days or
more past due. All installment loans past due ninety days or more are placed on
non-accrual unless the loan is well secured or in the process of collection. On
non-accrual loans, interest income is not recognized until actually collected.
At the time the loan is placed on non-accrual status, interest previously
accrued but not collected is reversed and charged against current income.
Foreclosed real estate consists of property which has been acquired
through foreclosure. At the time of foreclosure, the property is recorded at
the lower of the estimated fair value less selling expenses or the loan balance
with any write down charged to the allowance for loan losses. Any future write
downs on the property are charged to operations.
15
<PAGE> 16
The following table discloses non-performing assets and loans ninety
days past due and still accruing interest as of March 31, 1997 and December 31,
1996: (Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
NON-PERFORMING ASSETS: 1997 1996
- ---------------------------------------------- ---------- ----------
<S> <C> <C>
Non-accrual loans $ 1,071 $ 1,195
Restructured loans 87 90
Foreclosed real estate 415 715
---------- ----------
Total non-performing assets $ 1,573 $ 2,000
========== ==========
NON-PERFORMING ASSETS AS A PERCENTAGE OF:
Total assets 0.47% 0.61%
Total loans plus foreclosed real estate 1.39% 1.75%
Accruing loans past due 90 days or more $ 95 $ 182
</TABLE>
Independent third party loan reviews of the subsidiary Banks are
performed on an annual basis. The loans are also reviewed by banking regulators
on an eighteen month basis. On a monthly basis, the Board of Directors' Loan
Committee of each Bank reviews new loans, renewals and delinquencies.
Management of each Bank monitors on a continuing basis those loans which it
feels should be followed closely. The Banks are required by regulation to have
foreclosed real estate appraised periodically.
LIQUIDITY
Liquidity is the ability to have funds available at all times to meet
the commitments of the Company. Asset liquidity is provided by cash and assets
which are readily marketable or pledgeable or which will mature in the near
future. Liquid assets include cash and short-term investments in time deposits
in banks, federal funds sold and securities available for sale. Liquidity is
also provided by access to core funding sources, primarily core depositors in
the Company's trade area. The Banks have not and do not solicit brokered
deposits as a funding source. The liquidity of the Company is enhanced by the
fact that 77% of total deposits at March 31, 1997 were "core" deposits. Core
deposits, for this purpose, are defined as total deposits less public funds and
certificates of deposit greater than $100,000.
At March 31, 1997, the Company's liquid assets amounted to $129
million or 39% of total gross assets, compared to 40% at March 31, 1996.
Secondary sources of liquidity include the Banks' ability to sell loan
participations and purchase federal funds. NBC-Eagle Pass has an approved
federal funds line at a correspondent bank.
The Company's principal source of funds consists of dividends received
from the Banks, which derive their funds from deposits, interest and principal
payments on loans and investment securities, sales of investment securities and
borrowings.
CAPITAL RESOURCES
Total stockholders' equity increased $6.1 million to $44.1 million at
March 31, 1997 from $38.0 million at March 31, 1996. The ratio of total
stockholders' equity to total assets was 13.2% at March 31, 1997 compared with
13.7% at March 31, 1996.
16
<PAGE> 17
The Company and subsidiary Banks are subject to minimum capital ratios
mandated by their respective banking industry regulators. The table below
illustrates the Company and subsidiary Bank's compliance with the risk-based
capital guidelines of the Federal Reserve Bank (FRB) and the Office of the
Comptroller of the Currency (OCC). These guidelines are designed to measure
Tier 1 and total capital while taking into consideration the risk inherent in
both on and off balance sheet items. Off balance sheet items include unfunded
loan commitments and letters of credit. Currently under the regulatory
guidelines, the net unrealized gain or loss on securities available for sale is
not included in the calculation of risk based capital and the leverage ratio.
The leverage ratio is Tier 1 capital divided by average total assets. A
leverage ratio of 3.0 percent is the minimum requirement for only the most
highly rated banking organizations and all other institutions are required to
maintain a leverage ratio of 3 to 5 percent.
Tier 1 capital includes common stockholders' equity less goodwill.
Total capital includes Tier 1 capital and a portion of the allowance for loan
losses. The ratios are calculated by dividing the qualifying capital by the
risk-weighted assets.
The table below illustrates the Company and its subsidiary Bank's
compliance with the risk-based capital guidelines as of March 31, 1997:
<TABLE>
<CAPTION>
NBC NBC NBC FNB
CONSOLIDATED EAGLE PASS LAREDO ROCKDALE LULING
----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total average assets (net of goodwill) $ 328,853 $ 174,076 $ 66,549 $ 53,916 $ 26,192
Risk weighted assets (net of goodwill) $ 115,452 $ 51,319 $ 36,537 $ 15,511 $ 16,278
Tier 1 capital $ 42,238 $ 16,899 $ 7,197 $ 7,170 $ 3,015
Total capital $ 43,693 $ 17,546 $ 7,654 $ 7,360 $ 3,218
Leverage ratio 12.84% 9.71% 10.82% 13.30% 11.51%
Risk based capital ratios:
Tier 1 36.58% 32.93% 19.70% 46.22% 18.52%
Total capital 37.85% 34.19% 20.95% 47.45% 19.77%
</TABLE>
17
<PAGE> 18
PART II - OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 11.1 Statement Regarding computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
18
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATIONAL BANCSHARES CORPORATION OF TEXAS
Date: May 12, 1997 By: /s/ Anne Renfroe
-----------------------------------------
Anne Renfroe, Chief Accounting Officer and Principal
Financial Officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
11.1 Statement Regarding computation of Earnings Per Share
27.1 Financial Data Schedule
</TABLE>
20
<PAGE> 1
Exhibit 11.1
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
NET INCOME PER COMMON SHAREHOLDER:
Primary earnings applicable to common shareholders $ 2,617 $ 1,361
COMMON STOCK SHARES USED IN PRIMARY PER SHARE CALCULATION:
Weighted average number of common shares outstanding 4,659 4,583
Addition from assumed exercise of stock options 69 57
Addition from assumed conversion of Series B Convertible
Preferred Stock -- 74
----------- -------------
Weighted average number of common and
common-equivalent shares outstanding 4,728 4,714
=========== =============
PRIMARY EARNINGS PER COMMON SHARE $ .55 $ .29
============ =============
</TABLE>
Note: Fully diluted earnings per share are not presented as dilution is less
than 3%.
21
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 15,496
<INT-BEARING-DEPOSITS> 4,726
<FED-FUNDS-SOLD> 17,705
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 91,504
<INVESTMENTS-CARRYING> 76,659
<INVESTMENTS-MARKET> 76,870
<LOANS> 112,814
<ALLOWANCE> 2,431
<TOTAL-ASSETS> 333,115
<DEPOSITS> 284,856
<SHORT-TERM> 2,500
<LIABILITIES-OTHER> 1,278
<LONG-TERM> 354
0
0
<COMMON> 5
<OTHER-SE> 44,122
<TOTAL-LIABILITIES-AND-EQUITY> 333,115
<INTEREST-LOAN> 2,947
<INTEREST-INVEST> 2,498
<INTEREST-OTHER> 329
<INTEREST-TOTAL> 5,774
<INTEREST-DEPOSIT> 2,301
<INTEREST-EXPENSE> 71
<INTEREST-INCOME-NET> 3,402
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 1,091
<EXPENSE-OTHER> 2,553
<INCOME-PRETAX> 2,678
<INCOME-PRE-EXTRAORDINARY> 2,678
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,617
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 7.76
<LOANS-NON> 1,071
<LOANS-PAST> 95
<LOANS-TROUBLED> 87
<LOANS-PROBLEM> 4,854
<ALLOWANCE-OPEN> 2,408
<CHARGE-OFFS> 53
<RECOVERIES> 51
<ALLOWANCE-CLOSE> 2,431
<ALLOWANCE-DOMESTIC> 2,431
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,584
</TABLE>
