<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 September 30, 1997
COMMISSION FILE NUMBER: 1-13472
* * * * * *
NATIONAL BANCSHARES CORPORATION OF TEXAS
(Exact name of registrant 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) (Zip Code)
(210) 724-2424
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
Check 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 registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 4,658,734 shares of Common
Stock, $.001 par value, outstanding as of November 12, 1997.
================================================================================
<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>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 20,207 $ 17,305
Interest-bearing accounts 3,305 529
Federal funds sold 13,840 22,650
Investment securities available for sale 146,162 88,193
Investment securities held to maturity 112,249 72,649
Loans, net of discounts 132,681 113,258
Allowance for possible loan losses (2,452) (2,408)
Bank premises and equipment, net 11,890 6,978
Other assets 16,940 8,764
--------- ---------
Total Assets $ 454,822 $ 327,918
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Demand deposits, non-interest bearing $ 55,557 $ 46,617
Interest-bearing transaction accounts (NOW) 58,314 39,708
Savings and money market accounts 85,174 58,163
Certificates and time deposits under $100,000 128,778 82,616
Certificates and time deposits $100,000 and over 65,070 52,651
--------- ---------
Total Deposits 392,893 279,755
--------- ---------
Accrued interest, taxes and other liabilities 2,172 1,259
Other borrowings 7,019 3,639
Long term notes payable 4,149 356
--------- ---------
Total Liabilities 406,233 285,009
Stockholders' Equity:
Common Stock, $.001 par value, 100,000,000 shares authorized, issued and
outstanding: 4,658,734 at September 30, 1997 and December 31,1996 5 5
Surplus - Common Stock 16,341 16,341
Retained earnings 31,231 25,321
Unrealized gain on securities available for sale, net of tax 1,012 1,242
--------- ---------
Total Stockholders' Equity 48,589 42,909
--------- ---------
Total Liabilities and Stockholders' Equity $ 454,822 $ 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 NINE MONTHS ENDED
---------------------------- ---------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 3,437 $ 2,578 $ 9,437 $ 7,537
Interest on Investment Securities 3,531 2,325 8,673 6,721
Interest on Federal Funds Sold 585 238 1,206 706
Interest on Deposits in Banks 36 2 86 7
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 7,589 5,143 19,402 14,971
INTEREST EXPENSE:
Interest on Deposits 3,198 1,989 7,894 5,798
Interest on Debt 81 6 211 20
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 3,279 1,995 8,105 5,818
NET INTEREST INCOME 4,310 3,148 11,297 9,153
Less: Provision for Possible Loan Losses 10 10 35 40
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 4,300 3,138 11,262 9,113
NON-INTEREST INCOME:
Service Charges and Fees 763 586 2,013 1,742
Net realized Gains (Losses) on Sales of Securities 96 -- 1,189 (1)
Net Gains on Sales of Other Real Estate and Assets -- 71 47 86
Miscellaneous Income 89 70 252 240
----------- ----------- ----------- -----------
TOTAL NON-INTEREST INCOME 948 727 3,501 2,067
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 1,701 1,166 4,463 3,465
Occupancy and Equipment Expenses 540 379 1,364 1,118
Other Expenses 1,226 765 2,894 2,342
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE 3,467 2,310 8,721 6,925
INCOME BEFORE FEDERAL INCOME TAXES 1,781 1,555 6,042 4,255
Federal Income Tax Expense 37 37 131 123
----------- ----------- ----------- -----------
NET INCOME $ 1,744 $ 1,518 $ 5,911 $ 4,132
=========== =========== =========== ===========
INCOME PER COMMON AND COMMON-EQUIVALENT SHARE $ 0.37 $ 0.32 $ 1.25 $ 0.88
=========== =========== =========== ===========
Weighted Average Number of Common and Common-
Equivalent Shares Outstanding 4,756,241 4,714,532 4,737,366 4,714,744
</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(B) TOTAL
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 4,530 $ 4 $ 15,619 $ 19,610 $ 744 $ 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, 1996 4,659 $ 5 $ 16,341 $ 25,320 $ 1,243 $ 42,909
Net income -- -- -- 5,911 -- 5,911
Net value change -- -- -- -- (231) (231)
------------- ------------- ------------- ------------- ------------- -------------
BALANCE AT SEPTEMBER 30, 1997 4,659 $ 5 $ 16,341 $ 31,231 $ 1,012 $ 48,589
============= ============= ============= ============= ============= =============
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,911 $ 4,132
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 758 715
Credit for deferred federal income taxes 33 34
Provision to allowance for possible loan losses 35 40
Net realized gains on securities available for sale (1,190) 1
Direct write-downs of other real estate owned -- 18
Gain on sale of other real estate owned and other assets (47) (86)
Increase in accrued interest receivable and other assets (1,770) (471)
Increase (decrease) in accrued interest payable and other liabilities 913 322
--------- ---------
Net cash provided by operating activities 4,643 4,705
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 8,810 5,595
Net (increase) decrease in interest-bearing accounts (2,776) 70
Net (increase ) decrease in loans (19,508) (3,613)
Purchases of securities available for sale (96,187) (32,863)
Proceeds from sales of securities available for sale 29,108 4,045
Proceeds from maturities of securities available for sale 10,387 12,215
Purchases of securities held to maturity (52,179) (16,840)
Proceeds from maturities of securities held to maturity 12,611 13,004
Capital expenditures (5,583) (506)
Proceeds from sale of other real estate owned 585 166
Net payments for acquisitions (7,319) (46)
--------- ---------
Net cash used in investing activities (122,051) (18,773)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts,
savings and money-market accounts 54,557 5,019
Net increase in certificates of deposit and time deposits 58,582 10,771
Proceeds from advances on other borrowings 12,319 140
Principal payments on other borrowings (5,147) (147)
Proceeds from exercise of common stock options -- 8
--------- ---------
Net cash provided by financing activities 120,311 15,791
Net increase in cash and due from banks 2,903 1,723
Cash and due from banks at beginning of period 17,305 14,707
--------- ---------
Cash and due from banks at end of period $ 20,208 $ 16,430
========= =========
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 7,586 $ 5,784
Federal income taxes paid $ 108 $ 89
Loans originated to facilitate the sale of foreclosed assets $ 478 $ --
Loan foreclosures $ 94 $ --
</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 nine month period ended September
30, 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, Texas; NBC Bank -
Central, N.A., 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 September 30, 1997 and December 31,
1996 (Dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 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 $ 140,510 $ 1,316 $ (2) $ 141,824
U.S. Government agency and mortgage-backed securities 1,714 20 -- 1,734
Other securities including Federal Reserve Bank stock 2,404 375 (175) 2,604
----------- ----------- ----------- -----------
Total $ 144,628 $ 1,711 $ (177) $ 146,162
=========== =========== =========== ===========
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 109,409 $ 954 $ (21) $ 110,342
U.S. Government agency and mortgage-backed securities 2,776 43 -- 2,819
Foreign debt securities 64 -- (2) 62
----------- ----------- ----------- -----------
Total $ 112,249 $ 997 $ (23) $ 113,223
=========== =========== =========== ===========
</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 September 30, 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 September 30, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 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 $ 17,080 $ 17,163 $ 23,422 $ 23,500
Due in one year to five years 66,930 67,611 62,132 62,850
Due from five to ten years 58,105 58,667 23,869 24,004
Due after ten years 2,513 2,721 2,826 2,869
----------- ----------- ----------- -----------
Totals $ 144,628 $ 146,162 $ 112,249 $ 113,223
=========== =========== =========== ===========
</TABLE>
The carrying value of investment securities pledged to secure public funds
amounted to approximately $33,272,000 at September 30, 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 nine months ended
September 30, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period $ 2,408 $ 1,906
Provisions to allowance for possible loan losses 35 40
Allowance on acquired loans -- 467
Losses charged to the allowance (157) (129)
Recoveries credited to the allowance 166 228
------------- -------------
Net (charge-offs) recoveries 9 99
------------- -------------
Balance at end of period $ 2,452 $ 2,512
============= =============
</TABLE>
7
<PAGE> 8
NOTE 5 - NOTES PAYABLE
On September 30, 1997, the Company executed a $4 million note with Texas
Independent Bank in Dallas. The note bears a variable interest rate at New York
prime (8.5% at September 30, 1997). Principal and interest payments of $200,000
are due quarterly, with the balance due at maturity. The note matures on
September 30, 2000. The note is collateralized by the common stock of NBT of
Delaware, Inc. and the stock of the subsidiary banks.
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.
On September 30, 1997, two subsidiary banks' due from bank accounts with Wells
Fargo Bank, a correspondent bank, were overdrawn in those accounts. The accounts
are used for the clearing of certain checks and electronic items in conjunction
with the conversion of the customers of the Wells Fargo Bank branches acquired
on July 18, 1997. These balances are generally cleared within a few days. The
overdraft balance of the accounts was $6.8 million at September 30, 1997 and has
subsequently been paid.
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>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Tax based on statutory rate $ 2,054 $ 1,447
Decrease in deferred tax asset valuation allowance (2,200) (1,429)
Alternative minimum tax 121 85
Other, net 156 20
------------- -------------
Federal income tax expense $ 131 $ 123
============= =============
</TABLE>
The Company had approximately $103 million in net operating loss carryforwards
at September 30, 1997 which will be available to reduce income tax liabilities
in future years. If unused, approximately $99 million of such carryforwards wil
expire in 2005, with the remaining approximately $4 million expiring in 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 nine
months ended September 30, 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 - ACQUISITIONS
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 Company 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.
On July 18, 1997, the Company acquired three branches of Wells Fargo Bank
in Giddings, Marble Falls and Taylor, Texas. The Company acquired approximately
$103.4 million in deposits and $2.6 million in the owned branch facilities,
branch furniture, fixtures and certain equipment. The Company paid a purchase
price of approximately $9.9 million for the acquisitions.
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 September 30, 1997 was $1.7
million or $.37 per common share compared with $1.5 million or $.32 per common
share for the three months ended September 30, 1996. Net interest income for the
three months ended September 30, 1997 improved $1,164,000 over the same period
of 1996 of which $340,000 or 29% is due to the acquisition of Luling Bancshares.
The remaining $824,000 is due to internal growth in the loan and investment
securities portfolios and the Wells Fargo acquisitions. Net interest income
improved $725,000 over the previous quarter ended June 30, 1997 due to internal
growth of $14.2 million or 12% in the loan portfolio and the remainder due to
the Wells Fargo acquisitions. Non-interest expenses were up $1,157,000, or 50%,
for the three months ended September 30, 1996, of which $270,000 or 23% was due
to the addition of Luling Bancshares and the balance primarily due to the
expenses of operating the Wells Fargo branches. Non-interest income improved
$221,000 or 30% for the three months ended September 30, 1996, due to service
charges and fees.
Net income for the nine months ended September 30, 1997 was $5.9
million or $1.25 per common share compared with $4.1 million or $.88 per common
share for the nine months ended September 30, 1996. Adjusted for the
non-recurring net gains on investment securities of $1.2 million, net income
would be $4.7 million or $1.00 per common share. Net interest income increased
$2,144,000 with 46% of the increase due to the acquisition of Luling Bancshares.
For the nine months ended September 30, 1997, the Company's return on
average assets was 2.14%, or 1.71% deducting the non-recurring gains on
securities, compared to 1.97% for the nine months ended September 30, 1996. The
Company's return on average equity for the nine months ended September 30, 1997
was 17.56%, or 14.03% deducting the gains on securities, compared to 14.44% for
the nine months ended September 30, 1996. The ratio of average stockholders'
equity to total average assets was 12.2% and 13.6% for the nine months ended
September 30, 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
$2,144,000 or 23% in net interest income for the nine months ended September 30,
1997 compared to the same period in 1996 was due to the acquisition of Luling
Bancshares which accounts for $986,000 of the increase and the remainder to the
Wells Fargo acquisitions. On an average basis, other debt at September 30, 1997
increased $3 million which was used for the Luling Bancshares and Wells Fargo
branch acquisitions. The net interest margin for the nine months ended September
30, 1997 was 4.55% compared to 4.77% as of September 30, 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 21 basis points to 3.76% at
September 30, 1997 from 3.97% at September 30, 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>
NINE MONTHS ENDED NINE MONTHS ENDED
------------------------------------ ------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 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 $ 2,666 $ 86 4.31% $ 135 $ 7 6.88%
Federal funds sold 28,891 1,206 5.58% 17,199 706 5.47%
Investment securities:
US Treasuries 173,017 8,287 6.40% 139,744 6,458 6.16%
US Government agencies 5,402 273 6.75% 4,266 218 6.81%
States and political subdivisions -- -- -- 14 1 5.81%
Other 3,068 113 4.92% 2,559 44 2.29%
---------- ---------- ---------- ---------- ---------- ----------
Total investment securities 181,486 8,673 6.39% 146,583 6,721 6.11%
Loans, net of discounts (A) 118,971 9,450 10.62% 91,868 7,548 10.94%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 332,015 19,415 7.82% 255,785 14,982 7.80%
NON-INTEREST BEARING ASSETS:
Cash and due from banks 19,674 12,192
Allowance for possible loan losses (2,428) (1,990)
Other assets 19,260 13,792
---------- ----------
Total assets $ 368,521 $ 279,779
========== ==========
INTEREST-BEARING LIABILITIES:
Interest bearing transaction accounts 44,612 936 2.80% 31,575 682 2.88%
Time deposits 219,060 6,958 4.25% 170,341 5,116 4.00%
Other debt 3,385 211 8.32% 377 20 7.07%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities 267,057 8,105 4.06% 202,293 5,818 3.83%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 53,689 37,815
Other liabilities 2,896 1,476
---------- ----------
Total liabilities 323,642 241,584
Redeemable preferred stock -- 80
STOCKHOLDERS' EQUITY (F) 44,879 38,115
---------- ----------
Total liabilities and
stockholders' equity $ 368,521 $ 279,779
========== ==========
Taxable-equivalent net interest income $ 11,310 $ 9,164
Less: taxable-equivalent adjustment 13 11
---------- ----------
Net interest income $ 11,297 $ 9,153
========== ==========
Net interest spread (B) 3.76% 3.97%
========== ==========
Net interest margin (C) 4.55% 4.77%
========== ==========
SELECTED OPERATING RATIOS:
Return on average assets (D) 2.14% 1.97%
========== ==========
Return on average equity (E) 17.56% 14.44%
========== ==========
</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 nine months ended September 30, 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>
September 30, 1997 vs. September 30, 1996
-----------------------------------------
Due to Changes in
Increase --------------------------
(Decrease) Rates Volume
------------ ---------- -------------
(Dollars in Thousands)
<S> <C> <C> <C>
TAXABLE-EQUIVALENT INTEREST INCOME:
Interest-bearing accounts $ 79 $ (52) $ 131
Federal funds sold 500 24 476
Investment securities 1,953 384 1,569
Loans, net of discounts 1,902 (290) 2,192
---------- ---------- ----------
Total taxable-equivalent interest income 4,434 66 4,368
INTEREST EXPENSE:
Interest-bearing deposits 2,097 380 1,717
Other debt 191 32 159
---------- ---------- ----------
Total interest expense 2,288 412 1,876
---------- ---------- ----------
TAXABLE-EQUIVALENT NET INTEREST INCOME $ 2,146 $ (346) $ 2,492
========== ========== ==========
</TABLE>
Taxable-equivalent net interest income for the nine months ended
September 30,1997 increased $2,146,000 or 23% over the same period in 1996. The
increase is reflected in the increase in the volume of earning assets and in the
increase in the market rates and volume 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 September 30, 1997:
INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES
(Dollars in thousands)
<TABLE>
<CAPTION>
NON-RATE
RATE SENSITIVE SENSITIVE
----------------------------------------------------------- -----------
IMMEDIATELY WITHIN WITHIN OVER
0-30 DAYS 90 DAYS ONE YEAR TOTAL ONE YEAR TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of discounts $ 53,943 $ 13,463 $ 21,431 $ 88,837 $ 43,844 $ 132,681
Investment securities 2,002 9,513 29,070 40,585 217,826 258,411
Federal funds sold 13,840 -- -- 13,840 -- 13,840
Interest-bearing accounts 3,106 199 -- 3,305 -- 3,305
----------- ----------- ----------- ----------- ----------- -----------
Total earning assets $ 72,891 $ 23,175 $ 50,501 $ 146,567 $ 261,670 $ 408,237
=========== =========== =========== =========== =========== ===========
Interest-bearing liabilities:
Interest-bearing transaction,
savings and money market 143,488 -- -- 143,488 -- 143,488
Certificates and time deposits 27,229 51,125 103,369 181,723 12,125 193,848
Debt 10,821 2 6 10,829 339 11,168
----------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing
liabilities $ 181,538 $ 51,127 $ 103,375 $ 336,040 $ 12,464 $ 348,504
=========== =========== =========== =========== =========== ===========
Interest sensitivity gap $ (108,647) $ (27,952) $ (52,874) $ (189,473)
=========== =========== =========== ===========
Cumulative gap $ (108,647) $ (136,599) $ (189,473) $ (189,473)
=========== =========== =========== ===========
Ratio of earning assets to
interest-bearing liabilities 40.2% 45.3% 48.9% 43.6%
</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 nine months ended September 30, 1997 and 1996:
NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED 1997/1996
----------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, $ CHANGE % CHANGE
1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service charges and fees $ 2,013 $ 1,742 $ 271 15.5%
Net realized gains (losses) on sales of securities 1,189 (1) 1,190 118,985%
Net gains on sales of other real estate owned 47 86 (39) (45.3)%
Miscellaneous income 252 240 12 5.5%
------------- ------------- ------------- -------------
Total non-interest income $ 3,501 $ 2,067 $ 1,434 69.4%
============= ============= ============= =============
</TABLE>
The $1,434,000 or 69.4% increase in non-interest income for the nine
months ended September 30, 1997 is due primarily to a $1,091,000 gain realized
on the sale of Corpus Christi Bancshares stock in the first quarter of 1997.
Excluding the nonrecurring gains on sales of securities and other real estate
owned, non-interest income increased $283,000 or 14.3% over 1996. The
acquisitions of Luling Bancshares and the Wells Fargo branches represent the
majority of the increase over the prior year.
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 nine months ended
September 30, 1997 and 1996:
NON-INTEREST EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED 1997/1996
----------------------------- ------------------------------
SEPTEMBER 30, SEPTEMBER 30, $ CHANGE % CHANGE
1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,463 $ 3,465 $ 998 28.8%
Occupancy and equipment expenses 1,364 1,118 246 22.0%
Data processing fees 190 298 (108) (36.4)%
FDIC insurance 24 5 19 377.7%
Insurance 78 80 (2) (3.1)%
Office supplies 386 267 119 44.5%
Postage and courier 444 281 163 58.0%
Professional fees 578 530 48 9.0%
Goodwill 97 -- 97 100.0%
Miscellaneous other expenses 1,097 881 217 24.6%
------------- ------------- ------------- -------------
Total non-interest expense $ 8,721 $ 6,925 $ 1,796 25.9%
============= ============= ============= =============
</TABLE>
Total non-interest expense for the nine months ended September 30,1997
increased $1,796,000 or 25.9% over 1996. However, as a percentage of average
assets, non-interest expense declined slightly from 3.34% in 1996 to 3.15% in
1997. Salaries and benefits rose $998,000 or 28.8% in 1997. $477,000 or 48% of
the increase is related to the acquisitions of Luling Bancshares in September of
1996 and the Wells Fargo Bank branches in July 1997. The remainder of the
increase is due to the hiring of additional personnel and annual salary
increases. The $246,000 or 22.0% increase in occupancy and equipment expenses is
due mainly to the acquisitions of four bank buildings and to the installation of
computer networks at the new locations. Data processing fees declined $108,000
13
<PAGE> 14
or 36.4% due to the Bank's changing from an outside data processor to an
in-house data and item processing system. Some of the increase reflected in
occupancy and equipment and salaries and benefits offset this decline.
INCOME TAXES
The Company recognized income tax expense of $131,000 for the nine
months ended September 30, 1997 compared to $123,000 for the nine months ended
September 30, 1996. At September 30, 1997, the Company had approximately $103
million in net operating loss carryforwards that will be available to reduce
income tax liabilities in future years. If unused, approximately $99 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>
SEPTEMBER 30, % OF DECEMBER 31, SEPTEMBER 30,
1997 TOTAL 1996 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Commercial $ 24,989 18.8% $ 23,992 $ 18,974
Real estate construction 10,211 7.7% 6,324 5,623
Real estate mortgage 77,759 58.6% 65,556 68,658
Consumer installment loans,
net of unearned discount 19,722 14.9% 17,386 17,056
------------- ------------- ------------- -------------
Total loans $ 132,681 100.0% $ 113,258 $ 110,311
============= ============= ============= =============
</TABLE>
Real estate construction loans have shown a 63% increase since December
31, 1996, while real estate mortgage loans and commercial loans have increased
approximately 19% and 4%, respectively. The 17% increase in total loans since
December 31, 1996 has been from internal growth. No loans were acquired from the
Wells Fargo branch acquisition.
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 recoveries of $9,000 for the nine months ended
September 30, 1997 compared to net recoveries of $99,000 for the nine months
ended September 30, 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>
Nine Months ended September 30,
---------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Average loans outstanding $ 118,971 $ 91,868
Balance of allowance for loan losses at beginning of year $ 2,408 $ 1,906
Provision for loan losses 35 40
Allowance on acquired loans -- 467
Charge-Offs:
Commercial 43 29
Real estate construction -- --
Real estate mortgage -- --
Consumer installment 114 100
-------------- --------------
Total charge-offs 157 129
-------------- --------------
Recoveries:
Commercial 47 34
Real estate construction -- --
Real estate mortgage 28 62
Consumer installment 91 132
-------------- --------------
Total recoveries 166 228
-------------- --------------
Net charge-offs (recoveries) (9) (99)
-------------- --------------
Balance of allowance for loan losses at end of period $ 2,452 $ 2,512
============== ==============
Net charge-offs (recoveries) as a percentage
of average loans outstanding (0.01)% (0.11)%
============== ==============
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans, net of unearned discount 1.85% 2.28%
============== ==============
Non-performing assets 139.88% 114.91%
============== ==============
</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
15
<PAGE> 16
with any write down charged to the allowance for loan losses. Any future write
downs on the property are charged to operations.
The following table discloses non-performing assets and loans ninety
days past due and still accruing interest as of September 30, 1997 and December
31, 1996: (Dollars in thousands)
NON-PERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
Non-accrual loans $ 1,211 $ 1,195
Restructured loans 271 90
Foreclosed real estate 271 715
------------- -------------
Total non-performing assets $ 1,753 $ 2,000
============= =============
NON-PERFORMING ASSETS AS A PERCENTAGE OF:
Total assets 0.39% 0.61%
Total loans plus foreclosed real estate 1.32% 1.75%
Accruing loans past due 90 days or more $ 36 $ 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 82% of total deposits at September 30, 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 September 30, 1997, the Company's liquid assets amounted to $184
million or 40% of total gross assets, compared to 39% at September 30, 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. NBC-Laredo has an approved federal
funds line at an affiliate 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 $8.2 million to $48.6 million at
September 30, 1997 from $40.4 million at September 30, 1996. The ratio of total
stockholders' equity to total assets was 10.7% at September 30, 1997 compared
with 12.8% at September 30, 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 Banks'
compliance with the risk-based capital guidelines as of September 30, 1997:
<TABLE>
<CAPTION>
NBC NBC NBC NBC
CONSOLIDATED EAGLE PASS LAREDO ROCKDALE LULING
------------ ------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total average assets (net of goodwill) $ 364,424 $ 224,604 $ 68,326 $ 108,106 $ 26,029
Risk weighted assets (net of goodwill) $ 140,830 $ 64,268 $ 38,979 $ 25,882 $ 16,577
Tier 1 capital $ 38,302 $ 15,602 $ 7,533 $ 6,428 $ 3,234
Total capital $ 40,071 $ 16,444 $ 8,023 $ 6,751 $ 3,448
Leverage ratio 10.51% 6.95% 11.02% 5.95% 12.43%
Risk based capital ratios:
Tier 1 27.20% 24.28% 19.33% 24.84% 19.51%
Total capital 28.45% 25.59% 20.58% 26.08% 20.08%
</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:
Reports on Form 8-K were filed on August 1, 1997. Financial Statements
were filed on September 30, 1997 as an amendment to the Form 8-K filed on August
1, 1997.
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: November 12, 1997 By: /s/ Anne Renfroe
------------------------------------
Anne Renfroe, Chief Accounting
Officer and Principal
Financial Officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
11.1 Statement regarding computation of earnings per share.
27.1 Financial Data schedule
</TABLE>
<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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHAREHOLDER:
Primary earnings applicable to common shareholders $ 1,744 $ 1,518 $ 5,911 $ 4,132
======== ======== ======== ========
COMMON SHARES USED IN PRIMARY PER SHARE CALCULATION:
Weighted average number of common shares outstanding 4,659 4,658 4,659 4,634
Addition from assumed exercise of stock options 97 56 78 56
Addition from assumed conversion of Series B
Convertible Preferred Stock -- -- -- 25
-------- -------- -------- --------
Weighted average number of common and
common-equivalent shares outstanding 4,756 4,714 4,737 4,715
======== ======== ======== ========
PRIMARY EARNINGS PER COMMON SHARE:
Earnings per share $ .37 $ .32 $ 1.25 $ .88
======== ======== ======== ========
</TABLE>
Note: Fully diluted earnings per share are not presented as dilution is less
than 3%.
20
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,207
<INT-BEARING-DEPOSITS> 3,305
<FED-FUNDS-SOLD> 13,840
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 146,162
<INVESTMENTS-CARRYING> 112,249
<INVESTMENTS-MARKET> 113,223
<LOANS> 132,681
<ALLOWANCE> 2,452
<TOTAL-ASSETS> 454,822
<DEPOSITS> 392,893
<SHORT-TERM> 7,019
<LIABILITIES-OTHER> 2,172
<LONG-TERM> 4,149
0
0
<COMMON> 5
<OTHER-SE> 48,584
<TOTAL-LIABILITIES-AND-EQUITY> 454,822
<INTEREST-LOAN> 9,437
<INTEREST-INVEST> 8,673
<INTEREST-OTHER> 1,292
<INTEREST-TOTAL> 19,402
<INTEREST-DEPOSIT> 7,894
<INTEREST-EXPENSE> 211
<INTEREST-INCOME-NET> 11,297
<LOAN-LOSSES> 35
<SECURITIES-GAINS> 1,189
<EXPENSE-OTHER> 8,721
<INCOME-PRETAX> 6,042
<INCOME-PRE-EXTRAORDINARY> 6,042
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,911
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 7.82
<LOANS-NON> 1,211
<LOANS-PAST> 36
<LOANS-TROUBLED> 271
<LOANS-PROBLEM> 5,188
<ALLOWANCE-OPEN> 2,408
<CHARGE-OFFS> 157
<RECOVERIES> 166
<ALLOWANCE-CLOSE> 2,459
<ALLOWANCE-DOMESTIC> 2,459
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,475
</TABLE>
