<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 June 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 August 9, 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>
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 19,143 $ 17,305
Interest-bearing accounts 1,908 529
Federal funds sold 19,725 22,650
Investment securities available for sale 94,555 88,193
Investment securities held to maturity 74,322 72,649
Loans, net of discounts 118,460 113,258
Allowance for possible loan losses (2,459) (2,408)
Bank premises and equipment, net 7,104 6,978
Other assets 9,116 8,764
--------- ---------
Total Assets $ 341,874 $ 327,918
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Demand deposits, non-interest bearing $ 47,163 $ 46,617
Interest-bearing transaction accounts (NOW) 37,783 39,708
Savings and money market accounts 58,597 58,163
Certificates and time deposits under $100,000 87,683 82,616
Certificates and time deposits $100,000 and over 61,203 52,651
--------- ---------
Total Deposits 292,429 279,755
--------- ---------
Accrued interest, taxes and other liabilities 1,436 1,259
Short term notes payable 1,500 3,639
Long term notes payable 351 356
--------- ---------
Total Liabilities 295,716 285,009
Stockholders' Equity:
Common Stock, $.001 par value, 100,000,000 shares authorized,
issued and outstanding: 4,658,734 at June 30, 1997
and December 31,1996 5 5
Surplus - Common Stock 16,341 16,341
Retained earnings 29,488 25,321
Unrealized gain on securities available for sale, net of tax 324 1,242
--------- ---------
Total Stockholders' Equity 46,158 42,909
--------- ---------
Total Liabilities and Stockholders' Equity $ 341,874 $ 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 SIX MONTHS ENDED
------------------------------- -----------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans $ 3,052 $ 2,503 $ 6,000 $ 4,959
Interest on Investment Securities 2,645 2,311 5,142 4,396
Interest on Federal Funds Sold 299 185 621 468
Interest on Deposits in Banks 42 3 50 5
---------- ----------- ---------- -----------
TOTAL INTEREST INCOME 6,038 5,002 11,813 9,828
INTEREST EXPENSE:
Interest on Deposits 2,395 1,920 4,697 3,809
Interest on Debt 58 7 129 14
---------- ----------- ---------- -----------
TOTAL INTEREST EXPENSE 2,453 1,927 4,826 3,823
NET INTEREST INCOME 3,585 3,075 6,987 6,005
Less: Provision for Possible
Loan Losses -- 10 25 30
---------- ----------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,585 3,065 6,962 5,975
NON-INTEREST INCOME:
Service Charges and Fees 620 561 1,250 1,156
Net realized Gains (Losses) on
Sales of Securities 1 (1) 1,093 (1)
Net Gains on Sales of Other Real
Estate and Assets 40 16 47 15
Miscellaneous Income 38 25 163 170
---------- ----------- ---------- -----------
TOTAL NON-INTEREST INCOME 699 601 2,553 1,340
NON-INTEREST EXPENSE:
Salaries and Employee Benefits 1,394 1,147 2,763 2,299
Occupancy and Equipment Expenses 407 385 824 740
Other Expenses 900 849 1,667 1,577
---------- ----------- ---------- -----------
TOTAL NON-INTEREST EXPENSE 2,701 2,381 5,254 4,616
INCOME BEFORE FEDERAL INCOME TAXES 1,583 1,285 4,261 2,699
Federal Income Tax Expense 33 33 94 86
---------- ----------- ---------- -----------
NET INCOME $ 1,550 $ 1,252 $ 4,167 $ 2,613
========== =========== ========== ===========
INCOME PER COMMON AND
COMMON-EQUIVALENT SHARE $ 0.33 $ 0.27 $ 0.88 $ 0.55
========== =========== ========== ===========
Weighted Average Number of Common and
Common-Equivalent Shares Outstanding 4,731,323 4,718,145 4,729,590 4,713,790
</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 $19,611 $ 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, 1996 4,659 $ 5 $16,341 $25,321 $ 1,242 $ 42,909
Net income -- -- -- 4,167 -- 4,167
Net value change -- -- -- -- (918) (918)
===== ======= ======= ======= ======= ========
BALANCE AT JUNE 30, 1997 4,659 $ 5 $16,341 $29,488 $ 324 $ 46,158
===== ======= ======= ======= ======= ========
</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
SD
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,167 $ 2,613
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 433 511
Credit for deferred federal income taxes 45 17
Provision to allowance for possible loan losses 25 30
Net realized gains on securities available for sale (1,093) 1
Direct write-downs of other real estate owned -- 3
Gain on sale of other real estate owned and other assets (47) (15)
Increase in accrued interest receivable and other assets (810) (174)
Increase (decrease) in accrued interest payable
and other liabilities 178 124
-------- --------
Net cash provided by operating activities 2,898 3,110
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 2,925 9,405
Net (increase) decrease in interest-bearing accounts (1,379) 62
Net (increase ) decrease in loans (5,270) (934)
Purchases of securities available for sale (22,098) (28,709)
Proceeds from sales of securities available for sale 8,868 4,045
Proceeds from maturities of securities available for sale 7,012 6,078
Purchases of securities held to maturity (8,120) (12,875)
Proceeds from maturities of securities held to maturity 6,464 12,841
Capital expenditures (529) (389)
Proceeds from sale of other real estate owned 537 71
-------- --------
Net cash used in investing activities (11,590) (10,405)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts,
savings and money-market accounts (945) 2,172
Net increase in certificates of deposit and time deposits 13,619 6,650
Proceeds from advances on other debt 3,000 140
Principal payments on other debt (5,144) (5)
Proceeds from exercise of common stock options -- 8
-------- --------
Net cash provided by financing activities 10,530 8,965
Net increase in cash and due from banks 1,838 1,670
Cash and due from banks at beginning of period 17,305 14,707
-------- --------
Cash and due from banks at end of period $ 19,143 $ 16,377
======== ========
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 4,754 $ 3,793
Federal income taxes paid $ 59 $ 58
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 six month period ended June 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, 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 June 30, 1997 and December 31, 1996
(Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 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 $88,165 $527 $(254) $88,438
U.S. Government agency and mortgage-backed securities 2,381 18 (2) 2,397
Other securities including Federal Reserve Bank stock 3,515 205 -- 3,720
------- ---- ----- -------
Total $94,061 $750 $(256) $94,555
======= ==== ===== =======
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $71,342 $574 $ (67) $71,849
U.S. Government agency and mortgage-backed securities 2,916 43 -- 2,959
Foreign debt securities 64 -- (10) 54
------- ---- ----- -------
Total $74,322 $617 $ (77) $74,862
======= ==== ===== =======
</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 June 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 June 30, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 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 $21,608 $21,707 $23,482 $23,536
Due in one year to five years 68,827 69,010 47,858 48,313
Due from five to ten years -- -- 16 13
Due after ten years 3,626 3,838 2,966 3,000
------- ------- ------- -------
Totals $94,061 $94,555 $74,322 $74,862
======= ======= ======= =======
</TABLE>
The carrying value of investment securities pledged to secure public funds
amounted to approximately $35,130,000 at June 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 six months ended
June 30, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period $ 2,408 $ 1,906
Provisions to allowance for possible loan losses 25 30
Losses charged to the allowance (78) (76)
Recoveries credited to the allowance 104 160
------- -------
Net (charge-offs) recoveries 26 84
------- -------
Balance at end of period $ 2,459 $ 2,020
======= =======
</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 June 30, 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 June 30, 1997, the outstanding balance on the
line of credit was $1,500,000.
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>
SIX MONTHS ENDED
----------------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
Tax based on statutory rate $ 1,449 $ 918
Decrease in deferred tax asset valuation allowance (1,512) (929)
Alternative minimum tax 85 54
Other, net 72 43
------- -----
Federal income tax expense $ 94 $ 86
======= =====
</TABLE>
The Company had approximately $103 million in net operating loss carryforwards
at June 30, 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 six months ended June 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, the owned branch facilities, branch furniture,
fixtures and certain equipment. The Company paid a purchase price of
approximately $8.2 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 June 30, 1997 was $1.6 million
or $.33 per common share compared with $1.3 million or $.27 per common share
for the three months ended June 30, 1996. Net interest income for the three
months ended June 30, 1997 improved $510,000 over the same period of 1996 of
which $332,000 is due to the acquisition of Luling Bancshares in September of
1996 with the remaining $178,000 due to internal growth in the loan and
investment securities portfolios. Non-interest expenses were up $320,000, or
13%, of which $257,000 or 80% was due to the addition of Luling Bancshares and
the balance primarily due to the increase in salaries and benefits.
Net income for the six months ended June 30, 1997 was $4.2 million or
$.88 per common share compared with $2.6 million or $.55 per common share for
the six months ended June 30, 1996. Adjusted for the non-recurring gains on
investment securities of $1.1 million, net income would be $3.1 million or $.65
per common share. Net interest income increased $981,000 with 66% of the
increase due to the acquisition of Luling Bancshares.
For the six months ended June 30, 1997, the Company's return on
average assets was 2.51%, or 1.84% deducting the non-recurring gains on
securities, compared to 1.90% for the six months ended June 30, 1996. The
Company's return on average equity for the six months ended June 30, 1997 was
19.19% , or 14.04% deducting the gains on securities, compared to 14.06% for
the six months ended June 30, 1996. The ratio of average stockholders' equity
to total average assets was 13.1% and 13.5% for the six months ended June 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
$981,000 or 16% in net interest income for the six months ended June 30, 1997
compared to the same period in 1996 was due primarily to the acquisition of
Luling Bancshares which accounts for $646,000 of the increase. On an average
basis, other debt at June 30, 1997 increased $3 million which was used for the
Luling Bancshares acquisition. The net interest margin for the six months ended
June 30,1997 was 4.61% compared to 4.78% as of June 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 19 basis points to 3.78% at June
30, 1997 from 3.97% at June 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>
SIX MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- ----------------------------------------
JUNE 30, 1997 JUNE 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 $ 2,412 $ 50 4.15% $ 195 $ 5 5.17%
Federal funds sold 22,932 621 5.46% 17,053 468 5.53%
Investment securities:
US Treasuries 157,886 4,916 6.28% 138,034 4,222 6.17%
US Government agencies 5,542 186 6.78% 4,364 149 6.89%
States and political subdivisions -- -- -- 20 1 6.27%
Other 3,338 40 2.42% 1,819 24 2.66%
--------- ------- ----- --------- ------ -----
Total investment securities 166,766 5,142 6.13% 144,237 4,396 6.15%
Loans, net of discounts (A) 113,849 6,009 10.64% 91,029 4,970 10.95%
--------- ------- ----- --------- ------ -----
Total interest-earning assets 305,959 11,822 7.77% 252,514 9,839 7.81%
NON-INTEREST BEARING ASSETS:
Cash and due from banks 14,394 12,156
Allowance for possible loan losses (2,431) (1,963)
Other assets 16,715 13,731
--------- ---------
Total assets $ 334,637 $ 276,438
========= =========
INTEREST-BEARING LIABILITIES:
Interest bearing transaction accounts 40,194 571 2.86% 31,371 453 2.91%
Time deposits 199,642 4,126 4.17% 168,155 3,356 4.02%
Other debt 3,065 129 8.51% 386 14 7.31%
--------- ------- ----- --------- ------ -----
Total interest-bearing liabilities 242,901 4,826 4.01% 199,912 3,823 3.84%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 46,243 37,720
Other liabilities 1,708 1,315
--------- ---------
Total liabilities 290,852 238,947
Redeemable preferred stock -- 231
STOCKHOLDERS' EQUITY (F) 43,785 37,260
--------- ---------
Total liabilities and
stockholders' equity $ 334,637 $ 276,438
========= =========
Taxable-equivalent net interest income $ 6,996 $6,016
Less: taxable-equivalent adjustment 9 11
------- ------
Net interest income $ 6,987 $6,005
======= ======
Net interest spread (B) 3.78% 3.97%
===== =====
Net interest margin (C) 4.61% 4.78%
===== =====
SELECTED OPERATING RATIOS:
Return on average assets (D) 2.51% 1.90%
===== =====
Return on average equity (E) 19.19% 14.06%
===== =====
</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 June 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>
June 30, 1997 vs. June 30, 1996
---------------------------------
Due to Changes in
Increase -------------------
(Decrease) Rates Volume
---------- ----- ------
(Dollars in Thousands)
<S> <C> <C> <C>
TAXABLE-EQUIVALENT INTEREST INCOME:
Interest-bearing accounts $ 45 $ (12) $ 57
Federal funds sold 153 (9) 162
Investment securities 746 60 686
Loans, net of discounts 1,039 (175) 1,214
------ ----- ------
Total taxable-equivalent interest income 1,983 (136) 2,119
INTEREST EXPENSE:
Interest-bearing deposits 888 132 756
Other debt 115 18 97
------ ----- ------
Total interest expense 1,003 150 853
------ ----- ------
TAXABLE-EQUIVALENT NET INTEREST INCOME $ 980 $(286) $1,266
====== ===== ======
</TABLE>
Taxable-equivalent net interest income for the six months ended June
30,1997 increased $980,000 or 16% 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 June 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 $ 46,804 $ 11,040 $ 20,551 $ 78,395 $ 40,065 $118,460
Investment securities 2,501 8,498 34,187 45,186 123,691 168,877
Federal funds sold 19,725 -- -- 19,725 -- 19,725
Interest-bearing accounts 1,512 -- 396 1,908 -- 1,908
--------- -------- -------- --------- -------- --------
Total earning assets $ 70,542 $ 19,538 $ 55,134 $ 145,214 $163,756 $308,970
========= ======== ======== ========= ======== ========
Interest-bearing
liabilities:
Interest-bearing transaction,
savings and money market 96,380 -- -- 96,380 -- 96,380
Certificates and time deposits 33,103 42,179 66,988 142,270 6,616 148,886
Debt 1,502 2 8 1,512 339 1,851
--------- -------- -------- --------- -------- --------
Total interest-bearing
liabilities $ 130,985 $ 42,181 $ 66,996 240,162 $ 6,955 $247,117
========= ======== ======== ========= ======== ========
Interest sensitivity gap $ (60,443) $(22,643) $(11,862) $ (94,948)
========= ======== ======== =========
Cumulative gap $ (60,443) $(83,086) $(94,948) $ (94,948)
========= ======== ======== =========
Ratio of earning assets
to interest-bearing liabilities 53.9% 46.3% 82.3% 60.5%
</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 six months ended June 30, 1997 and 1996:
NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED 1997/1996
------------------------------------ ----------------------------
JUNE 30, 1997 JUNE 30, 1996 $ CHANGE % CHANGE
----------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Service charges and fees $1,250 $ 1,156 $ 94 8.1%
Net realized gains (losses) on sales of 1,093 (1) 1,094 109,383%
securities
Net gains on sales of other real estate owned 47 15 32 213.3%
Miscellaneous income 163 170 (7) -4.2%
------ ------- ------- -------
Total non-interest income $2,553 $ 1,340 $ 1,213 90.5%
====== ======= ======= =======
</TABLE>
The $1,213,000 or 90.5% increase in non-interest income for the six
months ended June 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 $88,000 or 6.6% over 1996. The acquisition
of Luling Bancshares represents 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 six months ended
June 30, 1997 and 1996:
NON-INTEREST EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED 1997/1996
------------------------------ ---------------------------
JUNE 30, 1997 JUNE 30, 1996 $ CHANGE % CHANGE
<S> <C> <C> <C> <C>
Salaries and employee benefits $2,763 $2,299 $ 464 20.2%
Occupancy and equipment expenses 824 740 84 11.4%
Data processing fees 143 253 (110) -43.6%
FDIC insurance 16 3 13 429.2%
Insurance 52 51 1 2.0%
Office supplies 199 173 26 15.3%
Postage and courier 230 190 40 21.0%
Professional fees 365 355 10 2.8%
Goodwill 28 -- 28 100.0%
Miscellaneous other expenses 634 552 82 14.9%
------ ------ ----- -----
Total non-interest expense $5,254 $4,616 $ 638 13.8%
====== ====== ===== =====
</TABLE>
Total non-interest expense for the six months ended June 30,1997
increased $638,000 or 13.8% over 1996. However, as a percentage of average
assets, non-interest expense declined slightly from 3.34% in 1996 to 3.14% in
1997. Salaries and benefits rose $464,000 or 20.2% in 1997. $235,000 or 51% of
the increase is related to the acquisition of Luling Bancshares in September of
1996. The remainder of the increase is due to the opening of a loan production
office in San Antonio and additional personnel hired for the data processing
center. The $84,000 or 11.4% increase in occupancy and equipment expenses is
also due in part due to the Luling acquisition and the remainder to the
installation of a computer network at two of the subsidiary banks. Data
processing fees declined $110,000 or 43.6% 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.
13
<PAGE> 14
INCOME TAXES
The Company recognized income tax expense of $94,000 for the six
months ended June 30, 1997 compared to $86,000 for the six months ended June
30, 1996. At June 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>
JUNE 30, % OF DECEMBER 31, JUNE 30,
1997 TOTAL 1996 1996
-------- ----- ------------ -------
<S> <C> <C> <C> <C>
Commercial $ 19,837 16.7% $ 23,992 $13,579
Real estate construction 7,666 6.5% 6,324 12,553
Real estate mortgage 73,196 61.8% 65,556 51,629
Consumer installment loans,
net of unearned discount 17,761 15.0% 17,386 14,786
-------- ------- -------- -------
Total loans $118,460 100.0% $113,258 $92,547
======== ======= ======== =======
</TABLE>
Real estate mortgage loans have shown an 11.7% increase since December
31, 1996, while commercial loans have decreased approximately 17.3%. The 28%
increase in total loans since June 30, 1996 is due in part to the Luling
acquisition which represents $15 million or 17% of the increase.
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 $26,000 for the six months
ended June 30, 1997 compared to net recoveries of $84,000 for the six months
ended June 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>
Six Months ended June 30,
--------------------------
1997 1996
--------- --------
<S> <C> <C>
Average loans outstanding $ 113,849 $ 91,029
Balance of allowance for loan losses at beginning of year $ 2,408 $ 1,906
Provision for loan losses 25 30
Charge-Offs:
Commercial 22 8
Real estate construction -- --
Real estate mortgage -- --
Consumer installment 56 68
--------- --------
Total charge-offs 78 76
--------- --------
Recoveries:
Commercial 19 30
Real estate construction -- --
Real estate mortgage 19 31
Consumer installment 66 99
--------- --------
Total recoveries 104 160
--------- --------
Net charge-offs (recoveries) (26) (84)
--------- --------
Balance of allowance for loan losses at end of period $ 2,459 $ 2,020
========= ========
Net charge-offs (recoveries) as a percentage
of average loans outstanding -0.02% -0.09%
========= ========
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans, net of unearned discount 2.08% 2.18%
========= ========
Non-performing assets 158.74% 104.02%
========= ========
</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 June 30, 1997 and December 31,
1996: (Dollars in thousands)
NON-PERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Non-accrual loans $1,145 $1,195
Restructured loans 86 90
Foreclosed real estate 318 715
------ ------
Total non-performing assets $1,549 $2,000
====== ======
NON-PERFORMING ASSETS AS A PERCENTAGE OF:
Total assets 0.45% 0.61%
Total loans plus foreclosed real estate 1.30% 1.75%
Accruing loans past due 90 days or more $ 90 $ 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 73% of total deposits at June 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 June 30, 1997, the Company's liquid assets amounted to $135 million
or 40% of total gross assets, compared to 40% at June 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.
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 $7.4 million to $46.1 million at
June 30, 1997 from $38.7 million at June 30, 1996. The ratio of total
stockholders' equity to total assets was 13.5% at June 30, 1997 compared with
13.8% at June 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 June 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) $332,593 $178,047 $ 68,928 $ 53,749 $26,186
Risk weighted assets (net of goodwill) $120,214 $ 53,654 $ 39,031 $ 16,437 $16,518
Tier 1 capital $ 43,808 $ 17,528 $ 7,270 $ 7,400 $ 3,129
Total capital $ 45,322 $ 18,204 $ 7,758 $ 7,605 $ 3,335
Leverage ratio 13.17% 9.85% 10.55% 13.77% 11.95%
Risk based capital ratios:
Tier 1 36.44% 32.67% 18.63% 45.02% 18.94%
Total capital 37.70% 33.93% 19.88% 46.27% 20.19%
</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:
There were no reports filed on form 8-K for the quarter ended \
June 30, 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: August 12, 1997 By: /s/ Anne Renfroe
------------------------------------
Anne Renfroe, Chief Accounting
Officer and Principal Financial
Officer
19
<PAGE> 20
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
11.1 Statement Regarding computation of Earnings Per Share
27.1 Financial Data Schedule
<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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHAREHOLDER:
Primary earnings applicable to common shareholders $1,550 $1,252 $4,167 $2,613
====== ====== ====== ======
COMMON SHARES USED IN PRIMARY PER SHARE CALCULATION:
Weighted average number of common shares outstanding 4,659 4,658 4,659 4,621
Addition from assumed exercise of stock options 73 60 71 56
Addition from assumed conversion of Series B
Convertible Preferred Stock -- 0 0 37
------ ------ ------ ------
Weighted average number of common and
common-equivalent shares outstanding 4,731 4,718 4,730 4,714
====== ====== ====== ======
PRIMARY EARNINGS PER COMMON SHARE:
Earnings per share $ .33 $ .27 $ .88 $ .55
====== ====== ====== ======
</TABLE>
Note: Fully diluted earnings per share are not presented as dilution is less
than 3%.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 19,143
<INT-BEARING-DEPOSITS> 1,908
<FED-FUNDS-SOLD> 19,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,555
<INVESTMENTS-CARRYING> 74,322
<INVESTMENTS-MARKET> 74,862
<LOANS> 118,460
<ALLOWANCE> 2,459
<TOTAL-ASSETS> 341,874
<DEPOSITS> 292,429
<SHORT-TERM> 1,500
<LIABILITIES-OTHER> 1,436
<LONG-TERM> 351
0
0
<COMMON> 5
<OTHER-SE> 46,153
<TOTAL-LIABILITIES-AND-EQUITY> 341,874
<INTEREST-LOAN> 6,000
<INTEREST-INVEST> 5,142
<INTEREST-OTHER> 671
<INTEREST-TOTAL> 11,813
<INTEREST-DEPOSIT> 4,697
<INTEREST-EXPENSE> 129
<INTEREST-INCOME-NET> 6,987
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 1,093
<EXPENSE-OTHER> 5,254
<INCOME-PRETAX> 4,261
<INCOME-PRE-EXTRAORDINARY> 4,261
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,167
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.88
<YIELD-ACTUAL> 7.77
<LOANS-NON> 1,145
<LOANS-PAST> 90
<LOANS-TROUBLED> 86
<LOANS-PROBLEM> 4,496
<ALLOWANCE-OPEN> 2,408
<CHARGE-OFFS> 78
<RECOVERIES> 104
<ALLOWANCE-CLOSE> 2,459
<ALLOWANCE-DOMESTIC> 2,459
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,566
</TABLE>
