<PAGE> 1
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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: 4,661,234 shares of Common
Stock, $.001 par value, outstanding as of May 8, 1998.
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<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
ASSETS:
<S> <C> <C>
Cash and due from banks $ 22,109 $ 27,278
Interest-bearing accounts 234 216
Federal funds sold 21,484 29,940
Trading securities 7,120 3,433
Investment securities available for sale 142,485 139,771
Investment securities held to maturity 106,577 106,631
Loans, net of discounts 149,463 136,313
Allowance for possible loan losses (2,512) (2,458)
Bank premises and equipment, net 14,028 12,538
Other assets 15,949 16,498
----------- -----------
Total Assets $ 476,937 $ 470,160
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Demand deposits, non-interest bearing $ 61,731 $ 66,346
Interest-bearing transaction accounts (NOW) 61,169 62,633
Savings and money market accounts 90,903 88,972
Certificates and time deposits under $100,000 129,282 131,787
Certificates and time deposits $100,000 and over 73,145 64,677
----------- -----------
Total Deposits 416,230 414,415
----------- -----------
Accrued interest, taxes and other liabilities 2,227 2,001
Obligations under short sale transactions 2,078 --
Long term notes payable 1,643 2,646
----------- -----------
Total Liabilities 422,178 419,062
Stockholders' Equity:
Common Stock, $.001 par value, 100,000,000 shares authorized,
Issued and outstanding: 4,661,234 at March 31, 1998 and 4,658,734
at December 31, 1997 5 5
Surplus - Common Stock 16,355 16,341
Retained earnings 36,057 32,796
Unrealized gain on securities available for sale, net of tax 2,476 1,956
----------- -----------
54,893 51,098
----------- -----------
Less: Treasury Stock, at cost (6,300 shares) (134) --
----------- -----------
Total Stockholders' Equity 54,759 51,098
----------- -----------
Total Liabilities and Stockholders' Equity $ 476,937 $ 470,160
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Interest Income:
Interest and fees on loans $ 3,722 $ 2,947
Interest on investment securities 3,830 2,498
Interest on federal funds sold 360 322
Interest on deposits in banks 4 7
-------------- --------------
Total interest income 7,916 5,774
Interest Expense:
Interest on deposits 3,547 2,301
Interest on debt 67 71
-------------- --------------
Total interest expense 3,614 2,372
Net Interest Income 4,302 3,402
Less: Provision for possible loan losses 20 25
-------------- --------------
Net Interest Income after Provision for Possible Loan Losses 4,282 3,377
Non-interest income:
Service charges and fees 794 630
Net trading account profit 1,313 --
Net realized gains on sales of securities 526 1,091
Net gains on sales of other real estate and assets -- 7
Miscellaneous income 73 126
-------------- --------------
Total non-interest income 2,706 1,854
Non-interest expense:
Salaries and employee benefits 1,832 1,368
Occupancy and equipment expenses 570 418
Other expenses 1,265 767
-------------- --------------
Total non-interest expense 3,667 2,553
Income before federal income taxes 3,321 2,678
Federal income tax expense 60 61
-------------- --------------
Net income $ 3,261 $ 2,617
============== ==============
Basic Earnings per Share .70 $ .56
============== ==============
</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 TREASURY FOR SALE
OF SHARES PAR VALUE SURPLUS EARNINGS STOCK SECURITIES(B) TOTAL
--------- --------- --------- -------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 4,659 $ 5 $ 16,341 $ 25,321 $ -- $ 1,242 $42,909
Net income -- -- -- 7,475 -- -- 7,475
Net value change -- -- -- -- -- 714 714
--------- --------- --------- -------- -------- ------------- -------
BALANCE AT DECEMBER 31, 1997 4,659 5 16,341 32,796 -- 1,956 51,098
Net income -- -- -- 3,261 -- -- 3,261
Exercise of stock option 2 -- 14 -- -- -- 14
Treasury stock purchased (6) -- -- -- (134) -- (134)
Net value change -- -- -- -- -- 520 520
--------- --------- --------- -------- -------- ------------- -------
BALANCE AT MARCH 31, 1998 4,655 $ 5 $ 16,355 $ 36,057 $ (134) $ 2,476 $54,759
========= ========= ========= ======== ======== ============= =======
</TABLE>
(A) Common Stock with a par value of $0.001 per share, 100,000,000 shares
authorized.
(B) Net unrealized holding gains (losses) on securities available for sale, net
of tax effect.
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,261 $ 2,617
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 451 206
Credit for deferred federal income taxes 60 57
Provision to allowance for possible loan losses 20 25
Net realized gains on securities available for sale (526) (1,091)
Increase in trading account (2,212) --
Gain on sale of other real estate owned and other assets -- (7)
Decrease (increase) in accrued interest receivable and other assets 167 (897)
Increase in accrued interest payable and other liabilities 225 17
---------- ----------
Net cash provided by operating activities 1,446 927
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 8,456 4,945
Net increase in interest-bearing accounts (17) (4,197)
Net (increase) decrease in loans (13,155) 348
Purchases of securities available for sale (10,862) (10,688)
Proceeds from sales of securities available for sale 5,214 4,676
Proceeds from maturities of securities available for sale 2,767 2,143
Purchases of securities held to maturity (5,058) (8,120)
Proceeds from maturities of securities held to maturity 5,115 4,114
Capital expenditures (1,846) (319)
Proceeds from sale of other real estate owned -- 401
---------- ----------
Net cash used in investing activities (9,386) (6,697)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, NOW accounts,
savings and money-market accounts (4,147) 511
Net increase in certificates of deposit and time deposits 5,963 4,591
Proceeds from advances on other borrowings -- 3,000
Principal payments on other borrowings (1,003) (4,141)
Proceeds from obligations under short position 2,078 --
Purchase of treasury stock (134) --
Proceeds from exercise of common stock options 14 --
---------- ----------
Net cash provided by financing activities 2,771 3,961
Net decrease in cash and due from banks (5,169) (1,809)
Cash and due from banks at beginning of period 27,278 17,305
---------- ----------
Cash and due from banks at end of period $ 22,109 $ 15,496
========== ==========
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid $ 3,602 $ 2,312
Federal income taxes paid $ -- $ 35
Loan foreclosures $ 40 $ --
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of National
Bancshares Corporation of Texas and its wholly-owned subsidiaries have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q of Regulation S-K.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The consolidated financial statements include the accounts of the parent company
and all subsidiaries, and all significant intercompany balances and transactions
have been eliminated. Certain items in prior year's financial statements have
been reclassified in conformity with the current year's presentation. The
consolidated financial statements are unaudited, but include all adjustments
(consisting primarily of normal recurring accruals) which, in the opinion of
management, are necessary for a fair statement of the results of the periods
presented. The results of operations for the three month period ended March 31,
1998 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, 1997.
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 AND OBLIGATIONS FROM SHORT-SALE TRANSACTIONS
The following tables present the amortized cost and approximate fair value of
the investment securities portfolio as of March 31, 1998 and December 31, 1997
(Dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 135,101 $ 3,767 $ (39) $ 138,829
U. S. Government agency and mortgage-backed securities 1,839 22 (1) 1,860
Other securities including Federal Reserve Bank stock 1,796 -- -- 1,796
------------ ------------ ------------ ------------
Total $ 138,736 $ 3,789 $ (40) $ 142,485
============ ============ ============ ============
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 103,995 $ 1,938 $ -- $ 105,933
U. S. Government agency and mortgage-backed securities 2,518 27 -- 2,545
Foreign debt securities 64 1 (5) 60
------------ ------------ ------------ ------------
Total $ 106,577 $ 1,996 $ (5) $ 108,538
============ ============ ============ ============
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $ 133,545 $ 2,543 $ -- $ 136,088
U.S. Government agency and mortgage -backed securities 1,584 17 -- 1,601
Equity securities including Federal Reserve Bank stock 1,677 405 -- 2,082
------------ ------------ ------------ ------------
Total $ 136,806 $ 2,965 $ -- $ 139,771
============ ============ ============ ============
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 103,932 $ 1,646 $ (4) $ 105,574
U.S. Government agency and mortgage-backed securities 2,635 34 -- 2,669
Other securities 64 -- (8) 56
------------ ------------ ------------ ------------
Total $ 106,631 $ 1,680 $ (12) $ 108,229
============ ============ ============ ============
</TABLE>
Unrealized gains and losses on investment securities held at March 31, 1998 and
December 31, 1997 have been judged to be temporary market fluctuations with no
material financial impact on the Company.
The following table shows the maturity schedule of the Company's investment
portfolio as of March 31, 1998 (Dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------
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 $ 12,157 $ 12,211 $ 17,942 $ 18,002
Due in one year to five years 76,863 78,521 62,205 63,314
Due from five to ten years 48,139 50,183 23,912 24,677
Due after ten years 352 345 2,518 2,545
------------ ------------ ------------ ------------
Totals $ 137,511 $ 141,260 $ 106,577 $ 108,538
------------ ------------ ------------ ------------
Equity Securities 885 885 -- --
Federal Reserve Bank Stock 340 340 -- --
============ ============ ============ ============
Total $ 138,736 $ 142,485 $ 106,577 $ 108,538
============ ============ ============ ============
</TABLE>
The carrying value of investment securities pledged to secure public funds
amounted to approximately $42,850,000 at March 31, 1998 and $36,167,000 at
December 31, 1997.
At March 31, 1998, the Company had one short investment position totaling
$2,078,000 which was included in obligation from short-sale transactions. At
March 31, 1998, the Company recorded a net unrealized loss of $88,000 on this
position. Short sales can result in off-balance sheet risk, as losses can be
incurred in excess of the reported obligation if market prices of the securities
subsequently increase.
7
<PAGE> 8
NOTE 4 - ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses for the three months ended
March 31, 1998 and 1997 is presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period 2,458 $ 2,408
Provisions to allowance for possible loan losses 20 25
Losses charged to the allowance (77) (53)
Recoveries credited to the allowance 111 51
-------------- --------------
Net (charge-offs) recoveries 34 (2)
-------------- --------------
Balance at end of period $ 2,512 $ 2,431
============== ==============
</TABLE>
IMPAIRED LOANS
A loan within the scope of SFAS No. 114 is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement, including scheduled principal and interest payments. At March 31,
1998 and 1997, the Banks have impaired loans of $1,216,000 and $1,071,000,
respectively. The allowance for loan losses related to those loans was $242,000
and $95,000, respectively. The average recorded investment in impaired loans
during the three months ended March 31, 1998 was $1,274,000 and $1,133,000,
respectively. Interest income of approximately $19,000 and $25,000 on impaired
loans was recognized for cash payments received during the three months ended
March 31, 1998 and 1997, respectively.
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 March 31, 1998). Principal payments of $200,000 plus interest 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.
NOTE 6 - INCOME TAX EXPENSE
The provision for Federal income tax expense is less than that computed by
applying the federal statutory rate of 34% as indicated in the following
analysis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
MARCH 31, 1998 MARCH 31, 1997
-------------- --------------
<S> <C> <C>
Tax based on statutory rate $ 1,129 $ 911
Decrease in deferred tax asset valuation allowance (1,235) (904)
Alternative minimum tax 66 56
Other, net 100 (2)
-------------- --------------
Federal income tax expense $ 60 $ 61
============== ==============
</TABLE>
The Company had approximately $103 million in net operating loss carryforwards
at March 31, 1998 which 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.
The net operating loss carryforwards, along with certain other items, create
deferred tax assets. A valuation allowance has been created to reduce deferred
tax assets to an amount more likely than not to be realized. During the three
months ended March 31, 1998 and 1997, 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.
8
<PAGE> 9
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.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Company analyzes the major elements of the Company's
consolidated balance sheets and statements of income. This discussion should be
read in conjunction with the Consolidated Financial Statements, accompanying
notes, and selected financial data appearing elsewhere in this Report.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 was $3.3 million
or $.70 per common share compared with $2.6 million or $.56 per common share for
the three months ended March 31, 1997. The first quarter of the current and the
previous year included non-recurring gains on investment securities. The
amount of the gains were $1.8 million and $1.1 million, net of tax, for the
three months ended March 31, 1998 and 1997, respectively. With the exclusion of
the non-recurring gains, net income for the first quarter of 1998 was $1.4
million, or $.31 per share, and $1.6 million or $.33 per share for the first
quarter of 1997. Net interest income for the three months ended March 31, 1998
improved $900,000 over the same period of 1997 of which $775,000 or 86% is due
to internal growth in the loan portfolio and the remainder is primarily due to
the Wells Fargo acquisitions. Net interest income was comparable to the previous
quarter ended December 31, 1997. Non-interest expenses were up $1.1 million, or
44%, for the three months ended March 31, 1998, which was primarily due to
the expenses of operating the Wells Fargo branches and the opening of two new
branches in the first quarter of 1998. Non-interest income improved $104,000 or
14% for the three months ended March 31, 1998, due to service charges and fees
primarily from the Wells Fargo acquisitions.
For the three months ended March 31, 1998, the Company's return on
average assets was 2.79%, or 1.20% deducting the non-recurring gains on
securities, compared to 3.21% and 1.87%, deducting the non-recurring gains on
securities, for the three months ended March 31, 1997. Average assets have
increased $137.8 million or 42% over the quarter ended March 31, 1997. The
Company's return on average equity for the three months ended March 31, 1998 was
25.79%, or 11.10% deducting the gains on securities, compared to 24.63% and
14.36%, deducting the gain on securities, for the three months ended March 31,
1997. The ratio of average stockholders' equity to total average assets was
10.8% and 13.0% for the three months ended March 31, 1998 and 1997,
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
$900,000 or 26% in net interest income for the three months ended March 31,1998
compared to the same period in 1997 was due to internal loan growth which
accounts for $775,000 of the increase and the remainder is due to the Wells
Fargo acquisitions. Average loans increased $30 million or 27% over the first
quarter of 1997. The net interest margin for the three months ended March 31,
1998 was 4.17% compared to 4.57% as of March 31, 1997. 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 16 basis points to 3.60% at March
31, 1998 from 3.76% at March 31, 1997. The decrease in the net interest spread
is primarily due to the increase in rates being paid on deposits and the
decrease in the rates being paid on loans.
10
<PAGE> 11
INTEREST EARNED/INCURRED AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
--------------------------------------- -----------------------------------
MARCH 31, 1998 MARCH 31, 1997
--------------------------------------- -----------------------------------
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 $ 254 $ 4 6.68% $ 696 $ 7 4.22%
Federal funds sold 25,986 360 5.55% 23,505 322 5.55%
Investment securities:
US Treasuries 240,593 3,750 6.25% 154,682 2,373 6.22%
US Government agencies 4,106 71 6.89% 5,616 95 6.89%
Other 569 9 6.59% 4,869 29 2.38%
--------- ---------- ---------- --------- ---------- ----------
Total investment securities 248,161 3,830 6.26% 165,167 2,497 6.13%
Loans, net of discounts (A) 142,666 3,726 10.48% 112,720 2,951 10.62%
--------- ---------- ---------- --------- ---------- ----------
Total interest-earning assets 417,067 7,920 7.67% 302,088 5,778 7.76%
NON-INTEREST BEARING ASSETS:
Cash and due from banks 19,785 14,527
Allowance for possible loan losses (2,503) (2,412)
Other assets 37,257 16,701
--------- ---------
Total assets $ 468,714 $ 330,904
========= =========
INTEREST-BEARING LIABILITIES:
Interest bearing transaction accounts 63,079 416 2.64% 40,816 293 2.91%
Time deposits 289,689 3,131 4.34% 196,350 2,008 4.15%
Other debt 3,277 67 8.20% 3,362 71 8.61%
--------- ---------- ---------- --------- ---------- ----------
Total interest-bearing liabilities 356,045 3,615 4.07% 240,528 2,372 4.00%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 59,051 45,623
Other liabilities 2,892 1,655
--------- ---------
Total liabilities 417,988 287,806
STOCKHOLDERS' EQUITY (F) 50,725 43,098
--------- ---------
Total liabilities and stockholders' equity $ 468,714 $ 330,904
========= =========
Taxable-equivalent net interest income $ 4,305 $ 3,405
Less: taxable-equivalent adjustment
4 4
---------- ----------
Net interest income $ 4,301 $ 3,401
========== ==========
Net interest spread (B) 3.60% 3.76%
========== ==========
Net interest margin (C) 4.17% 4.57%
========== ==========
SELECTED OPERATING RATIOS:
Return on average assets (D) 2.79% 3.21%
========== ==========
Return on average equity (E) 25.79% 24.63%
========== ==========
</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.
11
<PAGE> 12
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 ended March 31, 1998 and 1997.
Non-accruing loans have been included in assets for calculating this table,
thereby reducing the yield on loans. The changes in interest due to both rate
and volume in the table below have been allocated to volume or rate change on a
pro-rata basis.
ANALYSIS OF CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME
<TABLE>
<CAPTION>
March 31, 1998 vs. March 31, 1997
-----------------------------------------
Due to Changes in
Increase -------------------------
(Decrease) Rates Volume
---------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
TAXABLE-EQUIVALENT INTEREST INCOME:
Interest-bearing accounts $ (3) $ 1 $ (4)
Federal funds sold 38 4 34
Investment securities 1,333 123 1,210
Loans, net of discounts 775 (9) 784
---------- --------- ----------
Total taxable-equivalent interest income 2,143 119 2,024
INTEREST EXPENSE:
Interest-bearing deposits 1,247 132 1,115
Other debt (4) (2) (2)
---------- --------- ----------
Total interest expense 1,243 130 1,113
---------- --------- ----------
TAXABLE-EQUIVALENT NET INTEREST INCOME $ 900 $ (11) $ 911
========== ========= ==========
</TABLE>
Taxable-equivalent net interest income for the three months ended March
31, 1998 increased $900,000 or 26% over the same period in 1997. 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.
12
<PAGE> 13
INTEREST RATE SENSITIVITY
Management seeks to maintain consistent growth of net interest income
through periods of changing interest rates by avoiding fluctuating net interest
margins. Interest rate sensitivity is the relationship between changes in market
interest rates and changes in net interest income due to repricing
characteristics of interest earning assets and liabilities.
The following table indicates the Company's interest rate sensitivity
position at March 31, 1998:
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 $ 60,087 $ 8,794 $ 20,585 $ 89,466 $ 59,997 $ 149,463
Investment securities 4,156 7,759 18,239 30,154 218,908 249,062
Federal funds sold 21,484 -- -- 21,484 -- 21,484
Interest-bearing accounts 133 100 -- 233 -- 233
----------- --------- ---------- --------- --------- ---------
Total earning assets $ 85,860 $ 16,653 $ 38,824 $ 141,337 $ 278,905 $ 420,242
=========== ========= ========== ========= ========= =========
Interest-bearing liabilities:
Interest-bearing transaction,
savings and money market 152,072 -- -- 152,072 -- 152,072
Certificates and time deposits 31,319 49,442 107,347 188,102 14,325 202,427
Debt 1,301 2 6 1,309 334 1,643
----------- --------- ---------- --------- --------- ---------
Total interest-bearing
liabilities $ 184,692 $ 49,444 $ 107,347 $ 341,483 $ 14,659 $ 356,142
=========== ========= ========== ========= ========= =========
Interest sensitivity gap $ (98,832) $ (32,791) $ (68,523) $(200,146)
=========== ========= ========== =========
Cumulative gap $ (98,832) $(131,623) $ (200,146) $(200,146)
=========== ========= ========== =========
Ratio of earning assets to
interest-bearing liabilities 46.5% 33.7% 36.2% 41.4%
</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.
13
<PAGE> 14
NON-INTEREST INCOME
The major components of non-interest income are service charges and
fees earned on deposit accounts. The following table summarizes changes in
non-interest income for the three months ended March 31, 1998 and 1997:
NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1998/1997
--------------------------------- ----------------------
MARCH 31, 1998 MARCH 31, 1997 $ CHANGE % CHANGE
-------------- -------------- -------- --------
<S> <C> <C> <C> <C>
Service charges and fees $ 794 $ 630 $ 164 26.0%
Net realized gains (losses) on sales of securities 526 1,091 (565) -51.8%
Net trading profits 1,313 -- 1,313 100.0%
Net gains on sales of other real estate owned -- 7 (7) 100.0%
Miscellaneous income 73 126 (53) -41.8%
-------------- -------------- -------- --------
Total non-interest income $ 2,706 $ 1,854 $ 852 46.0%
============== ============== ======== ========
</TABLE>
The $852,000 or 46.0% increase in non-interest income for the three
months ended March 31, 1998 is due primarily to the $748,000 increase in net
gains and trading account profits over the first quarter of 1997. Excluding the
nonrecurring gains on sales of securities and other real estate owned,
non-interest income increased $111,000 or 14.7% over 1997. The Wells Fargo
branch acquisitions represent the majority of the increase over the prior year
in service charges and fees.
NON-INTEREST EXPENSE
Non-interest expense includes all expenses of the Company other than
interest expense, loan loss provision and income tax expense. The following
table summarizes the changes in non-interest expense for the three months ended
March 31, 1998 and 1997:
NON-INTEREST EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1998/1997
--------------------------------- ----------------------
MARCH 31, 1998 MARCH 31, 1997 $ CHANGE % CHANGE
-------------- -------------- -------- --------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 1,832 $ 1,368 $ 464 33.9%
Occupancy and equipment expenses 570 418 152 36.3%
Data processing fees 70 72 (2) -3.2%
FDIC insurance 12 7 5 71.6%
Insurance 26 25 1 5.5%
Office supplies 164 101 63 62.8%
Postage and courier 134 104 30 29.1%
Professional fees 198 152 46 30.3%
Goodwill 94 7 87 1,242.9%
Miscellaneous other expenses 567 299 268 89.5%
-------------- -------------- -------- --------
Total non-interest expense $ 3,667 $ 2,553 $ 1,114 43.6%
============== ============== ======== ========
</TABLE>
Total non-interest expense for the three months ended March 31, 1998
increased $1,114,000 or 43.6% over 1997. Salaries and benefits rose $464,000 or
33.9% in 1998. Approximately $200,000 or 43% of the increase is related to the
acquisition of the Wells Fargo Bank branches in July 1997. Another factor
increasing salaries and benefits is due to the hiring of additional personnel
for the San Marcos and South Laredo branches which were opened during the first
quarter of 1998. The $152,000 or 36.3% increase in occupancy and equipment
expenses is due mainly to the acquisitions of three bank buildings, the building
of two new branches and to the installation of computer networks at the new
locations. The $87,000 increase in goodwill is a result of the Wells Fargo
branch acquisitions.
14
<PAGE> 15
INCOME TAXES
The Company recognized income tax expense of $60,000 for the three
months ended March 31, 1998 compared to $61,000 for the three months ended March
31, 1997. At March 31, 1998, 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>
MARCH 31, % OF DECEMBER 31, MARCH 31,
1998 TOTAL 1997 1997
--------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Commercial $ 22,711 15.2% $ 22,911 $ 19,731
Real estate construction 10,322 6.9% 10,338 6,990
Real estate mortgage 93,021 62.2% 81,752 68,635
Consumer installment loans,
net of unearned discount 23,409 15.7% 21,312 17,458
--------- ------- ------------ ---------
Total loans $ 149,463 100.0% $ 136,313 $ 112,814
========= ======= ============ =========
</TABLE>
Real estate mortgage loans have shown a 14% and 19% increase since
December 31, 1997 and March 31, 1997, respectively. Real estate loan demand has
increased due to the banks offering home equity loans. The 25% increase in total
loans since December 31, 1997 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 $34,000 for the three months
ended March 31, 1998 compared to net charge-offs of $2,000 for the three months
ended March 31, 1997.
15
<PAGE> 16
The following table summarizes, for the periods presented, the activity
in the allowance for loan losses arising from provisions credited to operations,
loans charged off and recoveries of loans previously charged off.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months ended March 31,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Average loans outstanding $ 142,666 $ 112,720
Balance of allowance for loan losses at beginning of year $ 2,458 $ 2,408
Provision for loan losses 20 25
Charge-Offs:
Commercial 5 18
Real estate construction -- --
Real estate mortgage 15 1
Consumer installment 57 34
---------- ----------
Total charge-offs 77 53
---------- ----------
Recoveries:
Commercial 4 8
Real estate construction -- --
Real estate mortgage 23 11
Consumer installment 84 32
---------- ----------
Total recoveries 111 51
---------- ----------
Net charge-offs (recoveries) (34) 2
---------- ----------
Balance of allowance for loan losses at end of period $ 2,512 $ 2,431
========== ==========
Net charge-offs (recoveries) as a percentage
of average loans outstanding -0.02% 0.00%
========== ==========
ALLOWANCE FOR LOAN LOSSES AS A PERCENTAGE OF:
Total loans, net of unearned discount 1.68% 2.16%
========== ==========
Non-performing assets 164.40% 154.55%
========== ==========
</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.
16
<PAGE> 17
The following table discloses non-performing assets and loans ninety
days past due and still accruing interest as of March 31, 1998 and December 31,
1997: (Dollars in thousands)
NON-PERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Non-accrual loans $ 1,216 $ 1,314
Foreclosed real estate 312 271
----------- ------------
Total non-performing assets $ 1,528 $ 1,625
=========== ============
NON-PERFORMING ASSETS AS A PERCENTAGE OF:
Total assets 0.32% 0.34%
Total loans plus foreclosed real estate 1.02% 1.16%
Accruing loans past due 90 days or more $ 444 $ 40
</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 March 31, 1998 were "core" deposits. Core
deposits, for this purpose, are defined as total deposits less public funds and
certificates of deposit greater than $100,000.
At March 31, 1998, the Company's liquid assets amounted to $193 million
or 41% of total gross assets, compared to 39% at March 31, 1997. 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 line of credit with the
Federal Home Loan 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 $10.7 million to $54.8 million at
March 31, 1998 from $44.1 million at March 31, 1997. The ratio of total
stockholders' equity to total assets was 11.5% at March 31, 1998 compared with
13.2% at March 31, 1997.
17
<PAGE> 18
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 March 31, 1998:
<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) $ 459,569 $ 239,768 $ 74,909 $110,856 $ 27,321
Risk weighted assets (net of goodwill) $ 166,668 $ 78,632 $ 49,827 $ 26,750 $ 16,829
Tier 1 capital $ 43,198 $ 16,012 $ 7,771 $ 6,147 $ 3,442
Total capital $ 45,286 $ 16,995 $ 8,335 $ 6,481 $ 3,656
Leverage ratio 9.40% 6.68% 10.37% 5.55% 12.60%
Risk based capital ratios:
Tier 1 27.17% 20.36% 15.60% 22.98% 20.45%
Total capital 25.92% 21.61% 16.73% 24.23% 21.72%
</TABLE>
18
<PAGE> 19
PART II - OTHER INFORMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 11.1 Statement Regarding computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
19
<PAGE> 20
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NATIONAL BANCSHARES CORPORATION OF TEXAS
Date: May 13, 1998 By: /s/ Anne Renfroe
-------------------------------------
Anne Renfroe, Chief Accounting
Officer and Principal Financial
Officer
20
<PAGE> 21
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>
FOR THE THREE MONTHS ENDED MARCH 31,
---------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 3,261 $ 2,617
BASIC EPS
Income available
to common shareholders $ 3,261 4,659 $ 0.70 $ 2,617 4,659 $ 0.56
========= =========
EFFECT OF DILUTIVE SECURITIES
Stock options 123 75
------------- -------------
DILUTIVE EPS
Income available to common shareholders
+ assumed conversions $ 3,261 4,782 $ 0.68 $ 2,617 4,734 $ 0.55
=========== ============= ========= =========== ============= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 22,109
<INT-BEARING-DEPOSITS> 234
<FED-FUNDS-SOLD> 21,484
<TRADING-ASSETS> 7,120
<INVESTMENTS-HELD-FOR-SALE> 106,577
<INVESTMENTS-CARRYING> 142,485
<INVESTMENTS-MARKET> 108,538
<LOANS> 149,463
<ALLOWANCE> 2,512
<TOTAL-ASSETS> 476,937
<DEPOSITS> 416,230
<SHORT-TERM> 2,078
<LIABILITIES-OTHER> 2,227
<LONG-TERM> 1,643
0
0
<COMMON> 5
<OTHER-SE> 54,759
<TOTAL-LIABILITIES-AND-EQUITY> 476,937
<INTEREST-LOAN> 3,722
<INTEREST-INVEST> 3,830
<INTEREST-OTHER> 364
<INTEREST-TOTAL> 7,916
<INTEREST-DEPOSIT> 3,547
<INTEREST-EXPENSE> 67
<INTEREST-INCOME-NET> 4,302
<LOAN-LOSSES> 20
<SECURITIES-GAINS> 1,839
<EXPENSE-OTHER> 3,667
<INCOME-PRETAX> 3,321
<INCOME-PRE-EXTRAORDINARY> 3,321
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,261
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 7.67
<LOANS-NON> 1,216
<LOANS-PAST> 444
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,070
<ALLOWANCE-OPEN> 2,458
<CHARGE-OFFS> 77
<RECOVERIES> 111
<ALLOWANCE-CLOSE> 2,512
<ALLOWANCE-DOMESTIC> 2,512
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,405
</TABLE>
