<PAGE>
================================================================================
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, 2000
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)
12400 HWY 281 NORTH, SAN ANTONIO, TEXAS 78216-2811
(Address of principal executive offices)
(210) 403-4200
(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: 4,022,272 shares of
Common Stock, $.001 par value, outstanding as of July 18, 2000.
================================================================================
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 17,856 $ 30,394
Interest-bearing accounts 3,630 2,306
Federal funds sold 44,998 11,949
Investment securities available for sale 220,229 221,268
Investment securities held to maturity 2,040 66
Loans, net of discounts 245,650 247,406
Allowance for possible loan losses (3,172) (2,841)
Bank premises and equipment, net 19,995 19,784
Goodwill 8,239 8,427
Other assets 9,633 11,025
------------------ -----------------
Total Assets $ 569,098 $ 549,784
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits - non-interest bearing $ 78,467 $ 70,629
Interest-bearing transaction accounts (NOW) 79,207 82,717
Savings and money market accounts 119,901 110,433
Certificates and time deposits under $100,000 134,432 131,322
Certificates and time deposits $100,000 and over 97,520 94,639
------------------ -----------------
Total Deposits 509,527 489,740
------------------ -----------------
Accrued interest payable and other liabilities 2,966 2,394
Other borrowings 1,236 2,317
Long term notes payable 3,693 4,700
------------------ -----------------
Total Liabilities 517,422 499,151
Stockholders' Equity:
Common Stock, $.001 par value, 100,000,000 shares authorized, 4,751,834
issued and 4,043,372 outstanding at June 30, 2000 and
4,669,834 issued and 4,111,834 outstanding at December 31, 1999 5 5
Additional paid-in capital 31,903 30,909
Retained earnings 33,723 31,421
Accumulated other comprehensive income (loss) (1,895) (1,751)
Treasury Stock, at cost (708,462 shares in 2000, 558,000 in 1999) (12,060) (9,951)
------------------ -----------------
Total Stockholders' Equity 51,676 50,633
------------------ -----------------
Total Liabilities and Stockholders' Equity $ 569,098 $ 549,784
================== =================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
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, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 5,619 $ 4,895 $ 11,287 $ 9,383
Interest on investment securities 3,469 3,595 6,861 7,136
Interest on federal funds sold 651 202 1,004 582
Interest on deposits in banks 49 29 82 59
-------------- ------------- -------------- ---------------
TOTAL INTEREST INCOME 9,788 8,721 19,234 17,160
INTEREST EXPENSE:
Interest on deposits 4,443 3,574 8,696 7,145
Interest on debt 136 194 258 386
-------------- ------------- -------------- ---------------
TOTAL INTEREST EXPENSE 4,579 3,768 8,954 7,531
NET INTEREST INCOME 5,209 4,953 10,280 9,629
Less: Provision for possible loan losses 138 151 328 275
-------------- ------------- -------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 5,071 4,802 9,952 9,354
NON-INTEREST INCOME:
Service charges and fees 1,149 894 2,160 1,705
Net realized gains on sales of securities 520 6 526 35
Net gains on sales of other real estate and
assets - 29 11 55
Miscellaneous income 58 62 128 331
-------------- ------------- -------------- ---------------
TOTAL NON-INTEREST INCOME 1,727 991 2,825 2,126
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,452 2,215 4,872 4,438
Occupancy and equipment expenses 864 815 1,693 1,535
Goodwill amortization 94 94 188 188
Other expenses 1,251 1,122 2,406 2,279
-------------- ------------- -------------- ---------------
TOTAL NON-INTEREST EXPENSE 4,661 4,246 9,159 8,440
INCOME BEFORE FEDERAL INCOME TAXES 2,137 1,547 3,618 3,040
Federal income tax expense 774 394 1,316 1,050
-------------- ------------- -------------- ---------------
NET INCOME $ 1,363 $ 1,153 $ 2,302 $ 1,990
============== ============= ============== ===============
BASIC EARNINGS PER SHARE $ 0.33 $ 0.28 $ 0.56 $ 0.48
============== ============= ============== ===============
DILUTED EARNINGS PER SHARE $ 0.33 $ 0.27 $ 0.55 $ 0.47
============== ============= ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
---------------------------- COMPREHENSIVE
NUMBER PAR PAID-IN RETAINED TREASURY INCOME(LOSS),
OF SHARES CAPITAL EARNINGS STOCK NET OF TAX TOTAL
------------------ --------- --------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 4,197 $ 5 $ 28,629 $ 28,683 $ (8,506) $ 3,395 $ 52,206
Net income -- -- -- 2,738 -- -- 2,738
Unrealized loss on securities AFS,
net of tax and reclassification
adjustment -- -- -- -- -- (5,146) (5,146)
---------
Total comprehensive income (loss) (2,408)
---------
Reduction of deferred tax valuation -- -- 2,227 -- -- -- 2,227
allowance
Exercise of Common Stock options 9 -- 53 -- -- -- 53
Treasury stock purchased (94) -- -- -- (1,445) -- (1,445)
--------- -------- --------- --------- --------- ----------- ---------
BALANCE AT DECEMBER 31, 1999 4,112 5 30,909 31,421 (9,951) (1,751) 50,633
Net income -- -- -- 2,302 -- -- 2,302
Unrealized loss on securities AFS,
net of tax and reclassification
adjustment -- -- -- -- -- (144) (144)
---------
---------
Total comprehensive income (loss) 2,158
---------
Reduction of deferred tax valuation -- -- 482 -- -- -- 482
allowance
Exercise of Common Stock options 82 -- 512 -- -- -- 512
Treasury stock purchased (151) -- -- -- (2,109) -- (2,109)
--------- -------- --------- --------- --------- ----------- ---------
BALANCE AT JUNE 30, 2000 4,043 $ 5 $ 31,903 $ 33,723 $(12,060) $ (1,895) $ 51,676
========= ======== ========= ========= ========= =========== =========
</TABLE>
Disclosure of reclassification
amount:
<TABLE>
<S> <C>
2000
----
Unrealized loss on securities arising during period $ (491)
Reclassification adjustment for gains included in income, net of tax of $180 347
---------
Net unrealized loss on securities, net of tax $ (144)
=========
1999
----
Unrealized loss on securities arising during period $ (4,063)
Reclassification adjustment for losses included in income, net of tax benefit of
($558) (1,083)
---------
Net unrealized loss on securities, net of tax $ (5,146)
=========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
NATIONAL BANCSHARES CORPORATION OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,302 $ 1,990
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,187 1,085
Tax benefit realized from utilization of deferred tax assets 482 971
Provision for possible loan losses 328 275
Net realized gain on securities available for sale (526) (35)
Write-down of other real estate owned - 23
Gain on sale of other real estate owned and other assets (11) (55)
Decrease (increase) in accrued interest receivable and other assets 766 (699)
Increase in accrued interest payable and other liabilities 574 306
--------------- ---------------
Net cash provided by operating activities 5,102 3,861
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in federal funds sold (33,049) 15,132
Net (increase) decrease in interest-bearing accounts (1,331) 101
Net decrease (increase) in loans 1,759 (30,050)
Purchases of securities available for sale (17,160) (23,571)
Proceeds from sales of securities available for sale 16,691 2,584
Proceeds from maturities of securities available for sale 1,700 13,090
Purchases of securities held to maturity (1,973) -
Proceeds from maturities of securities held to maturity - 4,234
Capital expenditures (1,091) (2,019)
Proceeds from sale of other real estate owned 713 180
--------------- ---------------
Net cash used in investing activities (33,741) (20,319)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts,
savings and money-market accounts 13,796 12,995
Net increase in certificates of deposit and time deposits 5,991 5,650
Proceeds from advances on other borrowings and long term debt 2,039 2,413
Principal payments on other borrowings and long term debt (4,128) (2,282)
Purchase of treasury stock (2,109) (564)
Proceeds from exercise of common stock options 512 6
--------------- ---------------
Net cash provided by financing activities 16,101 18,218
Net increase (decrease) in cash and due from banks (12,538) 1,760
Cash and due from banks at beginning of the year 30,394 16,473
--------------- ---------------
Cash and due from banks at end of the period $ 17,856 $ 18,233
=============== ===============
SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,598 $ 7,575
Federal income taxes paid 80 142
Non-cash items:
Loans originated to facilitate the sale of foreclosed assets - 87
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
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 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. All
significant intercompany balances and transactions have been eliminated.
Certain items in prior period'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, 2000 are not necessarily indicative of
the results that may be reported for the entire period. 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, 1999.
NOTE 2 - SUBSIDIARIES
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, NBT Securities Holdings, Inc. and NBT
of Delaware, Inc. It also includes the accounts of NBT Securities
Holdings, Inc.'s wholly-owned subsidiary, NBC Financial, Inc. and the
accounts of NBT of Delaware, Inc.'s wholly-owned subsidiaries (i) NBC
Bank, N.A. (Eagle Pass, Texas); (ii) NBC Bank - Laredo, N.A. (Laredo,
Texas); (iii) NBC Bank (Rockdale, Texas); (iv) NBC Bank - Central, N.A.
(Luling, Texas); and (v) NBC Holdings - Texas, Inc. (San Antonio, 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, 2000 and
December 31, 1999 (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 2000
--------------------------------------------------
AMORTIZED GROSS GROSS APPROXIMATE
COST UNREALIZED UNREALIZED FAIR VALUE
GAINS LOSSES
--------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $154,290 $ 125 $ (650) $ 153,765
U.S. Government agency and mortgage-backed securities 65,102 45 (1,648) 63,499
Other securities including Federal Reserve Bank stock 3,708 - (743) 2,965
---------- ----------- ----------- ---------------
Total $223,100 $ 170 $ (3,041) $ 220,229
========== =========== =========== ===============
SECURITIES HELD TO MATURITY:
U.S. Government agency and mortgage-backed securities $ 1,974 $ 35 $ - $ 2,009
Foreign debt securities 66 - (4) 62
---------- ----------- ----------- ---------------
Total $ 2,040 $ 35 $ (4) $ 2,071
========== =========== =========== ===============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
---------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $163,546 $ 214 $ (523) $ 163,237
U.S. Government agency and mortgage-backed securities 54,665 7 (1,257) 53,415
Other securities including Federal Reserve Bank stock 5,710 - (1,094) 4,616
------------ ---------- ----------- ----------------
Total $223,921 $ 221 $ (2,874) $ 221,268
============ ========== =========== ===============
SECURITIES HELD TO MATURITY:
Foreign debt securities 66 - (5) 61
------------ ---------- ----------- ----------------
Total $ 66 $ - $ (5) $ 61
============ ========== =========== ===============
</TABLE>
Unrealized gains and losses on investment securities held at June 30,
2000 and December 31, 1999 have been determined to be temporary market
fluctuations.
The following table shows the maturity schedule of the Company's
investment portfolio as of June 30, 2000 (Dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------------------------------------------
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 $ 20,464 $ 20,467 $ 16 $ 15
Due in one year to five years 129,672 128,590 1,039 1,049
Due from five to ten years 59,731 58,828 - -
Due after ten years 1,432 1,415 - -
------------ ---------------- ------------ ----------------
Total $ 211,299 $ 209,300 $ 1,055 $ 1,064
Equity Securities 3,338 2,594 - -
Mortgage backed securities 8,093 7,965 985 1,007
Federal Reserve Bank Stock 370 370 - -
------------ ---------------- ------------ ----------------
Total $ 223,100 $ 220,229 $ 2,040 $ 2,071
============ ================ ============ ================
</TABLE>
The carrying value of investment securities pledged to secure public
funds amounted to approximately $87,354,000 at June 30, 2000 and
$92,225,000 at December 31, 1999.
NOTE 4 - LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
An analysis of the allowance for possible loan losses for the six
months ended June 30, 2000 and 1999 is presented below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------- ---------------
JUNE 30, 2000 JUNE 30, 1999
-------------- ---------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of year $ 2,841 $ 2,670
Provisions for possible loan losses 328 275
Losses charged to the allowance (113) (101)
Recoveries credited to the allowance 116 52
-------------- ---------------
Net recoveries (charge-offs) 3 (49)
-------------- ---------------
Balance at end of period $ 3,172 $ 2,896
============== ===============
</TABLE>
7
<PAGE>
A loan 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 June 30, 2000 and
1999, the Banks had impaired loans of $1,763,000 and $1,884,000,
respectively. The allowance for loan losses related to those loans was
$297,000 and $242,000, respectively. The average recorded investment in
impaired loans during the six months ended June 30, 2000 and 1999, was
$1,898,000 and $1,189,000, respectively. Interest income of approximately
$43,000 and $27,000 on impaired loans was recognized for cash payments
received during the six months ended June 30, 2000 and 1999,
respectively.
NOTE 5 - OTHER BORROWINGS AND NOTES PAYABLE
On June 30, 2000, NBT of Delaware, Inc. maintained a margin account which
is secured by investment securities. The interest rate is variable (8.00%
at June 30, 2000). The balance at June 30, 2000 was $320,000.
On October 2, 1999, the Company executed a $3,237,000 note with The
Independent BankersBank in Dallas. The note bears a variable interest
rate at prime rate as published by the Wall Street Journal (9.50% at June
30, 2000). Principal payments of $161,825 plus interest are due quarterly
beginning January 2, 2000 with unpaid principal plus accrued interest due
at maturity. The note matures on October 2, 2002. The note is
collateralized by the common stock of NBT of Delaware, Inc. and the stock
of the subsidiary banks. The balance at June 30, 2000 was $1,761,000. The
Company also executed a one year $1 million revolving line of credit
dated October 29, 1999 with The Independent BankersBank. The line bears
interest at Wall Street Journal prime (9.50% at June 30) with any
outstanding interest to be paid quarterly. The outstanding balance at
June 30, 2000 was $916,000. The Company has met or obtained waivers for
all debt covenants at June 30, 2000.
In July 1995, September 1998, December 1998 and January 1999, a
subsidiary Bank borrowed $175,000, $100,000, $1,250,000 and $1,000,000,
respectively, from the Federal Home Loan Bank of Dallas. The notes bear
interest rates of 6.393%, 5.15%, 5.126%, and 5.216%, respectively. The
maturity dates of the notes are August 2015, October 2018, January 2004,
and February 2004, respectively. Principal and interest payments are due
monthly in the approximate amount of $45,000 per month in the aggregate
with the remaining balances due at maturity. The aggregate balance
outstanding at June 30, 2000 was $1,931,000.
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, JUNE 30,
2000 1999
-------------- -------------
<S> <C> <C>
Tax based on statutory rate $ 1,230 $ 1,034
Effect of tax-exempt income (8) (9)
Interest and other nondeductible expenses 6 --
Alternative minimum tax 40 61
Goodwill 14 12
Other, net 34 (48)
-------------- -------------
$ 1,316 $ 1,050
============== =============
</TABLE>
For Federal income tax purposes, the Company has approximately $88
million in net operating loss carryforwards as of June 30, 2000 which
will be available to reduce income tax liabilities in future years. The
preconfirmation net operating loss carryforwards arose from the Company's
emergence from a reorganization under Chapter 11 of the United States
Bankruptcy Code in May 1992. If unused, approximately $84 million of such
carryforwards will expire in 2005, with the remaining approximately $4
million expiring in 2006.
8
<PAGE>
Pursuant to SFAS No. 109, the Company has available certain deductible
temporary differences and net operating loss carryforwards for use in
future tax reporting periods, which created deferred tax assets. SFAS No.
109 requires that deferred tax assets be reduced by a valuation allowance
if, based on the weight of the available evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized. During the six months ended June 30, 2000 and 1999, the
deferred tax asset valuation allowance was reduced by $482,000 and
$971,000, respectively, to adjust the recorded net deferred tax asset to
an amount considered more likely than not to be realized. The deferred
tax asset net of the valuation allowance and recorded on the books of the
Company was $3,691,000 at June 30, 2000. Realization of this asset is
dependent on generating sufficient taxable income prior to the expiration
of the loss carryforwards. Realization could also be affected by a
significant ownership change of the Company over a period of three years
as set forth in the Internal Revenue Code. Although realization of the
net deferred tax asset is not assured because of these uncertainties,
management believes it is more likely than not that the recorded deferred
tax asset will be realized.
In accordance with AICPA SOP No. 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code", income tax benefits
recognized from preconfirmation net operating loss carryforwards and
other tax assets are used first to reduce the reorganization value in
excess of amounts allocable to identifiable assets and then to increase
additional paid-in capital.
NOTE 7 - INTANGIBLE ASSETS
The excess cost over fair value of net assets of businesses acquired
(goodwill) is amortized on a straight-line basis over 25 years.
Intangible assets are included in other assets. All such intangible
assets are periodically evaluated as to the recoverability of their
carrying value. The Company acquired three Wells Fargo branches in July
1997 and the First National Bank in Luling in September 1996 which
created the goodwill.
NOTE 8 - STOCK REPURCHASE PLAN
The Company has a stock repurchase plan authorizing management to
purchase up to 900,000 shares of the Company's common stock through the
open market based on market conditions. In the first six months of 2000
and 1999, 150,462 shares and 34,500 shares were purchased by the Company
through the open market at an average cost of $13.53 and $16.34 per
share, respectively.
9
<PAGE>
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
AND ACCOMPANYING NOTES APPEARING ELSEWHERE IN THIS REPORT.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 2000 was $1,363,000 or
$0.33 per diluted share compared with $1,153,000 or $0.27 per diluted
share for the three months ended June 30, 1999. Net interest income for
the three months ended June 30, 2000 increased $256,000 over the same
period of 1999 which is due primarily to a 10.8% growth in the loan
portfolio. Non-interest expenses were up $415,000, or 9.8%, for the three
months ended June 30, 2000 compared to the three months ended June 30,
1999. This was due in part to salaries and benefits associated with the
opening of the broker-dealer, NBC Financial, Inc., which began operations
in September 1999 in addition to approximately $80,000 due to occupancy
and salary expenses of a third branch opened in Laredo, Texas in April
2000. Non-interest income increased $736,000 for the three months ended
June 30, 2000 compared to the three months ended June 30, 1999. The
non-interest income increase included a realized gain on the sale of
securities of $520,000 compared to $35,000 in the second quarter of 1999
for the gains on the sales of securities and other real estate. Excluding
the non-recurring items, non-interest income increased $251,000 or 26%
due primarily to the increase in service charges and fee income from
$894,000 for the period ended June 1999 to $1,149,000 for the period
ended June 2000. Excluding the non-recurring items, net income for the
three months ended June 30, 2000 and June 30, 1999 was $1,035,000 or
$0.25 per diluted share and $968,000 or $0.23 per diluted share,
respectively.
Net income for the six months ended June 30, 2000 was $2,302,000 or
$0.55 per diluted share compared to $1,990,000 or $0.47 per diluted share
for the six months ended June 30, 1999. Excluding non-recurring items of
$537,000 and $90,000 for securities and other real estate gains as of
June 30, 2000 and 1999, respectively, net income was $1,972,000 or $0.47
per diluted share compared to $1,888,000 or $0.44 per diluted share,
respectively.
Average assets have increased $44 million or 8.5% to $564 million for
the six months ended June 30, 2000 from an average of $520 million for
the six months ended June 30, 1999. Average earning assets increased 9.3%
for the six months ended June 30, 2000 compared to June 30, 1999.
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 $651,000 or 6.8% in net interest income for
the six months ended June 30, 2000 compared to the same period in 1999
was due primarily to internal loan growth. For the six months ended June
30, 2000 average loans increased $38 million or 18.5% over the same
period in 1999. Interest income increased $2,074,000 or 12.1% over the
same period in 1999 due primarily to internal loan growth. Interest
expense increased $1,423,000 or 18.9% over the same period in 1999 due
primarily to an increase in the rates being paid on deposits. The net
interest margin for the six months ended June 30, 2000 decreased 8 basis
points to 4.11% when compared to June 30, 1999. 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 3.51% for the
six months ended June 30, 2000 from 3.70% at June 30, 1999. The decrease
in the net interest spread is primarily due to the increase in rates
being paid on deposits.
10
<PAGE>
INTEREST EARNED/INCURRED AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
--------------------------------- --------------------------------
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 $ 3,490 $ 49 5.63% $ 2,282 $ 29 5.10%
Federal funds sold 41,613 651 6.27% 17,427 202 4.65%
Investment securities (F):
US Treasuries 155,356 2,401 6.20% 202,031 3,170 6.29%
US Government agencies 66,491 1,054 6.36% 24,698 354 5.75%
Other 719 15 8.37% 1,696 71 16.79%
--------------------------------- --------------------------------
Total investment securities 222,566 3,470 6.25% 228,425 3,595 6.31%
Loans, net of discounts (A) 241,674 5,622 9.33% 216,250 4,902 9.09%
--------------------------------- --------------------------------
Total interest-earning assets 509,343 9,792 7.71% 464,384 8,728 7.54%
NON-INTEREST BEARING ASSETS:
Cash and due from banks 19,942 17,853
Allowance for possible loan losses (3,089) (2,808)
Other assets 42,767 45,133
---------- ----------
Total assets $ 568,963 $ 524,562
========== ==========
INTEREST-BEARING LIABILITIES:
Interest bearing transaction accounts 78,273 570 2.92% 65,183 387 2.38%
Savings, money market and certificates of
deposit 346,845 3,873 4.48% 322,041 3,187 3.97%
Other debt 6,897 136 7.91% 11,440 194 6.80%
--------------------------------- --------------------------------
Total interest-bearing liabilities 432,015 4,579 4.25% 398,664 3,768 3.79%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 79,372 72,192
Other liabilities 3,826 3,052
---------- ----------
Total liabilities 515,213 473,908
STOCKHOLDERS' EQUITY (F) 53,750 50,654
---------- ----------
Total liabilities and stockholders'
equity $ 568,963 $ 524,562
========== ==========
Taxable equivalent net interest income 5,213 4,960
Less: taxable equivalent adjustment 4 7
----------- ----------
Net interest income $ 5,209 $ 4,953
=========== ==========
Net interest spread (B) 3.46% 3.75%
============ ============
Net interest margin (C) 4.11% 4.27%
============ ============
SELECTED OPERATING RATIOS:
Return on assets (D) 0.96% 0.88%
============ ============
Return on equity (E) 10.17% 9.13%
============ ============
</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 annualized net interest
income divided by average interest-earning assets.
(D) The return on assets ratio was computed by dividing annualized net income by
average total assets.
(E) The return on equity ratio was computed by dividing annualized 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>
INTEREST EARNED/INCURRED AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED FOR SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
--------------------------------- --------------------------------
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 $ 2,931 $ 82 5.68% $ 2,304 $ 59 5.16%
Federal funds sold 33,091 1,004 6.08% 22,577 582 5.20%
Investment securities (F):
US Treasuries 158,283 4,890 6.20% 207,368 6,462 6.28%
US Government agencies 62,023 1,941 6.28% 18,682 534 5.76%
Other 710 30 8.47% 1,644 141 17.30%
--------------------------------- --------------------------------
Total investment securities 221,016 6,861 6.23% 227,694 7,137 6.32%
Loans, net of discounts (A) 245,434 11,295 9.23% 207,091 9,393 9.15%
--------------------------------- --------------------------------
Total interest-earning assets 502,472 19,242 7.68% 459,666 17,171 7.53%
NON-INTEREST BEARING ASSETS:
Cash and due from banks 21,625 18,185
Allowance for possible loan losses (2,998) (2,764)
Other assets 43,223 44,856
---------- ----------
Total assets $ 564,322 $ 519,943
========== ==========
INTEREST-BEARING LIABILITIES:
Interest bearing transaction accounts 79,186 1,146 2.90% 65,127 778 2.41%
Savings, money market and certificates of
deposit 344,017 7,550 4.40% 319,223 6,367 4.02%
Other debt 6,985 258 7.41% 11,601 386 6.71%
--------------------------------- --------------------------------
Total interest-bearing liabilities 430,188 8,954 4.17% 395,951 7,531 3.84%
NON-INTEREST BEARING LIABILITIES:
Demand deposits 76,928 71,057
Other liabilities 3,645 3,025
---------- ----------
Total liabilities 510,761 470,033
STOCKHOLDERS' EQUITY (F) 53,561 49,910
---------- ----------
Total liabilities and stockholders'
equity $ 564,322 $ 519,943
========== ==========
Taxable equivalent net interest income 10,288 9,640
Less: taxable equivalent adjustment 8 11
----------- ----------
Net interest income $ 10,280 $ 9,629
=========== ==========
Net interest spread (B) 3.51% 3.70%
============ ============
Net interest margin (C) 4.11% 4.19%
============ ============
SELECTED OPERATING RATIOS:
Return on assets (D) 0.82% 0.77%
============ ============
Return on equity (E) 8.62% 8.04%
============ ============
</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 annualized taxable-equivalent net interest
income divided by average interest-earning assets.
(D) The return on assets ratio was computed by dividing annualized net income by
average total assets.
(E) The return on equity ratio was computed by dividing annualized 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.
12
<PAGE>
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 and six months ended
June 30, 2000 and 1999. 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>
THREE MONTHS ENDED JUNE 30, 2000
VS. JUNE 30, 1999
---------------------------------------------
DUE TO CHANGE IN
INCREASE ------------------------------
(DECREASE) RATE VOLUME
----------------------------- --------------
<S> <C> <C> <C>
Taxable-equivalent interest income:
Interest-bearing accounts............... $ 20 $ 3 $ 17
Federal funds sold...................... 449 90 359
Investment securities................... (125) (33) (92)
Loans, net of unearned discount......... 720 131 589
-------------- -------------- --------------
Total taxable-equivalent
interest income................... 1,064 191 873
-------------- -------------- --------------
Interest expense:
Interest-bearing accounts............... 869 546 323
Other debt.............................. (58) 163 (221)
-------------- -------------- --------------
Total interest expense............... 811 709 102
-------------- -------------- --------------
Taxable-equivalent
net interest income..................... $ 253 $ (518) $ 771
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
VS. JUNE 30, 1999
---------------------------------------------
DUE TO CHANGE IN
INCREASE ------------------------------
(DECREASE) RATE VOLUME
----------------------------- --------------
<S> <C> <C> <C>
Taxable-equivalent interest income:
Interest-bearing accounts................... $ 24 $ 6 $ 18
Federal funds sold.......................... 422 113 309
Investment securities....................... (276) (94) (182)
Loans, net of unearned discount............. 1,901 88 1,813
-------------- -------------- --------------
Total taxable-equivalent
interest income....................... 2,071 113 1,958
-------------- -------------- --------------
Interest expense:
Interest-bearing accounts................... 1,551 889 662
Other debt.................................. (128) 102 (230)
-------------- -------------- --------------
Total interest expense................... 1,423 991 432
-------------- -------------- --------------
Taxable-equivalent
net interest income......................... $ 648 $ (878) $ 1,526
============== ============== ==============
</TABLE>
Taxable-equivalent net interest income for the six months ended June
30, 2000 increased $648,000 or 6.7% over the same period in 1999. The
increase is reflected in the increase in the volume of earning assets
offset by the increase in the volume and rate of interest bearing
liabilities.
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.
13
<PAGE>
The following table indicates the Company's interest rate sensitivity
position at June 30, 2000:
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 $ 64,204 $ 12,391 $ 21,822 $ 98,417 $ 147,233 $ 245,650
Investment securities 2,000 3,999 14,680 20,679 201,590 222,269
Federal funds sold 44,998 -- -- 44,998 -- 44,998
Interest-bearing accounts 356 100 2,514 2,970 660 3,630
------------ ------------ ----------- ------------ ----------- -------------
Total earning assets $ 111,558 $ 16,490 $ 39,016 $ 167,064 $ 349,483 $ 516,547
============ ============ =========== ============ =========== =============
Interest-bearing liabilities:
Interest-bearing
transaction, savings and
money market 199,108 -- -- 199,108 -- 199,108
Certificates and time
deposits 46,800 69,413 106,158 222,371 9,581 231,952
Debt 1,272 73 335 1,680 3,249 4,929
------------ ------------ ----------- ------------ ----------- -------------
Total interest-
bearing
liabilities $ 247,180 $ 69,486 $ 106,493 $ 423,159 $ 12,830 $ 435,989
============ ============ =========== ============ =========== =============
Interest sensitivity gap $ (135,622) $ (52,996) $ (67,477) $ (256,095)
============ ============ =========== ============
Cumulative gap $ (135,622) $ (188,618) $(256,095) $ (256,095)
============ ============ =========== ============
Ratio of earning assets to
interest-bearing
liabilities 45.1% 23.7% 36.6% 39.5%
</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.
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, 2000 and 1999:
NON-INTEREST INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED 2000/1999
--------------------------- --------------------------
JUNE 30, JUNE 30,
2000 1999 $ CHANGE % CHANGE
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Service charges and fees $ 2,160 $ 1,705 $ 455 26.7%
Net realized gains on sales of securities 526 35 491 1,402.9%
Net gains on sales of other real estate owned and
assets 11 55 (44) -80.0%
Miscellaneous income 128 331 (203) -61.3%
------------- ------------- ----------- -------------
Total non-interest income $ 2,825 $ 2,126 $ 699 32.9%
============= ============= =========== =============
</TABLE>
The $699,000 or 32.9% increase in non-interest income for the six
months ended June 30, 2000 over the six months ended June 30, 1999 is due
to a $455,000 increase in service charges and fees. In addition, there
was
14
<PAGE>
a $447,000 increase in non-recurring gains on the sales of securities
and other real estate. Excluding the non-recurring items, non-interest
income increased $252,000 or 12.4% over the six months ended June 30,
1999.
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, 2000 and 1999:
NON-INTEREST EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED 2000/1999
------------------------------- --------------------------
JUNE 30, JUNE 30,
2000 1999 $ CHANGE % CHANGE
---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 4,872 $ 4,438 $ 434 9.8%
Occupancy and equipment expenses 1,693 1,535 158 10.3%
Data processing fees 192 164 28 17.1%
FDIC insurance 50 26 24 92.3%
Insurance 69 67 2 3.0%
Office supplies 291 355 (64) -18.0%
Postage and courier 269 258 11 4.3%
Professional fees 505 388 117 30.2%
Advertising/Marketing 154 174 (20) -11.5%
Goodwill amortization 188 188 0 0.0%
Miscellaneous other expenses 876 847 29 3.4%
---------------- -------------- ------------ -------------
Total non-interest expense $ 9,159 $ 8,440 $ 719 8.5%
================ ============== ============ =============
</TABLE>
Total non-interest expense for the six months ended June 30, 2000
increased $719,000 or 8.5% over 1999. Salaries and benefits rose $434,000
or 9.8% in 2000. Salaries and benefits increased due to the hiring of
personnel for NBC Financial, Inc., the broker-dealer that began
operations in September 1999, in addition to the hiring of additional
personnel for a new branch opened in Laredo, Texas in April 2000. The
$158,000 or 10.3% increase in occupancy and equipment expenses is due to
increased equipment costs and rent for the Company's data center and
because of the expenses associated with the new equipment and building at
the new branch opened in Laredo, Texas in April 2000.
INCOME TAXES
The Company recognized income tax expense of $1,316,000 for the six
months ended June 30, 2000 compared to $1,050,000 for the six months
ended June 30, 1999. At June 30, 2000, the Company had approximately $88
million in net operating loss carryforwards that will be available to
reduce income tax liabilities in future years. If unused, approximately
$84 million of such carryforwards will expire in 2005, with the remaining
approximately $4 million expiring in 2006.
15
<PAGE>
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, % OF JUNE 30,
2000 TOTAL 1999 TOTAL 1999
-------------- --------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Commercial $ 39,684 16.2% $ 46,203 18.7% $ 37,407
Real estate construction 20,608 8.4% 21,959 8.9% 18,704
Real estate mortgage 158,077 64.4% 152,292 61.6% 139,160
Consumer installment,
net of unearned discount 27,281 11.1% 26,952 10.9% 26,950
-------------- --------- --------------- --------- ------------
Total loans $ 245,650 100.0% $ 247,406 100.0% $ 222,221
============== ========= =============== ========= ============
</TABLE>
Total loans have decreased 1.0% since December 31, 1999 and increased
10.5% since June 30, 1999, respectively. Real estate mortgage loans have
shown a 3.7% and 13.5% increase since December 31, 1999 and June 30,
1999, respectively.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible 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 the Company'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 Banks' market areas are
pertinent factors in determining the adequacy of the allowance for
possibleloan losses. Loans identified as losses by management, external
loan review or bank examiners are charged-off.
The Company recorded net recoveries of $3,000 for the six months ended
June 30, 2000 compared to net charge-offs of $49,000 for the six months
ended June 30, 1999.
16
<PAGE>
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,
-----------------------------------------
2000 1999
------------------- -------------------
<S> <C> <C>
Average loans outstanding $ 245,434 $ 207,091
Balance of allowance for loan losses at beginning of year $ 2,841 $ 2,670
Provision for loan losses 328 275
Charge-Offs:
Commercial 50 43
Real estate construction - -
Real estate mortgage - -
Consumer installment 63 58
------------------- -------------------
Total charge-offs 113 101
------------------- -------------------
Recoveries:
Commercial 80 7
Real estate construction - -
Real estate mortgage 11 13
Consumer installment 25 32
------------------- -------------------
Total recoveries 116 52
------------------- -------------------
Net (recoveries) charge-offs (3) 49
------------------- -------------------
Balance of allowance for loan losses at end of period $ 3,172 $ 2,896
=================== ===================
Net charge-offs (recoveries) as a percentage
of average loans outstanding 0.00% 0.02%
=================== ===================
Allowance for loan losses as a percentage of:
Total loans, net of unearned discount 1.29% 1.30%
=================== ===================
</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 90 days
or more past due. All installment loans past due 90 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.
17
<PAGE>
The following table discloses non-performing assets and loans 90 days
past due and still accruing interest as of June 30, 2000 and December 31,
1999: (Dollars in thousands)
NON-PERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------------- -------------------
<S> <C> <C>
Non-accrual loans $ 1,763 $ 2,095
Foreclosed real estate 204 906
------------------- ------------------
Total non-performing assets $ 1,967 $ 3,001
=================== ===================
Non-performing assets as a percentage of:
Total assets 0.35% 0.55%
Total loans plus foreclosed real estate 0.80% 1.21%
Accruing loans past due 90 days or more $ 604 $ 239
</TABLE>
Independent third party loan reviews of the subsidiary Banks are
performed on an annual basis. The loans are also reviewed by banking
regulators, typically 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 believes should be followed
closely. The Banks are required by regulation to periodically appraise
foreclosed real estate.
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 75% of total deposits at June
30, 2000 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, 2000, the Company's liquid assets totaled $287 million or
50% of total gross assets, compared to 47% at June 30, 1999. 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 $411,000 to $51.7 million at June
30, 2000 from $51.3 million at June 30, 1999. The ratio of total
stockholders' equity to total assets was 9.1% at June 30, 2000 compared
with 9.7% at June 30, 1999. The Company began a stock repurchase plan in
1997 and has repurchased 708,462 common shares at a cost of $12.1 million
through June 30, 2000 of which $3.0 million has been purchased since June
30, 1999. Total stockholders' equity has been affected by the $1.9
million decrease in the unrealized gain or loss on available for sale
securities portfolio since June 30, 1999.
18
<PAGE>
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 Banks' 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 each of its subsidiary
Banks' compliance with the risk-based capital guidelines as of June 30,
2000:
<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) $ 560,666 $ 304,184 $ 106,279 $ 107,063 $ 30,592
Risk weighted assets (net of goodwill) $ 266,622 $ 146,305 $ 62,574 $ 33,176 $ 19,005
Tier 1 capital $ 44,784 $ 19,495 $ 8,692 $ 7,409 $ 4,341
Total capital $ 47,956 $ 20,929 $ 9,437 $ 7,824 $ 4,582
Leverage ratio 7.99% 6.41% 8.18% 6.92% 14.19%
Risk based capital ratios:
Tier 1 16.80% 13.32% 13.89% 22.33% 22.84%
Total capital 17.99% 14.31% 15.08% 23.58% 24.11%
</TABLE>
FINANCIAL MODERNIZATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act ("GLBA"). This comprehensive legislation
eliminates the barriers to affiliations among banks, securities firms,
insurance companies and other financial service providers. GLBA provides
for a new type of financial holding company structure under which
affiliations among these entities may occur, subject to the "umbrella"
regulation of the FRB and regulation of affiliates by the functional
regulators, including the Securities and Exchange Commission ("SEC") and
state insurance regulators. Under GLBA, a financial holding company may
engage in a broad list of financial activities and any non-financial
activity that the FRB determines is complementary to a financial activity
and poses no substantial risk to the safety and soundness of depository
institutions or the financial system. In addition, GLBA permits certain
non-banking financial and financially related activities to be conducted
by financial subsidiaries of a national bank. In addition, GLBA imposes
strict new privacy disclosure and opt-out requirements regarding the
ability of financial institutions to share personal non-public customer
information with third parties.
Under GLBA, a bank holding company may become certified as a financial
holding company by filing a declaration with the FRB, together with a
certification that each of its subsidiary banks is well capitalized, is
well managed, and has at least a satisfactory rating under the Community
Reinvestment Act of 1977 ("CRA"). The Company has elected to become a
financial holding company under GLBA and the election was made effective
by the FRB as of March 11, 2000. The Company is engaging in certain
insurance related activities permitted by GLBA.
19
<PAGE>
FORWARD-LOOKING INFORMATION
The Company may from time to time make "forward-looking" statements as
such term is defined in The Private Securities Litigation Reform Act of
1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect" and
"intend" and words or phrases of similar import, as they relate to the
Company or its subsidiaries or Company management, are intended to
identify forward-looking statements. Such statements reflect the current
risks, uncertainties and assumptions related to certain factors
including, without limitation, competitive factors, general economic
conditions, the interest rate environment, governmental regulation and
supervision, technological change, one-time events and other factors
described herein and in other filings made by the Company with the
Securities and Exchange Commission. Based upon changing conditions,
should any one or more of these risks or uncertainties materialize, or
should any underlying assumptions prove incorrect, actual results may
vary materially from such forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
There has been no material change in the market risks faced by the
Company since December 31, 1999. For information regarding the Company's
market risk, refer to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
20
<PAGE>
PART II - OTHER INFORMATION:
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Corporation was held on May
19, 2000. The following matters were submitted to a vote of the
Corporation's shareholders.
1. Election of Directors:
Election of all five director nominees to serve until the 2001 Annual
Meeting of Shareholders.
<TABLE>
---------------------------------------- ---------------------------------- ----------------------------------
NOMINEE TOTAL VOTES FOR TOTAL VOTES ABSTAINED
---------------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Jay H. Lustig 3,856,883 34,868
Marvin E. Melson 3,864,901 26,850
H. Gary Blankenship 3,864,901 26,850
John W. Lettunich 3,864,901 26,850
Charles T. Meeks 3,864,901 26,850
</TABLE>
2. To approve certain amendments to the 1995 Stock Plan:
<TABLE>
<S> <C>
Total Votes For 3,828,219
Total Votes Against 50,537
Total Votes Abstained 12,995
3. Ratification of Independent Auditors:
Total Votes For 3,880,162
Total Votes Against 1,200
Total Votes Abstained 10,389
</TABLE>
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.
21
<PAGE>
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 14, 2000 By: /s/ Anne R. Renfroe
----------------------------------------------------
Anne Renfroe, Chief Accounting Officer and Principal
Financial Officer
22
