<PAGE>
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.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-13585
NATIONAL CITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1632155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 868, EVANSVILLE, INDIANA 47705-0868
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 464-9677
Indicate by check mark 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 shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.
Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 1998
(Common stock,
$1.00 Stated Value) 10,759,219
<PAGE>
NATIONAL CITY BANCSHARES, INC.
INDEX
PAGE NO.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated statements of financial
position-March 31, 1998, December 31, 1997,
and March 31, 1997 1
Condensed consolidated statements of income-
three months ended March 31, 1998 and 1997 2
Condensed consolidated statements of cash flows-
three months ended March 31, 1998 and 1997 3
Notes to condensed consolidated financial
statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Condensed Consolidated Statements of Financial Position
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
March December March
31 31 31
1998 1997 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 44,319 $ 36,329 $ 39,441
Time deposits in banks 1,391 2,485 2,186
Federal funds sold - 1,500 3,740
Securities available for sale 307,409 267,957 284,532
Nonmarketable equity securities 13,270 11,371 6,362
Loans 1,040,626 916,356 842,499
Less: Allowance for loan losses 8,979 7,969 7,485
- ----------------------------------------------------------------------------
Loans-net 1,031,647 908,387 835,014
Premises and equipment 35,881 30,959 26,903
Intangible assets 39,898 19,590 10,535
Other assets 22,432 19,682 18,930
- ----------------------------------------------------------------------------
TOTAL ASSETS $1,496,247 $1,298,260 $1,227,643
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing demand $ 138,591 $ 123,719 $ 110,204
Interest-bearing savings and time 1,020,240 840,327 837,284
- ----------------------------------------------------------------------------
Total deposits 1,158,831 964,046 947,488
Short-term borrowings 51,516 76,917 80,126
Other borrowings 84,991 95,185 58,072
Guaranteed preferred beneficial interests
in the Corporation's subordinated debenture 34,500 - -
Dividends payable 1,935 1,931 1,591
Deferred income taxes 4,109 4,349 888
Other liabilities 10,602 9,029 9,678
- ----------------------------------------------------------------------------
Total liabilities 1,346,484 1,151,457 1,097,843
- ----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock - $1.00 stated value 10,752 10,727 10,151
3/31/98 12/31/97 3/31/97
---------- ---------- ----------
Authorized 20,000,000 20,000,000 20,000,000
Outstanding 10,751,545 10,727,247 10,150,791
Capital surplus 79,969 79,725 55,099
Retained earnings 56,036 52,858 64,900
Accumulated other comprehensive income 3,006 3,493 (350)
- ----------------------------------------------------------------------------
Total shareholders' equity 149,763 146,803 129,800
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,496,247 $1,298,260 $1,227,643
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Condensed Consolidated Statements of Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $21,656 $18,103
Interest and dividends on securities 4,057 4,282
Interest on federal funds sold 37 39
Interest on other investments 50 48
- ---------------------------------------------------------------------------
Total interest income 25,800 22,472
- ---------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 10,047 8,436
Interest on funds borrowed 1,850 1,508
- ---------------------------------------------------------------------------
Total interest expense 11,897 9,944
- ---------------------------------------------------------------------------
NET INTEREST INCOME 13,903 12,528
Provision for loan losses 229 366
- ---------------------------------------------------------------------------
Net interest income after
provision for loan losses 13,674 12,162
- ---------------------------------------------------------------------------
NONINTEREST INCOME
Trust income 483 429
Service charges on deposit accounts 1,081 918
Securities gains (losses) 68 469
Other 1,082 717
- ---------------------------------------------------------------------------
Total noninterest income 2,714 2,533
- ---------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 4,768 4,557
Premises and equipment 1,276 1,088
Other 2,951 2,254
- ---------------------------------------------------------------------------
Total noninterest expense 8,995 7,899
- ---------------------------------------------------------------------------
Income before income taxes 7,393 6,796
Income taxes 2,280 2,123
- ---------------------------------------------------------------------------
NET INCOME 5,113 4,673
Other comprehensive income, net of income taxes:
Unrealized gain (loss) arising in period (447) (110)
Reclassification for realized amount (40) (254)
- ---------------------------------------------------------------------------
Net unrealized gain (loss) recognized in other
comprehensive income (487) (364)
- ---------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 4,626 $ 4,309
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Earnings per share:
Basic $0.48 $0.44
Diluted $0.47 $0.43
Weighted average shares outstanding:
Basic 10,744,301 10,684,348
Diluted 10,893,547 10,803,886
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31
- ---------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 5,113 $ 4,673
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization 503 96
Depreciation 581 516
Provision for loan losses 229 366
Securities (gains) losses (68) (469)
Originations of loans held for sale (19,518) (3,757)
Proceeds from sales of loans held for sale 19,709 3,804
(Gain) loss on sales of loans held for sale (191) (47)
(Gain) loss on sale of property and equipment (20) (7)
(Gain) loss on sale of other real estate 2 (2)
Increase (decrease) in deferred taxes (5) (68)
Changes in assets and liabilities:
(Increase) decrease in other assets 52 953
Increase (decrease) in other liabilities (707) 1,137
- ---------------------------------------------------------------------------
Net cash flows provided by operating activities 5,680 7,195
- ---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing
deposits in banks 1,094 797
Proceeds from matured securities held to maturity - 6,990
Proceeds from matured securities available for sale 23,319 9,844
Proceeds from sales of securities held to maturity - 3,509
Proceeds from sales of securities available for sale 206 1,705
Proceeds from sales of nonmarketable equity securities - 803
Purchases of securities held to maturity - (26,321)
Purchases of securities available for sale (26,303) (662)
Purchases of nonmarketable equity securities (23) (901)
(Increase) decrease in federal funds sold 9,580 (2,190)
(Increase) decrease in loans made to customers (16,969) (4,178)
Capital expenditures (2,667) (3,037)
Proceeds from sale of premises and equipment 39 14
Proceeds from sale of other real estate owned 50 55
Purchase of subsidiary, net of cash and cash
equivalents acquired 36,952 (5,846)
- ---------------------------------------------------------------------------
Net cash flows provided by (used in)
investing activities 25,278 (19,418)
- ---------------------------------------------------------------------------
</TABLE>
(Continued on next page)
The accompanying notes are an integral part of these statements.
3
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 1,399 $ (1,022)
Net increase (decrease) in short-term borrowings (35,911) 12,761
Proceeds from other borrowings 43,587 6,597
Payments on other borrowings (64,881) (3,246)
Trust preferred securities 34,500 -
Dividends paid (1,931) (1,698)
Repurchase of common stock (876) (3,035)
Sale of common stock 434 423
Proceeds from exercise of stock options 711 -
- ----------------------------------------------------------------------------
Net cash flows provided by (used in)
financing activities (22,968) 10,780
- ----------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 7,990 (1,443)
Cash and cash equivalents at beginning of period 36,329 40,884
- ----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 44,319 $ 39,441
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
(Continued on next page)
The accompanying notes are an integral part of these statements.
4
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31
- ----------------------------------------------------------------------------
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $12,084 $10,179
Income taxes 285 198
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Change in allowance for unrealized gain (loss)
on securities available for sale $ (793) $ (601)
Change in deferred taxes attributable to securities
available for sale 306 237
Transfer of securities from held to maturity to
available for sale - 180,696
Other real estate acquired in settlement of loans 16 4
Purchase of subsidiaries and branches:
Purchase price $(32,354) $ 6,797
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Assets acquired:
Cash and cash equivalents 4,598 951
Securities 39,223 3,029
Federal funds sold 8,080 950
Loans 106,536 37,773
Premises and equipment 2,856 698
Other assets 23,700 3,061
Liabilities assumed:
Deposits (193,386) (35,160)
Short-term borrowings (10,510) -
Other borrowings (11,100) (4,027)
Deferred taxes payable (71) (34)
Other liabilities (2,280) (444)
- ----------------------------------------------------------------------------
$(32,354) $ 6,797
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE 1
The accompanying unaudited condensed consolidated financial statements
include the accounts of National City Bancshares, Inc. and its
subsidiaries (collectively, the "Corporation"). At March 31, 1998,
the Corporation had as subsidiaries, twelve commercial banks,
one savings bank, a leasing corporation, a property management
company, a financial services company, and a Delaware statutory
business trust. All significant intercompany transactions are
eliminated in consolidation.
The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). While
the financial statements are unaudited, they do reflect all
adjustments which, in the opinion of management, are necessary for a
fair statement of the results of operations for the interim periods.
All such adjustments are of a normal recurring nature. Pursuant to
SEC rules, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from
these financial statements unless significant changes have taken place
since the end of the most recent fiscal year. The accompanying
financial statements and notes thereto should be read in conjunction
with the Corporation's financial statements and notes for the year
ended December 31, 1997 included in the Corporation's Annual Report on
Form 10-K as filed with the SEC.
Because the results from commercial banking operations are so closely
related and responsive to changes in economic conditions, the results
for any interim period are not necessarily indicative of the results
that can be expected for the entire year.
NOTE 2
In the normal course of business, there are outstanding various other
commitments and contingent liabilities which are not reflected in the
accompanying financial statements. The Corporation uses the same
credit policies in making commitments and conditional obligations as
it does for other instruments.
<TABLE>
<CAPTION>
3/31/98 12/31/97
------------ ------------
<S> <C> <C>
Standby letters of credit $ 13,611,000 $ 13,258,000
Commitments to extend credit $196,100,000 $166,361,000
</TABLE>
6
<PAGE>
NOTE 3
A five percent stock dividend was paid December 8, 1997 to
shareholders of record November 24, 1997. All weighted average shares
and per share data presented herein have been restated for the effects
of this stock dividend.
NOTE 4
On March 30, 1998, NCBE Capital Trust I ("the Trust"), a Delaware
statutory business trust created by the Corporation, issued $34.5
million of 8.25% Cumulative Trust Preferred Securities ("Securities")
which will mature on March 31, 2028 subject to extension or earlier
redemption in certain events. The principal asset of the Trust is a
$35.6 million subordinated debenture of the Corporation. The
subordinated debenture bears interest at the rate of 8.25% and matures
on March 31, 2028 subject to extension or earlier redemption in
certain events. The Corporation owns all of the common securities of
the Trust.
The Securities, the assets of the Trust, and the common securities
issued by the Trust are redeemable in whole or in part on or after
March 31, 2003, or at any time in whole, but not in part, from the
date of issuance upon the occurrence of certain events.
The Securities are included in Tier 1 capital for regulatory capital
adequacy determination purposes, subject to certain limitations.
The obligations of the Corporation with respect to the issuance of the
Securities constitute a full and unconditional guarantee by the
Corporation of the Trust's obligation with respect to the Securities.
Subject to certain exceptions and limitations, the Corporation may,
from time to time, defer subordinated debenture interest payments,
which would result in a deferral of distribution payments on the
related Securities and, with certain exceptions, prevent the
Corporation from declaring or paying cash distributions on the
Corporation's common stock or debt securities that rank pari passu or
junior to the subordinated debenture.
NOTE 5
As of January 1, 1998, the Corporation adopted Statement 130,
Reporting Comprehensive Income. Statement 130 establishes new rules
for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on
the Corporation's net income or shareholders' equity. Statement 130
requires unrealized gains or losses on the Corporation's available-
for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to
the requirements of Statement 130.
7
<PAGE>
NOTE 6
On March 1, 1997, the Corporation acquired First Federal Savings Bank
of Leitchfield, a $43 million savings bank located in Leitchfield,
Kentucky. This acquisition was accounted for as a purchase, and the
results of operations of First Federal Savings Bank of Leitchfield
since the acquisition have been included in the financial statements.
The excess of the acquisition cost over the fair value of net assets
acquired in the amount of $2,807,000 will be amortized over 25 years
using the straight-line method.
On August 31, 1997, the Corporation issued 374,986 shares of common
stock, valued at $15,984,000, in exchange for all of the common stock
of Bridgeport Bancorp, Inc., the parent company of First National Bank
of Bridgeport with total assets of $39,382,000. This acquisition was
accounted for as a purchase. Accordingly, the results of operations
of the acquired entity since the acquisition have been included in the
financial statements. The excess of the acquisition cost over fair
value of net assets acquired in the amount of $9,377,000 will be
amortized over 25 years using the straight-line method.
On December 31, 1997, the Corporation issued 794,994 shares of common
stock for all of the common stock of First Fourth Bancorp, the parent
company of First Bank of Huntingburg, Huntingburg, Indiana, with total
assets of $108,077,000 and total equity of $12,917,000. This
acquisition was accounted for as a pooling of interests. Accordingly,
the Corporation's financial statements have been retroactively
restated to include the accounts and operations of First Fourth
Bancorp for all periods presented. Certain reclassifications have
been made to First Fourth Bancorp's historical financial statements to
conform to the Corporation's presentation.
On January 8, 1998, the Corporation's subsidiary, First Kentucky Bank,
purchased the former Mayfield, Kentucky, Branch Office of Republic
Bank & Trust Company. First Kentucky assumed $65,639,000 in deposit
liabilities in consideration of a deposit premium of $4,521,000,
acquired assets and assumed other liabilities of $1,264,000. First
Kentucky also purchased the office facility and certain loans of the
Branch.
On March 6, 1998, the Corporation acquired Vernois Bancshares, Inc. in
a cash transaction for $27,500,000. Vernois Bancshares, Inc. is the
parent company of Bank of Illinois in Mt. Vernon, with total assets of
$179,156,000. This acquisition was accounted for as a purchase.
Accordingly, the results of operations of the acquired entity since
the acquisition have been included in the financial statements. The
excess of the acquisition cost over fair value of net assets acquired
in the amount of $16,551,000 will be amortized over 25 years using the
straight-line method.
8
<PAGE>
NOTE 7
The Corporation is a party to an Agreement and Plan of Merger dated
December 15, 1997 with Illinois One Bancorp, Inc. ("IOBI"), the
holding company for Illinois One Bank, National Association ("IOB"), a
national banking association with offices in Shawneetown,
Elizabethtown and Golconda, Illinois. The agreement relates to the
acquisition of IOBI in a merger transaction in which up to 577,417
shares of the Corporation's common stock would be issued. As of March
31, 1998, IOB had total assets of $88 million and total shareholders'
equity of $11 million. The acquisition is subject to the approval of
the shareholders of IOBI. The acquisition is expected to qualify for
the pooling of interests method of accounting. The parties expect
the merger to become effective on May 31, 1998.
The Corporation is a party to an Agreement and Plan of Merger dated
February 11, 1998, with Trigg Bancorp, Inc. ("TBI"), the holding
company for Trigg County Farmers Bank ("TCFB"), a Kentucky banking
corporation, which has three offices in Cadiz, Kentucky. The
agreement relates to the acquisition of TBI in a merger transaction in
which up to 736,278 shares of the Corporation's common stock would be
issued. As of March 31, 1998, TCFB had total assets of $97 million
and total shareholders equity of $9 million. The acquisition of TBI
is subject to shareholder and regulatory approval. The acquisition
is expected to qualify for the pooling of interests method of accounting.
The parties expect to close the merger in the third quarter of 1998.
The Corporation is a party to an Agreement and Plan of Merger dated
March 9, 1998, with Community First Financial, Inc. ("CFF"), the
holding company for Community First bank of Kentucky, a Kentucky
banking corporation, which has two offices in Warsaw and Dry Ridge,
Kentucky, and Community First Bank, National Association, a national
banking association, which has six offices in Maysville, May's Lick
and Mount Olivet, Kentucky and Aberdeen and Ripley, Ohio. The
agreement relates to the acquisition of CFF in a merger transaction in
which up to 1,441,862 shares of the Corporation's common stock would
be issued to shareholders of CFF. As of March 31, 1998, CFF's
subsidiary banks had total assets of $127 million and total
shareholders equity of $13 million. The acquisition of CFF is subject
to shareholder and regulatory approval. The acquisition is expected
to qualify for the pooling of interests method of accounting. The
parties expect to close the merger in the second or third quarter of 1998.
9
<PAGE>
The Corporation is a party to an Agreement and Plan of Merger dated
April 21, 1998, with Hoosier Hills Financial Corporation ("HHFC"), the
holding company for The Ripley County Bank ("RCB"), an Indiana banking
corporation, which has offices in Milan, Osgood and Versailles,
Indiana. The agreement relates to the acquisition of HHFC in a merger
transaction in which up to 775,625 shares of the Corporation's common
stock (subject to increase under certain circumstances, at the
Corporation's election) would be issued. As of March 31, 1998, RCB
had total assets of $110 million and total shareholders' equity of $11
million. The acquisition is subject to shareholder and regulatory
approval. The acquisition is expected to qualify for the pooling of
interests method of accounting. The parties expect to close the
merger in the third or fourth quarter of 1998.
10
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Corporation continues to grow rapidly by acquiring community
banks. The financial results of the acquisitions can best be assessed
from the Corporation's financial statements on a quarterly, as-
reported basis. After each acquisition accounted for as a pooling of
interests, the Corporation's financial statements are restated to
include the results of the acquiree. Since January 1, 1997, the
Corporation acquired assets of $108,109,000 (measured at the time of
each acquisition) in one transaction accounted for as a pooling of
interests.
Since the beginning of 1997, the Corporation has also acquired
$326,750,000 (measured at the time of each acquisition) in assets
through transactions accounted for as purchases. Financial statements
are not restated following a transaction accounted for as a purchase;
instead, the Corporation's financial statements include the results of
each acquired entity following acquisition. Transactions accounted
for as purchases typically result in the Corporation's recording
intangible assets, including goodwill, which the Corporation amortizes
on a straight-line basis. The Corporation has recorded $31,743,000
(measured at the time of each acquisition) in intangible assets as the
direct result of purchases consummated between the beginning of 1997
and March 31, 1998. Note 6 to the condensed consolidated financial
statements contains information regarding the acquisitions completed
since January 1, 1997.
Management expects to continue to pursue acquisition opportunities as
they arise. Note 7 to the condensed consolidated financial statement
contains information regarding four pending acquisitions. Management
believes other community banks located in the Corporation's general
geographic area (which may extend beyond the tri-state region
currently served) will find the Corporation an attractive partner
because the Corporation shares a commitment to local communities and
provides the opportunity to retain much of the operational decision
making in those communities while recognizing the efficiencies of
affiliation with a larger organization.
11
<PAGE>
NET INCOME
Net income for the quarter ended March 31, 1998, was $5,113,000, or
$0.48 per share, compared to $4,673,000, or $0.44 per share, for the
first quarter of 1997. This is an increase of $440,000, or 9.4
percent. The weighted average number of shares outstanding was
10,744,301 and 10,684,348 for the three months ended March 31, 1998
and 1997, respectively. The weighted average number of shares
outstanding, assuming dilution, was 10,893,547 and 10,803,886 for the
three months ended March 31, 1998 and 1997, respectively. Shares were
repurchased by the Corporation during 1997 for the dividend
reinvestment program and for the repurchase program announced December
23, 1996.
NET INTEREST INCOME
Net interest income in the first quarter of 1998 increased $1,632,000,
or 12.1 percent, on a tax equivalent basis, from the year-ago quarter.
Average earning assets were $1,246,717,000 and $1,112,920,000, during
the first quarter of 1998 and 1997, respectively, representing an
increase of $133,797,000, or 12.0 percent. Loans increased an average
of $139,027,000, or 17.1 percent; average securities increased
$2,577,000, or 0.9 percent; and average federal funds sold increased
$781,000, or 37.3 percent, for the quarter. Average time deposits in
banks decreased $8,588,000, or 63.2 percent, for the quarter.
The growth in net interest income was primarily due to increases in
average earning assets. Total interest income increased $3,585,000,
or 15.3 percent, on a tax equivalent basis, during the first three
months of 1998 from the same period of 1997, compared to a $1,953,000,
or 19.6 percent increase in total interest expense. The increases in
both interest income and interest expense were primarily due to
increases in volume.
The net interest margin increased to 4.92 percent for the first
quarter of 1998, compared to 4.91 percent during the year-ago quarter.
12
<PAGE>
UNDERPERFORMING ASSETS
Listed below is a two-year comparison of the underperforming assets.
<TABLE>
<CAPTION>
3/31/98 3/31/97
---------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $3,938,000 $2,246,000
Restructured loans 124,000 87,000
90 days past due loans 588,000 1,281,000
---------------------------------------------------------------
Total underperforming loans 4,650,000 3,614,000
Nonaccrual securities:
Agency-issued CMO 46,000 27,000
Other real estate held 227,000 42,000
---------------------------------------------------------------
Total underperforming assets $4,923,000 $3,683,000
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
Past due 90 days or more, nonaccrual, and renegotiated loans have
increased slightly to 0.44 percent of total loans at March 31, 1998,
from 0.43 percent as of March 31, 1997. Of the loans in this
category, 60.8 and 61.6 percent were secured by real estate at March
31, 1998 and 1997, respectively. Potential problem loans, other than
underperforming loans, amounted to $40,065,000 at March 31, 1998, and
$33,187,000 at March 31, 1997.
PROVISION FOR LOAN LOSSES
Net charge-offs amounted to $304,000 during the first quarter of 1998,
compared to $235,000 in the corresponding period in the prior year.
The provision for loan losses during the first three months of 1998
was $229,000 compared to $366,000 for the first three months of 1997.
The provision is based on a quarterly review of the allowance for loan
losses. Some of the factors used in this review include current
economic conditions and forecasts, risk by type of loan, previous loan
loss experience, and evaluation of specific borrowers and collateral.
As of March 31, 1998, management considered the reserve for loan
losses adequate to provide for potential loan losses.
NONINTEREST INCOME
Noninterest income for the first quarter of 1998 increased $181,000,
or 7.2 percent, from the year-ago period. Trust income increased
$54,000, or 12.6 percent, and service charges on deposit accounts
increased $163,000, or 17.8 percent, over the first three months of
1997. Net securities gains were $68,000 for the first quarter of 1998
compared to $469,000 for the same period in 1997. Other noninterest
income increased $365,000, or 50.9 percent, during 1998 due mainly to
gains on the sale of mortgage loans and acquisitions accounted for
under the purchase method of accounting.
13
<PAGE>
NONINTEREST EXPENSE
Noninterest expense increased $1,096,000, or 13.9 percent, in the
first quarter of 1998. Salaries and employee benefits increased
$211,000, or 4.6 percent and expenses of premises and equipment
increased $188,000, or 17.3 percent. Other items in this category
increased $697,000, or 30.9 percent, over the year-ago period. These
increases were mainly due to expenses associated with acquisitions.
FINANCIAL POSITION ANALYSIS
Cash and cash equivalents increased $4,878,000, or 12.4 percent. Time
deposits in banks decreased $795,000, or 36.4 percent, and federal
funds sold decreased $3,740,000, or 100.0 percent, during the past
year.
Securities increased $29,785,000, or 10.2 percent, during the past
year, with the largest increase of $30,731,000, or 21.2 percent in
tax-exempt municipals. U.S. Government and agency securities
increased $7,275,000, or 11.6 percent; and nonmarketable equity
securities increased $6,908,000, or 108.5 percent, primarily due to
the purchase of additional stock in Federal Home Loan Banks.
Mortgage-backed securities decreased $12,233,000, or 19.7 percent;
corporate securities decreased $7,764,000, or 78.5 percent; taxable
municipals decreased $604,000, or 17.7 percent; and marketable equity
securities decreased $57,000, or 2.9 percent. The market value
adjustment on securities available for sale at March 31, 1998, was an
unrealized gain of $4,950,000, reflecting an increase of $5,529,000,
from an unrealized loss of $579,000 at March 31, 1997.
On March 31, 1997, the Corporation transferred $180,696,000 of
securities classified as held to maturity to the available for sale
category; and recorded, as a component of equity, an unrealized gain
of $71,000, net of $38,000 of deferred taxes. In accordance with the
requirements of Statement of Financial Accounting Standards No. 115,
these securities are now accounted for at fair value, and any
unrealized gain or loss net of deferred tax effect is reflected as a
separate component of shareholders' equity.
Amortized cost and fair values of securities at March 31, 1998, with
dollar amounts in thousands are on the following page:
14
<PAGE>
Securities available for sale:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $ 70,040 $ 195 $ 64 $70,171
Taxable municipals 2,811 65 - 2,876
Tax-exempt municipals 175,653 5,050 259 180,444
Corporate securities 2,132 3 1 2,134
Mortgage-backed securities 49,945 299 191 50,053
Marketable equity securities 1,878 1 148 1,731
- ----------------------------------------------------------------------
Total available for sale $302,459 $5,613 $663 $307,409
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
</TABLE>
The security portfolio at March 31, 1998, included $1,740,000 in
structured notes, which were comprised of $999,000 in an indexed
amortizing note, $492,000 in a delevered floating note, and $249,000
in a capped floating rate note. These securities have risk
characteristics which are well within the constraints of the non-
structured securities held in the security portfolio.
As part of its strategic plan, the Corporation has successfully
increased total loans while maintaining competitive rates. Loans
increased $198,127,000, or 23.5 percent, during the past year. Of
this increase, $131,440,000 relates to entities acquired and accounted
for under the purchase method of accounting. The largest increase was
in loans secured by real estate which increased $102,446,000, or 22.1
percent. Commercial loans increased $46,758,000, or 25.4 percent;
consumer loans increased $15,609,000, or 10.9 percent; and
agricultural loans increased $4,237,000, or 18.5 percent. Lease
financing increased $3,294,000, or 23.1 percent, and all other types
of loans increased $25,783,000, or 180.2 percent.
Total deposits have increased $211,343,000, or 22.3 percent, since
March 31, 1997, primarily due to entities acquired and accounted for
under the purchase method of accounting. Noninterest-bearing deposits
increased $28,387,000, or 25.8 percent, and interest-bearing deposits
increased $182,956,000, or 21.9 percent, during this period.
SHAREHOLDERS' EQUITY
The Corporation and each subsidiary bank have capital ratios which
substantially exceed all regulatory requirements. The Corporation's
capital ratios are shown below.
<TABLE>
<CAPTION>
Minimum
Requirements 3/31/98 3/31/97
------------ ------- -------
<S> <C> <C> <C>
Tier I capital to
risk-based assets 4.00% 12.66% 14.30%
Total capital to
risk-based assets 8.00% 14.25% 15.19%
Tangible equity to
tangible assets 3.00% 7.54% 9.80%
</TABLE>
15
<PAGE>
YEAR 2000 COMPLIANCE
The year 2000 poses a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by
early programmers, many software applications and operational programs
may be unable to distinguish the year 2000 from the year 1900. If not
effectively addressed, this problem could result in the production of
inaccurate data, or, in the worst cases, the inability of the systems
to continue to function altogether. Financial institutions are
particularly vulnerable due to the industry's dependence on electronic
data processing systems.
The Corporation is committed to a plan for achieving Year 2000
compliance. Management believes that the expenditures required to
bring systems into compliance will not have a materially adverse
effect on the Corporation's performance. However, the year 2000
problem is pervasive and complex and can potentially affect any
computer process. Accordingly, no assurance can be given that year
2000 compliance can be achieved without additional unanticipated
expenditures and uncertainties that might affect future financial
results.
The Corporation and its banking subsidiaries are subject to
examination with respect to their year 2000 compliance by various
state and federal agencies, including the Federal Reserve Board, the
Comptroller of the Currency, the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation, and state banking agencies.
Following a recent examination, a rating of "needs improvement" was
received with regard to the Corporation's Year 2000 compliance
efforts. If the examining agency does not issue a more satisfactory
rating, the Corporation will not qualify for expedited processing of
regulatory applications seeking approval of future acquisitions or
such approvals may only be given subject to additional conditions.
While management expects to devote sufficient corporate resources to
address regulatory concerns in this area, there can be no assurance
that Year 2000 compliance issues will not delay the consummation of
pending acquisitions (other than the pending acquisition of IOB)
or future acquisitions or otherwise adversely affect the Corporation's
ability to continue to grow through acquisition.
16
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risk exposures that
affect the quantitative and qualitative disclosures presented in the
Corporation's Annual Report on Form 10-K for the year ended December
31, 1997.
17
<PAGE>
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are submitted herewith:
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule (Electronic Filing Only)
REPORTS ON FORM 8-K
A CURRENT REPORT dated March 10, 1998, for event of March 6, 1998, was
filed reporting under Item 2 the acquisition of Vernois Bancshares,
Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NATIONAL CITY BANCSHARES, INC
(Registrant)
By /S/ STEPHEN C. BYELICK, JR.
------------------------------
Stephen C. Byelick, Jr.
Secretary and Treasurer
(On behalf of the registrant
and in his capacity as Chief
Accounting Officer.)
May 15, 1998
18
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ------------------------------------------------
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule (Electronic Filing Only)
19
<PAGE>
<PAGE>
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
National City Bancshares, Inc.
Earnings per Share Calculation
For the Period Ending March 31
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Net income $5,113,000 $4,673,000
Basic earnings per share
- ------------------------
Weighted average shares outstanding 10,744,301 10,684,348
Basic earnings per share $0.48 $0.44
Diluted earnings per share
- --------------------------
Weighted average shares outstanding 10,744,301 10,684,348
Common stock equivalents due to
stock options 149,246 119,538
- ----------------------------------------------------------------------
Adjusted shares outstanding 10,893,547 10,803,886
Diluted earnings per share $0.47 $0.43
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 44319
<INT-BEARING-DEPOSITS> 1391
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 320679
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1040626
<ALLOWANCE> 8979
<TOTAL-ASSETS> 1496247
<DEPOSITS> 1158831
<SHORT-TERM> 51516
<LIABILITIES-OTHER> 16646
<LONG-TERM> 119491
0
0
<COMMON> 10752
<OTHER-SE> 139011
<TOTAL-LIABILITIES-AND-EQUITY> 1496247
<INTEREST-LOAN> 21656
<INTEREST-INVEST> 4057
<INTEREST-OTHER> 87
<INTEREST-TOTAL> 25800
<INTEREST-DEPOSIT> 10047
<INTEREST-EXPENSE> 1850
<INTEREST-INCOME-NET> 13903
<LOAN-LOSSES> 229
<SECURITIES-GAINS> 68
<EXPENSE-OTHER> 8995
<INCOME-PRETAX> 7393
<INCOME-PRE-EXTRAORDINARY> 7393
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5113
<EPS-PRIMARY> .48
<EPS-DILUTED> .47
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 39441
<INT-BEARING-DEPOSITS> 2186
<FED-FUNDS-SOLD> 3740
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 290894
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 842499
<ALLOWANCE> 7485
<TOTAL-ASSETS> 1227643
<DEPOSITS> 947488
<SHORT-TERM> 80126
<LIABILITIES-OTHER> 12157
<LONG-TERM> 58072
0
0
<COMMON> 10151
<OTHER-SE> 119649
<TOTAL-LIABILITIES-AND-EQUITY> 1227643
<INTEREST-LOAN> 18103
<INTEREST-INVEST> 4282
<INTEREST-OTHER> 87
<INTEREST-TOTAL> 22472
<INTEREST-DEPOSIT> 8436
<INTEREST-EXPENSE> 1508
<INTEREST-INCOME-NET> 12528
<LOAN-LOSSES> 366
<SECURITIES-GAINS> 469
<EXPENSE-OTHER> 7899
<INCOME-PRETAX> 6796
<INCOME-PRE-EXTRAORDINARY> 6796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4673
<EPS-PRIMARY> .44
<EPS-DILUTED> .43
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
