<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2000.
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 (I.R.S. Employee
of incorporation or organization) Identification No.)
PO 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 4, 2000
(Common stock, $1.00 Stated Value) 17,450,254
<PAGE> 2
NATIONAL CITY BANCSHARES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Item 1. Unaudited Financial Statements
Condensed Consolidated Statements of Financial Position
March 31, 2000, December 31, 1999, and March 31, 1999 3
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows-
Three Months Ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Financial Position
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 48,479 $ 72,935 $ 52,783
Federal funds sold 6,016 748 311
Securities available for sale 431,334 332,359 359,882
Loans 1,695,881 1,700,833 1,617,193
Less: Allowance for loan losses (25,406) (25,155) (18,371)
- -------------------------------------------------------------------------------------------------------------------
Loans-net 1,670,475 1,675,678 1,598,822
Premises and equipment, net 45,477 45,393 46,488
Intangible assets 35,631 36,522 39,266
Other assets 52,617 39,842 31,869
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,290,029 $ 2,203,477 $ 2,129,421
===================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 185,258 $ 207,782 $ 225,984
Interest-bearing savings and time 1,507,985 1,486,879 1,450,640
- -------------------------------------------------------------------------------------------------------------------
Total deposits 1,693,243 1,694,661 1,676,624
Short-term borrowings 86,804 89,989 32,134
Other borrowings 225,213 138,371 133,112
Guaranteed preferred beneficial interests in the
Corporation's subordinated debentures 34,500 34,500 34,500
Other liabilities 21,917 20,088 22,171
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 2,061,677 1,977,609 1,898,541
COMMON STOCK OWNED BY ESOP(subject to put option) -- 2,780 4,551
SHAREHOLDERS' EQUITY
Preferred stock-1,000,000 shares authorized
None outstanding
Common stock - $1.00 stated value:
3/31/00 12/31/99 3/31/99
------- -------- -------
Shares authorized 29,000,000 29,000,000 29,000,000
Shares outstanding 17,459,254 17,518,117 17,687,818 17,459 17,518 17,688
Capital surplus 137,118 138,893 144,020
Retained earnings 75,492 71,299 65,685
Accumulated other comprehensive income (1,717) (1,842) 3,520
Unearned employee stock ownership plan shares -- -- (33)
Common stock owned by ESOP(subject to put option) -- (2,780) (4,551)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 228,352 223,088 226,329
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,290,029 $ 2,203,477 $ 2,129,421
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
<PAGE> 4
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- ------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 36,812 $ 35,478
Interest and dividends on securities 5,270 5,019
Interest on federal funds sold 175 215
Interest on other investments 9 45
- ------------------------------------------------------------------------------------------
Total interest income 42,266 40,757
INTEREST EXPENSE
Interest on deposits 16,303 15,517
Interest on funds borrowed 3,982 3,108
- ------------------------------------------------------------------------------------------
Total interest expense 20,285 18,625
NET INTEREST INCOME 21,981 22,132
Provision for loan losses 1,050 1,260
- ------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 20,931 20,872
NONINTEREST INCOME
Trust income 544 520
Service charges on deposit accounts 1,784 1,828
Other service charges and fees 1,140 1,039
Securities gains (losses) (37) 3
Other 1,979 423
- ------------------------------------------------------------------------------------------
Total noninterest income 5,410 3,813
NONINTEREST EXPENSE
Salaries, wages and other employee benefits 7,852 7,462
Occupancy expense 904 872
Furniture and equipment expense 974 1,042
Amortization of intangibles 890 918
Other 4,212 4,566
- ------------------------------------------------------------------------------------------
Total noninterest expense 14,832 14,860
- ------------------------------------------------------------------------------------------
Income before income taxes 11,509 9,825
Income taxes 3,627 3,120
- ------------------------------------------------------------------------------------------
NET INCOME $ 7,882 $ 6,705
==========================================================================================
Earnings per share:
Basic $ 0.45 $ 0.38
Diluted $ 0.45 $ 0.37
Weighted average shares outstanding:
Basic 17,492,103 17,682,413
Diluted 17,533,665 17,752,313
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
<PAGE> 5
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 7,882 $ 6,705
Other comprehensive income, net of tax:
Unrealized gain (loss) arising in period 103 (914)
Reclassification of realized amounts 22 (2)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss), recognized in other comprehensive income 125 (916)
- -----------------------------------------------------------------------------------------------------
Comprehensive income $ 8,007 $ 5,789
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE> 6
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- -----------------------------------------------------------------------------------------------
2000 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ 16,322 $ 11,587
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing time deposits in banks -- 142
Proceeds from matured securities available for sale 8,405 26,667
Proceeds from sales of securities available for sale 20,779 --
Proceeds from called investments 3,282 8,157
Purchases of securities available for sale (131,165) (30,412)
(Increase) decrease in federal funds sold (5,268) 10,120
Decrease in loans made to customers 4,168 29,771
Increase in cash surrender value life insurance (16,900) (15)
Increase in other investments -- (1,066)
Capital expenditures (1,021) (808)
Proceeds from sale of premises and equipment 187 25
Proceeds from sale of other real estate owned 29 236
- -----------------------------------------------------------------------------------------------
Net cash flows (used in) provided by investing activities (117,504) 42,817
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (1,418) (57,961)
Net decrease in short-term borrowings (3,185) (1,248)
Proceeds from other borrowings 120,000 90
Payments on other borrowings (33,158) (6,523)
Dividends paid (3,679) (3,368)
Repurchase of common stock (2,681) --
Proceeds from exercise of stock options 847 --
- -----------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 76,726 (69,010)
- -----------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (24,456) (14,606)
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 72,935 67,389
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 48,479 $ 52,783
===============================================================================================
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Change in allowance for unrealized
loss on securities available for sale $ 235 $ (1,505)
(Increase) decrease in deferred taxes attributable
to securities available for sale (110) 590
Other real estate acquired in settlement of loans 485 209
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
6
<PAGE> 7
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
UNAUDITED 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, 2000, the Corporation had as
subsidiaries, twelve commercial banks, a leasing corporation, a property
management 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 financial
position, results of operations, and cash flow 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,
1999 included in the Corporation's Annual Report on Form 10-K 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.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 established a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. SFAS 133 is effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarters subsequent to June 15, 1998. Upon the statement's initial
application, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed, and
documented pursuant to the provisions of SFAS 133. Adoption of SFAS 133 is not
expected to have a material financial statement impact on the Corporation's
financial position or operating results.
NOTE 2
The Corporation and its subsidiaries are parties to legal actions that arise in
the normal course of their business activities. In the opinion of management,
the ultimate resolution of these matters is not expected to have a materially
adverse effect on the financial position or on the results of operations of the
Corporation and its subsidiaries.
In the normal course of business, there are outstanding various other
commitments and contingent liabilities that 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.
3/31/00 12/31/99
- -------------------------------------------------------------------------------
Standby letters of credit $ 14,719 $ 15,156
Commitments to extend credit $ 276,915 $ 281,074
NOTE 3
A five percent stock dividend was paid December 7, 1999 to shareholders of
record November 21, 1999. All weighted average shares and per share data
presented herein have been restated for the effects of this stock dividend.
7
<PAGE> 8
NOTE 4
The calculation of net earnings per share as of March 31 is summarized as
follows:
2000 1999
- -------------------------------------------------------------------------------
Net income $ 7,882,000 $ 6,705,000
Basic earnings per share:
Weighted average shares outstanding 17,492,103 17,682,413
Basic earnings per share $ 0.45 $ 0.38
Diluted earnings per share:
Weighted average shares outstanding 17,492,103 17,682,413
Common stock equivalents due to stock options 41,562 69,900
Adjusted shares outstanding 17,533,665 17,752,313
Diluted earnings per share $ 0.45 $ 0.37
NOTE 5
The following table shows the schedule of dividends declared for the three
months ending March 31, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
DATE RECORD DATE DIVIDEND
2000 DECLARED DATE PAID PAID
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
February 16 March 21 April 7 $0.21
DATE RECORD DATE DIVIDEND
1999 DECLARED DATE PAID PAID
- -------------------------------------------------------------------------
February 17 March 21 April 7 $0.1905
</TABLE>
8
<PAGE> 9
NOTE 6
The Corporation has identified its reportable segments on the basis of the
geographic areas served by the Corporation. Banking services offered are similar
in each geographic area served. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies in the
Corporation's annual report for the year ended December 31, 1999. The
Corporation evaluates performance based on profit or loss from operations before
income taxes not including nonrecurring gains and losses. Operating statistics
for each reporting segment are as follows:
<TABLE>
<CAPTION>
Southwest Western Southern Northern
March 31, 2000 Indiana Kentucky Illinois Kentucky Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 20,943 $ 6,371 $ 6,791 $ 8,727 $ 42,832
Interest expense 10,448 3,077 2,993 3,799 20,317
- --------------------------------------------------------------------------------------------------------
Net interest income 10,495 3,294 3,798 4,928 22,515
Provision for loan losses 660 49 139 199 1,047
Other income 3,845 478 615 608 5,546
Other expense 6,771 2,093 2,721 2,547 14,132
- --------------------------------------------------------------------------------------------------------
Net income before tax 6,909 1,630 1,553 2,790 12,882
Income tax 2,253 465 512 952 4,182
- --------------------------------------------------------------------------------------------------------
Net income $ 4,656 $ 1,165 $ 1,041 $ 1,838 $ 8,700
========================================================================================================
Other segment information:
Depreciation and
amortization $ 492 $ 293 $ 681 $ 120 $ 1,586
Segment assets 1,165,158 323,515 407,686 422,807 2,319,166
Expenditures for
segment assets 594 -- -- -- 594
<CAPTION>
Southwest Western Southern Northern
March 31, 1999 Indiana Kentucky Illinois Kentucky Total
- --------------------------------------------------------------------------------------------------------
Interest income $ 19,491 $ 6,194 $ 7,079 $ 8,369 $ 41,133
Interest expense 8,710 3,043 3,288 3,547 18,588
- --------------------------------------------------------------------------------------------------------
Net interest income 10,781 3,151 3,791 4,822 22,545
Provision for loan losses 720 327 38 127 1,212
Other income 2,134 415 642 662 3,853
Other expense 5,874 1,918 2,779 2,549 13,120
- --------------------------------------------------------------------------------------------------------
Net income before tax 6,321 1,321 1,616 2,808 12,066
Income tax 2,106 359 537 952 3,954
- --------------------------------------------------------------------------------------------------------
Net income $ 4,215 $ 962 $ 1,079 $ 1,856 $ 8,112
========================================================================================================
Other segment information:
Depreciation and
amortization $ 511 $ 277 $ 709 $ 184 $ 1,681
Segment assets 1,016,166 319,511 430,660 413,200 2,179,537
Expenditures for
segment assets 318 259 30 48 655
</TABLE>
9
<PAGE> 10
NOTE 6 (continued)
A reconciliation of revenues, net income, and assets of the reported segments to
the consolidated financial statements is as follows:
2000 1999
- --------------------------------------------------------------------------------
Net interest income:
Total net interest income for reportable segments $ 22,515 $ 22,545
Non-bank entities (534) (413)
Eliminations -- --
- --------------------------------------------------------------------------------
Total consolidated net interest income $ 21,981 $ 22,132
================================================================================
Net income:
Total net income for reportable segments $ 8,700 $ 8,112
Non-bank entities (818) (1,407)
Eliminations -- --
- --------------------------------------------------------------------------------
Total consolidated net income $ 7,882 $ 6,705
================================================================================
Assets:
Total assets for reportable segments $ 2,319,166 $ 2,179,537
Non-bank entities 93,392 97,934
Eliminations (122,529) (148,050)
- --------------------------------------------------------------------------------
Total consolidated assets $ 2,290,029 $ 2,129,421
================================================================================
NOTE 7
A subsidiary of the Corporation sponsored an employee stock ownership plan
(ESOP) that covered certain eligible employees. During the first quarter of
2000, the Corporation made the final distribution of all shares from the ESOP
and closed out the plan.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
The discussion and analysis which follows is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of National City Bancshares, Inc. and its subsidiaries as presented
in the condensed consolidated financial statements and related notes included in
this report. The text of this review is supplemented with various financial data
and statistics. All information has been restated to include bank acquisitions
accounted for using the pooling of interests method and to give effect to all
stock dividends. Unless otherwise noted all dollar amounts other than per share
data are in thousands (000's).
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from the results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: management's ability to
effectively implement the Corporation's strategic plan; general, regional and
local economic conditions which may affect interest rates and net interest
income; credit risks and risks from concentrations (geographic and by industry)
within the loan portfolio; changes in regulations affecting financial
institutions; and competition.
The Corporation has not made any acquisitions since January 1, 2000; however
management evaluates acquisition opportunities as they arise. The Corporation
has devoted significant resources in 2000 towards the combination of its twelve
banking subsidiaries into one bank under the name Integra. This project is
expected to be completed in three phases commencing May 19, 2000 with an
anticipated completion date by the end of the third quarter of 2000. It is
anticipated that the Corporation will incur total costs of approximately $1.8
million in connection with the consolidation and name change.
NET INCOME
Net income for the quarter ended March 31, 2000 was $7,882 compared to $6,705 in
the first quarter of 2000, an increase of $1,117, or 17.6%. Basic earnings per
share for the first quarter were $0.45 in 2000 compared to $0.38 in 1999.
Earnings per share on a diluted basis for the first quarter were $0.45 in 2000
compared to $0.37 in 1999.
The weighted average number of shares outstanding was 17,492,103 and 17,682,413
for the three months ended March 31, 2000, and 1999, respectively. The weighted
average number of shares outstanding, assuming dilution, was 17,533,665 and
17,752,313 for the three months ended March 31, 2000 and 1999, respectively.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, for the quarter ended March
31, 2000 was $23,429, reflecting a decrease of $272 or 1.2% over the same period
in 1999. The net interest margin decreased 23 basis points from 4.79% in the
first quarter of 1999 to 4.56% in the first quarter of 2000. The decrease in net
interest margin was primarily due to a higher cost of borrowing.
Average earning assets, for the first quarter of 2000, increased $64,035, or
3.2% over the same period last year. Gross loans increased an average of
$82,785, or 5.1%; average securities decreased $2,303, or 0.6%; and average
federal funds sold decreased $15,092, or 53.7%. Average interest-bearing
liabilities for the first quarter of 2000 increased $101,332, or 6.1%. Average
interest-bearing deposits increased $54,324, or 3.7%, and average borrowings
increased $47,008, or 22.5%, compared to the same period last year.
NONINTEREST INCOME
Noninterest income, excluding gains or losses on securities transactions,
totaled $5,447 and $3,810 for the first three months in 2000 and 1999,
respectively. During the first quarter of 2000, the Corporation sold its
mortgage loan investor servicing rights and recognized a gain of $1,816,
compared with loan gains and other non-recurring items of $429 during the first
quarter of 1999.
NONINTEREST EXPENSE
Noninterest expense for the first quarter of 2000 totaled $14,832, a decrease of
$28, or 0.2%, compared to the prior year. Upward pressures on expense
categories, such as salaries and consolidation costs, were offset through cost
control measures implemented in other expense categories.
11
<PAGE> 12
NON-PERFORMING ASSETS
Non-performing assets consist of nonaccrual loans, restructured loans, loans
past due 90 days or more, and other real estate owned. Nonaccrual loans are
loans on which interest recognition has been suspended because of doubts as to
the borrower's ability to repay principal or interest. Loans are generally
placed on nonaccrual status after becoming 90 days past due if the ultimate
collectibility of the loan is in question. Loans which are current, but as to
which serious doubt exists about repayment ability, may also be placed on
nonaccrual status. Restructured loans are loans where the terms have been
changed to provide a reduction or deferral of principal or interest because of
the borrower's financial position. Past-due loans are loans that are continuing
to accrue interest but are contractually past due ninety days or more as to
interest or principal payments. Other real estate owned represents properties
obtained for debts previously contracted. Management is not aware of any loans
which have not been disclosed as non-performing assets that represent or result
from unfavorable trends or uncertainties which management reasonably believes
will materially adversely affect future operating results, liquidity, or capital
resources, or represent material credits as to which management has serious
doubt as to the ability of such borrower to comply with loan repayment terms.
Listed below is a comparison of non-performing assets.
3/31/00 12/31/99 3/31/99
- --------------------------------------------------------------------------------
Non-performing loans:
Nonaccrual $ 31,224 $ 32,025 $ 9,941
Restructured 1,260 1,275 1,429
90 days past due 2,512 1,629 1,375
- --------------------------------------------------------------------------------
Total non-performing loans 34,996 34,929 12,745
Other real estate owned 1,075 936 677
- --------------------------------------------------------------------------------
Total non-performing assets $ 36,071 $ 35,865 $ 13,422
================================================================================
The Corporation monitors credit quality through a periodic review and analysis
of each subsidiary bank's loan portfolio. On a quarterly basis, the
Corporation's credit administration department performs an evaluation of the
adequacy of its allowance for loan losses. The evaluation includes an analysis
of past due loans, loans criticized during regulatory examinations, internally
classified loans, delinquency trends, and other relevant factors. The results of
these evaluations are used by the Corporation to determine the adequacy of the
consolidated allowance for loan losses.
PROVISION FOR LOAN LOSSES
The provision for loan losses is the amount necessary to adjust the allowance
for loan losses to an amount that is adequate to absorb estimated loan losses as
determined by management's periodic evaluations of the loan portfolio. This
evaluation by management is based upon consideration of actual loss experience,
changes in composition of the loan portfolio, evaluation of specific borrowers
and collateral, current economic conditions, trends in past-due and non-accrual
loan balances and the results of recent regulatory examinations.
The provision for loan losses totaled $1,050 for the first three months of 2000,
a decrease of $210 from the $1,260 provided in the first three months of 1999.
During the fourth quarter of 1999, management centralized the process for
evaluating the adequacy of the allowance for loan losses. As part of this
process, and also in response to unfavorable trends in delinquencies and
non-performing assets, the Corporation performed an extensive credit risk
assessment of the Corporation's loan portfolio. The results of this assessment
revealed the need to increase the allowance for loan losses by $7,800 during the
fourth quarter of 1999. At March 31, 2000, the allowance for loan losses as a
percentage of loans was 1.50% compared to 1.14% for the same period last year.
The allowance for loan losses to non-performing loans at March 31 was 72.6% in
2000 and 144.1% in 1999.
12
<PAGE> 13
FINANCIAL POSITION
During the first three months of 2000 cash and cash equivalents decreased
$24,456, or 33.5%, and federal funds sold increased $5,268, or 704.3%, from
December 31, 1999.
Total investment securities increased $98,975, or 29.8%, from the year ended
1999. The increase was primarily in mortgage-backed securities as the
Corporation has continually worked on improving its liquidity position.
Mortgage-backed securities increased $95,195, or 210.2%, from year end. This
growth was accomplished through increased borrowings and the reductions in the
tax-exempt municipal securities holdings.
Amortized cost and fair values of securities available for sale at March 31,
2000 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 86,321 $ 14 $ 1,250 $ 85,085
Taxable municipals 2,424 8 36 2,396
Tax-exempt municipals 172,236 1,416 1,992 171,660
Corporate securities 8,715 65 198 8,582
Mortgage-backed securities 141,116 357 995 140,478
Trust preferred securities 4,000 -- -- 4,000
Equity securities 19,133 -- -- 19,133
- -----------------------------------------------------------------------------------------
Total available for sale $433,945 $ 1,860 $ 4,471 $431,334
=========================================================================================
</TABLE>
LOANS
Total loans at March 31, 2000, were $1,695,881 compared to $1,700,833 at
December 31, 1999, reflecting a decrease of $4,952 or 0.3%.
DEPOSITS
Total deposits decreased $1,418, or 0.1%, to $1,693,243 at March 31, 2000, from
$1,694,661 at December 31, 1999. Total noninterest bearing deposits decreased
$22,524, or 10.8%, and interest-bearing deposits increased $21,106, or 1.4%,
during the three months ended March 31, 2000.
OTHER BORROWINGS
Other borrowings at March 31, 2000 were $225,213, reflecting an increase of
$86,842, or 62.7%, over the corresponding balance at December 31, 1999. The
increase, primarily fixed rate Federal Home Loan Bank advances, was a result of
the Corporation's interest rate risk management program and to fund asset
growth.
SHAREHOLDERS' EQUITY
The Corporation and each subsidiary bank, have capital ratios that substantially
exceed all regulatory requirements. The Corporation's regulatory capital ratios
are shown below.
<TABLE>
<CAPTION>
Minimum
Requirements 3/31/00 12/31/99 3/31/99
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital to risk-based assets 4.00% 13.83% 13.78% 14.08%
Total capital to risk-based assets 8.00% 15.08% 15.04% 15.24%
Tangible equity to tangible assets 3.00% 10.50% 10.47% 8.95%
</TABLE>
13
<PAGE> 14
IMPACT OF ACCOUNTING PRONOUNCEMENTS
On June 15, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 established a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. SFAS 133 is effective for fiscal years beginning
after June 15, 2000, but earlier application is permitted as of the beginning of
any fiscal quarters subsequent to June 15, 1998. Upon the statement's initial
application, all derivatives are required to be recognized in the statement of
financial position as either assets or liabilities and measured at fair value.
In addition, all hedging relationships must be designated, reassessed, and
documented pursuant to the provisions of SFAS 133. Adoption of SFAS 133 is not
expected to have a material financial statement impact on the Corporation's
financial position or operating results.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in market risk exposure during the quarter
that effected the quantitative and qualitative disclosures presented in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 1999.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
27 Financial Data Schedule (Electronic Filing Only)
REPORTS ON FORM 8-K
The Corporation filed no reports on Form 8-K during the current quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY BANCSHARES, INC.
/s/ JAMES E. ADAMS 5/12/2000
----------------------------------- --------------------
James E. Adams Date
Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial and
Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
27 Financial Data Schedule (Electronic Filing Only)
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 48,479
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,016
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 431,334
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,695,881
<ALLOWANCE> 25,406
<TOTAL-ASSETS> 2,290,029
<DEPOSITS> 1,693,243
<SHORT-TERM> 86,804
<LIABILITIES-OTHER> 21,917
<LONG-TERM> 259,713
0
0
<COMMON> 17,459
<OTHER-SE> 210,893
<TOTAL-LIABILITIES-AND-EQUITY> 2,290,029
<INTEREST-LOAN> 36,812
<INTEREST-INVEST> 5,270
<INTEREST-OTHER> 184
<INTEREST-TOTAL> 42,266
<INTEREST-DEPOSIT> 16,303
<INTEREST-EXPENSE> 20,285
<INTEREST-INCOME-NET> 21,981
<LOAN-LOSSES> 1,050
<SECURITIES-GAINS> (37)
<EXPENSE-OTHER> 14,832
<INCOME-PRETAX> 11,509
<INCOME-PRE-EXTRAORDINARY> 7,882
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,882
<EPS-BASIC> 0.45
<EPS-DILUTED> 0.45
<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>
