<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1997
Commission File Number 0-14773
NATIONAL BANCSHARES CORPORATION
Ohio 34-1518564
---- ----------
State of incorporation IRS Employer
Identification No.
112 West Market Street, Orrville, Ohio 44667
--------------------------------------------
Address of principal executive offices
Registrant's telephone number: (330) 682-1010
--------------
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 such 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 registrant's classes of
common stock, as of August 5, 1997:
Common Stock, $10.00 Par Value: 1,142,378 Shares Outstanding
1
<PAGE> 2
National Bancshares Corporation
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
as of June 30, 1997 and
December 31, 1996 (Unaudited)
Consolidated Statements of Income 4
for the three and six months ended
June 30, 1997 and 1996
(Unaudited)
Consolidated Statements of Cash Flows 5
for the six months ended
June 30, 1997 and 1996
(Unaudited)
Notes to Consolidated Financial 6
Statements (Unaudited)
Item 2. Management's Discussion and Analysis 6
of Financial Condition and
Results of Operations
Part II. Other Information 8
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of matters to a vote of
security holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
Signatures 9
2
<PAGE> 3
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
6/30/97 12/31/96
<S> <C> <C>
ASSETS:
Cash and due from banks $6,701,562 $8,194,813
Federal funds sold 8,390,000 10,800,000
Investment securities available
for sale (at fair value) 5,540,575 6,513,258
Investment securities
held to maturity 70,743,526 70,206,047
Approximate market value
June 30, 1997: $72,064,000
December 31, 1996: $71,620,000
Federal bank stock 823,300 546,600
Loans:
Commercial 32,684,374 31,144,549
Real estate mortgage 36,654,858 35,682,999
Installment 11,975,859 12,958,706
------------------------------------
Total loans 81,315,091 79,786,254
Less: Unearned income 448,954 485,342
Allowance for loan losses 1,183,805 1,150,917
------------------------------------
Loans, net 79,682,332 78,149,995
Accrued interest receivable 1,612,431 1,580,820
Premises and equipment 2,501,774 2,517,654
Other assets 2,327,430 2,121,827
------------------------------------
TOTAL $178,322,930 $180,631,014
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Demand $24,568,377 $25,210,638
Savings and N.O.W.s 71,057,727 73,507,040
Time 53,100,153 51,106,643
------------------------------------
Total deposits 148,726,257 149,824,321
Securities sold under
repurchase agreements 1,883,005 4,034,780
Federal reserve note account 1,000,000 875,656
Accrued interest payable 569,292 549,430
Other liabilities 487,289 542,579
------------------------------------
Total liabilities 152,665,843 155,826,766
------------------------------------
SHAREHOLDERS' EQUITY
Common stock - $10 par value; 6,000,000 shares
authorized; 1,144,764 and 1,144,202 shares issued 11,447,640 11,442,020
Surplus 4,689,800 4,689,800
Retained earnings 9,519,647 8,732,378
Less: Treasury shares (at cost): 0 and 2,105 shares as of
June 30, 1997 and December 31, 1996, respectively 0 (59,950)
------------------------------------
Total shareholders' equity 25,657,087 24,804,248
------------------------------------
TOTAL $178,322,930 $180,631,014
====================================
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
<TABLE>
<CAPTION>
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) Three months ended Six months ended
6/30/97 6/30/96 6/30/97 6/30/96
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,846,635 $1,802,139 $3,650,975 $3,563,025
Interest on federal funds sold 126,547 98,471 226,704 182,267
Interest and dividends
on investments
US government obligations 648,500 563,996 1,310,041 1,154,765
Obligations of states and
political subdivisions 260,067 253,873 512,468 509,506
Other securities 391,658 439,533 781,271 913,907
----------------------------------------------------------
Total interest income 3,273,407 3,158,012 6,481,459 6,323,470
INTEREST EXPENSE:
Interest on deposits 1,215,869 1,161,580 2,412,131 2,331,797
Expense of funds purchased 41,433 17,827 77,314 41,334
----------------------------------------------------------
Total interest expense 1,257,302 1,179,407 2,489,445 2,373,131
----------------------------------------------------------
Net interest income 2,016,105 1,978,605 3,992,014 3,950,339
PROVISION FOR LOAN LOSSES 30,000 45,000 60,000 90,000
----------------------------------------------------------
Net interest income after
provision for loan losses 1,986,105 1,933,605 3,932,014 3,860,339
NONINTEREST INCOME 176,276 205,209 366,020 395,114
NONINTEREST EXPENSE:
Salaries and employee benefits 707,229 688,349 1,387,418 1,388,149
Net occupancy expense 99,830 101,094 208,900 200,261
Data processing expense 177,284 182,584 356,643 362,929
Franchise tax 88,875 83,250 177,750 165,781
FDIC premium 4,724 500 8,789 1,000
Other expenses 360,161 338,549 712,056 652,382
----------------------------------------------------------
Total noninterest expense 1,438,103 1,394,326 2,851,556 2,770,502
----------------------------------------------------------
INCOME BEFORE INCOME TAXES 724,278 744,488 1,446,478 1,484,951
INCOME TAXES 161,172 168,246 323,277 334,667
----------------------------------------------------------
NET INCOME $563,106 $576,242 $1,123,201 $1,150,284
==========================================================
EARNINGS PER COMMON SHARE * $0.49 $0.50 $0.98 $1.00
==========================================================
<FN>
* 1996 Earnings per common share have been restated for 25% stock dividend. See
Note 1. See notes to consolidated financial statements
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Six Months Ended
06/30/97 06/30/96
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $1,123,201 $1,150,284
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Depreciation and Amortization 311,466 300,349
Provision for Loan Losses 60,000 90,000
Changes in Operating Assets and Liabilities (101,386) (213,112)
----------------------------------
Total Adjustments 270,080 177,237
----------------------------------
Net Cash Provided by Operating Activities 1,393,281 1,327,521
Cash Flows From Investing Activities:
Proceeds from Maturities of Investments 5,736,143 7,480,815
Purchases of Investment Securities (5,700,000) (2,500,000)
Capital Expenditures (153,011) (128,704)
Net (Increase) in Loans (1,592,337) (3,545,848)
Decrease (Increase) in Other Assets (11,163) 72,641
----------------------------------
Net Cash Provided by (Used in) Investing Activities (1,720,368) 1,378,904
Cash Flows from Financing Activities:
Net (Decrease) in Demand
and Savings Accounts (3,091,574) (4,079,839)
Net Increase in time deposits 1,993,510 (1,903,972)
Net (Decrease) in Short-Term Borrowings (2,027,431) (382,663)
Dividends Paid (548,504) (519,073)
Issuance of Stock under Dividend Reinvestment Plan 97,835 82,082
----------------------------------
Net Cash (Used in) Financing Activities (3,576,164) (6,803,465)
----------------------------------
Net Change in Cash and Cash Equivalents (3,903,251) (4,097,040)
Cash and Cash Equivalents at Beginning of the Period 18,994,813 17,240,849
----------------------------------
Cash and Cash Equivalents at End of the Period $15,091,562 $13,143,809
==================================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $2,469,583 $2,385,724
Income Taxes $374,587 $459,952
Cash and Cash Equivalents include Cash and Due From Banks
and Federal Funds Sold.
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
National Bancshares Corporation
Note to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
The consolidated balance sheet as of June 30, 1997, the consolidated
statements of earnings for the three and six month periods ended June 30, 1997
and 1996, and the consolidated statements of cash flows for the six month
periods ended June 30, 1997 and 1996 have been prepared by the Corporation
without audit. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included.
The consolidated financial statements have been prepared in accordance
with the instructions to Form 10-Q, but do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. It is suggested that these statements be read in
conjunction with the consolidated financial statements and footnotes in the
Corporation's annual report on Form 10-K for the year ended December 31, 1996.
Operating results for the the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
A five for four (25%) stock dividend was declared on October 15,
1996. The record date for the stock dividend was October 31, 1996 and the issue
date was November 15, 1996. 361.75 fractional shares calculated were paid in
cash, resulting in 1,144,202 shares issued following the stock dividend. On
April 22, 1997 an additional 562 shares were issued for the dividend
reinvestment plan, increasing total shares issued to 1,144,764. Accordingly,
earnings per common share for the three and six month periods ended June 30,
1996 have been restated for the current weighted average number of shares
outstanding as of June 30, 1997 of 1,143,856 shares.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION
Balance Sheets
Total assets decreased $2.3 million or 1.3% below 12/31/96. Cash and
due from banks decreased approximately $1.5 million, mainly the result of a
lower outgoing check letter at the end of the quarter as compared to 12/31/96.
Federal funds sold decreased $2.4 million or 22.3% due to a decrease in deposits
and securities sold under repurchase agreements. Investment securities available
for sale decreased $1.0 million or 14.9% from 12/31/96 due to securities
maturing. Total investment securities held to maturity increased $0.5 million
from 12/31/96 due to purchases of agency, municipal and corporate securities
less maturities and early calls by issuers. Net loans increased $1.5 million or
2.0% due to increased demand in the commercial loan and real estate mortgage
loan areas.
Total deposits decreased $1.1 million or approximately 0.7% below
12/31/96 due to increased competition locally for deposits. Non-interest bearing
demand accounts decreased by 2.5%, savings and N.O.W. accounts decreased by 3.3%
and time deposits increased by 3.9%. Securities sold under repurchase agreements
decreased $2.2 million below 12/31/96. Total shareholders' equity increased $0.9
million or 3.4% over 12/31/96.
6
<PAGE> 7
Statements of Cash Flows
Net cash provided by operating activities for the first six months of
1997 was $1.4 million as compared to $1.3 million for the same period in 1996.
Net cash used in investing activities for the first six months of 1997 was $1.7
million due primarily to a net increase in loans. Net cash of $3.6 million was
used by financing activities primarily as a result of the decrease in total
deposits and short-term borrowings. As a result, cash and cash equivalents
decreased $3.9 millon during the first six months of 1997. With total cash and
cash equivalents of $15.1 million as of 6/30/97, the Corporation's liquidity
ratios continue to remain favorable.
Analysis of Equity
Commercial banks whose deposits are insured by the Bank Insurance Fund
("BIF") are required to comply with certain minimum regulatory capital
requirements. The following is a summary of the Bank's regulatory capital levels
at 6/30/97.
REGULATORY CAPITAL
<TABLE>
<CAPTION>
(Dollars in Tangible Core Risk Based
Thousands) Capital* Capital** Capital**
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total
regulatory
capital $23,499 13.22% $23,499 21.30% $24,683 22.38%
Fully phased
in regulatory
capital
requirement 3,554 2.00% 4,413 4.00% 8,825 8.00%
---------------------------------------------------------------------------
Regulatory
capital
excess $19,945 11.22% $19,086 17.30% $15,858 14.38%
===========================================================================
<FN>
*Tangible Assets $177,721 (thousands)
** Adjusted risk based assets $110,313 (thousands)
</TABLE>
RESULTS OF OPERATIONS
The Company is on a fiscal year ending December 31st. Interest income
totaled $3.3 million or $115 thousand higher for the three months ended 6/30/97
as compared to the same period in 1996. Interest expense was $1.3 million for
the three months ended 6/30/97 or $78 thousand above 1996. This caused an
increase of $37 thousand in net interest income or approximately 1.9% for the
three month period ended 6/30/97 as compared to 6/30/96. The six month results
for the periods ended 6/30/97 and 6/30/96 were an increase in interest income of
$158 thousand and interest expense of $116 thousand. This provided for a net
interest income increase of $42 thousand or a 1.1% increase for the six months
ended 6/30/97 when compared to 6/30/96.
7
<PAGE> 8
Net interest rate margins were 5.19% and 5.33% for the first six months
of 1997 and 1996, respectively. Interest income yields decreased 10 basis points
as compared to interest costs which increased 4 basis point in 1997 over 1996.
The lower interest income yields were a result of lower yields from the
investment portfolio.
Provision for loan losses were $30,000 and $45,000 for the three months
ended 6/30/97 and 6/30/96, respectively. Provision for loan losses were $60,000
and $90,000 for the six months ended 6/30/97 and 6/30/96, respectively.Net
charge offs for the six months ended 6/30/97 were $27 thousand as compared to
net recoveries of $19 thousand for the same period in 1996.
Noninterest income was $176 thousand for the three months ended 6/30/97
or approximately 14.1% below the same period in 1996. Noninterest income was
$366 thousand for the six months ended 6/30/97 or approximately 7.4% below the
same period in 1996, due mainly to a decrease in gains on loans sold.
Noninterest expense was $1.4 million for the three months ended 6/30/97
or 3.1% above the same period ended 6/30/96. Year to date noninterest expenses
for 1997 were $2.9 million or 2.9% above the same period in 1996, resulting from
increases in net occupancy, franchise tax, depreciation, and marketing expenses.
Net income was $563 thousand for the three months ended 6/30/97 or 2.3%
below the same quarter of 1996. Net income was approximately $1.1 million for
the six moths ended 6/60/97 or 2.4% below the first six months of 1996. This $27
thousand decrease was caused primarily by lower noninterest income and higher
noninterest expenses.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of matters to a vote of security holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<S> <C> <C>
Exhibit No. If incorporated by Reference,
Under Reg. Documents with Which Exhibit
S-K, Item 601 Description of Exhibits was Previously Filed with SEC
(11) Computation of Earnings per Share Filed Herewith
(27) Financial Data Schedule
</TABLE>
No other exhibits are required to be filed herewith pursuant to Item 601 of
Regulation S-K.
b. There were no Reports on Form 8-K filed for the quarter
ended 6/30/97.
8
<PAGE> 9
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 Bancshares Corporation
Date: August 5, 1997 /s/Charles J. Dolezal
------------------------- ------------------------------------
Charles J. Dolezal, President
Date: August 5, 1997 /s/Lawrence M. Cardinal, Jr.
------------------------- ------------------------------------
Lawrence M. Cardinal, Jr., Treasurer
(Principal Financial Officer)
9
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,701,562
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,390,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,363,875
<INVESTMENTS-CARRYING> 70,743,526
<INVESTMENTS-MARKET> 72,064,000
<LOANS> 80,866,137
<ALLOWANCE> 1,183,805
<TOTAL-ASSETS> 178,322,930
<DEPOSITS> 148,726,257
<SHORT-TERM> 2,883,005
<LIABILITIES-OTHER> 1,056,581
<LONG-TERM> 0
<COMMON> 11,447,640
0
0
<OTHER-SE> 14,209,447
<TOTAL-LIABILITIES-AND-EQUITY> 178,322,930
<INTEREST-LOAN> 3,650,975
<INTEREST-INVEST> 2,603,780
<INTEREST-OTHER> 226,704
<INTEREST-TOTAL> 6,481,459
<INTEREST-DEPOSIT> 2,412,131
<INTEREST-EXPENSE> 2,489,445
<INTEREST-INCOME-NET> 3,992,014
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,851,556
<INCOME-PRETAX> 1,446,478
<INCOME-PRE-EXTRAORDINARY> 1,123,201
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,123,201
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
<YIELD-ACTUAL> 5.19
<LOANS-NON> 468,936
<LOANS-PAST> 519,796
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,125,315
<ALLOWANCE-OPEN> 1,150,917
<CHARGE-OFFS> 40,957
<RECOVERIES> 13,845
<ALLOWANCE-CLOSE> 1,183,805
<ALLOWANCE-DOMESTIC> 109,979
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,073,826
</TABLE>
