<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 September 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 November 5, 1997:
Common Stock, $10.00 Par Value: 1,141,525 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 September 30, 1997 and
December 31, 1996 (Unaudited)
Consolidated Statements of Income 4
for the three and nine months ended
September 30, 1997 and 1996
(Unaudited)
Consolidated Statements of Cash Flows 5
for the nine months ended
September 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
<TABLE>
<CAPTION>
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
9/30/97 12/31/96
<S> <C> <C>
ASSETS:
Cash and due from banks $6,874,460 $8,194,813
Federal funds sold 6,210,000 10,800,000
Investment securities available
for sale (at fair value) 9,917,482 6,513,258
Investment securities held to maturity 69,116,708 70,206,047
Approximate market value
September 30, 1997: $70,625,000
December 31, 1996: $71,620,000
Federal bank stock 832,800 546,600
Loans:
Commercial 32,220,505 31,144,549
Real estate mortgage 37,960,085 35,682,999
Installment 11,446,401 12,958,706
------------------------------------
Total loans 81,626,991 79,786,254
Less: Unearned income 444,519 485,342
Allowance for loan losses 1,192,618 1,150,917
------------------------------------
Loans, net 79,989,854 78,149,995
Accrued interest receivable 1,808,491 1,580,820
Premises and equipment 2,504,823 2,517,654
Other assets 2,373,132 2,121,827
------------------------------------
TOTAL $179,627,750 $180,631,014
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Demand $24,393,626 $25,210,638
Savings and N.O.W.s 70,881,584 73,507,040
Time 52,867,822 51,106,643
------------------------------------
Total deposits 148,143,032 149,824,321
Securities sold under
repurchase agreements 3,461,551 4,034,780
Federal reserve note account 1,000,000 875,656
Accrued interest payable 529,884 549,430
Other liabilities 546,356 542,579
------------------------------------
Total liabilities 153,680,823 155,826,766
------------------------------------
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 9,973,808 8,732,378
Less: Treasury shares (at cost): 4,093 and 2,105 shares as of
September 30, 1997 and December 31, 1996, respectively (164,321) (59,950)
------------------------------------
Total shareholders' equity 25,946,927 24,804,248
------------------------------------
TOTAL $179,627,750 $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 Nine months ended
9/30/97 9/30/96 9/30/97 9/30/96
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,890,559 $1,829,806 $5,541,534 $5,392,831
Interest on federal funds sold 134,688 105,990 361,392 288,257
Interest and dividends
on investments:
US government obligations 633,628 567,536 1,943,669 1,722,301
Obligations of states and
political subdivisions 299,011 252,671 811,479 762,177
Other securities 377,133 413,971 1,158,404 1,327,878
----------------------------------------------------------
Total interest income 3,335,019 3,169,974 9,816,478 9,493,444
INTEREST EXPENSE:
Interest on deposits 1,247,733 1,161,798 3,659,864 3,493,595
Expense of funds purchased 50,266 40,987 127,580 82,321
----------------------------------------------------------
Total interest expense 1,297,999 1,202,785 3,787,444 3,575,916
----------------------------------------------------------
Net interest income 2,037,020 1,967,189 6,029,034 5,917,528
PROVISION FOR LOAN LOSSES 30,000 45,000 90,000 135,000
----------------------------------------------------------
Net interest income after
provision for loan losses 2,007,020 1,922,189 5,939,034 5,782,528
NONINTEREST INCOME 172,811 208,476 538,831 603,590
NONINTEREST EXPENSE:
Salaries and employee benefits 695,542 672,467 2,082,960 2,060,616
Net occupancy expense 109,247 111,083 318,147 311,344
Data processing expense 179,680 191,702 536,323 554,631
Franchise tax 88,875 83,250 266,625 249,031
FDIC premium 4,535 500 13,324 1,500
Other expenses 318,957 339,884 1,031,013 992,266
----------------------------------------------------------
Total noninterest expense 1,396,836 1,398,886 4,248,392 4,169,388
----------------------------------------------------------
INCOME BEFORE INCOME TAXES 782,995 731,779 2,229,473 2,216,730
INCOME TAXES 168,158 160,231 491,435 494,898
----------------------------------------------------------
NET INCOME $614,837 $571,548 $1,738,038 $1,721,832
==========================================================
EARNINGS PER COMMON SHARE * $0.54 $0.50 $1.52 $1.51
==========================================================
<FN>
* 1996 Earnings per common share have been restated for 25% stock dividend. See Note 1.
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
<TABLE>
<CAPTION>
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Nine Months Ended
09/30/97 09/30/96
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $1,738,038 $1,721,832
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Depreciation and Amortization 463,839 449,170
Provision for Loan Losses 90,000 135,000
Net Losses on Sales of Investment Securities 0 21,097
Changes in Operating Assets and Liabilities (181,081) (202,508)
----------------------------------
Total Adjustments 372,758 402,759
----------------------------------
Net Cash Provided by Operating Activities 2,110,796 2,124,591
Cash Flows From Investing Activities:
Proceeds from Maturities of Investments 7,132,383 9,778,533
Proceeds from Sale of Investments 0 1,000,000
Purchases of Investment Securities (9,890,000) (4,500,000)
Capital Expenditures (240,328) (376,973)
Net (Increase) in Loans (1,929,859) (5,419,398)
Decrease in Other Assets (153,571) 29,266
----------------------------------
Net Cash Provided by (Used in) Investing Activities (5,081,375) 511,428
Cash Flows from Financing Activities:
Net (Decrease) in Demand
and Savings Accounts (3,442,468) (4,348,474)
Net Increase in time deposits 1,761,179 2,364,712
Net Increase (Decrease) in Short-Term Borrowings (448,885) (17,394)
Dividends Paid (743,114) (701,550)
Issuance of Stock under Dividend Reinvestment Plan 97,835 114,601
Treasury Shares Purchased (164,321) 0
----------------------------------
Net Cash (Used in) Financing Activities (2,939,774) (2,588,105)
----------------------------------
Net Change in Cash and Cash Equivalents (5,910,353) 47,914
Cash and Cash Equivalents at Beginning of the Period 18,994,813 17,240,849
----------------------------------
Cash and Cash Equivalents at End of the Period $13,084,460 $17,288,763
==================================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $3,806,990 $3,624,719
Income Taxes $507,106 $625,345
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 September 30, 1997, the
consolidated statements of earnings for the three and nine month periods ended
September 30, 1997 and 1996, and the consolidated statements of cash flows for
the nine month periods ended September 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 nine months ended September 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. During
1997, an additional 562 shares were issued for the dividend reinvestment plan
and 4,093 shares were acquired in Treasury shares, resulting in total shares
issued and outstanding of 1,140,671. Accordingly, earnings per common share for
the three and nine month periods ended September 30, 1996 have been restated for
the current weighted average number of shares outstanding as of September 30,
1997 of 1,143,425 shares.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION
Balance Sheets
Total assets decreased $1.0 million or 0.6% below 12/31/96. Cash and
due from banks decreased approximately $1.3 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 $4.6 million or 42.5% due to a decrease in
deposits, loan growth and security purchases. Investment securities available
for sale increased $3.4 million or 52.3% from 12/31/96 due to purchases of
agency and municipal securities. Total investment securities held to maturity
decreased $1.1 million from 12/31/96 due to securities maturing. Net loans
increased $1.8 million or 2.4% due to increased demand in the commercial loan
and real estate mortgage loan areas.
Total deposits decreased $1.7 million or approximately 1.1% below
12/31/96 due to increased competition locally for deposits. Non-interest bearing
demand accounts decreased by 3.2%, savings and N.O.W. accounts decreased by 3.6%
and time deposits increased by 3.4%. Securities sold under repurchase agreements
decreased $0.6 million from 12/31/96. Total shareholders' equity increased $1.1
million or 4.6% over 12/31/96.
6
<PAGE> 7
Statements of Cash Flows
Net cash provided by operating activities for the first nine months of
1997 was $2.1 million as compared to $2.1 million for the same period in 1996.
Net cash used in investing activities for the first nine months of 1997 was $5.1
million due primarily to a net increase in loans and purchases of investment
securities. Net cash of $2.9 million was used by financing activities primarily
as a result of the decrease in total deposits and short-term borrowings and
dividend payments. As a result, cash and cash equivalents decreased $5.9 million
during the first nine months of 1997. With total cash and cash equivalents of
$13.1 million as of 9/30/97, 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 9/30/97.
<TABLE>
REGULATORY CAPITAL
<CAPTION>
(Dollars in Tangible Core Risk Based
Thousands) Capital* Capital** Capital**
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total
regulatory
capital $23,951 13.38% $23,951 21.63% $25,144 22.70%
Fully phased
in regulatory
capital
requirement 3,581 2.00% 4,430 4.00% 8,860 8.00%
---------------------------------------------------------------------------
Regulatory
capital
excess $20,370 11.38% $19,521 17.63% $16,284 14.70%
===========================================================================
<FN>
*Tangible Assets $179,050 (thousands)
** Adjusted risk based assets $110,756 (thousands)
</TABLE>
RESULTS OF OPERATIONS
The Company is on a fiscal year ending December 31st. Interest income
totaled $3.3 million or $165 thousand higher for the three months ended 9/30/97
as compared to the same period in 1996. Interest expense was $1.3 million for
the three months ended 9/30/97 or $95 thousand above 1996. This caused an
increase of $70 thousand in net interest income or approximately 3.5% for the
three month period ended 9/30/97 as compared to 9/30/96. The nine month results
for the periods ended 9/30/97 and 9/30/96 were an increase in interest income of
$323 thousand and interest expense of $211 thousand. This provided for a net
interest income increase of $112 thousand or a 1.9% increase for the nine months
ended 9/30/97 when compared to 9/30/96.
7
<PAGE> 8
Net interest rate margins were 5.18% and 5.29% for the first nine
months of 1997 and 1996, respectively. Interest income yields decreased 7 basis
points as compared to interest costs which increased 4 basis points 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 9/30/97 and 9/30/96, respectively. Provision for loan losses were $90,000
and $135,000 for the nine months ended 9/30/97 and 9/30/96, respectively. Net
charge offs for the nine months ended 9/30/97 were $48 thousand as compared to
net recoveries of $4 thousand for the same period in 1996.
Noninterest income was $173 thousand for the three months ended 9/30/97
or approximately 17.1% below the same period in 1996. Noninterest income was
$539 thousand for the nine months ended 9/30/97 or approximately 10.7% below the
same period in 1996, due mainly to a decrease in gains on loans sold and deposit
penalty charges.
Noninterest expense was $1.4 million for the three months ended 9/30/97
or 0.1% below the same period ended 9/30/96. Year to date noninterest expenses
for 1997 were $4.2 million or 1.9% above the same period in 1996, resulting from
increases in net occupancy, franchise tax, FDIC premium and depreciation.
Net income was $615 thousand for the three months ended 9/30/97 or 7.6%
above the same quarter of 1996. Net income was approximately $1.7 million for
the nine months ended 9/30/97 or 0.9% above the first nine months of 1996. This
$16 thousand increase was due primarily by higher net interest income.
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
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
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 9/30/97.
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: November 5, 1997 /s/Charles J. Dolezal
---------------- ----------------------------------------
Charles J. Dolezal, President
Date: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,874,460
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,210,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,750,282
<INVESTMENTS-CARRYING> 69,116,708
<INVESTMENTS-MARKET> 70,625,000
<LOANS> 81,182,472
<ALLOWANCE> 1,192,618
<TOTAL-ASSETS> 179,627,750
<DEPOSITS> 148,143,032
<SHORT-TERM> 4,461,551
<LIABILITIES-OTHER> 1,076,240
<LONG-TERM> 0
0
0
<COMMON> 11,447,640
<OTHER-SE> 14,499,287
<TOTAL-LIABILITIES-AND-EQUITY> 179,627,750
<INTEREST-LOAN> 5,541,534
<INTEREST-INVEST> 3,913,552
<INTEREST-OTHER> 361,392
<INTEREST-TOTAL> 9,816,478
<INTEREST-DEPOSIT> 3,659,864
<INTEREST-EXPENSE> 3,787,444
<INTEREST-INCOME-NET> 6,029,034
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,248,392
<INCOME-PRETAX> 2,229,473
<INCOME-PRE-EXTRAORDINARY> 1,738,038
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,738,038
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
<YIELD-ACTUAL> 5.18
<LOANS-NON> 459,618
<LOANS-PAST> 30,132
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,088,492
<ALLOWANCE-OPEN> 1,150,917
<CHARGE-OFFS> 65,984
<RECOVERIES> 17,685
<ALLOWANCE-CLOSE> 1,192,618
<ALLOWANCE-DOMESTIC> 125,005
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,067,613
</TABLE>
