<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 March 31, 1998
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 April 30, 1998:
Common Stock, No Par Value: 1,142,049 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 March 31, 1998 and
December 31, 1997 (Unaudited)
Consolidated Statements of Income 4
for the three months ended
March 31, 1998 and 1997
(Unaudited)
Consolidated Statements of Cash Flows 5
for the three months ended
March 31, 1998 and 1997
(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
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)
3/31/98 12/31/97
<S> <C> <C>
ASSETS:
Cash and due from banks $5,487,156 $8,068,623
Federal funds sold 15,045,000 8,545,000
Investment securities available
for sale (at fair value) 12,155,431 10,565,945
Investment securities
held to maturity 65,605,916 70,374,836
Approximate market value
March 31, 1998: $67,274,000
December 31, 1997: $72,046,000
Federal bank stock 853,000 842,800
Loans:
Commercial 31,218,045 28,895,270
Real estate mortgage 41,329,961 39,722,625
Installment 11,108,037 11,281,155
---------------------------------------
Total loans 83,656,043 79,899,050
Less: Unearned income 383,396 408,808
Allowance for loan losses 1,254,506 1,232,464
---------------------------------------
Loans, net 82,018,141 78,257,778
Accrued interest receivable 1,776,516 1,574,829
Premises and equipment 2,398,010 2,477,058
Other assets 2,358,523 2,275,463
---------------------------------------
TOTAL $187,697,693 $182,982,332
=======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Demand $25,141,679 $27,544,731
Savings and N.O.W.s 69,902,292 71,770,277
Time 60,009,969 51,766,848
----------------------------------------
Total deposits 155,053,940 151,081,856
Securities sold under
repurchase agreements 4,016,533 3,576,966
Federal reserve note account 673,056 1,000,000
Accrued interest payable 557,317 556,827
Other liabilities 617,811 588,890
---------------------------------------
Total liabilities 160,918,657 156,804,539
---------------------------------------
SHAREHOLDERS' EQUITY
Common stock - $10 par value; 6,000,000 shares
authorized; 1,144,764 shares issued 11,447,640 11,447,640
Surplus 4,689,800 4,689,800
Retained earnings 10,522,356 10,137,118
Accumulated other comprehensive income 260,383 91,755
Less: Treasury shares (at cost): 3,190 and 4,446 shares as of
March 31, 1998 and December 31, 1997, respectively (141,143) (188,520)
---------------------------------------
Total shareholders' equity 26,779,036 26,177,793
---------------------------------------
TOTAL $187,697,693 $182,982,332
=======================================
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 4
<TABLE>
<CAPTION>
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
3/31/98 3/31/97
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,840,948 $1,804,340
Interest on federal funds sold 132,224 100,157
Interest and dividends
on investments
US government obligations 648,782 661,541
Obligations of states and
political subdivisions 306,010 252,401
Other securities 296,906 389,613
------------------------------------
Total interest income 3,224,870 3,208,052
INTEREST EXPENSE:
Interest on deposits 1,189,487 1,196,262
Expense of funds purchased 46,830 35,881
------------------------------------
Total interest expense 1,236,317 1,232,143
------------------------------------
Net interest income 1,988,553 1,975,909
PROVISION FOR LOAN LOSSES 30,000 30,000
------------------------------------
Net interest income after
provision for loan losses 1,958,553 1,945,909
NONINTEREST INCOME 225,465 189,744
NONINTEREST EXPENSE:
Salaries and employee benefits 729,647 680,189
Net occupancy expense 110,218 109,070
Data processing expense 182,909 179,359
Franchise tax 89,282 88,875
FDIC premium 4,510 4,065
Other expenses 343,537 351,895
------------------------------------
Total noninterest expense 1,460,103 1,413,453
------------------------------------
INCOME BEFORE INCOME TAXES 723,915 722,200
Income taxes 147,378 162,105
------------------------------------
NET INCOME 576,537 560,095
------------------------------------
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized appreciation
(depreciation) in fair value
of securities available for sale 168,627 (55,072)
------------------------------------
COMPREHENSIVE INCOME $745,164 $505,023
====================================
EARNINGS PER COMMON SHARE $0.51 $0.49
====================================
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
<TABLE>
<CAPTION>
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
3/31/98 3/31/97
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $576,537 $560,095
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Depreciation and Amortization 177,730 160,049
Provision for Loan Losses 30,000 30,000
Changes in Operating Assets and Liabilities (192,745) (425,659)
----------------------------------
Total Adjustments 14,985 (235,610)
----------------------------------
Net Cash Provided by Operating Activities 591,522 324,485
Cash Flows From Investing Activities:
Proceeds from Maturities of Investments 5,260,232 2,954,177
Purchases of Investment Securities (2,000,000) (4,000,000)
Capital Expenditures (21,053) (11,112)
Net Increase in Loans (3,790,363) (211,508)
Decrease in Other Assets 98,218 86,025
----------------------------------
Net Cash Used in Investing Activities (452,966) (1,182,418)
Cash Flows from Financing Activities:
Net Decrease in Demand
and Savings Accounts (4,271,037) (3,505,473)
Net Increase in time deposits 8,243,121 1,613,703
Net Increase (Decrease) in Short-Term Borrowings 112,623 (1,911,488)
Dividends Paid (364,966) (354,050)
Issuance of Stock under Dividend Reinvestment Plan 69,536 63,179
Treasury Shares Purchased (9,300)
----------------------------------
Net Cash Provided by (Used in) Financing Activities 3,779,977 (4,094,129)
Net Change in Cash and Cash Equivalents 3,918,533 (4,952,062)
Cash and Cash Equivalents at Beginning of the Period 16,613,623 18,994,813
----------------------------------
Cash and Cash Equivalents at End of the Period $20,532,156 $14,042,751
==================================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $1,235,827 $1,254,384
Income Taxes $7,762 $35,000
</TABLE>
Cash and Cash Equivalents include Cash and Due From Banks and Federal Funds
Sold.
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 March 31, 1998, the consolidated
statements of earnings for the three month periods ended March 31, 1998 and
1997, and the consolidated statements of cash flows for the three month periods
ended March 31, 1998 and 1997 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, 1997.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998.
During the first quarter of 1998, the Corporation adopted Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". The adoption did not have a material effect on the Corporation's
financial position or results of operations. Certain prior period amounts have
been reclassified to conform with the current presentation.
Earnings per common share for the three months ended March 31, 1998
and 1997 were based on the weighted average number of shares outstanding during
each period of 1,141,487 and 1,143,150, respectively. On April 21, 1998 a 2 for
1 stock split payable in the form of a 100% stock dividend was declared with a
record date of May 15, 1998 payable May 29, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FINANCIAL CONDITION
Balance Sheets
Total assets increased $4.7 million or 2.6% over 12/31/97. Cash and due
from banks decreased approximately $2.6 million, mainly the result of a lower
outgoing check letter at the end of the quarter as compared to 12/31/97. Federal
funds sold increased $6.5 million or 76.1% due to a increase in deposits and
securities maturing. Investment securities available for sale increased $1.6
million or 15.0% from 12/31/97 due to purchases of agency securities. Total
investment securities held to maturity decreased $4.8 million or 6.8% from
12/31/97 due to securities maturing. Net loans increased $3.8 million or 4.8%
due to increased demand in the commercial loan and real estate mortgage loan
areas.
Total deposits increased $4.0 million or approximately 2.6% over
12/31/97 due to growth in time deposits. Non-interest bearing demand accounts
decreased by 8.7%, savings and N.O.W. accounts decreased by 2.6% and time
deposits increased by 15.9%. Securities sold under repurchase agreements
increased $0.4 million from 12/31/97. Total shareholders' equity increased $0.6
million or 2.3% over 12/31/97.
6
<PAGE> 7
Statements of Cash Flows
Net cash provided by operating activities for the first three months of
1998 was $0.6 million compared to $0.3 million for the same period in 1997. Net
cash used in investing activities was $0.5 million due primarily to a net
increase in loans offset by a net decrease in investment securities. Net cash of
$3.8 million was provided by financing activities primarily as a result of the
increase in time deposits. As a result, cash and cash equivalents increased $3.9
million during the first three months of 1998. With total cash and cash
equivalents of $20.5 million as of 3/31/98, 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 3/31/98.
REGULATORY CAPITAL
<TABLE>
<CAPTION>
(Dollars in Tangible Core Risk Based
Thousands) Capital* Capital** Capital**
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total
regulatory
capital $24,383 13.03% $24,383 22.46% $25,638 23.62%
Fully phased
in regulatory
capital
requirement 3,743 2.00% 4,342 4.00% 8,684 8.00%
---------------------------------------------------------------------------
Regulatory
capital
excess $20,640 11.03% $20,041 18.46% $16,954 15.62%
===========================================================================
<FN>
*Tangible Assets $187,169 (thousands)
** Adjusted risk based assets $108,547 (thousands)
</TABLE>
RESULTS OF OPERATIONS
The Company is on a fiscal year ending December 31st. Interest income
totaled $3.2 million or $17 thousand higher for the three months ended 3/31/98
as compared to the same period in 1997. Interest expense was $1.2 million for
the three months ended 3/31/98 or $4 thousand above 1997. This caused an
increase of $13 thousand in net interest income or approximately 0.6% for the
three month period ended 3/31/98 as compared to 3/31/97.
Net interest rate margins were 5.17% and 5.19% for the first three
months of 1998 and 1997, respectively. Interest income yields decreased 7 basis
points as compared to interest costs which decreased 5 basis points in 1998
compared to 1997. The lower interest income yields were a result of lower yields
from the investment portfolio.
7
<PAGE> 8
Provision for loan losses were $30,000 for the three months ended
3/31/98 and 3/31/97, respectively. Net charge offs for the three months ended
3/31/98 were $8 thousand as compared to $21 thousand for the same period in 1997
Noninterest income was $225 thousand for the three months ended 3/31/98
or approximately 18.8% above the same period in 1997, due to gains on loans sold
and higher fee income.
Noninterest expense was $1.5 million for the three months ended 3/31/98
or approximately 3.3% above the same period in 1997, due mainly to an increase
in salaries and employee benefits.
Net income was $577 thousand for the three months ended 3/31/98 or 2.9%
above the first quarter of 1997. The increase was due mainly to a lower tax
provision, caused by higher tax free municipal income in the first quarter of
1998. Unrealized appreciation on securities available for sale was $169 thousand
for the first quarter of 1998, compared to unrealized depreciation of $55
thousand for the first quarter of 1997. Comprehensive income was $745 thousand
for the three months ended 3/31/98 or 47.6% above the first quarter of 1997.
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 - Notice
of annual meeting of shareholders and proxy statement
dated March 23, 1998 was previously filed with the SEC
on March 18, 1998.
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
3/31/98.
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: May 4, 1998 /s/Charles J. Dolezal
-------------- ------------------------------------
Charles J. Dolezal, President
Date: May 4, 1998 /s/Lawrence M. Cardinal, Jr.
-------------- ------------------------------------
Lawrence M. Cardinal, Jr., Treasurer
(Principal Financial Officer)
9
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,487,156
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 15,045,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,008,431
<INVESTMENTS-CARRYING> 65,605,916
<INVESTMENTS-MARKET> 67,274,000
<LOANS> 83,272,647
<ALLOWANCE> 1,254,506
<TOTAL-ASSETS> 187,697,693
<DEPOSITS> 155,053,940
<SHORT-TERM> 4,689,589
<LIABILITIES-OTHER> 1,175,128
<LONG-TERM> 0
0
0
<COMMON> 11,447,640
<OTHER-SE> 15,331,396
<TOTAL-LIABILITIES-AND-EQUITY> 187,697,693
<INTEREST-LOAN> 1,840,948
<INTEREST-INVEST> 1,251,698
<INTEREST-OTHER> 132,224
<INTEREST-TOTAL> 3,224,870
<INTEREST-DEPOSIT> 1,189,487
<INTEREST-EXPENSE> 1,236,317
<INTEREST-INCOME-NET> 1,988,553
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,460,103
<INCOME-PRETAX> 723,915
<INCOME-PRE-EXTRAORDINARY> 576,537
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 576,537
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<YIELD-ACTUAL> 5.17
<LOANS-NON> 523,162
<LOANS-PAST> 37,047
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,873,815
<ALLOWANCE-OPEN> 1,232,464
<CHARGE-OFFS> 17,793
<RECOVERIES> 9,835
<ALLOWANCE-CLOSE> 1,254,506
<ALLOWANCE-DOMESTIC> 106,741
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,147,765
</TABLE>
