<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, 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 November 5, 1998:
Common Stock, Without Par Value: 2,278,940 Shares Outstanding
1
<PAGE> 2
National Bancshares Corporation
Index
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
as of September 30, 1998 and
December 31, 1997 (Unaudited)
Consolidated Statements of Income 4
for the three and nine months ended
September 30, 1998 and 1997
(Unaudited)
Consolidated Statements of Cash Flows 5
for the nine months ended
September 30, 1998 and 1997
(Unaudited)
Note to Consolidated Financial 6
Statements (Unaudited)
Item 2. Management's Discussion and Analysis 6 - 8
of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 9
Market Risk
Part II. Other Information 9
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 10
</TABLE>
2
<PAGE> 3
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
9/30/98 12/31/97
<S> <C> <C>
ASSETS:
Cash and due from banks $ 5,409,501 $ 8,068,623
Federal funds sold 12,695,000 8,545,000
Securities available
for sale (at fair value) 13,040,945 10,565,945
Securities held to maturity 57,551,513 70,374,836
Approximate fair value
September 30, 1998: $59,789,000
December 31, 1997: $72,046,000
Federal bank stock 873,700 842,800
Loans:
Commercial 30,447,587 28,895,270
Real estate mortgage 46,586,631 39,722,625
Installment 12,090,610 11,281,155
-------------------------------
Total loans 89,124,828 79,899,050
Less: Unearned income 348,568 408,808
Allowance for loan losses 1,254,204 1,232,464
-------------------------------
Loans, net 87,522,056 78,257,778
Accrued interest receivable 1,754,906 1,574,829
Premises and equipment 2,654,078 2,477,058
Other assets 2,779,491 2,275,463
-------------------------------
TOTAL $ 184,281,190 $ 182,982,332
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits
Demand $ 25,272,940 $ 27,544,731
Savings and N.O.W.s 70,828,242 71,770,277
Time 55,435,499 51,766,848
-------------------------------
Total deposits 151,536,681 151,081,856
Securities sold under
repurchase agreements 4,171,436 3,576,966
Federal Reserve note account 342,012 1,000,000
Accrued interest payable 545,319 556,827
Other liabilities 653,703 588,890
-------------------------------
Total liabilities 157,249,151 156,804,539
-------------------------------
SHAREHOLDERS' EQUITY
Common stock - without par value; 6,000,000 shares
Authorized; 2,289,528 and 1,144,764 shares issued 11,447,640 11,447,640
Surplus 4,689,800 4,689,800
Retained earnings 11,310,743 10,137,117
Accumulated other comprehensive income (107,318) 91,756
Less: Treasury shares (at cost): 11,458 and 4,446 shares as of
September 30, 1998 and December 31, 1997, respectively (308,826) (188,520)
-------------------------------
Total shareholders' equity 27,032,039 26,177,793
-------------------------------
TOTAL $ 184,281,190 $ 182,982,332
===============================
</TABLE>
See note to consolidated financial statements
3
<PAGE> 4
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) Three months ended Nine months ended
9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,026,180 $ 1,890,559 $ 5,838,783 $ 5,541,534
Interest on federal funds sold 137,971 134,688 453,220 361,392
Interest and dividends
on investments
US government obligations 597,341 633,628 1,915,472 1,943,669
Obligations of states and
political subdivisions 301,989 299,011 916,351 811,479
Other securities 301,065 377,133 883,309 1,158,404
--------------------------------------------------------------
Total interest income 3,364,546 3,335,019 10,007,135 9,816,478
INTEREST EXPENSE:
Interest on deposits 1,199,456 1,247,733 3,633,901 3,659,864
Expense of funds purchased 60,324 50,266 155,218 127,580
--------------------------------------------------------------
Total interest expense 1,259,780 1,297,999 3,789,119 3,787,444
--------------------------------------------------------------
Net interest income 2,104,766 2,037,020 6,218,016 6,029,034
PROVISION FOR LOAN LOSSES 30,000 30,000 90,000 90,000
--------------------------------------------------------------
Net interest income after
provision for loan losses 2,074,766 2,007,020 6,128,016 5,939,034
NONINTEREST INCOME 210,017 172,811 635,740 538,831
NONINTEREST EXPENSE:
Salaries and employee benefits 744,119 695,542 2,208,695 2,082,960
Net occupancy expense 102,417 109,247 313,141 318,147
Data processing expense 197,511 179,680 569,990 536,323
Franchise tax 90,375 88,875 270,032 266,625
Other expenses 404,103 323,492 1,199,891 1,044,337
--------------------------------------------------------------
Total noninterest expense 1,538,525 1,396,836 4,561,749 4,248,392
--------------------------------------------------------------
INCOME BEFORE INCOME TAXES 746,258 782,995 2,202,007 2,229,473
Income taxes 152,908 168,158 446,748 491,435
--------------------------------------------------------------
NET INCOME 593,350 614,837 1,755,259 1,738,038
--------------------------------------------------------------
OTHER COMPREHENSIVE INCOME,
NET OF TAX:
Unrealized appreciation
(depreciation) in fair value
of securities available for sale (196,499) 33,934 (199,075) 54,148
--------------------------------------------------------------
COMPREHENSIVE INCOME $ 396,851 $ 648,771 $ 1,556,184 $ 1,792,186
==============================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
(Restated in 1997 for stock split in 1998) 2,279,211 2,285,154 2,281,969 2,286,850
==============================================================
EARNINGS PER COMMON SHARE
(See Note 1) $ 0.26 $ 0.27 $ 0.77 $ 0.76
==============================================================
</TABLE>
See note to consolidated financial statements
4
<PAGE> 5
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited) Nine Months Ended
09/30/98 09/30/97
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 1,755,259 $ 1,738,038
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Depreciation and Amortization 474,304 463,839
Provision for Loan Losses 90,000 90,000
Changes in Operating Assets and Liabilities (50,635) (181,081)
-----------------------------
Total Adjustments 513,669 372,758
-----------------------------
Net Cash Provided by Operating Activities 2,268,928 2,110,796
Cash Flows From Investing Activities:
Held to maturity securities
Proceeds from Maturities 15,927,624 8,661,560
Purchases (3,880,522) (6,803,719)
Available for sale securities
Proceeds from Maturities 2,450,000
Purchases (4,574,694) (4,615,458)
Capital Expenditures (455,383) (240,328)
Net Increase in Loans (9,354,278) (1,929,859)
Increase in Other Assets (418,867) (153,571)
-----------------------------
Net Cash Used in Investing Activities (306,120) (5,081,375)
Cash Flows from Financing Activities:
Net Decrease in Demand
and Savings Accounts (3,213,826) (3,442,468)
Net Increase in time deposits 3,668,651 1,761,179
Net Decrease in Short-Term Borrowings (63,518) (448,885)
Dividends Paid (775,686) (743,114)
Issuance of Stock under Dividend Reinvestment Plan 146,099 97,835
Treasury Shares Purchased (233,650) (164,321)
-----------------------------
Net Cash Used in Financing Activities (471,930) (2,939,774)
-----------------------------
Net Change in Cash and Cash Equivalents 1,490,878 (5,910,353)
Cash and Cash Equivalents at Beginning of the Period 16,613,623 18,994,813
-----------------------------
Cash and Cash Equivalents at End of the Period $ 18,104,501 $ 13,084,460
=============================
Supplemental Disclosure of Cash Flow Information
Cash Paid During the Period for:
Interest $ 3,800,627 $ 3,806,990
Income Taxes $ 482,762 $ 507,106
</TABLE>
Cash and Cash Equivalents include Cash and Due From Banks
And Federal Funds Sold
See note to consolidated financial statements
5
<PAGE> 6
National Bancshares Corporation
Note to Consolidated Financial Statements (Unaudited)
Note 1. Basis of Presentation
The accompanying consolidated financial statements include the accounts
of National Bancshares Corporation (the "Company") and its wholly-owned
subsidiary, First National Bank, Orrville, Ohio (the "Bank"). All significant
intercompany transactions and balances have been eliminated. The consolidated
balance sheet as of September 30, 1998, the consolidated statements of income
for the three and nine month periods ended September 30, 1998 and 1997, and the
consolidated statements of cash flows for the nine month periods ended September
30, 1998 and 1997 have been prepared by the Company 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. These statements should be read in conjunction with the
consolidated financial statements and footnotes in the Company's annual report
on Form 10-K for the year ended December 31, 1997. Operating results for the
nine months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
A two for one stock split payable in the form of a 100% stock
dividend was declared on April 21, 1998. The record date for the stock dividend
was May 15, 1998 and the issue date was May 29, 1998. Earnings per common share
for the three and nine month periods ended September 30, 1997 have been restated
to reflect the split.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING INFORMATION
Forward-looking statements contained in this discussion involve risks
and uncertainties and are subject to change based on various important factors.
Actual results could differ from those expressed or implied.
FINANCIAL CONDITION
Balance Sheets
Total assets increased $1.3 million or 0.7% over 12/31/97. Cash and due
from banks decreased approximately $2.7 million, mainly the result of a lower
outgoing check letter on 9/30/98 as compared to 12/31/97. Federal funds sold
increased $4.1 million or 48.6% due mainly to securities maturing. Securities
available for sale increased $2.5 million or 23.4% from 12/31/97 due to
purchases of agency and corporate securities. Securities held to maturity
decreased $12.8 million or 18.2% from 12/31/97 due to securities maturing. Net
loans increased $9.3 million or 11.8% due to increased demand in the commercial
loan and real estate mortgage loan areas.
Total deposits increased $0.5 million or approximately 0.3% from
12/31/97. Non-interest bearing demand accounts decreased by 8.2%, savings and
N.O.W. accounts decreased by 1.3% and time deposits increased by 7.1%.
Securities sold under repurchase agreements increased $0.6 million from
12/31/97. Total shareholders' equity increased $0.9 million or 3.3% over
12/31/97.
6
<PAGE> 7
Statements of Cash Flows
Net cash provided by operating activities for the first nine months of
1998 was $2.3 million compared to $2.1 million for the same period in 1997. Net
cash used in investing activities was $0.3 million due primarily to loan growth
being funded by a net decrease in investment securities. Net cash of $0.5
million was used in financing activities. As a result, cash and cash equivalents
increased $1.5 million during the first nine months of 1998. With total cash and
cash equivalents of $18.1 million as of 9/30/98, the Company'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 9/30/98.
<TABLE>
<CAPTION>
REGULATORY CAPITAL
Tier One Total
(Dollars in Tangible Risk Based Risk Based
Thousands) Capital* Capital** Capital**
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total
Regulatory
capital $24,384 13.36% $24,384 21.43% $25,638 22.53%
Regulatory
Capital
Requirement 3,650 2.00% 4,551 4.00% 9,102 8.00%
-----------------------------------------------------------------
Regulatory
Capital
excess $20,734 11.36% $19,833 17.43% $16,536 14.53%
=================================================================
*Tangible Assets $182,488 (thousands)
** Adjusted risk based assets $113,775 (thousands)
</TABLE>
7
<PAGE> 8
RESULTS OF OPERATIONS
The Company is on a fiscal year ending December 31st. Interest income
totaled $3.4 million or $30 thousand higher for the three months ended 9/30/98
as compared to the same period in 1997. Interest expense was $1.3 million for
the three months ended 9/30/98 or $38 thousand below 1997. This caused an
increase of $68 thousand or 3.3% in net interest income for the three month
period ended 9/30/98 as compared to 9/30/97. The nine month results for the
periods ended 9/30/98 and 9/30/97 were an increase in interest income of $191
thousand and interest expense of $2 thousand. This provided for a net interest
income increase of $189 thousand or a 3.1% increase for the nine months ended
9/30/98 when compared to 9/30/97.
Net interest rate margins were 5.22% and 5.18% for the first nine
months of 1998 and 1997, respectively. Interest income yields decreased 5 basis
points as compared to interest costs which decreased 9 basis points in 1998
compared to 1997.
Provision for loan losses were $30,000 for the three months ended
9/30/98 and 9/30/97, and $90,000 for the nine months ended 9/30/98 and 9/30/97.
Net charge offs for the nine months ended 9/30/98 were $68 thousand as compared
to $48 thousand for the same period in 1997.
Noninterest income was $210 thousand for the three months ended 9/30/98
or approximately 21.5% above the same period in 1997. Noninterest income was
$636 thousand for the nine months ended 9/30/98 or approximately 18.0% 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 9/30/98
or approximately 10.1% above the same period in 1997. Year to date noninterest
expenses for 1998 were $4.6 million or 7.4% above the same period in 1997, due
to increases in salaries, employee benefits and miscellaneous expenses.
Net income was $593 thousand for the three months ended 9/30/98 or 3.5%
below the same quarter of 1997. Net income was approximately $1.8 million for
the nine months ended 9/30/98 or 1.0% above the first nine months of 1997. The
increase was due to higher interest and noninterest income offset by higher
noninterest expenses. In addition, the tax provision was lower due to higher tax
free municipal income in 1998. Unrealized appreciation (depreciation) on
securities available for sale was ($196) thousand for the three months ended
9/30/98 compared to $34 thousand for the three months ended 9/30/97. Year to
date unrealized appreciation (depreciation) was ($199) thousand compared to $54
thousand for the same period last year. Comprehensive income was $1.6 million
for the nine months ended 9/30/98 or 13.2% below 9/30/97.
YEAR 2000 COMPLIANCE
Management has completed its assessment of the Year 2000 issue for all
major systems. A schedule was established to test all computer hardware and
software programs to determine compatibility with the Year 2000. Systems that
did not pass the test are being upgraded or replaced. Outside computer vendors
that we are using are actively addressing this situation by testing and
reprogramming systems where necessary. We anticipate having all our critical
systems totally compliant with the upcoming date change by the end of 1998.
While no assurances can be given, management believes the cost of addressing and
correcting this issue will not have a material impact on the Company's business,
results of operations or financial condition.
8
<PAGE> 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative
disclosures about market risks as of September 30, 1998 from that presented in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
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 - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
<TABLE>
<CAPTION>
Exhibit No. If incorporated by Reference,
Under Reg. Documents with Which Exhibit
S-K, Item 601 Description of Exhibits was Previously Filed with SEC
- ------------- ----------------------- -----------------------------
<C> <S> <S>
(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
9/30/98.
9
<PAGE> 10
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, 1998 /s/Charles J. Dolezal
---------------- ------------------------------------------------
Charles J. Dolezal, President
Date: November 5, 1998 /s/Lawrence M. Cardinal, Jr.
---------------- ------------------------------------------------
Lawrence M. Cardinal, Jr., Treasurer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,409,501
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,695,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,040,945
<INVESTMENTS-CARRYING> 57,551,513
<INVESTMENTS-MARKET> 59,789,000
<LOANS> 88,776,260
<ALLOWANCE> 1,254,204
<TOTAL-ASSETS> 184,281,190
<DEPOSITS> 151,536,681
<SHORT-TERM> 4,513,448
<LIABILITIES-OTHER> 1,199,022
<LONG-TERM> 0
0
0
<COMMON> 11,447,640
<OTHER-SE> 15,584,399
<TOTAL-LIABILITIES-AND-EQUITY> 184,281,190
<INTEREST-LOAN> 5,838,783
<INTEREST-INVEST> 3,715,132
<INTEREST-OTHER> 453,220
<INTEREST-TOTAL> 10,007,135
<INTEREST-DEPOSIT> 3,633,901
<INTEREST-EXPENSE> 3,789,119
<INTEREST-INCOME-NET> 6,218,016
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,561,749
<INCOME-PRETAX> 2,202,007
<INCOME-PRE-EXTRAORDINARY> 1,755,259
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,755,259
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 5.22
<LOANS-NON> 123,951
<LOANS-PAST> 33,375
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,467,084
<ALLOWANCE-OPEN> 1,232,464
<CHARGE-OFFS> 124,254
<RECOVERIES> 55,994
<ALLOWANCE-CLOSE> 1,254,204
<ALLOWANCE-DOMESTIC> 117,225
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,136,979
</TABLE>
