UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number:
June 30, 1995 0-15204
NATIONAL BANKSHARES, INCORPORATED
- -------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1375874
- -------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 South Main Street
Blacksburg, Virginia 24060
- -------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (540)552-2011
-------------
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 issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 1, 1995
- ------------------------------- --------------------------------
COMMON STOCK, $2.50 PAR VALUE 1,714,152
(This report contains 25 pages)
1<PAGE>
NATIONAL BANKSHARES, INCORPORATED
FORM 10-Q
INDEX
Page
----
PART I FINANCIAL INFORMATION
- --------------------------------
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS, JUNE 30, 1995
AND DECEMBER 31, 1994 3-4
CONSOLIDATED STATEMENTS OF INCOME,
THREE MONTHS ENDED JUNE 30, 1995 AND 1994 5-6
CONSOLIDATED STATEMENTS OF INCOME,
SIX MONTHS ENDED JUNE 30, 1995 AND 1994 7-8
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY, SIX MONTHS ENDED
JUNE 30, 1995 AND 1994 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994 10-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12-21
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 22-23
PART II OTHER INFORMATION
- ----------------------------
ITEMS 1 - 3 - LEGAL PROCEEDINGS; CHANGES IN
SECURITIES; DEFAULTS UPON SENIOR SECURITIES 24
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 24
ITEM 5 - OTHER INFORMATION 24
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K 24
SIGNATURES 25
2<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
NATIONAL BANKSHARES, INCORPORATED
(UNAUDITED)
($ in thousands)
JUNE 30, DECEMBER 31,
1995 1994
======== ============
<S> <C> <C>
ASSETS
Cash and due from banks (note 2) $ 5,627 6,648
Federal funds sold 170 1,400
Securities available for sale at fair value
(note 3) 14,893 12,114
Securities held to maturity (fair value
$52,208 in 1995 and $55,816 in 1994) (note 3) 51,869 57,389
Mortgage loans held for sale (note 4) 383 392
Loans:
Real estate construction loans 8,351 5,543
Real estate mortgage loans 30,321 30,212
Commercial and industrial loans 38,475 35,984
Loans to individuals 48,164 45,767
-------- -------
Total loans 125,311 117,506
Less unearned income on loans (1,903) (1,782)
-------- -------
Loans, net of unearned income 123,408 115,724
Less allowance for loan losses (note 5) (2,084) (2,006)
-------- -------
Loans, net 121,324 113,718
-------- -------
Bank premises and equipment, net 2,682 2,762
Accrued interest receivable 1,623 1,698
Other real estate owned, net (note 6) 1,055 1,083
Other assets (notes 7 and 8) 2,402 2,523
-------- -------
Total assets $202,028 199,727
======== =======
LIABILITIES & STOCKHOLDERS' EQUITY
Noninterest-bearing deposits 23,095 23,816
Interest-bearing deposits 57,289 59,794
Savings deposits 16,364 19,257
Time deposits (note 9) 82,858 75,769
-------- -------
Total deposits 179,606 178,636
-------- -------
Accrued interest payable 216 225
Other liabilities 764 729
-------- -------
Total liabilities 180,586 179,590
-------- -------
3<PAGE>
Stockholders' equity (note 10):
Common stock of $2.50 per value. Authorized
5,000,000 shares; issued and outstanding
1,714,152 in 1995 and 1994 4,285 4,285
Surplus 1,187 1,187
Undivided profits 15,895 14,791
Net unrealized gains (losses) on securities
available for sale 75 (126)
-------- -------
Total stockholders' equity 21,442 20,137
-------- -------
Commitments and contingent liabilities (note 11)
Total liabilities and stockholders' equity $202,028 199,727
======== =======
See accompanying notes to consolidated financial statements.
</TABLE>
4<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
NATIONAL BANKSHARES, INCORPORATED
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1995 AND 1994
($ in thousands, except per share data)
JUNE 30, JUNE 30,
1995 1994
======== ========
INTEREST INCOME
Interest and fees on loans $ 2,968 2,491
Interest on federal funds sold 69 85
Interest on securities-taxable 658 727
Interest on securities-nontaxable 327 294
-------- -------
Total interest income 4,022 3,597
-------- -------
INTEREST EXPENSE
Interest on time certificates of deposit
of $100,000 or more 186 107
Interest on other deposits 1,471 1,293
-------- -------
Total interest expense 1,657 1,400
Net interest income 2,365 2,197
Provision for loan losses (note 5) 75 155
-------- -------
Net interest income after provision
for loan losses 2,290 2,042
-------- -------
NONINTEREST INCOME
Service charges on deposit accounts 187 168
Other service charges and fees 39 47
Credit card fees 115 98
Trust income 98 121
Other income 8 3
Realized securities gains, net 2 3
-------- -------
Total noninterest income 449 440
-------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 796 729
Occupancy and furniture and fixtures 132 121
Data processing and ATM 90 84
FDIC assessment 100 100
Credit card processing 114 88
Goodwill amortization 7 5
Net costs of other real estate owned 5 6
Other operating expense 361 383
-------- -------
Total noninterest expense 1,605 1,516
-------- -------
5<PAGE>
Income before income tax expense 1,134 966
Income tax expense (note 7) 269 221
-------- -------
Net income $ 865 745
======== =======
Net income per share $ 0.50 0.44
======== =======
See accompanying notes to consolidated financial statements.
6<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
NATIONAL BANKSHARES, INCORPORATED
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
($ in thousands, except per share data)
JUNE 30, JUNE 30,
1995 1994
========= ========
INTEREST INCOME
Interest and fees on loans $ 5,690 4,892
Interest on federal funds sold 95 111
Interest on securities-taxable 1,338 1,405
Interest on securities-nontaxable 662 571
-------- -------
Total interest income 7,785 6,979
-------- -------
INTEREST EXPENSE
Interest on time certificates of deposit
of $100,000 or more 242 213
Interest on other deposits 2,943 2,519
Interest on federal funds purchased 2 ---
-------- -------
Total interest expense 3,187 2,732
-------- -------
Net interest income 4,598 4,247
Provision for loan losses (note 5) 140 230
-------- -------
Net interest income after provision
for loan losses 4,458 4,017
-------- -------
NONINTEREST INCOME
Service charges on deposit accounts 353 333
Other service charges and fees 75 74
Credit card fees 198 170
Trust income 176 244
Other income 18 13
Realized securities gains (losses), net (1) 5
-------- -------
Total noninterest income 819 839
-------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,570 1,439
Occupancy and furniture and fixtures 268 283
Data processing and ATM 185 161
FDIC assessment 200 193
Credit card processing 202 164
Goodwill amortization 15 26
Net costs of other real estate owned 31 5
Other operating expense 711 683
-------- -------
Total noninterest expense 3,182 2,954
-------- -------
7<PAGE>
Income before income tax expense 2,095 1,902
Income tax expense (note 7) 477 436
-------- -------
Net income $ 1,618 1,466
======== =======
Net income per share $ 0.94 0.86
======== =======
See accompanying notes to consolidated financial statements.
8<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NATIONAL BANKSHARES, INCORPORATED
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
($ in thousands)
Net Unrealized
Gains on
Securities
Common Undivided Available
Stock Surplus Profits for Sale Total
====== ======= ========= ============== ======
Balances, December 31, 1993 $4,274 1,112 12,868 --- 18,254
Cumulative effect of change
in accounting for securities
available for sale at
January 1, 1994, net of
income taxes of $141 --- --- --- 273 273
Net income --- --- 1,466 --- 1,466
Cash dividends --- --- (461) --- (461)
Change in net unrealized
(losses) on securities
available for sale, net
of income tax benefit of
$128 --- --- --- (248) (248)
------ ----- ------ ---- ------
Balances, June 30, 1994 $4,274 1,112 13,873 25 19,284
====== ===== ====== ==== ======
Balances, December 31, 1994 $4,285 1,187 14,791 (126) 20,137
Net income --- --- 1,618 --- 1,618
Cash dividends --- --- (514) --- (514)
Change in net unrealized
gains on securities
available for sale, net
of income taxes of $103 --- --- --- 201 201
------ ----- ------ ---- ------
Balances, June 30, 1995 $4,285 1,187 15,895 75 21,442
====== ===== ====== ==== ======
See accompanying notes to consolidated financial statements.
9<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATIONAL BANKSHARES, INCORPORATED
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
($ in thousands)
JUNE 30, JUNE 30,
1995 1994
======== ========
CASH FLOWS FROM OPERATING ACTIVITIES (note 12)
Net Income $1,618 1,466
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 140 230
Depreciation of bank premises and equipment 197 203
Amortization of intangibles 82 41
Amortization of premiums and accretion of
discounts, net 58 76
Gain on bank premises and equipment (8) ---
Loss on maturities of securities available
for sale, net 3 ---
Gain on calls of securities held to
maturity, net (2) (6)
Gain on maturities of securities held
to maturity, net (40) ---
Net decrease in mortgage loans held for sale 9 201
Losses and writedowns on other real estate
owned --- 5
(Increase) decrease in:
Accrued interest receivable 75 (119)
Other assets (143) (231)
Increase (decrease) in:
Accrued interest payable (9) 5
Other liabilities 35 (160)
------ -------
Net cash provided by operating activities 2,015 1,711
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES (note 12)
Net increase in money market investments 1,230 2,620
Proceeds from calls and maturities of securities
available for sale 1,013 3,778
Proceeds from calls and maturities of securities
held to maturity 8,950 2,556
Purchases of securities available for sale (3,502) (988)
Purchases of securities held to maturity (3,434) (18,324)
Net increase in loans made to customers (7,704) (3,900)
Proceeds from disposal of other real estate
owned 28 60
Recoveries on loans charged off 36 27
Bank premises and equipment expenditures (118) (308)
Proceeds from sale of bank premises and
equipment 9 ---
------ -------
Net cash used in investing activities (3,492) (14,479)
10<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES (note 12)
Deposits assumed, net of premium paid --- 13,159
Net increase in time deposits 7,089 406
Net decrease in other deposits (6,119) (2,421)
Net increase in federal funds purchased --- 2,785
Cash dividends paid (514) (461)
------ -------
Net cash provided by financing activities 456 13,468
------ -------
Net increase (decrease) in cash and due from banks (1,021) 700
Cash and due from banks at beginning of year 6,648 4,177
------ -------
Cash and due from banks at end of six months $5,627 4,877
====== =======
See accompanying notes to consolidated financial statements.
11<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATIONAL BANKSHARES, INC.
($ in thousands, except per share data)
1. GENERAL
The consolidated financial statements of National Bankshares, Inc.
(Bankshares) and its wholly-owned subsidiary, The National Bank of
Blacksburg (NBB), conform to generally accepted accounting principles and to
general practices within the banking industry. The accompanying interim
period consolidated financial statements are unaudited; however, in the
opinion of management, all adjustments of a normal and recurring nature
which are necessary for a fair presentation of the consolidated financial
statements have been included. The interim period consolidated financial
statements and notes included herein should be read in conjunction with the
notes to consolidated financial statements included in the Corporation's
1994 Annual Report to Stockholders, and Form 10-K.
2. CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and amounts due from banks.
12<PAGE>
3. SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
The amortized costs, gross unrealized gains, gross unrealized losses and
fair values for securities available for sale by major security type as of
June 30, 1995 and December 31, 1994 were as follows:
($ in thousands)
June 30, 1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUES
========= ========== ========== ======
Available for sale:
U.S. Treasury $ 3,007 13 (12) 3,008
U.S. Government agencies
and corporations 9,937 120 (8) 10,049
Mortgage-backed securities 248 5 --- 253
Other securities 1,588 6 (11) 1,583
------- ----- ---- ------
Total securities
available for sale $14,780 144 (31) 14,893
======= ===== ==== ======
($ in thousands)
December 31, 1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUES
========= ========== ========== ======
Available for sale:
U.S. Treasury $ 3,516 1 (61) 3,456
U.S. Government agencies
and corporations 6,936 7 (68) 6,875
Mortgage-backed securities 261 --- (15) 246
Other securities 1,592 --- (55) 1,537
------- ----- ---- ------
Total securities
available for sale $12,305 8 (199) 12,114
======= ===== ==== ======
13<PAGE>
The amortized costs and fair values of securities available for sale at June 30,
1995 and December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
($ in thousands)
June 30, 1995 December 31, 1994
AMORTIZED FAIR AMORTIZED FAIR
COSTS VALUES COSTS VALUES
========= ====== ========= ======
Due in one year or less $ 6,513 6,519 3,553 3,513
Due in one year through
five years 5,973 6,017 6,985 6,845
Due in five years through
ten years 2,055 2,118 1,552 1,541
Due after ten years 108 108 82 82
No maturity 131 131 133 133
------- ------ ------ ------
$14,780 14,893 12,305 12,114
======= ====== ====== ======
The amortized costs, gross unrealized gains, gross unrealized losses and fair
values for securities held to maturity by major security type as of June 30,
1995 and December 31, 1994 were as follows:
($ in thousands)
June 30, 1995
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUES
========= ========== ========== ======
Held to maturity:
U.S. Treasury $ 6,758 55 (55) 6,758
U.S. Government agencies
and corporations 10,618 223 (15) 10,826
States and political
subdivisions 26,568 360 (266) 26,662
Mortgage-backed securities 1,049 29 --- 1,078
Other 6,876 50 (42) 6,884
------- ------ ------ ------
Total securities
held to maturity $51,869 717 (378) 52,208
======= ====== ====== ======
14<PAGE>
($ in thousands)
December 31, 1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COSTS GAINS LOSSES VALUES
========= ========== ========== ======
Held to maturity:
U.S. Treasury $ 9,722 44 (219) 9,547
U.S. Government agencies
and corporations 14,073 20 (296) 13,797
States and political
subdivisions 26,073 212 (1,091) 25,194
Mortgage-backed securities 1,147 8 (17) 1,138
Other 6,374 14 (248) 6,140
------- --- ------ ------
Total securities
held to maturity $57,389 298 (1,871) 55,816
======= === ======= ======
The amortized costs and fair values of securities held to maturity at June 30,
1995 and December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
($ in thousands)
June 30, 1995 December 31, 1994
AMORTIZED FAIR AMORTIZED FAIR
COSTS VALUES COSTS VALUES
========= ====== ========= ======
Due in one year or less $ 8,102 8,154 10,998 11,006
Due in one year through
five years 25,981 26,179 28,749 28,085
Due in five years through
ten years 15,777 15,852 15,645 14,820
Due after ten years 2,009 2,023 1,997 1,905
------- ------ ------ ------
$51,869 52,208 57,389 55,816
======= ====== ====== ======
15<PAGE>
4. MORTGAGE BANKING ACTIVITIES
NBB originates mortgage loans for sale to secondary market investors subject
to contractually specified and limited recourse provisions. Every contract
with each investor contains certain recourse language. In general, NBB may
be required to repurchase a previously sold mortgage loan if there is major
noncompliance with defined loan origination or documentation standards,
including fraud, negligence or material misstatement in the loan documents.
Repurchase may also be required if necessary governmental loan guarantees
are canceled or never issued, or if an investor is forced to buy back a loan
after it has been resold as a part of a loan pool. In addition, NBB may
have an obligation to repurchase a loan if the mortgagor has defaulted early
in the loan term. This potential default period ranges from four to sixteen
months after sale of a loan to the investor.
Mortgage loans held for sale are carried at the lower of cost or fair value.
For the period ended June 30, 1995, NBB originated $4,461 and sold $4,470 in
mortgage loans to investors.
5. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
($ in thousands)
Six months ended
June 30,
1995 1994
======= =====
Balance, beginning of year $ 2,006 2,038
Provision for loan losses 140 230
Recoveries 36 27
Loans charged off (98) (197)
------- -----
Balance, end of period $ 2,084 2,098
======= =====
16<PAGE>
6. IMPAIRED LOANS AND NONPERFORMING ASSETS
Effective January 1, 1995, Bankshares adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." SFAS No.
114 requires that certain loans which have been determined to be impaired be
measured based on the present value of expected future cash flows discounted
at the loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. SFAS No. 114 also required creditors to
evaluate the collectibility of both contractual interest and contractual
principal of all receivables when assessing the need for a loss accrual. In
addition, SFAS No. 114 eliminates the requirement that a creditor account
for certain loans as foreclosed assets prior to the time the creditor has
taken possession of the underlying collateral, resulting in the
reclassification of in-substance foreclosures from foreclosed properties to
loans.
SFAS No. 118 amends SFAS No. 114 to allow a creditor to use existing methods
for recognizing interest income on an impaired loan. To accomplish that,
SFAS No. 118 eliminates the provisions in SFAS No. 114 that described how a
creditor should report income on an impaired loan. SFAS No. 118 does not
change the provisions in SFAS No. 114 that required a creditor to measure
impairment based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical
expedient, at the observable market price of the loan or the fair value of
the collateral if the loan is collateral dependent. SFAS No. 118 amends the
disclosure requirements in SFAS No. 114 to require information about the
recorded investment in certain impaired loans and about how a creditor
recognizes interest income related to those impaired loans.
SFAS No. 114 does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment. For Bankshares, loans
collectively reviewed for impairment include all consumer loans, single
family loans and performing multi-family and nonresidential real estate
loans, excluding loans which have entered into the "workout process."
Bankshares considers a loan to be impaired when, based upon current
information and events, it believes it is probable that Bankshares will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. Bankshares' impaired loans within the scope of SFAS No. 114
include nonaccrual loans (excluding those collectively reviewed for
impairment), troubled debt restructurings and certain other nonperforming
loans. For collateral dependent loans, Bankshares based the measurement of
these impaired loans on the fair value of the loan's underlying collateral.
For all other loans, Bankshares bases the measurement of these impaired
loans on the more readily determinable of the present value of expected
future cash flows discounted at the loan's effective interest rate or the
observable market price. Impairment losses are recognized through an
increase in the allowance for loan losses and a corresponding charge to the
provision for loan losses. Adjustments to impairment losses due to changes
in the fair value of impaired loans' underlying collateral are included in
the provision for loan losses. When an impaired loan is either sold,
transferred to foreclosed properties or written down, any related valuation
allowance is charged off against the allowance for loan losses.
17<PAGE>
The adoption of SFAS No. 114, as amended by SFAS No. 118, did not have a
material impact on Bankshares' consolidated financial statements due to
Bankshares' continuing policy of measuring loan impairment based on the fair
value of the underlying collateral which is consistent with the methods
prescribed in SFAS No. 114. In addition, Bankshares had previously
reclassified in-substance foreclosures from other real estate owned to loans
as of December 31, 1993 as prescribed by SFAS No. 114; therefore, no further
reclassification from other real estate owned to loans was required upon
adoption.
As of June 30, 1995, the recorded investment in impaired loans was $420 and
the amount of the related allowance for loan losses was $263 for a net
investment of $157.
During the period ended June 30, 1995, the average recorded investment in
impaired loans was $420, and there was no related amount of interest income
recognized during the time within that period that the loans were impaired.
The following table presents information concerning nonperforming assets.
($ in thousands)
June 30, December 31,
1995 1994
======== ============
Nonaccrual loans $ 420 420
Restructured loans --- 229
------ -----
Total nonperforming loans 420 649
Other real estate owned, net 1,055 1,083
------ -----
Total nonperforming assets $1,475 1,732
====== =====
Loans contractually past due 90
days or more (excludes non-
accrual loans) $ 278 219
====== =====
Loans are generally placed in nonaccrual status when the collection of
principal or interest is 90 days or more past due, unless the obligation is
both well-secured and in the process of collection.
18<PAGE>
The following table shows the interest that would have been earned on
nonaccrual and restructured loans if they had been current in accordance with
their original terms and the recorded interest that was earned and included
in income on these loans:
($ in thousands)
Six Months Ended
June 30,
1995 1994
==== ====
Scheduled interest:
Nonaccrual loans $ 21 71
Restructured loans 7 27
---- ----
Total scheduled interest $ 28 98
==== ====
Recorded interest:
Nonaccrual loans $--- 36
Restructured loans 9 25
---- ----
Total recorded interest $ 9 61
==== ====
Other real estate, acquired through foreclosure or deed in lieu of
foreclosure, is carried at the lower of the recorded investment or its fair
value, less estimated costs to sell (net realizable value). When the
property is acquired, any excess of the loan balance over net realizable
value is charged to the allowance for loan losses. Increases or decreases in
the net realizable value of such properties are credited or charged to income
by adjusting the valuation allowance for other real estate owned. Net costs
of maintaining or operating foreclosed properties are expensed as incurred.
Changes in the valuation allowance for other real estate owned are as
follows:
($ in thousands)
Six Months Ended
June 30,
1995 1994
==== ====
Balances, beginning of period $ 49 49
Provision for other real estate owned --- ---
Write-offs --- ---
---- ----
Balances, end of period $ 49 49
==== ====
19<PAGE>
7. INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
June 30, 1995 are presented below:
($ in thousands)
June 30, 1995
=============
Deferred Tax Assets:
Loans, principally due to allowance for loan losses $ 504
Other real estate owned, principally due to
valuation allowance 1
Deferred compensation, due to accrual for
financial reporting purpose 143
Deposit intangibles and goodwill 13
Nonaccrual interest on loans 30
-----
Total gross deferred tax assets 691
Less valuation allowance ---
-----
Net deferred tax assets 691
-----
Deferred tax liabilities:
Net unrealized gains on securities available for sale (38)
Bank premises and equipment, principally due to
differences in depreciation (39)
Securities, due to differences in discount accretion (26)
Deposit intangibles and other assets (51)
-----
Total gross deferred liabilities (154)
-----
Net deferred tax asset included in other assets $ 537
=====
The effective tax rate and the components of income tax expense do not differ
significantly from such amounts disclosed in prior periods.
Bankshares has determined that a valuation allowance for the gross deferred
tax assets is not necessary at June 30, 1995 due to the fact that the
realization of the entire gross deferred tax assets can be supported by the
amount of taxes paid during the carryback period available under current tax
laws.
20<PAGE>
Total income taxes were allocated as follow:
($ in thousands)
Six Months Ended
June 30,
1995 1994
==== ====
Income $477 436
Stockholders' equity, for net
unrealized gains on securities
available for sale recognized for
financial reporting purposes 38 13
---- ---
Total income taxes $515 449
==== ===
8. INTANGIBLE ASSETS
Included in other assets are deposit intangibles of $806 and $872 at June 30,
1995 and December 31, 1994, respectively, and goodwill of $412 and $427 at
June 30, 1995 and December 31, 1994 respectively. Deposit intangibles
are being amortized on a straight-line basis over a ten-year period and
goodwill is being amortized on a straight-line basis over a fifteen-year
period.
9. TIME DEPOSITS
Included in time deposits are certificates of deposit and other time deposits
of $100,000 or more in the aggregate amounts of $12,065 at June 30, 1995, and
$10,726 at December 31, 1994.
10.NET INCOME PER SHARE
Net income per share is based upon the weighted average number of common
shares outstanding. (1,714,152 in 1995 and 1,709,672 in 1994.)
11.COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are various commitments and
contingent liabilities such as commitments to extend credit which are not
reflected in the accompanying consolidated financial statements. No losses
are anticipated by management as a result of these transactions. Commitments
under standby letters of credit at June 30, 1995, were $1,916 and at December
31, 1994, $3,117.
12.SUPPLEMENTAL CASH FLOW INFORMATION
Bankshares paid $3,196 and $2,727 for interest and $406 and $603 for income
taxes, net of refunds, at June 30, 1995 and June 30, 1994, respectively.
Noncash investing activities consisted of $98 and $197 of loans charged
against the allowance for loan losses for the periods ended June 30, 1995 and
June 30, 1994, respectively, and $114 of net unrealized gains included in
securities available for sale for the period ended June 30, 1995 and $38 of
net unrealized gains included in securities available for sale for the period
ended June 30, 1994. Noncash investing activities also did not
include any foreclosed loans transferred into other real estate owned
for the period ended June 30, 1995 as compared to $297 transferred for the
period ended June 30, 1994.
21<PAGE>
MANAGEMENT'S DISCUSSION OF ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
($ in thousands)
PERFORMANCE SUMMARY
Net income during the first six months of 1995 increased $152 compared to a $241
increase from 1993 to 1994. Interest income was up 11.5% over 1994 due to
increases in the loan portfolio and changes in the yields on other earning
assets. An increase in total deposits resulting from a purchase of deposits
transaction consummated in April 1994, a shift in the mix of deposit liabilities
to time deposits and the rising rate environment contributed to the increase in
interest expense of $455 from 1994 to 1995 compared to a $254 decrease from 1993
to 1994.
Increases of $20 and $28 in the noninterest income categories of service charges
on deposit accounts and credit card fees were adversely impacted by a reduction
in Trust income of $68.
Noninterest expense increased 7.7% in the first half of 1995 compared to a 2.1%
increase in 1994. Salaries and employees benefits expense rose $131 as a result
of new hires, promotions and salary increases, as well as increased costs
associated with employee health insurance coverage and pension expenses.
Goodwill amortization of $15 resulted from the purchase of deposits transaction.
INCOME TAXES
Although Bankshares earnings rose, the effective tax rate for the period ended
June 30, 1995 was 22.8% compared to 22.9% for the period ended June 30, 1994.
BALANCE SHEET
Total assets have increased slightly since year-end 1994. Net loans increased
$7,606 as a result of stronger demand for real estate construction loans, loans
to individuals and commercial and industrial loans. Securities and cash
equivalents decreased by $4,992 in response to the growth in the loan portfolio.
Total deposits increased by $970 since year-end 1994 and shifted from the
interest bearing and savings categories to the time deposit category as
customers took advantage of higher rates.
Bankshares' stockholders' equity was $21,442 at June 30, 1995 compared to
$20,137 at year-end 1994. The increase of $1,255 was the result of earnings
retention and a turnaround in net unrealized gains on securities available for
sale.
LIQUIDITY
Bankshares maintained an adequate level of liquidity during the first half of
1995 and 1994. The liquidity ratio was 22.7% at June 30, 1995 and 26.3% at June
30, 1994. Certain assets are maintained on a short-term basis to meet liquidity
demands anticipated by management.
22<PAGE>
CAPITAL RESOURCES
Bankshares continues to maintain a strong capital position with the increase in
total capital attributable to retained earnings and the adoption of SFAS No.
115. Both Bankshares' and NBB's capital adequacy ratios exceed regulatory
requirements and they provide added flexibility to take advantage of business
opportunities as they arise.
Capital Analysis
($ in thousands)
June 30, 1995
Capital Components Consolidated NBB
================== ============ =======
Tier 1 capital 19,633 19,490
Risk-adjusted tier 2 capital 1,697 1,697
------ -------
Total risk-adjusted capital 21,530 21,187
Asset Components Consolidated NBB
================ ============ =======
Adjusted risk-weighted assets 135,338 135,383
Year-to-date adjusted average assets 197,086 197,284
Capital Ratios Required Consolidated NBB
============== ======== ============ =======
Common stockholders' equity 10.63% 10.56%
Regulatory capital 6% 10.74% 10.68%
Risk-weighted capital:
Tier 1 4% 14.51% 14.40%
Tier 1 + tier 2 8% 15.76% 15.65%
Leverage ratio 3%-5% 9.96% 9.88%
23<PAGE>
NATIONAL BANKSHARES, INCORPORATED
PART II
OTHER INFORMATION
Items 1-3. Legal Proceedings; Changes in Securities; Defaults Upon Senior
Securities
None for the period ended
June 30, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
Three Class 2 Directors of the Company were elected by a vote of the
security holders for a term of four years each.
(a) This matter was submitted to a vote at the Company's Annual
Meeting of Stockholders, held on April 11, 1995.
(b) The name of each director elected at the meeting follows:
James M. Shuler
Jeffrey R. Stewart
J. Lewis Webb, Jr.
The names of each director whose term of office continued after
the meeting is listed:
John M. Barringer
Charles L. Boatwright
L. Allen Bowman
Robert E. Christopher
Paul A. Duncan
James G. Rakes
(c) The number of votes cast for or against each nominee is provided
below. There were 3,800 abstaining votes and no broker non-
votes.
Election of Directors
Director Votes For Votes Against
======== ========= =============
James M. Shuler 1,162,273 200
Jeffrey R. Stewart 1,151,285 11,188
J. Lewis Webb, Jr. 1,160,285 2,188
Item 5. Other Information
None for the period ended
June 30, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) None for the period ended
June 30, 1995.
(b) None for the period ended
June 30, 1995.
24<PAGE>
NATIONAL BANKSHARES, INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National Bankshares, Inc.
(Registrant)
Date:__________________ /s/ James G. Rakes
James G. Rakes, President and
Chief Executive Officer
Date:__________________ /s/ Joan C. Nelson
Joan C. Nelson, Treasurer
25<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECOND QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 5,627
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 170
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,893
<INVESTMENTS-CARRYING> 51,869
<INVESTMENTS-MARKET> 52,208
<LOANS> 123,791
<ALLOWANCE> 2,084
<TOTAL-ASSETS> 202,028
<DEPOSITS> 179,606
<SHORT-TERM> 0
<LIABILITIES-OTHER> 980
<LONG-TERM> 0
<COMMON> 4,285
0
0
<OTHER-SE> 17,157
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<INTEREST-LOAN> 5,690
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<INTEREST-DEPOSIT> 3,185
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<LOAN-LOSSES> 140
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<INCOME-PRETAX> 2,095
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,618
<EPS-PRIMARY> .94
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<YIELD-ACTUAL> 0
<LOANS-NON> 420
<LOANS-PAST> 278
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<ALLOWANCE-OPEN> 2,006
<CHARGE-OFFS> 98
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 2,084
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<ALLOWANCE-UNALLOCATED> 1,304
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