UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X].
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of May 7, 2004.
Common Stock, Without Par Value: 2,234,488 Shares Outstanding
1
National Bancshares Corporation
Index
2
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
| | | | | | | | | |
| | | 3/31/04 | | 12/31/03 |
| ASSETS | | | | | | | | |
| Cash and due from banks | | $ | 7,300,613 | | | $ | 11,506,999 | |
| Federal funds sold | | | 2,940,000 | | | | — | |
| | | |
| | | |
| |
| Total cash and cash equivalents | | | 10,240,613 | | | | 11,506,999 | |
| Interest bearing deposits with banks | | | 999,411 | | | | 999,048 | |
| Securities available for sale (at fair value) | | | 60,335,512 | | | | 67,189,563 | |
| Securities held to maturity (Fair value March 31, 2004 - $17,510,190; December 31, 2003 - $17,300,084) | | | 16,585,747 | | | | 16,603,556 | |
| Federal agency bank stock | | | 2,791,850 | | | | 2,771,350 | |
| Loans, net of allowance for loan losses: March 31, 2004 - $1,688,564; December 31, 2003 - $1,603,568 | | | 193,791,877 | | | | 187,056,241 | |
| Accrued interest receivable | | | 1,716,331 | | | | 1,622,090 | |
| Premises and equipment | | | 4,635,102 | | | | 4,737,018 | |
| Goodwill | | | 4,722,775 | | | | 4,722,775 | |
| Identified intangible assets | | | 1,586,602 | | | | 1,654,086 | |
| Other assets | | | 2,550,394 | | | | 2,386,649 | |
| | | |
| | | |
| |
| TOTAL | | $ | 299,956,214 | | | $ | 301,249,375 | |
| | | |
| | | |
| |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
| Deposits | | | | | | | | |
| Noninterest-bearing demand | | $ | 35,478,385 | | | $ | 38,821,286 | |
| Savings and N.O.W.s | | | 125,967,052 | | | | 125,559,354 | |
| Time | | | 79,046,778 | | | | 78,466,651 | |
| | | |
| | | |
| |
| Total deposits | | | 240,492,215 | | | | 242,847,291 | |
| Securities sold under repurchase agreements | | | 2,758,650 | | | | 2,786,848 | |
| Federal Reserve note account | | | 235,349 | | | | 319,563 | |
| Federal Home Loan Bank advances | | | 17,000,000 | | | | 17,034,291 | |
| Accrued interest payable | | | 471,352 | | | | 454,790 | |
| Other liabilities | | | 3,454,453 | | | | 3,001,857 | |
| | | |
| | | |
| |
| Total liabilities | | | 264,412,019 | | | | 266,444,640 | |
| | | |
| | | |
| |
| SHAREHOLDERS’ EQUITY | | | | | | | | |
| Common stock - - without par value; 6,000,000 shares authorized; 2,289,528 shares issued | | | 11,447,640 | | | | 11,447,640 | |
| Additional paid-in capital | | | 4,689,800 | | | | 4,689,800 | |
| Retained earnings | | | 18,344,724 | | | | 17,849,899 | |
| Accumulated other comprehensive income | | | 2,251,524 | | | | 2,006,889 | |
| Less: Treasury shares (at cost): 55,040 shares as of March 31, 2004 and December 31, 2003 | | | (1,189,493 | ) | | | (1,189,493 | ) |
| | | |
| | | |
| |
| Total shareholders’ equity | | | 35,544,195 | | | | 34,804,735 | |
| | | |
| | | |
| |
| TOTAL | | $ | 299,956,214 | | | $ | 301,249,375 | |
| | | |
| | | |
| |
See notes to consolidated financial statements
3
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (Unaudited)
| | | | | | | | | |
| | | Three months ended |
| | | 3/31/04 | | 3/31/03 |
| INTEREST AND DIVIDEND INCOME: | | | | | | | | |
| Loans, including fees | | $ | 2,681,508 | | | $ | 2,952,638 | |
| Federal funds sold | | | 2,538 | | | | 14,185 | |
| Securities: | | | | | | | | |
| Taxable | | | 871,227 | | | | 757,431 | |
| Nontaxable | | | 221,293 | | | | 250,317 | |
| | | |
| | | |
| |
| Total interest and dividend income | | | 3,776,566 | | | | 3,974,571 | |
| INTEREST EXPENSE: | | | | | | | | |
| Deposits | | | 578,246 | | | | 830,178 | |
| Short-term borrowings | | | 2,764 | | | | 1,796 | |
| Federal Home Loan Bank advances | | | 190,014 | | | | 150,452 | |
| | | |
| | | |
| |
| Total interest expense | | | 771,024 | | | | 982,426 | |
| | | |
| | | |
| |
| Net interest income | | | 3,005,542 | | | | 2,992,145 | |
| PROVISION FOR LOAN LOSSES | | | 47,500 | | | | 35,000 | |
| | | |
| | | |
| |
| Net interest income after provision for loan losses | | | 2,958,042 | | | | 2,957,145 | |
| NONINTEREST INCOME | | | | | | | | |
| Checking account fees | | | 186,600 | | | | 182,295 | |
| Securities gains (losses), net | | | 298,388 | | | | (1,097 | ) |
| Other | | | 145,114 | | | | 137,569 | |
| | | |
| | | |
| |
| Total noninterest income | | | 630,102 | | | | 318,767 | |
| NONINTEREST EXPENSE: | | | | | | | | |
| Salaries and employee benefits | | | 1,355,280 | | | | 1,206,426 | |
| Data processing fees | | | 234,014 | | | | 188,757 | |
| Net occupancy expense | | | 109,551 | | | | 105,071 | |
| Depreciation - - furniture and fixtures | | | 104,065 | | | | 89,732 | |
| Franchise taxes | | | 95,000 | | | | 78,750 | |
| Maintenance and repairs | | | 60,475 | | | | 69,818 | |
| Amortization of intangibles | | | 67,484 | | | | 68,978 | |
| Other expenses | | | 430,963 | | | | 394,430 | |
| | | |
| | | |
| |
| Total noninterest expense | | | 2,456,832 | | | | 2,201,962 | |
| | | |
| | | |
| |
| INCOME BEFORE INCOME TAXES | | | 1,131,312 | | | | 1,073,950 | |
| Income tax expense | | | 301,314 | | | | 267,304 | |
| | | |
| | | |
| |
| NET INCOME | | | 829,998 | | | | 806,646 | |
| | | |
| | | |
| |
| OTHER COMPREHENSIVE INCOME: | | | | | | | | |
| Unrealized appreciation (depreciation) in fair value of securities available for sale, net of tax | | | 441,571 | | | | (78,203 | ) |
| Reclassification adjustment for realized (gains), losses included in earnings, net of tax | | | (196,936 | ) | | | 724 | |
| | | |
| | | |
| |
| | | | 244,635 | | | | (77,479 | ) |
| | | |
| | | |
| |
| COMPREHENSIVE INCOME | | $ | 1,074,633 | | | $ | 729,167 | |
| | | |
| | | |
| |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | | | 2,234,488 | | | | 2,234,488 | |
| | | |
| | | |
| |
| BASIC EARNINGS PER COMMON SHARE | | $ | 0.37 | | | $ | 0.36 | |
| | | |
| | | |
| |
| DIVIDENDS DECLARED PER COMMON SHARE | | $ | 0.15 | | | $ | 0.14 | |
| | | |
| | | |
| |
See notes to consolidated financial statements
4
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | |
| | | Three Months Ended |
| | | 3/31/04 | | 3/31/03 |
| Net Cash From Operating Activities | | $ | 851,668 | | | $ | 1,422,913 | |
| Cash Flows From Investing Activities: | | | | | | | | |
| Net change in interest-bearing deposits with banks | | | (363 | ) | | | (331 | ) |
| Securities Held to Maturity | | | | | | | | |
| Proceeds from Maturities and Repayments | | | — | | | | 1,395,000 | |
| Securities Available for Sale | | | | | | | | |
| Proceeds from Maturities and Repayments | | | 6,260,023 | | | | 2,997,349 | |
| Proceeds from Sales | | | 1,291,922 | | | | 299,733 | |
| Capital Expenditures | | | (49,548 | ) | | | (81,630 | ) |
| Net Change in Loans to Customers | | | (6,783,136 | ) | | | (1,084,712 | ) |
| | | |
| | | |
| |
| Net Cash From Investing Activities | | | 718,898 | | | | 3,525,409 | |
| Cash Flows from Financing Activities: | | | | | | | | |
| Net Change in Demand and Savings Accounts | | | (2,935,203 | ) | | | (508,865 | ) |
| Net Change in Time Deposits | | | 580,127 | | | | (4,271,243 | ) |
| Net Change in Short-Term Borrowings | | | (112,412 | ) | | | (1,547,836 | ) |
| Repayments on Federal Home Loan Bank Advances | | | (34,291 | ) | | | (68,581 | ) |
| Dividends Paid | | | (335,173 | ) | | | (312,829 | ) |
| | | |
| | | |
| |
| Net Cash From Financing Activities | | | (2,836,952 | ) | | | (6,709,354 | ) |
| | | |
| | | |
| |
| Net Change in Cash and Cash Equivalents | | | (1,266,386 | ) | | | (1,761,032 | ) |
| Beginning Cash and Cash Equivalents | | | 11,506,999 | | | | 16,325,654 | |
| | | |
| | | |
| |
| Ending Cash and Cash Equivalents | | $ | 10,240,613 | | | $ | 14,564,622 | |
| | | |
| | | |
| |
| Supplemental Disclosures | | | | | | | | |
| Cash Paid for Interest | | $ | 754,462 | | | $ | 1,012,786 | |
| Cash Paid for Income Taxes | | $ | 240,000 | | | $ | 75,000 | |
See notes to consolidated financial statements.
5
National Bancshares Corporation
Notes 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 March 31, 2004, the consolidated statements of income and comprehensive income for the three month periods ended March 31, 2004 and 2003, and the consolidated statements of cash flows for the three month periods ended March 31, 2004 and 2003 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 accounting principles generally accepted in the United States of America 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, 2003. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses and fair values of certain securities are particularly subject to change.
The Company provides a broad range of financial services to individuals and companies in northern Ohio. While the Company’s chief decision makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.
Note 2. Regulatory Matters
The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. The following is a summary of the actual and required regulatory capital amounts and ratios.
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | To Be Well Capitalized |
| | | | | | | | | | | For Capital | | Under Prompt Corrective |
March 31, 2004
| | Actual
| | Adequacy Purposes
| | Action Provisions
|
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| Total capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | $ | 28,654 | | | | 13.61 | % | | $ | 16,848 | | | | 8.00 | % | | $ | 21,060 | | | | 10.00 | % |
| Bank | | | 27,895 | | | | 13.28 | % | | | 16,805 | | | | 8.00 | % | | | 21,006 | | | | 10.00 | % |
| Tier 1 (core) capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | 26,966 | | | | 12.80 | % | | | 8,424 | | | | 4.00 | % | | | 12,636 | | | | 6.00 | % |
| Bank | | | 26,207 | | | | 12.48 | % | | | 8,402 | | | | 4.00 | % | | | 12,604 | | | | 6.00 | % |
| Tier 1 (core) capital to average assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | 26,966 | | | | 9.27 | % | | | 11,631 | | | | 4.00 | % | | | 14,539 | | | | 5.00 | % |
| Bank | | | 26,207 | | | | 9.03 | % | | | 11,607 | | | | 4.00 | % | | | 14,509 | | | | 5.00 | % |
6
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | To Be Well Capitalized |
| | | | | | | | | | | For Capital | | Under Prompt Corrective |
December 31, 2003
| | Actual
| | Adequacy Purposes
| | Action Provisions
|
| | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| Total capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | $ | 28,013 | | | | 13.59 | % | | $ | 16,487 | | | | 8.00 | % | | $ | 20,609 | | | | 10.00 | % |
| Bank | | | 26,902 | | | | 13.09 | % | | | 16,435 | | | | 8.00 | % | | | 20,544 | | | | 10.00 | % |
| Tier 1 (core) capital to risk-weighted assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | 26,398 | | | | 12.81 | % | | | 8,243 | | | | 4.00 | % | | | 12,365 | | | | 6.00 | % |
| Bank | | | 25,298 | | | | 12.31 | % | | | 8,218 | | | | 4.00 | % | | | 12,327 | | | | 6.00 | % |
| Tier 1 (core) capital to average assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated | | | 26,398 | | | | 9.04 | % | | | 11,685 | | | | 4.00 | % | | | 14,607 | | | | 5.00 | % |
| Bank | | | 25,298 | | | | 8.68 | % | | | 11,657 | | | | 4.00 | % | | | 14,571 | | | | 5.00 | % |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING INFORMATION
The Company cautions that any forward-looking statements contained in this report, in a report incorporated by reference to this report or made by management of the Company, involve risk and uncertainties, and are subject to change based on various important factors. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to the Company or its management are intended to identify such forward looking statements. Actual results could differ materially from those expressed or implied. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. The Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.
FINANCIAL CONDITION
Balance Sheets
Total assets decreased $1.3 million or 0.4% from 12/31/03 principally due to the decrease in total deposits. Total securities decreased $6.9 million or 8.2% from 12/31/03 to fund loan demand during the first quarter of 2004. Federal funds sold were $2.9 million at 3/31/04, representing overnight funds available for loan demand or deposit withdrawals. Net loans increased $6.7 million or 3.6% from 12/31/03. Commercial loans increased $2.9 million, commercial real estate loans increased $3.3 million, and home equity loans increased $1.7 million, while real estate mortgages decreased $1.0 million or 1.2%. Management has increased the commercial loan staff, as it has targeted commercial loan growth in our market area. The decrease in real estate mortgages is due to principal pay downs and refinancings.
The activity in the allowance for loan losses for the first three months of 2004 and 2003 was as follows:
| | | | | | | | | |
| | | 2004 | | 2003 |
| Beginning balance | | $ | 1,603,568 | | | $ | 1,604,200 | |
| Provision for loan losses | | | 47,500 | | | | 35,000 | |
| Loans charged-off | | | (2,999 | ) | | | (10,573 | ) |
| Recoveries | | | 40,495 | | | | 3,019 | |
| | | |
| | | |
| |
| Ending balance | | $ | 1,688,564 | | | $ | 1,631,646 | |
| | | |
| | | |
| |
7
The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. The allowance is maintained at a level that is considered adequate to absorb all estimated losses. Management estimates the allowance balance required using the following methodology. All problem, past due and non-performing loans are closely monitored and analyzed by management on a regular basis. Management assigns a classification rating to these loans based on information about specific borrower situations and estimated collateral values. Management determines the loss that exists on each significant problem, past due and non-performing loan. Problem loans that are not analyzed individually are assigned a provision based upon a historical migration analysis. The migration analysis identifies the percentage of problem loans that have historically been ultimately charged-off. The migration percentages are reviewed and adjusted by management to reflect various factors such as the growth and change in mix of the loan portfolio and the Comptroller of the Currency regulatory guidance. Past due loans that are not analyzed individually are pooled and evaluated by loan type. The probable loss that exists on past due loans is estimated using past loan loss experience. All other loans are pooled by loan type and evaluated based upon past loan loss experience. National and local economic conditions and other factors are also considered in determining an adequate level for the allowance for loan losses. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off. Management reviews the allowance for loan losses on a regular basis to determine the adequacy of the reserve.
The allowance for loan losses to total loans outstanding was 0.86% for March 31, 2004 compared to 0.85% for December 31, 2003. On an annualized basis, net charge-offs to total average loans were (.08)% for the first three months of 2004 and 0.02% for the first three months of 2003. The ratio of non-performing loans to total loans was 0.80% ($1,568,846) for March 31, 2004 compared to 0.76% ($1,431,606) for December 31, 2003. Non-performing loans consist of loans that have been placed on nonaccrual status and loans past due over 90 days and still accruing interest.
Impaired loans at March 31, 2004 and December 31, 2003 were as follows:
| | | | | | | | | |
| | | 3/31/04
| | 12/31/03
|
| Loans with no allocated allowance for loan losses | | $ | 125,502 | | | $ | 125,502 | |
| Loans with allocated allowance for loan losses | | | 249,622 | | | | 251,081 | |
| Amount of the allowance for loan losses allocated | | | 100,000 | | | | 100,000 | |
| | | | | | | | | |
| | | 3/31/04
| | 3/31/03
|
| Average of impaired loans during the first three months of 2004 and 2003 | | $ | 375,775 | | | $ | 438,192 | |
| Interest income recognized during impairment | | | — | | | | — | |
| Cash-basis interest income recognized | | | — | | | | — | |
A loan is impaired when full payment under the loan terms is not expected. Impairment is evaluated in total for smaller balance loans of similar nature such as residential mortgage, consumer, and credit card loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.
Total deposits decreased $2.4 million or approximately 1.0% from 12/31/03. Non-interest bearing demand accounts decreased 8.6%, savings and N.O.W. accounts increased 0.3% and time deposits increased 0.7%. Non-interest bearing demand accounts historically show little growth or a decline during the first quarter of the year, as customers make tax payments or pay down their debts. The level of interest rates and the interest rates offered by competitors in our market area affect time deposit and savings balances. In this low interest rate environment, some customers have moved their funds into liquid interest-bearing savings products. Other liabilities increased $0.5 million or 15.1% mainly due to an increase in accrued and deferred taxes. Total shareholders’ equity increased $0.7 million or 2.1% from 12/31/03 due to retained earnings and an increase in accumulated other comprehensive income.
8
Statements of Cash Flows
Net cash from operating activities for the first three months of 2004 was $0.9 million compared to $1.4 million for the first three months of 2003. The decrease was due primarily to securities gains and increases in other assets. Net cash from investing activities for the first three months of 2004 was $0.7 million, compared to $3.5 million for the first three months of 2003. The decrease was due primarily to the net change (increase) in loans to customers. Net cash from financing activities was ($2.8) million for the first three months of 2004 compared to ($6.7) million for the first three months of 2003. The change was primarily due to the net change in demand, savings, time deposits and short-term borrowings. Total cash and cash equivalents decreased $1.3 million during the first three months of 2004. With total cash and cash equivalents of $10.2 million as of 3/31/04, the Company’s liquidity ratios continue to remain favorable.
RESULTS OF OPERATIONS
Interest and dividend income totaled $3.8 million or $198 thousand lower for the three-months ended 3/31/04 as compared to the same period in 2003. Interest expense was $0.8 million for the three months ended 3/31/04 or $211 thousand lower than 2003. This resulted in an increase of $13 thousand or 0.4% in net interest income for the three-month period ended 3/31/04 as compared to 3/31/03. Interest income decreased due to lower yields on earning assets, which declined from 6.09% to 5.64%. Volume of average-earning assets increased from $270.3 million to $276.7 million. Interest expense decreased due to lower average costs, which declined from 1.78% to 1.38%. Net interest rate margins were 4.52% and 4.64% for the first three months of 2004 and 2003, respectively.
Provision for loan losses was $48 thousand for the three months ended 3/31/04 compared to $35 thousand for the same period in 2003. The increase was mainly due to the growth in the loan portfolio and the change in the mix of the portfolio. Net charge offs for the three months ended 3/31/04 were ($37) thousand compared to $8 thousand for the same period in 2003.
Each quarter, management reviews the adequacy of the allowance for loan losses by reviewing the overall quality and risk profile of the Company’s loan portfolio, by reviewing specific problem credits and assessing the incurred losses based on expected cash flows or collateral values, by reviewing trends in problem loan levels, by updating loss history for the Company’s loans, by analyzing the growth and change in mix of the portfolio, and by analyzing economic trends that are believed to impact the Company’s borrowers. For the first quarter of 2004, management reviewed all of these factors and determined that the $48 thousand provision was adequate.
Noninterest income was $630 thousand for the three months ended 3/31/04 or approximately 97.7% above the same period in 2003, due mainly to securities gains. Security gains were $298 thousand for the first quarter of 2004. Management capitalized on the opportunity to sale a commercial mortgage subordinated bond for a gain of $278 thousand.
Noninterest expense was $2.5 million for the three months ended 3/31/04 or approximately 11.6% above the same period in 2003, due mainly to higher salary and employee benefits and data processing fees. Additional lending and support staff has been hired to support current growth and better position the Company for future growth.
Net income was $830 thousand for the three months ended 3/31/04 or 2.9% above the same quarter of 2003. The increase was due primarily to securities gains, partially offset by higher operating expenses.
Net unrealized appreciation (depreciation) on securities available for sale was $442 thousand for the three months ended 3/31/04 compared to ($78) thousand for the three months ended 3/31/03. The market value of securities in the available for sale portfolio increased during the first quarter of 2004 due to a decrease in long-term rates. Comprehensive income was $1.1 million for the three months ended 3/31/04 compared to $0.7 million for the same period in 2003.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative disclosures about market risk as of March 31, 2004 from that presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003.
9
Item 4. Controls and Procedures
As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s President and Treasurer (Principal Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the President and Treasurer concluded that the Company’s disclosure controls and procedures were effective as of the date of their evaluation in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Quarterly Report.
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and use of proceeds - 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 19, 2004 was previously filed with the SEC on March 25, 2004.
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
|
| (3.1) | | Amended Articles of Incorporation | | Annual Report 10-K filed 3/26/04 File No. 000-14773 |
| | | | | |
| (3.2) | | Code of Regulations | | Annual Report 10-K filed 3/26/04 File No. 000-14773 |
| | | | | |
| (10.1) | | Directors Defined Benefit Plan
Agreement | | Annual Report 10-K filed 3/29/01 File No. 000-14773 |
| | | | | |
| (10.2) | | Special Separation Agreement | | Annual Report 10-K filed 3/29/01 File No. 000-14773 |
| | | | | |
| (10.3) | | Agreement and Plan of Merger, dated as of October 2, 2001, between National Bancshares Corporation and Peoples Financial Corporation | | Form 8-K filed 10/3/01 File No. 000-14773 |
| | | | | |
| (11) | | Computation of Earnings per Share | | See Consolidated Statements of Income and Comprehensive Income, Page 4 |
| | | | | |
| (31.1) | | Certification | | |
| | | | | |
| (31.2) | | Certification | | |
| | | | | |
| (32) | | Certification | | |
No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.
| b. | | Reports on Form 8-K filed for the quarter ended 3/31/04 – Notice of registrant’s press release of 2003’s earnings dated February 20, 2004, was filed with the SEC on February 20, 2004. |
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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 13, 2004 | | /s/ Charles J. Dolezal |
| |
|
| | Charles J. Dolezal, President |
| | | |
| Date: May 13, 2004 | | /s/ Lawrence M. Cardinal, Jr. |
| |
|
| | Lawrence M. Cardinal, Jr., Treasurer |
| | (Principal Financial Officer) |
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