UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 2008
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
exact name of registrant as specified in its charter
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 a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company as defined in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (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 August 14, 2008.
Common Stock, Without Par Value: 2,202,368 Shares Outstanding
NATIONAL BANCSHARES CORPORATION
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 2
as of June 30, 2008
and December 31, 2007
Consolidated Statements of Income 3
and Comprehensive Income for the
three and six months ended
June 30, 2008 and 2007
Condensed Consolidated Statement of Changes 5
in Shareholders` Equity for the six months
ended June 30, 2008 and 2007
Condensed Consolidated Statements of 6
Cash Flows for the six months ended
June 30, 2008 and 2007
Notes to Consolidated Financial 7~9
Statements (Unaudited)
Item 2 Management`s Discussion and Analysis 9~16
of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures About 17
Market Risk
Item 4 Controls and Procedures 18
Part II. Other Information 19~20
Item 1. Legal Proceedings ~ None
Item 1A.Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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
Signatures 21
Exhibits 22~24
Item 1. Financial Statements
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
June 30, December 31,
2008 2007
ASSETS
Cash and due from banks $ 12,517 $ 11,842
Federal funds sold 2,293 443
Total cash and cash equivalents 14,810 12,285
Securities available for sale 93,463 84,514
Restricted equity securities 3,184 3,121
Loans held for sale 481 -
Credit cards held for sale 1,454 -
Loans, net of allowance for loan losses:
June 30, 2008~$1,567; December 31, 2007~$2,028 189,053 191,488
Premises and equipment, net 5,218 5,206
Goodwill 4,723 4,723
Identified intangible assets 538 654
Accrued interest receivable 1,184 1,502
Cash surrender value of life insurance 2,631 2,587
Other assets 1,030 571
Total assets $317,769 $306,651
LIABILITIES AND SHAREHOLDERS` EQUITY
Deposits
Noninterest bearing $ 44,703 $ 44,492
Interest bearing 204,481 198,031
Total deposits 249,184 242,523
Federal funds purchased 9,710 8,831
Repurchase agreements 725 543
Federal Reserve note account 21,000 17,000
Federal Home Loan Bank advances 879 975
Accrued interest payable 1,853 1,788
Accrued expenses and other liabilities 283,351 271,660
Total liabilities
SHAREHOLDERS` EQUITY
Common stock,
no par value; 6,000,000 shares authorized;
2,289,528 shares issued
11,447 11,447
Additional paid-in capital 4,695 4,690
Retained earnings 20,487 20,182
Treasury stock, at cost (87,160
and 82,143 shares) (1,709) (1,623)
Accumulated other comprehensive income (502) 295
(loss)
Total shareholders` equity 34,418 34,991
Total liabilities and
shareholders` equity $317,769 $306,651
See accompanying notes to consolidated financial statements.
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Interest and dividend income
Loans, including fees $3,043 $3,287 $6,210 $6,470
Securities:
Taxable 947 901 1,881 1,744
Nontaxable 169 176 320 352
Federal funds sold and other 37 178 55 328
Total interest and dividend income 4,196 4,542 8,466 8,894
Interest expense
Deposits 1,151 1,510 2,397 2,956
Short-term borrowings 39 87 96 166
Federal Home Loan Bank advances 243 187 466 372
Total interest expense 1,433 1,784 2,959 3,494
Net interest income 2,763 2,758 5,507 5,400
Provision for loan losses 71 - 258 27
Net interest income after provision for loan losses 2,692 2,758 5,249 5,373
Noninterest income
Checking account fees 310 247 606 469
Visa check card interchange fees 84 68 161 125
Deposit and miscellaneous service fees 45 40 96 77
Mortgage banking activities 49 - 63 -
Securities gains (losses), net (55) (6) (38) 18
Loss on sale of other real estate owned (13) - (13) -
Other 97 75 234 146
Total noninterest income 517 424 1,109 835
Noninterest expense
Salaries and employee benefits 1,285 1,360 2,525 2,725
Data processing 244 283 494 560
Net occupancy 222 208 441 437
Professional and consulting fees 98 101 190 210
Franchise tax 82 90 166 180
Maintenance and repairs 47 96 120 177
Amortization of intangibles 58 60 116 119
Telephone 45 58 103 117
Marketing 36 61 58 101
Director fees and pension 83 70 142 140
Other 324 434 658 727
Total noninterest expense 2,524 2,821 5,013 5,493
Income before income tax expense 685 361 1,345 715
Income tax expense 171 47 340 114
Net income $ 514 $ 314 $1,005 $ 601
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Continued) Three months ended Six months ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Other comprehensive income (loss):
Unrealized appreciation (depreciation) in fair
value of securities available for sale,
net of taxes of $794, $265, $424 and $259 $(1,541) $ (515) $ (822) $ (504)
Reclassification adjustment for realized (gains)
losses included in earnings, net of taxes of
$(19), $(2), $(13), and $6 36 4 25 (12)
Total other comprehensive income (loss), net of taxes (1,505) (511) (797) (516)
Comprehensive income $ (991) $ (197) $ 208 $ 85
Weighted average basic and diluted common shares
outstanding 2,202,368 2,234,488 2,204,068 2,234,488
Basic and diluted earnings per common share $ 0.23 $ 0.14 $ 0.46 $ 0.27
Dividends declared per common share $ 0.16 $ 0.16 $ 0.32 $ 0.32
See accompanying notes to consolidated financial statements.
NATIONAL BANCSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS` EQUITY (Unaudited)
Six months ended,
June 30, June 30,
2008 2007
Balance at beginning of period $ 34,991 $ 34,680
Comprehensive income
Net income 1,005 601
Other comprehensive income (loss) (797) (516)
Total comprehensive income 208 85
Stock-based compensation 5 -
Purchase of 5,017 shares of common stock (86) -
Cash dividends declared ($0.32 per share in 2008
and 2007) (700) (715)
Balance at end of period $34,418 $34,050
See accompanying notes to consolidated financial statements.
NATIONAL BANCSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended
June 30, June 30,
2008 2007
Net cash from operating activities $ 539 $ 351
Cash flows from investing activities
Securities available for sale
Proceeds from maturities and repayments 17,733 5,951
Proceeds from sales 14,303 19,670
Purchases (42,029) (22,786)
Premises and equipment expenditures, net (232) (54)
Proceeds from sale of property and equipment 13 211
Proceeds on the sale of other real estate owned 97 -
Net change in loans 1,352 (1,484)
Net cash from investing activities (8,763) 1,508
Cash flows from financing activities
Net change in deposits 6,661 9,335
Net change in short-term borrowings 879 772
Proceeds from Federal Home Loan Bank advances 4,000 -
Dividends paid (705) (715)
Purchase of common stock (86) -
Net cash from financing activities 10,749 9,392
Net change in cash and cash equivalents 2,525 11,251
Beginning cash and cash equivalents 12,285 18,775
Ending cash and cash equivalents $ 14,810 $ 30,026
Supplemental Disclosures
Cash paid for interest $ 3,055 $ 3,425
Cash paid for income taxes $ 150 $ 285
Non-cash transfer from loans to other real estate
owned $ - $ -
Non-cash transfer from loans to credit card loans
held for sale $ 1,454 $ -
See accompanying notes to consolidated financial statements.
Note 1 ~ Basis of Presentation
(dollars in thousands)
Company Organization and Financial 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`). The Bank has a
minority interest in First Kropf Title, LLC. The Bank`s investment
in First Kropf Title, LLC is immaterial to the consolidated financial
statements. All significant intercompany transactions and balances
have been eliminated.
The Company provides a broad range of financial services to individuals
and companies in Medina, Stark and Wayne Counties, 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.
The consolidated balance sheet as of June 30, 2008, the consolidated
statements of income and comprehensive income for the three and six month
periods ended June 30, 2008 and 2007, and the condensed consolidated
statements of changes in shareholders` equity and the condensed
consolidated statements of cash flows for the six month periods ended
June 30, 2008 and 2007, 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, 2007.
Operating results for the three and six months ended June 30, 2008
are not necessarily indicative of the results that may be expected
for the year ending December 31, 2008.
Use of Estimates ~ To prepare financial statements in conformity with U.S.
generally accepted accounting principles, 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,
fair values of financial investments and carrying value of intangible assets
are particularly subject to change.
Reclassifications ~ Certain items in the prior year financial statements
were reclassified to conform to the current presentation.
FASB 157 ~ The Company adopted FAS No. 157 `Fair Value Measurements`
in the first quarter of 2008. The Company`s available for sale investment
portfolio is subject to FAS No. 157 disclosure for interim reporting.
The Company`s year-end 2008 reporting will include FAS No. 107
prescribed fair value disclosure for all financial instruments. Fair
value is the price that would be received upon sale of an asset or
paid to transfer a liability in the principal or most advantageous
market in an orderly transaction between market participants at the
measurement date. The following fair value hierarchy is used in
selecting inputs, with the highest priority given to Level 1, as
these are the most transparent or reliable.
Level 1 ~ Quoted prices for identical instruments in active markets that
the Company has the ability to access as of the measurement date.
Level 2 ~ Significant other observable inputs, such as quoted prices for
similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived
valuations in which all significant inputs are observable in active
markets.
Level 3 ~ Significant unobservable inputs that reflect the Company`s own
assumptions about the assumptions that market participants would use in
pricing an instrument.
The Company is responsible for the valuation process and as part of this
process may use data from outside sources in establishing fair value. The
Company performs due diligence to understand the inputs used or how the
data was calculated or derived. The Company corroborates the reasonableness
of external inputs in the valuation process.
Assets Measured on a Recurring Basis ~ To estimate the market value of its
available for sale security portfolio, the Company obtains current market
pricing from quoted market sources or using pricing for similar securities.
Assets measured at fair value on a recurring basis are summarized below.
Assets Measured on a Non-Recurring Basis ~ Impaired loans, which are measured
for impairment using the fair value of the collateral for the collateral
dependent loans, had a carrying amount of $1,638, with a valuation amount
of $107. The allowance for loan loss is based on management`s judgment
after considering factors such as future cash flows on impaired loans,
historical loss experience, and current economic conditions. Management
believes the allowance for loan loss to be adequate at June 30, 2008.
Total
June 30, 2008 Level 1 Level 2 Level 3 at fair value
Assets Measured on a Recurring Basis
Available for sale securities
Fixed maturity securities $ - $93,079 $ - $93,079
Equity securities 384 - - 384
Total available for sale securities $ 384 $93,079 $ - $93,463
Assets Measured on a Non-Recurring Basis
Impaired loans - - $1,638 $1,638
FASB 159 ~ In February of 2007, the FASB issued Statement of Financial
Accounting Standards No. 159 (SFAS 159), The Fair Value Option for Financial
Assets and Financial Liabilities, which gives entities the option to measure
eligible financial assets, and financial liabilities at fair value on an
instrument by instrument basis, that are otherwise not permitted to be
accounted for at fair value under other accounting standards. The election
to use the fair value option is available when an entity first recognizes a
financial asset or financial liability. Subsequent changes in fair value
must be recorded in earnings. This statement is effective as of the
beginning of a company`s first fiscal year after November 15, 2007. National
Bancshares Corporation did not elect the fair value option for any financial
assets or financial liabilities as of January 1, 2008.
Note 2 - Securities
(dollars in thousands)
National Bancshares Corporation purchased $467 of FHLMC preferred stock
in the first quarter of 2008. The market value of these securities at
June 30, 2008 was $383 or $84 less than National Bancshares book value.
Management has determined that this preferred stock is other than
temporarily impaired at June 30, 2008 and has recorded $84 in other than
temporary impairment write-downs as of June 30, 2008. The loss has been
recorded in Securities gains (losses), net in the Consolidated Statements
of Income and Comprehensive Income.
The FHLMC preferred stock has continued to decline in value since the
June 30, 2008 balance sheet date. If, by September 30, 2008, the value
of the Company`s holdings of this stock does not recover, the Company
will record another charge to earnings for other-than-temporary
impairment of this stock. The Company`s maximum exposure to additional
loss is $383.
Note 3 ~ Allowance for Loan Losses
(dollars in thousands)
The activity in the allowance for loan losses for the periods indicated
wasas follows:
For the six months ended
June 30,
2008 2007
Beginning balance $2,028 $1,993
Provision for loan losses 258 27
Loans charged-off (747) (101)
Recoveries 28 16
Ending balance $1,567 $1,935
Individually impaired loans were as follows: June 30, December 31,
2008 2007
Year-end loans with no allocated allowance for loan losses $ 513 $ -
Year-end loans with allocated allowance for loan losses 1,125 2,702
Amount of the allowance for loan losses allocated 107 629
The impact on interest income of impaired loans was not significant to the
consolidated statements of income.
Nonaccrual loans and loans past due 90 days still on accrual were as follows:
June 30, December 31,
2008 2007
Loans past due over 90 days still on accrual $ 190 $ 158
Nonaccrual loans 2,024 2,645
Nonaccrual loans and loans past due 90 days still on accrual include
both smaller balance homogeneous loans that are collectively evaluated
for impairment and individually classified impaired loans.
Note 4 ~ Stock-Based Compensation
(dollars in thousands)
The Company`s 2008 Equity Incentive Plan (`the Plan`), which is
shareholder-approved, permits the grant of stock options to its officers,
employees, consultants and non-employee directors for up to 223,448 shares
of common stock. Option awards are granted with an exercise price equal
to the market price of the Company`s common stock at the date of grant;
those option awards have vesting periods determined by the Company`s
compensation committee and have terms that shall not exceed 10 years.
On May 20, 2008, the Company granted options to purchase 58,000 shares of
stock to directors and certain key officers. The exercise price of the options
is $18.03 per share. The options vest in five equal installments over a
five-year period and have a term of 10 years. As of June 30, 2008 none
of the options had been forfeited and all the options were non-dilutive
and excluded from the diluted earnings per share calculation.
The fair value of each option award is estimated on the date of grant
using a closed form option valuation (Black-Scholes) model that uses the
assumptions noted in the table below. Expected volatilities are based on
historical volatilities of the Company`s common stock. The Company uses
historical data to estimate option exercise and post-vesting termination
behavior. (Employee and management options are tracked separately.) The
expected term of options granted is based on historical data and represents
the period of time that options granted are expected to be outstanding, which
takes into account that the options are not transferrable. The risk-free
interest rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of the grant.
The fair value of options granted was determined using the following
weighted-average assumptions as of grant date.
Risk-free interest rate 3.19%
Expected term (years) 6.5
Expected stock price volatility 13.76%
Dividend yield 3.60%
The total compensation cost that has been charged against income for the
plan was $5 for the three and six-month period ended June 30, 2008. The total
income tax benefit was $2 for the same periods. As of June 30, 2008, there
was $101 of total unrecognized compensation cost related to nonvested stock
options granted under the Plan. The cost is expected to be recognized over
a weighted-average period of 4.9 years. At June 30, 2008, no options are
vested and the outstanding options have no intrinsic value.
Item 2. Management`s Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking statements as referenced in the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements are subject to many risks and uncertainties. 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 indicated by the
forward-looking statements. Risks and uncertainties that could
cause or contribute to differences include, changes in the
regulatory environment, changes in business conditions and
inflation, risks associated with credit quality and other factors
discussed in the Company`s filings with the U.S. Securities and
Exchange Commission, including its Annual Report on Form 10-K
for the year ended December 31, 2007. The Company assumes no
obligation to update any forward-looking statement.
GENERAL
The Company`s results of operations are dependent primarily on net
interest income, noninterest income and its ability to control costs.
Net interest income is the difference (`spread`) between the interest
income earned on loans and securities and the cost of funds, consisting
of interest paid on deposits and borrowed funds. The interest rate spread
is affected by regulatory, economic and competitive factors that influence
interest rates, loan demand and deposit flows. The Company`s net income
is also affected by, among other things, loan fee income, provisions
for loan losses, service charges, gains on loan sales, operating expenses
and franchise and income taxes. The Company`s operating expenses
principally consist of employee compensation and benefits, occupancy
and other general and administrative expenses. The Company`s results
of operations are also significantly affected by general economic and
competitive conditions, particularly changes in market interest rates,
government policies and actions of regulatory authorities. Additionally,
future changes in applicable laws, regulations or government policies may
also materially impact the Company.
MANAGEMENT STRATEGY
The Company is a community-oriented financial institution offering a variety
of financial services to meet the needs of the communities it serves. The
Company attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, primarily to originate commercial
and commercial real estate loans, single-family and multi-family residential
mortgage loans, home equity loans and lines of credit and consumer loans.
During the first six months of 2008, the Company continued to execute a plan,
which was implemented in December 2006. The plan focuses on four critical
areas. These areas are first; enhancing services for depositor clients,
second; strengthening compliance, third; enhancing the Company`s ability
to originate loan assets and fourth; reducing costs and increasing
noninterest income.
Costs reductions have been realized in the first six months of 2008.
Noninterest expense was $5.0 million in the first half of 2008, a
decrease of $480 thousand compared to the same period in 2007.
In the first half of 2007, the Company engaged a consulting firm to review
the key business processes and procedures of the Bank. The consulting firm
focused primarily on loan and deposit operations and provided their
recommendations to management during the second quarter of 2007. The firm
identified opportunities to improve operational efficiency and increase
noninterest income. Management has reviewed the suggestions and has
implemented a majority of their recommendations. As a result of some of
the consultingfirm`s suggestions, the Bank has improved noninterest income.
Significant progress has been made in loan administration and credit risk
management and commercial loan outstandings are increasing albeit somewhat
slowly. Mortgage loans continue to decline since new loan originations are
primarily being sold in the secondary market in order to deliver the
lowest mortgage loan interest rates to borrowers.
Loans, including loans held for sale and net of allowance for loan losses
decreased $0.5 million in the first six months of 2008 and totaled
$191.0 million at June 30, 2008. Loans, including loans held for sale and
net of allowance for loan losses at June 30, 2008 is $6.5 million higher
than the $184.5 million balance at December 31, 2006.
Office of the Controller of the Currency (`OCC`) regulations requires banks
to maintain certain minimum levels of regulatory capital. Additionally,
the regulations establish a framework for the classification of banks into
five categories: well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
Generally, an institution is considered well-capitalized if it has a core
(Tier 1) capital ratio of at least 5.0% (based on adjusted total assets);
a core (Tier 1) risk-based capital ratio of a least 6.0%; and a total
risk-based capital ratio of at least 10.0%. The Bank had capital ratios
above the well-capitalized levels at June 30, 2008 and December 31, 2007.
The Company is not aware of any market or institutional trends, events
or uncertainties that are expected to have a material effect on liquidity,
capital resources or operations or any current recommendations by its
regulators which would have a material effect if implemented. The Company
has not engaged in sub-prime lending activities and does not plan to engage
in those activities in the future.
OVERVIEW
Basic and diluted earnings per share for the first six months ended
June 30, 2008 increased 70% compared to the same period in 2007. Net
income for the first six months of 2008 was $1.0 million compared to
$601 thousand for the same period of 2007 or $.46 and $.27 per share,
respectively. The improvement in earnings was caused by an increase in
the net interest income of $107 thousand, an increase in noninterest
income of $274 thousand and a decrease in noninterest expense of
$480 thousand, offset by an increase in the provision for loan losses
of $231 thousand and an increase in income tax expense of $226 thousand.
Net interest income for the six month period ended June 30, 2008 increased
2% compared to the same period in 2007 despite a decreasing interest rate
environment. Noninterest income for the quarter ended June 30, 2008
increased 33% compared to the same period in 2007 due primarily to the
enhancement of the deposit and service charge structure effective
July 1, 2007 and a $71 thousand gain recorded in connection with the
initial public offering from Visa, Inc. Noninterest expense for the first
half of 2008 decreased 9% compared to the same period in 2007 due primarily
to decreased salaries and employee benefits. The provision for loan
losses increased to $258 thousand compared to $27 thousand for the same
period in 2007. The income tax expense increased to $340 thousand for the
six months ended June 30, 2008 compared to $114 thousand for the same
period in 2007. Reduced amounts of tax-exempt income and higher pre-tax
income for the six months ended June 30, 2008 compared to the same period
in 2007 are the primary factors causing the increase in income tax expense.
Total assets increased to $317.8 million as of June 30, 2008, from
$306.7 million at December 31, 2007.
FINANCIAL CONDITION ~ JUNE 30, 2008, COMPARED TO DECEMBER 31, 2007
Balance Sheet
Cash and cash equivalents increased $2.5 million to $14.8 million at
June 30, 2008.
Securities available for sale increased $8.9 million due to the purchase
of $42.0 million of securities, offset by maturities and repayments of
$17.7 million and $14.3 million in sales. Most of these purchases were
`bullet substitute` discount mortgage backed securities with a shorter
duration than the securities sold. The net unrealized losses on securities
increased to $0.8 million as of June 30, 2008 compared to $0.4 million net
unrealized gains of securities as of December 31, 2007.
Securities consist of the following at June 30, 2008 and December 31, 2007:
(dollars in thousands) Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
June 30, 2008
U.S. government and federal agency $ 1,516 $ 16 $ -
State and municipal 16,686 271 (138)
Corporate bonds and notes 2,860 - (89)
Mortgage-backed 72,018 219 (1,040)
Equity securities 383 - -
Total $93,463 $ 506 $(1,267)
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
December 31, 2007
U.S. government and federal agency $10,268 $ 161 $ -
State and municipal 16,068 295 (13)
Corporate bonds and notes 40,583 294 (21)
Mortgage-backed 17,595 26 (295)
Total $84,514 $ 776 $(329)
For the six months ended
June 30,
2008 2007
Sales of available for sale securities were as follows:
Proceeds $14,303 $19,670
Gross gains 248 24
Gross losses (202) (6)
Impairment loss (84) -
The tax provision (benefit) related to these net realized gains and losses
was $(13) and $6, respectively for the six months ended June 30, 2008
and June 30, 2007.
Loans showed a decrease of $2.4 million during the first six months of
2008. The loan demand in the Bank`s primary market remains soft. However,
the Bank is focusing its effort on aggressively attracting commercial
loan business and continuing to buy loan participations from other
banks (commercial, real estate and consumer loans). The Bank has
enhanced its residential mortgage products and service and sold
mortgage loans to outsideinvestors for the first time in March, 2008.
Management decided to sell the credit card loan portfolio in June 2008.
The credit card loan portfolio was transferred from loans to credit
card loans held for sale as of June 30, 2008. The Bank sold its $1.5
million credit card loan portfolio to Elan Financial Services in
July 2008.The transaction should add approximately $400 thousand
to pretax earnings in the third quarter.
Loans at June 30, 2008 and December 31, 2007 were as follows:
(dollars in thousands)
June 30, December 31,
2008 2007
Collateralized by real estate:
Commercial $48,796 $51,463
Residential 76,110 80,113
Home Equity 21,769 20,857
Construction 9,529 8,367
156,204 160,800
Other:
Consumer 10,262 11,988
Commercial 22,934 17,552
Credit Cards - 1,614
Other 1,735 1,987
191,135 193,941
Unearned and deferred income (515) (425)
Allowance for loan losses (1,567) (2,028)
Total $189,053 $191,488
Allowance for loan losses is a valuation allowance for probable credit
losses. This account is increased by the provision for loan losses and
decreased by charge-offs less recoveries. The allowance balance required
is established using the following methodology:
~ All problem loans, past due loans and non-performing loans are
closely monitored and analyzed by management on an ongoing basis.
A classification rating is assigned to problem loans based on
information about specific borrower situations and estimated collateral
values. These loans are classified as either special mention, substandard,
doubtful or loss.
~ Specific problem loans, past due loans or non-performing loans are
identified and analyzed individually in an effort to determine the
expected probable loss on these specifically identified loans.
~ For problem loans that are not analyzed individually, a provision
is established based on a historical migration analysis. The
historical migration analysis identifies the percentage of problem
loans that have been ultimately charged-off historically and over
what time periods such loans have been charged off. Historical
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 by Comptroller of the Currency regulatory guidance.
Non-individually analyzed loans are pooled and evaluated by loan type.
The probable loss on these pooled past due loans is estimated using
historical loan loss experience.
~ National and local economic conditions and other factors are also
considered in determining the adequacy of the allowance for loan
losses.
~ A percentage of the allowance is allocated to specific loans,
but the entire allowance is available for any loan that, in
management`s judgment, should be charged-off.
~ The allowance for loan losses is reviewed on a regular basis to
determine the adequacy of the allowance.
The allowance for loan losses to total loans outstanding was 0.82%
as of June 30, 2008, which is a decrease from 1.05% at
December 31, 2007. Net charge-offs were $719 thousand for the
six months ended June 30, 2008, compared to $85 thousand for the same
period in 2007. The increase in year-to-date 2008 charge-offs were
primarily related to a $676 thousand partial charge-off of a
$1.7 million Summit County commercial real estate loan based on
information obtained in the first quarter of 2008. The ratio of
non-performing loans to total loans was 1.16% ($2,214 thousand) for
June 30, 2008 compared to 1.45% ($2,803 thousand) for
December 31, 2007. Non-performing loans consist of loans that have
been placed on non-accrual status and loans past due over 90 days
and still accruing interest.
Total deposits increased $6.7 million as of June 30, 2008 compared
to December 31, 2007. Interest bearing demand deposits have increased
$6.5 million as many of our customers choose to utilize our premium
moneymarket deposit account product instead of time deposits.
Historically noninterest-bearing demand accounts have fluctuated
based upon the liquidity needs of our customers.
Deposits at June 30, 2008 and December 31, 2007 were as follows:
(dollars in thousands)
June 30, December 31,
2008 2007
Demand, noninterest-bearing $44,703 $44,492
Demand, interest-bearing 71,100 64,594
Savings 52,597 53,545
Time, $100,000 and over 14,685 12,725
Time, other 66,099 67,167
$249,184 $242,523
Shareholders` Equity
Total shareholders` equity decreased $0.6 million to $34.4 million as of
June 30, 2008 from $35.0 million as of December 31, 2007. Net income for
the six months ended June 30, 2008 was $1.0 million, while dividends
declared were $700 thousand. The company purchased 5,017 shares of
common stock for $86 thousand during the first quarter of 2008.
Accumulated other comprehensive income decreased from $295 thousand
on December 31, 2007 to $(502) thousand as of June 30, 2008.
The Bank is subject to regulatory capital requirements. 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
June 30, 2008 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital to risk-weighted assets $27,558 13.64% $16,168 8.00% $20,210 10.00%
Tier 1 capital to risk-weighted assets 25,991 12.86% 8,084 4.00% 12,126 6.00%
Tier 1 capital to average assets 25,336 8.53% 11,882 4.00% 14,853 5.00%
To Be Well Capitalized
For Capital Under Prompt Corrective
December 31, 2007 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital to risk-weighted assets $26,810 12.78% $16,785 8.00% $20,981 10.00%
Tier 1 capital to risk-weighted assets 24,782 11.81% 8,392 4.00% 12,588 6.00%
Tier 1 capital to average assets 24,782 8.26% 12,001 4.00% 15,001 5.00%
Statements of Cash Flows
Net cash from operating activities for the first half of 2008 was
$539 thousand compared to $351 thousand for the first half of 2007.
Net cash from investing activities for the first six months of 2008
was $(8.8) million, compared to $1.5 million for the first six months
of 2007. Net cash from financing activities was $10.7 million for the
first six months of 2008 compared to $9.4 million for the first six
months of 2007. The increase in cash and cash equivalents was
$2.5 million during the first six months of 2008. Total cash and
cash equivalents was $14.8 million as of June 30, 2008 compared
to $12.3 million at December 31, 2007.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTH PERIODS ENDED
JUNE 30, 2008 AND 2007
Net income for the first six months of 2008 was $1.0 million or $0.46
per basic and diluted earnings per share, a 67% increase from $601 thousand
or $0.27 per basic and diluted earnings per share for the same period in
2007. The increase was due primarily from an increase in net interest margin
and noninterest income and a decrease in noninterest expense, offset by an
increase in the provision for loan losses and income tax expense.
Annualized return on average equity (`ROAE`) and average assets (`ROAA`)
for the first six months of 2008 were 5.73% and 0.65%, respectively,
compared with 3.49% and 0.39% for the first six months of 2007.
Six months ended June 30,
2008 2007
(Dollars in thousands) Daily Average Average Daily Average Average
Balance Interest yield/cost (1) Balance Interest yield/cost (1)
Assets
Interest earning assets:
Securities:
Taxable $73,386 $1,881 5.17% $67,225 $1,744 5.14%
Nontaxable 16,471 485 6.02% 17,932 533 6.01%
(tax equivalent basis) (2)
Federal funds sold 3,721 40 2.15% 10,076 263 5.22%
Interest bearing deposits 948 15 3.16% 2,431 65 5.35%
Net loans (including
nonaccrual loans) 189,933 6,210 6.54% 184,526 6,470 7.01%
Total interest-earning assets 284,459 8,631 6.07% 282,190 9,075 6.43%
All other assets 22,464 23,028
Total assets $306,923 $305,218
Liabilities and Shareholders` Equity
Interest-bearing liabilities:
Interest-bearing checking $ 63,875 623 1.95% $55,825 621 2.22%
Savings 52,741 160 0.61% 57,599 332 1.15%
Time, $100,000 and over 12,643 259 4.10% 14,719 334 4.54%
Time, other 66,274 1,355 4.09% 75,233 1,669 4.44%
Other funds purchased 29,209 562 3.85% 22,271 538 4.83%
Total interest-bearing liabilities 224,742 2,959 2.63% 225,647 3,494 3.10%
Demand deposits 43,857 42,686
Other liabilities 3,268 2,440
Shareholders` equity 35,056 34,445
Total liabilities and
shareholders` equity $306,923 $305,218
Net interest income
(tax equivalent basis) (2) $5,672 $5,581
Interest rate spread (3) 3.44% 3.33%
Net yield on interest-earning assets (4) 3.99% 3.96%
Ratio of average interest-earning assets
to average interest-bearing liabilities 126.60% 125.06%
(1) Average yields are computed using annualized interest income
and expense for the periods.
(2) Tax equivalence based on highest statutory rates of 34%.
(3) Interest rate spread represents the difference between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(4) Net yield on interest-earning assets represents net interest income
as a percentage of average interest-earning assets.
Interest and dividend income totaled $8.5 million, a decrease of
$428 thousand or (5)% for the six months ended June 30, 2008 compared
to the same period in 2007. Adjusted on a fully tax-equivalent (`FTE`)
basis the yield on earning assets in the first six months of 2008 was
6.07% compared to 6.43% in the first six months of 2007.
Interest expense totaled $3.0 million, a decrease of $535 thousand or
(15)% for the six months ended June 30, 2008 as compared to the same
period in 2007. The average cost for interest bearing liabilities was
2.63% compared to 3.10% for the first six months of 2007.
The decrease of 47 basis points from the first six months of 2007 is
the result of change in the average volume in the mix of interest
bearing liabilities and declining interest rates. During the first
six months of 2008 deposit customers continued moving funds from
lower rate deposit accounts and certificates of deposit to premium
money market accounts.
Net interest income increased $107 thousand, or 2% for the six month
period ended June 30, 2008 as compared to June 30, 2007. During the
first six months of 2008, the interest rate spread increased 11 basis
points on a FTE basis when compared to the first six months of 2007.
Provision for loan losses totaled $258 thousand for the first half of
2008 compared to $27 thousand for the same period in 2007. Non-performing
loans were $2.2 million or 1.16% of loans as of June 30, 2008 compared
to $2.8 million or 1.45% of loans as of December 31, 2007. Classified
loans have increased from $5.3 million as of December 31, 2007 to
$7.6 million as of June 30, 2008. The increase in classified loans
can be attributed primarily adding $2.6 million of loans to the watch
list in the second quarter offset by a $676 thousand partial charge-off
of a $1.7 million Summit County commercial real estate loan. A majority
of the $676 thousand partial charge-off was specifically reserved as of
December 31, 2007. The partial charge-off is the primary reason the
allowance as a percentage of loans declined from 1.05% at
December 31, 2007 to 0.82% at June 30, 2008.
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
potential for 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. Management reviewed all of these
factors and determined the allowance for loan losses was adequate as of
June 30, 2008.
Noninterest income increased $274 thousand or 33% for the six months
ended June 30, 2008 compared to the six months ended June 30, 2007.
The increase primarily resulted from a $71 thousand gain recorded in
connection with the initial public offering of Visa, Inc. and an increase
in checking account fees.
Noninterest expense was $5.0 million for the six month period ended
June 30, 2008 a decrease of 9% when compared to the same period in 2007.
The decrease in noninterest expense was due primarily to a reduction in
salaries and employee benefits, maintenance and repairs, and data
processing expenses.
Income tax expense was $340 thousand for the six months ended
June 30, 2008 which represents an increase of 198% compared to the
same period in 2007. Reduced amounts of tax-exempt income and higher
pre-tax income for the six months ended June 30, 2008 compared to
the same period in 2007 are the primary factors causing the increase
in income tax expense.
Quarters ended June 30, 2008 and June 30, 2007 income statement highlights:
~ Interest income decreased $346 thousand or 8%, primarily related
to loan interest income.
~ Interest expense decreased $351 thousand or 20%, primarily related
to deposit interest expense.
~ The provision for loan losses was $71 thousand in the quarter
ended June 30, 2008 compared to $0 for the same period in 2007.
Management determined a provision was not necessary in the
second quarter of 2007.
~ Checking account fees increased $63 thousand.
~ Mortgage banking income, included in other noninterest income,
was $49 thousand during the second quarter of 2008. The
mortgage banking department sold their first loan in March
of 2008.
~ Salaries and employee benefits decreased $75 thousand as a
result of lower staffing levels.
~ Data processing expense decreased $39 thousand, due to a new
contract entered into in January of 2008 with the provider of
the Bank`s core processing solution.
~ Maintenance and repairs expense decreased $49 thousand as a
result of eliminating some costly annual service agreements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Economic Value of Equity
The economic value of equity, (EVE), is the difference between the net
present value of the assets and the net present value of liabilities.
EVE can be thought of as the liquidation value of the Bank on the date
the calculation is made. Calculating EVE involves using a discount
rate to calculate the net present value of assets and liabilities after
making assumptions about the duration of assets and liabilities. As
interest rates change, the discount rate changes and the change in
interest rates effects the duration of assets and liabilities. If
interest rates fall, for example, the duration of loans shortens
since borrowers tend to prepay by refinancing their loan.
Conversely the duration of loans increases if interest rates rise since
borrowers are inclined to hold on to the favorable rate they were able
to obtain in the lower interest rate environment.
In 2007, the Board of Directors adopted revised limits on a decline in
the economic value of equity (EVE) and earnings at risk (EAR) given
changes in interest rates. These limits are that EVE shall not decline
by more than 10%, 20% and 30% given a 1%, 2% and 3% increase or
decrease in interest rates respectively and that EAR shall not be
greater than 8%, 16% or 24% given a 1%, 2% or 3% increase or decrease
in interest rates respectively. The following illustrates our equity
at risk in the economic value of equity model.
June 30, 2008
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in EVE (21.2)% (14.7)% (7.0)% 2.9% 2.7% 2.3%
December 31, 2007
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in EVE (16.6)% (9.8)% (4.9)% 0.6% (0.5)% (2.2)%
The Bank is in compliance with the interest rate risk policy limits related
to EVE as of June 30, 2008 and December 31, 2007.
Earnings at Risk
Earnings at risk, is the amount by which net interest income will be
affected given a change in interest rates. The interest income and
interest expense for each category of earning assets and interest
bearing liabilities is recalculated after making up and down assumptions
about the change in interest rates. Changes in prepayment speeds and
repricing speeds are also taken into account when computing earnings
at risk given a change in interest rates.
The following illustrates the effect on earnings or EAR given rate
increases of 100 to 300 basis points and decreases in interest rates
of 100 to 300 basis points.
June 30, 2008
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in Earnings (9.7)% (6.4)% (3.1)% 1.8% 3.1% 1.9%
December 31, 2007
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in Earnings 6.4% 5.5% 3.9% (7.1)% (6.6)% (14.1)%
The Bank is in compliance with the interest rate risk policy limits related
to EAR as of June 30, 2008 and December 31, 2007.
Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the
participation of the Company`s management, including its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design
and operation of the Company`s disclosure controls and procedures as of
June 30, 2008, pursuant to Exchange Act Rule 13a-15. Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that the Company`s disclosure controls and procedures were,
to the best of their knowledge, effective as of June 30, 2008, in timely
alerting them to material information relating to the Company
(including its consolidated subsidiary) required to be included in the
Company`s periodic SEC filings.
There were no changes in the Company`s internal controls over financial
reporting during the three months ended June 30, 2008 that materially
affected or are reasonably likely to materially affect the Company`s
internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ~ None
Item 1A. Risk Factors - There have been no significant changes
in the Company`s risk
factors as outlined in The Company`s Form 10-K for
the period ending December 31, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds ~ See Table
Maximum
Total Number of Number of
Total Average Shares Shares that may
Number of Price Purchased as Yet be
Shares Paid per Part of Publicly Purchased
Purchased Share Announced Plan Under the Plan
April 1, 2008 ~ April 30, 2008 - - - -
May 1, 2008 ~ May 31, 2008 - - - -
June 1, 2008 ~ June 30, 2008 - - - -
Item 3. Defaults Upon Senior Securities ~ None
Item 4. Submission of Matters to a Vote of Security Holders ~ The Company
held its Annual Shareholders` Meeting on April 24, 2008, for the
purpose of electing three directors for terms ending in 2011.
Shareholders received proxy materials containing the information
required by this item. Results of shareholder voting were as follows.
Election of Directors: John W. Kropf John P. Cook David C. Vernon
For 1,589,259 1,627,805 1,575,559
Withheld 47,748 9,202 61,448
The following directors continued their terms of office after the 2008 Annual
Shareholders` meeting: Sara S. Steinbrenner, Bobbi E. Douglas,
John L. Muhlbach, Jr., Victor B. Schantz, Steve Schmid, Howard J. Wenger and
Albert W. Yeagley
Ratification of Auditors was also approved with the following results:
For 1,630,056 Against 2,068 Abstain 4,883
The 2008 Equity Incentive Plan was also approved with the following results:
For 1,117,485 Against 112,820 Abstain 406,702
Item 5. Other Information ~ None
Item 6. 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 Annual Report 10-K filed 3/29/01
Agreement File No. 000-14773
(10.2) Employment Agreement entered into Special Report 8-K filed 12/7/06
By David C. Vernon and National
Bancshares and First National Bank
(10.3) Special Separation Agreement of Quarterly Report 10-Q filed
James R. VanSickle 8/14/07 File No. 000-14473
(10.4) Employment Agreement entered into Annual Report 10-K filed 3/28/08
By Thomas M. Fast and National
Bancshares and First National Bank
(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.
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: August 14, 2008 /s/David C. Vernon
David C. Vernon, President and
Chief Executive Officer
Date: August 14, 2008 /s/James R. VanSickle
James R. VanSickle, Chief Financial
Officer
Exhibit 31.1
CERTIFICATIONS
I, David C. Vernon, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Bancshares
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant`s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant`s disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant`s internal control
over financial reporting that occurred during the registrant`s most recent
fiscal quarter (the registrant`s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant`s internal control over financial
reporting; and
5. The registrant`s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant`s auditors and the audit committee of the registrant`s
board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant`s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant`s internal control
over financial reporting.
Date: August 14, 2008
/s/ David C. Vernon
David C. Vernon, President and
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, James R. VanSickle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of National Bancshares
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant`s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant`s disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant`s internal control
over financial reporting that occurred during the registrant`s most recent
fiscal quarter (the registrant`s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant`s internal control over financial
reporting; and
5. The registrant`s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting,
to the registrant`s auditors and the audit committee of the registrant`s
board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant`s ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant`s internal
control over financial reporting.
Date: August 14, 2008
/s/James R. VanSickle
James R. VanSickle, Chief Financial
Officer
Exhibit 32
SECTION 1350 CERTIFICATION OF QUARTERLY REPORT ON FORM 10-Q
OF
NATIONAL BANCSHARES CORPORATION
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
The undersigned are the President and Chief Financial Officer of National
Bancshares Corporation (the ~Registrant~). This Certification is made
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This
Certification accompanies the Quarterly Report on Form 10-Q of the
Registrant for the quarterly period ended June 30, 2008.
We certify that such Quarterly Report on Form 10-Q fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that the information contained in such 10-Q Report fairly presents,
in all material respects, the financial condition and results of operations
of the Registrant.
This Certification is executed as of August 14, 2008
/s/ David C. Vernon
David C. Vernon,
President and
Chief Executive
Officer
/s/ James R. VanSickle
James R. VanSickle,
Chief Financial
Officer